Kennesaw State University, Kennesaw, Georgia, annual financial report for the fiscal year ended June 30, 2010 including independent auditor's reports

KENNESAW STATE UNIVERSITY -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 EXHIBITS A STATEMENT OF NET ASSETS B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS C STATEMENT OF CASH FLOWS 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

Page

SECTION I FI NANClAL

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

DEPARTMENOTF AUDITSAND ACCOUNTS
270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400
December 16,2010

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 Daniel S. Papp, President Kennesaw State University
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Ladies and Gentlemen:
We have audited the accompanying basic financial statements (Exhibits A through D) of Kennesaw State University, 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 Kennesaw State University'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 University'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 Kennesaw State University 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 Kennesaw State University. 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 Kennesaw State Universityas 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 Kennesaw State University 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 k e lWl . Hinton, CPA, CGFM State Auditor

REQUIRED SUPPLEMENTARY INFORMATION

KENNESAW STATE UNIVERSITY Management's Discussion and Analysis

Introduction
Kennesaw State University is one of the 35 institutions of higher education of the University System of Georgia. The University, located in Kennesaw, Georgia, was founded in 1963 and has become recognized as a highly valued resource for the region's educational, economic, social and cultural advancement. The University offers baccalaureate, masters and doctoral degrees in a wide variety of subjects. This wide range of educational opportunities attracts a highly qualified faculty and a growing student body as shown by the comparison numbers that follow.

Faculty

Students (Headcount)

Students (FTE)

Fiscal Year 2010

788

22,389

20,085

Fiscal Year 2009

754

21,449

19,036

Fiscal Year 2008

748

20,607

18,076

Overview of the Financial Statements and Financial Analysis
Kennesaw State University is proud to present its financial statements for fiscal year 2010. 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 University's financial statements provides an overview of its financial activities for the year. Comparative data is provided for fiscal year 2010 and fiscal year 2009.
Statement of Net Assets
The Statement of Net Assets presents the assets, liabilities, and net assets of the Universityas 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 Kennesaw State University. 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 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

June 30,2010

June 30,2009

Assets Current Assets Capital Assets, Net Other Assets
Total Assets

Liabilities Current Liabilities Noncurrent Liabilities
Total Liabilities

$ 42,962,754 114,020,926

$ 40,927,615 96,033,325

Net Assets Investedin Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Unrestricted
Total Net Assets

$ 134,658,873 659,643
2,551,107 33,315,177

$ 133,914,319 630,783
2,470,384 19,080,586

The total assets of the institution increased by $35,111,468. A review of the Statement of Net Assets will reveal that the increase was primarily due to an increase of $19,349,588 in the category of Capital Assets, net; however, this was largely offset by the increase in liabilities for Lease Purchase Obligations. The balance of the increase is mainly in cash.
The total liabilities for the year increased by $20,022,740. The combination of the increase in total assets of $35,111,468 and the increase in total liabilities of $20,022,740 yields an increase in total net assets of $15,088,728. The increase in total net assets is primarily in the category of Unrestricted in the amount of $14,234,591.
Statement of Revenues, k p e n s e s 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

Operating Revenues Operating Expenses

Operating Loss

$ -99,479,312

Nonoperating Revenues and Expenses

109,685,406

Income (Loss) Before Other Revenues, Expenses, Gains or Losses

$ 10,206,094

Other Revenues, Expenses, Gains or Losses

4,882,634

Increase (Decrease) in Net Assets

$ 15,088,728

Net Assets at Beginningof Year

Net Assets at End of Year

June 30,2009

$ -101,066,358 96,342,217

$ -4,724,141

4,060,586

$

-663,555

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, Expensesand Changes in Net Assets are as follows:

Revenue by Source For the Years Ended June 30,2010 and June 3 0 , 2 0 0 9

June 3 0 , 2 0 1 0

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

6,807,615 39,407,422

Total Operating Revenue

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

$ 67,363,053 13,540,258 34,305,346 382,552 974,510 10,608

Total Nonoperating Revenue

$ 116,576,327

Capital Grants and Gifts State Other

Total Capital Grants and Gifts

Total Revenues

Expenses (By Functional Classification) Forthe Years Ended June 30,2010 and June 3 0 , 2 0 0 9

June 3 0 , 2 0 1 0

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 3 0 , 2 0 0 9
$ 80,673,865 823,298
19,083,277 591,204 763,795 -50,162
$ 101,885,277
June 3 0 , 2 0 0 9

Operating revenues increased by $27,705,963 in fiscal 2010. Tuition and Fees increased by $13.3 million.
The Auxiliary revenue increase of $10,980,553 is a result of the opening of the new dining hall on campus. The largest contributor to the increase was Food Services with a $9.0 million increase in revenue.
Nonoperating revenues increased by $14,691,050 for the year. Federal Stimulus Stabilization Funds increased in the amount of $12.7 million, offsetting the decrease in State Appropriations of $13.3 million.
The compensation and employee benefits category increased by $9,138,259 and primarily affected the Instruction, Public Service, and Institutional Support categories. The increase reflects the addition of faculty and an increased cost of health insurance for the employees of the institution.
Utilities increased by $801,682 during the past year affecting the Plant Operations and Maintenance category. The increase was primarily associated with increased water usage due to new buildings and construction and increased electricity costs due to rate increases. The increase was partially offset by additional cost savings measures implemented duringfiscal year 2010.
Statement of Cash Flows
The final statement presented by Kennesaw State University 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 FlowsfortheYears EndedJune 30.2010 and June 30,2009, Condensed

