STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
I
GEORGIA MILITARY COLLEGE
MILLEDGEVILLE, GEORGIA REPORT ON REVIEW
OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Russell W. Hinton State Auditor

GEORGIA MILITARY COLLEGE - TABLE OF CONTENTS -

Page

SECTION I

FINANCIAL

INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

REQUIRED SUPPLEMENTARY INFORMATION

MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

EXHIBITS

A STATEMENT OF NET ASSETS

3

B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

4

C STATEMENT OF CASH FLOWS

5

D NOTES TO THE FINANCIAL STATEMENTS

7

SUPPLEMENTARY INFORMATION

SCHEDULE

RECONCILIATION OF SALARIES AND TRAVEL

27

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION Ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

SECTION I FINANCIAL

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

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400
October 5, 2004

Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Trustees of Georgia Military College
and Major General Peter J. Boylan, President
INDEPENDENT ACCOUNTANT'S COMBINED REPORT ON REVIEW OF BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have reviewed the accompanying basic financial statements of Georgia Military College, an organizational unit ofthe State of Georgia, and its' aggregate discretely presented component unit, as of and for the year ended June 30, 2004, as listed in the table of contents, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. We did not review the financial statements ofthe College's discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us and the results ofour review expressed herein, insofar as it relates to the amounts included for Georgia Military College Foundation, Inc., is based solely upon the report ofthe other auditors. All information included in these financial statements is the representation of the management of Georgia Military College.
A review consists principally of inquiries of College personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opm1on.
Based on our review and the report of other auditors discussed above, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

04ARL-66

As discussed in Note 1, the College adopted the provisions of the Governmental Accounting Standards Board, Statement Number 39, Determining Whether Certain Organizations are Component Units during the year ended June 30, 2004.
Management's Discussion and Analysis is not a required part ofthe basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We and other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of this supplementary information, and we are not aware of any material modifications that should be made thereto.
Our review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The accompanying supplementary information (Schedule 1) is presented for additional analysis purposes. Such information has been subjected to the inquiries and analytical procedures applied in the review ofthe financial statements, and we are not aware of any material modifications that should be made to such data.
Respectfully submitted,
~~-~ Russell W. Hinton State Auditor
RWH:gp 04ARL-66

REQUIRED SUPPLEMENTARY INFORMATION

GEORGIA MILITARY COLLEGE MANAGEMENT'S DISCUSSION AND ANALYSIS

Introduction

Georgia Military College, established by the Georgia General Assembly in 1879, is a public, independent institution governed by a Board of Trustees elected by the citizens of Milledgeville. In 1990, Georgia Military College's public status was reaffirmed by the state legislature. From 1879 until 1956, Georgia Military College was the high school serving Milledgeville and Baldwin County. Today Georgia Military College's High School/Middle School Division includes 6th through 12th grade students. The Junior College Division was established in 1930.

Best known for the military environment and commissioning program for cadet students at the Milledgeville Campus, the composition of the student body has been broadened in recent years to include commuter and non-traditional students. In addition to the campus located in Milledgeville, the College Division includes Distant Leaming Centers at five locations in Georgia: Atlanta, Augusta, Columbus, Valdosta, and Warner Robins. Also, it has three extension centers located in nearby Sandersville, Madison and Gray.

Students

FY2004 FY2003 FY2002

7,916 7,260 6,581

The College Division of Georgia Military College awards three degrees: The Associate in Arts degree, The Associate in Science degree, and the Associate in Applied Science degree, with areas of concentration in nineteen disciplines. The Commission of Colleges of the Southern Association of Colleges and Schools accredits both the High School/Middle School Division and the College Division.

The ultimate goal of the College is to enable its students to become responsible, productive citizens who make a positive difference in the communities where they choose to live and work.

Overview ofthe Financial Statements and Financial Analysis

Georgia Military College is proud to present its financial statements for fiscal year 2004. The emphasis of discussions about these statements will be on current year data. 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 College's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2003 and fiscal year 2004.

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Statement ofNet Assets

The Statement of Net Assets presents the assets, liabilities, and net assets of the College 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 the readers of the financial statements a fiscal snapshot of Georgia Military College. 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 net asset category is restricted net assets, which is divided into two categories, nonexpendable and expendable. 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 (thousands of dollars)

June 30, 2004

June 30, 2003

Assets Current Assets Capital Assets, Net Other Assets
Total Assets

$

5,633

19,192

31

$_ _-=24..c.i.=..=85'-=6

$

4,801

15,289

33

$_ _ _20~,_12_3

Liabilities Current Liabilities Noncurrent Liabilities
Total Liabilities

$

3,661

205

$_ _ _3~86_6

$

3,365

426

$_ _ _3~7_9_1

Net Assets

Invested in Capital Assets, Net of Debt

$

18,878

$

14,898

Restricted - Nonexpendable

765

676

Restricted - Expendable

541

542

Unrestricted

806

216

Total Net Assets

$_ _===20===9=9=0

$_ _==16-,3==3==2

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The total assets of the College increased by approximately $4,733,000. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of approximately $3,903,000 in capital assets, net ofrelated debt.

The total liabilities for fiscal year 2004 increased approximately $75,000. Current liabilities increased primarily as a result of an increase in salaries payable of approximately $87,500, an increase in accounts payable of approximately $123,000 and an increase in deferred revenue of approximately $80,000. However noncurrent liabilities decreased by approximately $221,000 as long-term debt was reduced by approximately $71,000 and deferred revenue - noncurrent of approximately $150,000 was recognized as revenue in fiscal year 2004. The overall increase in total assets of approximately $4,733,000 and the increase in total liabilities of approximately $75,000 yield an increase in total net assets of approximately $4,658,000.

Statement ofRevenues, 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 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 College. 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 College. Nonoperating revenues are revenues received for which goods and services are not provided.

Statement of Revenues, Expenses and Changes in Net Assets, Condensed (thousands of dollars)

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 (Decrease) in Net Assets
Net Assets at Beginning of Year, as Originally Reported
Prior Period Adjustment
Net Assets at Beginning of Year Restated
Net Assets at End of Year

June 30, 2004

$

23,614

24,846

$

-1,232

2 974

$

1,742

2 916

$

4 658

$

16,332

$

16,332

$

20 990

June 30, 2003

$

19,307

21 183

$

-1,876

2 667

$

791

0

$

791

$

14,797

744

$

15 541

$

16 332

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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 (thousands of dollars) For The Years Ended June 30, 2004 and June 30, 2003

Operating Revenue Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Auxiliary Enterprises Other Revenue
Total Operating Revenue
Nonoperating Revenue Grants and Contracts Gifts Investment Income Other
Total Nonoperating Revenue
Capital Grants and Gifts State
Total Revenues

June 30, 2004

June 30, 2003

$

9,739

$

10,350

6,648 9,362

113 3,004
408

306 2,725
266

$

23 614

$

19 307

$

2,513

$

2,426

13

40

102

25

366

176

$

2 994

$

2 667

$

2 916

$

29~524

$

21 974

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Expenses (By Functional Classification) (thousands of dollars) For The Years Ended June 30, 2004 and June 30, 2003

June 30, 2004

June 30, 2003

Operating Expenses Instruction Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises

$

9,060

$

8,177

1,418

974

2,534

2,337

3,821

3,159

2,839

2,714

2,124

910

3 050

2 912

Total Operating Expenses

$

24,846

$

21,183

Nonoperating Expenses

Interest Expense (Capital Assets)

20

Total Expenses

$====24-,8e'S=6==6

Operating Federal, state, and private grants increased by approximately $988,000 primarily due to an increase in the amount of Federal and state aid awarded to students. Compensation and employee benefits category increased by approximately $1,466,000. This increase reflects a moderate pay raise for employees with associated fringe benefits and additional positions approved during the fiscal year.

Institutional resources and grants/contracts provided as scholarships increased by approximately $1,347,000.

Statement of Cash Flows

The final statement presented by Georgia Military College 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 College. 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.

- V-

Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed (thousands of dollars)

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

June 30, 2004

$

-638

2,619

-1,922

12

June 30, 2003

$

-56

2,627

-2,418

-7

Net Change in Cash Cash, Beginning of Year
Cash, End of Year
Capital Assets

$

71

2,286

$==~2=3~5=7

$

146

2 140

$===='2=ei"2=e=8=e=6

Georgia Military College began one major project in fiscal year 2003 that included two distinct components: an athletic complex required because of displacement and the construction of a new academic/student-support building. The athletic complex was completed in fiscal year 2004 while construction of the new academic/student-support building will be completed in early fiscal year 2005. This project is funded by the Georgia State Financing and Investment Commission (GSFIC).

For additional information concerning Capital Assets, see Notes 1, 5, 7 and 8 in the Notes to the Financial Statements.

Long-Term Debt

Georgia Military College had a total Long-Term Debt of$561,588.36, of which $357,108.52 was reflected as current liability at June 30, 2004.

For additional information concerning Long-Term Debt see Notes 1 and 7 in the Notes to the Financial Statements.

Component Unit In compliance with GASB Statement No. 39, Georgia Military College has included the financial statements and notes for all required component units for fiscal year 2004. The Georgia Military College Foundation, Inc. had endowment investments of $1.85 million as of June 30, 2004.

For additional information see Notes 1 and 14 in the Notes to the Financial Statements.