June 30,2010

June 30,2009

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

Net Change in Cash Cash, Beginning of Year

Cash, End of Year

Capital Assets
The University had $30.5 million in capital asset additions in fiscal year 2010, of which none was funded by the Georgia State Financingand Investment Commission (GSFIC).
The University entered into four new capital leases with the Foundation. The leases added $22.1 million to capital assets for a dining facility, an additional house, and additional space in Chastain Pointe and Town Point.
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
Kennesaw State University had Long-Term Liabilities of $121,412,128 of which $7,391,202 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 Outlook
The University is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. The University's overall financial position is strong. Even with a relatively flat funded year, the University was able to generate a significant increase in Net Assets. The University anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the University's ability to react to unknown internal and external issues.
Dr. Daniel S. Papp, Ph.D, President Kennesaw State University

BASIC FINANCIAL STATEMENTS

KENNESAW STATE UNIVERSITY STATEMENT OF NET ASSETS JUNE 30,2010
ASSETS
Current Assets Cash and Cash Equivalents Accounts Receivable, Net (Note 3) Federal Financial Assistance Other Inventories (Note 4) Prepaid Items
Total Current Assets
Noncurrent Assets Short-Term lnvestments Investments (Externally Restricted) Investments Notes Receivable Capital Assets, Net (Note 6)
Total Noncurrent Assets
Total Assets
LIABILITIES
Current Liabilities Accounts Payable Salaries Payable Contracts Payable Deferred Revenue (Note 7) Other Liabilities Deposits Held for Other Organizations Lease Purchase Obligations Compensated Absences
Total Current Liabilities
Noncurrent Liabilities Lease Purchase Obligations Compensated Absences
Total Noncurrent Liabilities
Total Liabilities
NET ASSETS
Invested in Capital Assets, Net of Related Debt Restricted for:
Nonexpendable Expendable Unrestricted
Total Net Assets
The notes to the financial statements are an integral part of this statement.

EXHIBIT" A

KENNESAW STATE UNIVERSITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
YEAR ENDED JUNE 30.2010
OPERATING REVENUES
Student Tultton and Fees Less: Scholarship Allowances
Grants and Contracts Federal Federal St~mulus State Other
Sales and Sewlces of Educabonal Departments Rents and Royalbes Auxll~atyEnterprises
Residence Halls Bookstore Food Services Parking/Transportatlon Health Services Intercollegiate Athletics Other Organizations Other Operating Revenues
Total Operating Revenues
OPERATING EXPENSES
Salartes Faculty Staff
Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utllitles Supplies and Other Sewtces Depreciation
Total Operating Expenses
Operating lncome (Loss)
NONOPERAflNG REVENUES (EXPENSES)
state Approprlatlons FederalStlmulus - Stabilization Funds Grants and Contracts
Federal Federal Stlmulus State Other Gifts Interest and Other Investment lncome Interest Expense Other Nonoperating Revenues
Net Nonoperating Revenues
lncome Before Other Revenues. Expenses, Ga~nso, r Losses
Cap~taGi rants and Glfts State Other
Total Other Revenues, Expenses. Galns or Losses
Increase In Net Assets
Net Assets - Beginning of Year
Net Assets - End of Year
The notes to the financial statements are an integral part of this statement.

KENNESAW STATE UNIVERSITY 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 Issuedto Students and Employees Collection of Loans to Students and Employees Auxilialy Enterpr~seCharges: Residence Halls Bookstore Food Services Parking/Transportation Health Services Intercollegiate Athletics Other Organizatrons Other Receipts (Payments)
Net Cash Provided (Used) by Operating Activities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Federal Stimulus - Stabilization Funds Agency FundsTransactions Gifts and Grants Received for Other than Capital Purposes
Net Cash Flows Provided (Used) by Noncapital Financing Activities
CASH FLOWS FROM CAPITAL AND RELATED FINANCINGACTIVITIES Capital Grants and Gifts Received Purchasesof Capital Assets Principal Paid on Capital Debt and Leases lnterest Paid on Capital Debt and Leases
Net Cash Provided (Used) by Capital and Related FinancingActivities
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments Interest on Investments Purchase of Investments
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

EXHIBIT "C"

KENNESAW STATE UNIVERSITY STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2010
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Operat~nglncome (Loss) Adjustments t o Reconcile Operating lncome to Net Cash
Provided (Used) by Operating Activities Depreciation Change in Assets and Liabilities: Accounts Receivable, Net l nventories Prepaid Items Notes Receivable Accounts Payable Deferred Revenue Other Liabilities Compensated Absences
Net Cash Provlded (Used) by Operating Activities
NONCASH ACTIVITY Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Value of Investments Recognized as a Component of Interest lncome Gift of Capital Assets Reducing Proceedsof Capital Grants and Gifts