Economic Outlook

Eighteen percent of the College's Corps of Cadets were activated for military duty in fiscal year 2005. Although this deployment impacted the revenue generated at the Milledgeville campus, increased enrollments at our other locations lessened the financial impact to the institution as a whole. The College's overall financial position remains strong. The continued growth in

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enrollments in fiscal year 2004 has more than offset the reductions in state funding the College experienced and this is reflected in the increase in Net Assets. The College will continue to maintain a fiscally conservative approach to its resource management and will retain the ability to react to unknown internal and external issues. Major General Peter J. Boylan, President Georgia Military College
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BASIC FINANCIAL STATEMENTS - 1-

GEORGIA MILITARY COLLEGE STATEMENT OF NET ASSETS
JUNE 30, 2004

EXHIBIT "A"

ASSETS
Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable, Net Federal Financial Assistance Other Pledges Receivable Prepaid Items Inventories
Total Current Assets
Noncurrent Assets Investments Pledges Receivable Capital Assets, Net
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Salaries Payable Accounts Payable Deferred Revenue Funds Held for Others Capital Leases Compensated Absences Notes Payable Other Liabilities
Total Current Liabilities
Noncurrent Liabilities Capital Leases Notes Payable
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Assets

PRIMARY GOVERNMENT

COMPONENT UNIT
GEORGIA MILITARY COLLEGE
FOUNDATION, INC.

$

2,357,367.22 $

734,465.40

537,544.07 1,580,256.51

2,821.64 420,839.58

$

5,633,294.42 $

$

30,915.51 $

19,191,725.76

$ 19,222,641.27 $

$ 24,855,935.69 $

304,795.86
3,550.00
308,345.86 1,851,327.55
98,400.00 261 996.00 2,211,723.55 2,520,069.41

$

586,415.84

1,062,125.41

1,521,353.83

73,442.90

39,639.42

248,190.00

69,279.10 $

60,731.30

$ 3,661 177.80 $

$

66,746.39

137,733.45 $

$

204,479.84 $

$

3,865,657.64 $

$ 18,878,327.40 $
765,380.91 540,558.02 806,011.72

$ 20,990,278.05 $

71,536.20 71,536.20
29,933.84 29,933.84 101,470.04
160,525.96 1,851,327.55
406,745.86
2,418,599.37

See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement.
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GEORGIA MILITARY COLLEGE STATEMENT OF REVENUES EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30. 2004

EXHIBIT"B"

OPERATING REVENUES
Student Tuition and Fees Less: Scholarship Allowances
Gifts and Contributions Endowment Income (Per Spending Plan) Grants and Contracts
Federal State Nongovernmental Rents and Royalties Sales and Services of Educational Departments Auxiliary Enterprises Residence Halls Bookstore Food Services Intercollegiate Athletics Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salaries Faculty Staff
Employee Benefits Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Payments to or on the Behalf of Georgia Military College
Total Operating Expenses
Operating Income (Loss)
NONOPERATING REVENUES (EXPENSES)
Grants and Contracts State Nongovernmental
Gifts Interest and Other Investment Income Interest Expense (Capital Assets) Other Nonoperating Revenues
Net Nonoperating Revenues
Income (Loss) Before Other Revenues, Expenses, Gains, or Losses
Capital Grants and Gifts State
Increase (Decrease) in Net Assets
Net Assets - Beginning of Year

PRIMARY GOVERNMENT

COMPONENT UNIT
GEORGIA MILITARY COLLEGE
FOUNDATION. INC.

$ 18,505.801.97 -8,766,433.00 $
7,211,696.97 3,087,503.00
50,680.27 8,000.00
112,513.00
287,658.38 1,803,319.57
877,363.70 35.625.77
400,328.84
$ 23,614,058.47 $

303,338.98 30,827.12
25 900.00 360 066.10

$ 6,861,591.48 5,066,600.22 2,268,993.79 130,970.59 2,712,650.55 784,076.48 6,209,246.28 $ 811,575.90
$ 24,845,705.29 $
$ -1,231,646.82 $

38,468.78 1,628.00
173 285.17
213 381.95
146 684.15

$ 2,468,129.00 44,544.80 13,511.75 101,567.42 $ -19,581.54 365,949.20
$ 2,974,120.63 $
$ 1,742,473.81 $
2,915,791.30
$ 4,658,265.11 $
16,332,012.94

185,285.16 -3,445.86
181 839.30 328,523.45
328,523.45 2,090,075.92

Net Assets - End of Year

$ 20,990,278.05 $

See Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information. The notes to the financial statements are an integral part of this statement.
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2 418 599.37

GEORGIA MILITARY COLLEGE STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Grants and Contracts Sales and Services of Educational Departments Payments to Suppliers Payments to Employees Payments for Scholarships and Fellowships Auxiliary Enterprise Charges: Residence Halls Bookstore Food Services Intercollegiate Athletics Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Other Nonoperating Receipts
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from Capital Debt Purchases of Capital Assets Principal Paid on Capital Debt and Lease Interest Paid on Capital Debt and Lease
Net Cash Provided (Used) by Capital and Related Financing Activities
CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments Purchases/Sales of Investments (Net)
Net Cash Provided (Used) by Investing Activities
Net Increase (Decrease) in Cash
Cash and Cash Equivalents - Beginning of Year
Cash and Cash Equivalents - End of Year
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operating Income (Loss) Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable. Net Inventories Prepaid Items Accounts Payable Salaries Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provided (Used) by Operating Activities
NONCASH ACTIVITY NONCAPITAL FINANCING. CAPITAL AND RELATED FINANCING TRANSACTIONS AND INVESTING ACTIVITIES Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts Change in Fair Market Value of Investments Recognized as a Component of Interest Income Fixed Assets Acquired by Incurring Capital Lease Obligations
See Independent Accountant"s Combined Report on Review of Basic Financial Statements and Supplementary Information.
The notes to the financial statements are an integral part of this statement.
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EXHIBIT "C"

$ 9,551,789.51 10,066,636.47 112,513.00 -9,242,883.66 -11,822,243.53 -2, 712,650.55
287,658.38 1,807,137.21
877,363.70 35,625.77
401 145.26
$ -637 908.44

$

-48,301.44

2,451,816.49

215 949.20

$ 2,619,464.25

$

59,595.00

-1,735,407.76

-226,828.39

-19 581.54

$ -1,922,222.69

$

25,424.67

-13511.75

$

11 912.92

$

71,246.04

2,286,121.18

$ 2,357,367.22

$ -1,231,646.82
811,575.90
-570,316.52 27,886.68 -452.25
122,969.05 87,494.30 86,587.84 9,539.51 18 453.87
$ -637 908.44

$ -2,915,791.30

$

76 142.75

$

62 993.50

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Georgia Military College serves the state and national communities by providing its students with academic instruction that advances fundamental knowledge and by disseminating knowledge to the people of Georgia and throughout the country.
REPORTING ENTITY Georgia Military College was created as a public authority and is an instrumentality of the State of Georgia and a public corporation. The Board of Trustees is composed of the mayor of the City of Milledgeville and six additional members, one of which shall be elected from each of the six municipal voting districts of the City of Milledgeville. The government, control and management of Georgia Military College shall be vested in the Board of Trustees. Georgia Military College shall receive any designated funds appropriated by the General Assembly through the State Board of Regents. In order to incur debt, the Board of Trustees must first receive permission from the Georgia State Financing and Investment Commission, as required for all state authorities. Accordingly, Georgia Military College is considered a component unit of the State of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the State of Georgia. These reporting entity relationships are defined in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards.
Georgia Military College is required to implement the Governmental Accounting Standards Board (GASB) Statement No. 39 Determining Whether Certain Organizations are Component Units - an amendment of Statement No. 14, for fiscal year 2004. This statement requires the inclusion of the financial statements for Foundations and affiliated organizations that qualify as component units of the institution. These statements (Statement of Net Assets and Statement of Revenues, Expenses and Changes in Net Assets) are reported discretely in the College's financial statements. For fiscal year 2004, Georgia Military College is reporting the activity for the Georgia Military College (GMC) Foundation, Inc.
See Note 14, for additional component unit disclosures.
FINANCIAL STATEMENT PRESENTATION In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities. The State of Georgia implemented GASB Statement No. 34 as of and for the year ended June 30, 2002. Georgia Military College also adopted GASB Statements No. 34 and No. 35 as amended by GASB Statements No. 37 and No. 38. 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

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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION standards to provide a comprehensive, entity-wide perspective of the College's assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fund group perspective previously required.
GAAP requires that the reporting of summer school revenues and expenses be between fiscal years rather than in one fiscal year. Due to the lack of materiality, Georgia Military College will continue to report summer revenues and expenses in the year in which the predominate activity takes place.
BASIS OF ACCOUNTING For financial reporting purposes, the College is considered a special-purpose government engaged only in business-type activities. Accordingly, the College's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting, except as noted in the preceding paragraph. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-college transactions have been eliminated.
The College has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The College 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 m authorized financial institutions.
SHORT-TERM INVESTMENTS Short-Term Investments consist of investments of 90 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.
INVESTMENTS The College accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statements of revenues, expenses and changes in net assets.

-8-

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE Accounts receivable consists of tuition and fee charges 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 include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures (including tuition and fees) made pursuant to the College's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
INVENTORIES Resale Inventories are valued at cost using the average-cost basis.
NONCURRENT CASH AND INVESTMENTS Cash and investments that are externally restricted and cannot be used to pay current liabilities are classified as noncurrent assets in the Statement of Net Assets.
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 College's capitalization policy includes all items with a unit cost of $5,000.00 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that exceed $10,000.00 and significantly increase the value or extend the useful life of the structure are capitalized. 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 40 to 60 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, and 3 to 7 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Georgia Military College when complete. For the year ended June 30, 2004, GSFIC transferred capital additions valued at $2,915,791.30 to Georgia Military College.
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.

-9-

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 accrued vacation payable in the Statement of Net Assets, and as a component of compensation expense in the Statements of Revenues, Expenses and Changes in Net Assets. Georgia Military College had accrued a liability for compensated absences in the amount of $229,736.13 as of July 1, 2003. For fiscal year 2004, $252,358.70 was earned in compensated absences and employees were paid $233,904.83, for a net increase of $18,453.87. The ending balance as of June 30, 2004 in accrued liability for compensated absences was $248,190.00.

NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; and (2) capital lease obligations and notes payable with contractual maturities greater than one year.

NET ASSETS The College's net assets are classified as follows:

Invested in capital assets, net of related debt: This represents the College'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.

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 College 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.

Restricted net assets - expendable: Restricted expendable net assets include resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties.

Expendable Restricted Net Assets include the following:

June 30, 2004

Restricted - E&G

$ 540,558.02

- 10 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET ASSETS Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, grants and contracts, and sales and services of auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the College, and may be used at the discretion of the governing board to meet current expenses for those purposes. These resources also include auxiliary enterprises, which are substantially selfsupporting activities that provide services for students, faculty and staff.
When an expense is incurred that can be paid using either restricted or unrestricted resources, the College's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.
INCOME TAXES Georgia Military College, 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 The College has classified its revenues as either operating or nonoperating revenues in the Statement of Revenues, Expenses and Changes in Net Assets according to the following criteria:
Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises, and (3) most Federal, state and local grants and contracts and Federal appropriations.
Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as investment income and some Federal, state and local grants and contracts.
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 College 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 College's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the College has recorded contra revenue for scholarship allowances.
- 11 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS
STATE OF GEORGIA COLLATERALIZATION STATUTES AND POLICIES Funds belonging to the State of Georgia (and thus Georgia Military College) 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 50-1759:
1. Bonds, bill, certificates of indebtedness, notes, or other direct obligations of the United States or ofthe State of Georgia.
2. Bonds, bills, certificates of indebtedness, notes, or other obligations of the counties or municipalities ofthe 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, or 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 Mortgage Association.
6. Guarantee or insurance of accounts provided by the Federal Deposit Insurance Corporation.
As authorized in the Official Code of Georgia Annotated Section 50-17-53, the State Depository Board has adopted policies which allow agencies of the State of Georgia (and thus Georgia Military College), the option of exempting demand deposits from the collateral requirements.
CATEGORIZATION OF DEPOSITS Cash deposits are categorized by risk as follows:
Category 1 - Amounts covered by depository insurance or collateralized with securities (at fair value) held by the entity or by its agent in the entity's name.

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GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS

CATEGORIZATION OF DEPOSITS Category 2 - Amounts collateralized with securities (at fair value) held by the pledging
financial institution's trust department or agent in the entity's name.

Category 3 - Amounts collateralized with securities (at fair value) held by the pledging financial institution, or by its trust department or agent but not in the entity's name, and amounts uncollateralized.

Georgia Military College At June 30, 2004, the College's cash deposits were as follows:

Carrying Amount

Bank Balances

Risk Categories

2

3

Cash Deposits Investment Portfolio
Accounts

$ 2,355,642.22 $2,758,637.06 $ 287,498.68

127,772.32

127,772.32

100,000.00 $

$ 2,471,138.38 27,772.32

Total Cash Deposits $ 2 483 414 54 $ 2 886 402 38 $ 38:Z 428 68 $ 2:Z 712 32 $ 2 471,138.38

Component Unit At June 30, 2004, Georgia Military College Foundation, Inc.'s cash deposits were as follows:

Carrying Amount

Bank Balances

Risk Categories

2

3

Cash Deposits Investment Portfolio
Accounts

$ 304,795.86 $ 282,712.81 $ 100,000.00 $

597,427.50

597,427.50

100,000.00

0.00 $ 182,712.81 497,427.50

Total Cash Deposits $ 902,223.36 $ 880,140.31 $ 200,000.00 $

0 00 $ 680,140.31

CATEGORIZATION OF INVESTMENTS Investments are categorized as to credit risk within the three categories described below:

Category 1 - Insured or registered, or securities held by the entity or its agent in the entity's name.

Category 2 - Uninsured and unregistered, with securities held by the counter party's trust department or agent in the entity's name.

Category 3 - Uninsured and unregistered, with securities held by the counter party, or by its trust department or agent, but not in the entity's name.

- 13 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS

CATEGORIZATION OF INVESTMENTS Georgia Military College At June 30, 2004, the College's investments consisted of the following:

Type oflnvestments

Corporate Bonds

$

Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds

Total Investments

Risk Categories

2

3

Carrying Amount

30,915.51 $

0.00 $,==~0~.0~0 $ 30,915.51

606,693.08 $ 637.608.59

Component Unit At June 30, 2004, Georgia Military College Foundation, Inc.'s investments consisted of the following:

Type oflnvestments

Corporate Bonds

$

Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds

Total Investments

98 932.71 $

Carrying

2

3

Amount

o.oo $,==~o~.o~o $ 98,932.11

1.154,967.34 $ 1 253 900.05

NOTE 3: ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at June 30, 2004.

Student Tuition and Fees Auxiliary Enterprises and Other Operating Activities Federal, State and Private Funds Other

$ 1,147,704.90 23,779.09
1,078,744.92 5,000.00

Less Allowance for Doubtful Accounts

$ 2,255,228.91 137,428.33

Net Accounts Receivable

$2,117,800.58

NOTE 4: INVENTORIES

Inventories consisted of the following at June 30, 2004.

- 14 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 4: INVENTORIES

Bookstore Food Services

$ 410,628.52 10,211.06

Total NOTE 5: CAPITAL ASSETS

$ 420,839.58

Following are the changes in the College's capital assets for the year ended June 30, 2004:

Beginning Balance Julx 1, 2003

Additions

Reductions

Ending Balance June 30, 2004

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

$ 461,054.28 $ 30,631.68
63,187.35
L100,000.00 1,022,836.44

$ 491,685.96 63,187.35
2, 722,836.44

Total Capital Assets Not Being Depreciated

$ 2,224,241.63 $ 1,053,468.12

$ 3,277,709.75

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

$ 278,690.00 16,667,667.99 $ 776,042.73 849,878.08 137,368.37 1,537,906.00

3,036,143.55 $ 32,694.54 137,951.99 62,993.50 181,332.43

$ 278,690.00

52,000.00 19,651,811.54

808,737.27

93,324.22

894,505.85

-166,201.44

366,563.31

29,425.00 1,689,813.43

Total Assets Being Depreciated

$ 20,247,553.17 $ 3,451,116.01 $

8,547.78 $ 23,690,121.40

Less: Accumulated Depreciation:

Infrastructure

$

Buildings and Building Improvements

Facilities and Other Improvements

Equipment

Capital Leases

Library Collections

162,095.01 $ 5,013,554.65
341,585.43 390,044.40
52,578.27 1,222,827.94

18,812.17 533,119.80 $
38,124.71 91,702.22 58,196.22 71,620.78

$ 264,621.93
21,261.03 34,876.76 -132,028.51 29,425.00

180,907.18 5,282,052.52
358,449.11 446,869.86 242,803.00 1,265,023.72

Total Accumulated Depreciation

$ 7,182,685.70 $ 811,575.90 $ 218,156.21 $ 7,776,105.39

Total Capital Assets, Being Depreciated,

Net

$ 13,064,867.47 $ 2,639,540.11 $ -209,608.43 $ 15,914,016.01

Capital Assets, Net

$ 15 289 109.10 $ 3 693.008 23 $ -209,608.43 $ 19,191.725 76

NOTE 6: DEFERRED REVENUE

Deferred revenue consisted of the following at June 30, 2004.

Prepaid Tuition and Fees Grants and Contracts

$ 920,342.88 601,010.95

Totals

$ 1,521,353.83

- 15 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 7: LONG-TERM LIABILITIES

Long-Term liability activity for the year ended June 30, 2004 was as follows:

Beginning
Balance
July L 2003

Additions

Reductions

Ending Balance June 30, 2004

Current Portion

Leases Lease Obligations

$ 106,505.93 $ 62,993.50 $ 63,113.62 $ 106,385.81 $ 39,639.42

Other Liabilities

Compensated Absences

$

Other Long-Term Liabilities

229,736.13 $ 311,132.32

252,358.70 $ 59,595.00

233,904.83 $ 163 714.77

248,190.00 $ 207,012.55

248,190.00 69,279.10

Total

$ 540,868.45 $ 311,953.70 $ 397,619.60 $ 455,202.55 $ 317,469.10

Total Long-Term Obligations $ 647,314 38 $ 374,947.20 $ 460,133 22 $ 561,588.36 $ 357,108.52

See Note 9 for additional information regarding Notes Payable (Other Long-Term Liabilities).

NOTE 8: LEASE OBLIGATIONS

Georgia Military College 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 equipment.

CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2005 and 2009. Expenses for fiscal year 2004 were $73,672.85 of which $10,559.23 represented interest. Total principal paid on capital leases was $63,113.62 for the fiscal year ended June 30, 2004.

The following is a summary of the carrying values of assets held under capital lease at June 30, 2004:

Equipment

$ 366,563.31

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.

OPERATING LEASES Georgia Military College's noncancellable operating leases having remaining terms of more than one year expire in various fiscal years from 2005 through 2015. Certain operating leases provide for renewal options for periods from one to three years at their fair rental value at the time of renewal. All agreements are cancellable if the State of Georgia does not provide adequate

- 16 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 8: LEASE OBLIGATIONS

OPERATING LEASES 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 land, buildings, and office facilities.

Noncancellable operating lease expenditures in 2004 were $413,526.46 for real property.

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, 2004, were as follows:

Year Ending June 30: 2005 2006 2007 2008 2009 2010 through 2014 2015
Total Minimum Lease Payments
Less: Interest
Principal Outstanding

Capital Leases

Operating Leases

$ 48,403.34 $ 440,704.88

43,686.87

196,676.78

21,601.53

134,873.56

6,150.85

56,796.00

2,558.09

32,729.88

5,100.00

1,050.00

$ 122,400.68 $ 867,931.10

16,014.87

$ 106,385.81

NOTE9: NOTESPAYABLE

The College's notes payable consisted of the following at June 30, 2004:

- 17 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE9: NOTESPAYABLE

College note payable secured by equipment, dated January 2003, payable in monthly installments of $1,287, matures January 2007, interest rate 2. 97%.

$ 38,318.94

College note payable secured by a van, dated March 2003, payable in monthly installments of $916, matures March 2007, interest rate 2.97%.

28,966.50

College note payable secured by vans, dated January 2003, payable in monthly installments of $1,842, matures January 2007, interest rate 2.97%.

54,867.74

College note payable secured by cars, dated April 2003, payable in monthly installments of $848, matures April 2007, interest rate 2.97%.

27,614.66

College note payable secured by minivans, dated April 2004, payable in monthly installments of $1,315, matures April 2008, interest rate 2.81 %

57,244.71

Total Notes Payable

$ 207,012.55

Maturity Information

The scheduled maturities of notes payable are as follows:

Total Principal

Interest

Total Payments

2005 2006 2007 2008

$ 69,279.10 $ 71,385.45 53,371.92 12,976.08

5,858.04 $ 3,110.55 1,038.70
173.51

75,137.14 74,496.00 54,410.62 13,149.59

$ 207,012.55 $ 10,180.80 $ 217,193.35

- 18 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 10: RETIREMENT PLANS

TEACHERS RETIREMENT SYSTEM OF GEORGIA

Plan Description Georgia Military College participates in the Teachers Retirement System of Georgia (TRS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances and other benefits for teachers of the State of Georgia. TRS provides service retirement, disability retirement, and survivor's benefits for its members in accordance with State statute. The Teachers Retirement System of Georgia issues a separate stand alone financial audit report and a copy can be obtained from the TRS offices or the Georgia Department of Audits and Accounts.

Funding Policy Employees of Georgia Military College who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Georgia Military College makes monthly employer contributions to TRS at rates adopted by the TRS Board of Trustees in accordance with State statute and as advised by their independent actuary. For fiscal year 2004, the employer contribution rate was 9.24% for covered employees. Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2004

100%

$ 797,240.46

2003

100%

$ 719,955.37

2002

100%

$ 555,101.46

NOTE 11: RISK MANAGEMENT

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 Military College 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.

- 19 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 12: 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 which are disallowed under grant terms. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time although Georgia Military College expects such amounts, if any, to be immaterial to its overall financial position.
Litigation, claims and assessments filed against Georgia Military College, 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, 2004.
During fiscal year 2002, upon advice of the Attorney General's Office, Georgia Military College required that full-time employees participate in the Teachers Retirement System of Georgia. Previously, participation was elective by full-time employees. As a result of that change, a number of former full-time employees and "constructively qualified" faculty members were eligible to "purchase" prior service credit (based on employment at Georgia Military College) in Teachers Retirement System of Georgia, and Georgia Military College became responsible for its share of the purchase. For fiscal year 2004, Georgia Military College's potential liability for its share of the purchase has been estimated at $1,012,000.00.

- 20 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 13: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS

The College's operating expenses by functional classification are shown below:

Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2004

Functional Classification

Natural Classification

Instruction

Academic Support

Student Services

Institutional Support

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

$ 5,820,009.45 675,182.60
1,140,209.03 36,900.61

$ 1,041,582.03 12,598.23 182,714.54 9,915.94

$ 1,684,134.30 $ 1,453,991.81

198,814.66

553,535.05

32,812.81

47,002.11

53,850.31 38,089.70

15,112.22 8,659.84

29,816.29 22,420.51

64,938.81 228,257.56

1,266,578.77 29,053.83

69,029.39 78 734.91

551,799.17 14.017.22

1,423,993.47 49,429.23

Total Operating Expenses

$ 9 059 874 30 $ 1,418,347 10 $ 2 533 814.96 $ 3 821 148 04

Natural Classification
Salaries Faculty Staff
Employee Benefits Travel Scholarships and
Fellowships Utilities Supplies and Other
Services Depreciation
Total Operating Expenses
NOTE 14: COMPONENT UNITS

Plant Operations and Maintenance

Functional Classification

Scholarships and Fellowships

Auxiliary Entei:prises

Total Operating Expenses

$ 644,861.73 98,173.02 343.69

$ 6,861,591.48

$ 595,831.55

5,066,600.22

95,547.49

2,268,993.79

3,995.43

130,970.59

9,171.00 $ 2,124,177.71 423,565.61

415,584.21 63,083.26

2,712,650.55 784,076.48

1,071,222.56 591,586.02

1,826,622.92 48 754.69

6,209,246.28 811,575.90

$ 2 838 923 63 $ 2,124,177.71 $ 3,049 419.55 $ 24,845,705.29

General Disclosure for Component Units Georgia Military College Foundation, Inc. (Foundation) is a legally separate, tax-exempt component unit of Georgia Military College (College). The Foundation acts primarily as a fundraising organization to supplement the resources that are available to the College in support of its programs. The thirty-four (34) member board of the Foundation is self-perpetuating and consists of graduates and friends of the College. Although the College does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests is restricted to the activities of the College by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the College, the Foundation is considered a component unit of the College and is discretely presented in the College's financial statements.

- 21 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 14: COMPONENT UNITS

General Disclosure for Component Units The Foundation is a private nonprofit organization that reports under FASB standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. The FASB reports were reclassified to the GASB presentation for external financial reporting purposes in these financial statements. The Foundation's fiscal year is July 1 through June 30.

During the year ended June 30, 2004, the Foundation distributed $173,285.17 to the College for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the Administrative Office at Office of Advancement, Georgia Military College Foundation, Inc., 201 E. Greene Street, Milledgeville, Georgia 31061.

Investments for Component Units Georgia Military College Foundation, Inc. holds endowment investments in the amount of $1.85 million. The corpus of the endowment is nonexpendable, but the earnings on the investment may be expended as restricted by the donors. Georgia Military College Foundation, Inc., in conjunction with the donors, has established a spending plan whereby 50% of the earnings of the prior year, less management expenses, for Title III endowment funds may be used for scholarships and 100% of the earnings of the prior year, less management expenses, for the remaining endowment funds may be used for scholarships, unless a different percentage is specified in the endowment agreement. No distributions will be made from any endowment fund that falls below $25,000 in market value. Any remaining earnings are set aside as a reserve.

Long-Term Liabilities for Component Units The Foundation has incurred two Notes Payable to finance various construction and renovation projects to benefit Georgia Military College and the Foundation. These notes are secured by real estate. The interest rate is 8.75%.

Changes in long-term liabilities for component units for the fiscal year ended June 30, 2004 are shown below:

Notes Georgia Military College Foundation, Inc.

Beginning
Balance Julx I, 2003

Additions

Reductions

Ending Balance June 30, 2004

Amounts Due Within
One Year

$ 44 885.60 $ 63 734.64 $

7 150.20 $ IOI 470.04 $ 71,536.20

Annual debt service requirements to maturity for Georgia Military College Foundation, Inc.'s notes payable are as follows:

- 22 -

GEORGIA MILITARY COLLEGE NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004

EXHIBIT "D"

NOTE 14: COMPONENT UNITS

Long-Term Liabilities for Component Units

Year Ending June 30: 2005 2006 2007 2008 2009

Notes Payable

Principal

Interest

Total

$

71,536.20 $ 2,993.88 $ 74,530.08

8,512.24

2,281.20

10,793.44

9,287.85

1,511.57

10,799.42

10,133.53

659.93

10,793.46

2,000.22

22.71

2,022.93

$ 101 470.04 $ 7,469.29 $ 108.939.33

- 23 -

SUPPLEMENTARY INFORMATION - 25 -

GEORGIA MILITARY COLLEGE RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30, 2004

SCHEDULE 111 11

Totals per Annual Supplement
Accruals June 30, 2004 June 30, 2003
Compensated Absences June 30, 2004 June 30, 2003
Other College Work Study Unidentified Variance

SALARIES
$ 11,888,552.51 $

TRAVEL 130,970.54

586,415.84 -498,921.54

248,190.00 -229,736.13

-71,040.68 4,731.70

0.05

$ 11,928,191.70 $ =====13=0~,9=70=.5=9=

See accompanying notes and Independent Accountant's Combined Report on Review of Basic Financial Statements and Supplementary Information.
- 27 -

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

GEORGIA MILITARY COLLEGE AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

FS-590-98-08

Previously Reported Corrective Action Implemented

SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

GEORGIA MILITARY COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2004
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.