EXHIBIT "C"

The notes to the financial statements are an integral part of this statement. - 5 -

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL 9ATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Note 1. Summary of SignificsntAccounting Policies
Nature of Operations Kennesaw State University 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 Kennesaw State University 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 Kennesaw State University 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. Kennesaw State University does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Kennesaw State University 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 Re~ortineStandards.
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 1 6for 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 University'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. Due to the lack of materiality, Institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominant activity takes place.
New Accounting Pronouncements In fiscal year 2010, Kennesaw State Universityadopted the Governmental Accounting and Standards Board (GASB) Statement No. 51, Accounting and Reporting for IntangibleAsseB. The provisions of this Statement generally require 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. Kennesaw State Universitydoes not have intangible assets.
In addition, Kennesaw State University 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. Kennesaw State University does not have derivative instruments.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University'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 intraUniversity transactions have been eliminated.
The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University 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 Board of Regents Short-Term Investment 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 University 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 Legal Fund, the Board of Regents Balanced Income Fund, and the Board of Regents Total Return Fund 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 University's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts.
lnventories Resale lnventories are valued at cost usingthe first in, first out ("FIFO")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.
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 University's capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year.

KENNESAW STATE UNIVERSIlY NOTES TO M E FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBrr "D"

Renovations to buildings, infrastructure, and land improvements that exceed $100,000 and/or 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 4 0 to 6 0 years for buildings, 2 0 to 25 years for infrastructure and land improvements, 1 0 years for library books, and 3 to 2 0 years for equipment. Residual values will generally be 10% of historical costs for infrastructure, buildings and building improvements, and facilities and other improvements.
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 University when complete. For projects managed by the University, the University retains construction in progress on its books and is reimbursed by GSFIC. For the year ended June 30, 2010, GSFIC did not transfer any capital additions to Kennesaw State University.
Deposits Deposits represent good faith deposits from students to reserve housing assignments in a University 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.
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 Statements of Revenues, Expenses and Changes in Net Assets. Kennesaw State University had accrued liability for compensated absences in the amount of $6,150,708 as of July 1,2009. For fiscal year 2010, $4,533,623 was earned in compensated absences and employees were paid $4,124,853, for a net increase of $408,770. The ending balance as of June 30, 2010, in accrued liability for compensated absences was $6,559,478.
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.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Net Assets The University's net assets are classified as follows:
Invested h capital assets, net of related debt: This represents the University'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.
Restrided net asset5 - 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 University 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 University 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 Term Endowments
Total Restricted Expendable

161,737 378,364
90,041 1,920,965

Unmtricted 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 University, 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 $0 to be refunded. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Unrestricted Net Assets includes the following items which are quasi-restricted by management.
R & R Reserve Reserve for Encumbrances Other Unrestricted
Total Unrestricted Net Assets
When an expense is incurred that can be paid using either restricted or unrestricted resources, the University's policy is to first apply the expense towards unrestricted resources, and then towards restricted resources.
Income Taxes Kennesaw State University, 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 Revenuesand 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.
Nunoperating 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, Reporting 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.
Nonuperating Expense5: Nonoperating expense includes activities that have the characteristics of nonexchange transactions, such as capital financing costs and costs related to investment activity.
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 University, 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 University's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded contra revenue for scholarship allowances.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Note 2, DeposiB and Investments

Deposits The custodial credit risk for deposits is the risk that in the event of a bank failure, the University's deposits may not be recovered. Funds belonging to the State of Georgia (and thus the University) 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 Insurance Corporation.

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 $32,323,707 and the bank balance was $34,244,175. Of the University's deposits, $34,244,175 were uninsured. Of these uninsured deposits, $34,244,175 were collateralized with securities held by the financial institution's trust department or agent in the University's name.

Investments Kennesaw State University 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 University's investments as of June 30, 2010 are presented below. All investments are presented by investment type and debt securities are presented by maturity.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

lnvestment Type

Fair Value

Less Than 1Year

lnvestment Maturity
1- 5 Years 6 - 1 0 years

More than 1 0 Years

Debt Securities Mutual Bond Fund

$ 738,124 $ 174,234 $ 270,277 $ 135,371 $ 158,242

Other lnvestments Bond/Equity Mutual Funds Equity Mutual Funds Equity Securities - Domestic
Equityhlcurities - International
Real Estate Investment Fund

335,511 1,115,544
43,512 16,046 67,102

lnvestment Pools Board of Regents Short-Term Fund Legal Fund Balanced Income Fund Total Return Fund

22,070,533 1,236,494 163,594 78,126

Total Investments

$ 25,864,586

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 htt~://www.audits.state.~a.us/interneVsearchR~ts.htmI.
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 University does not have a formal policy for managing interest rate risk.
The Effective Duration of the Short-Term Fund is 0.77 years. Of the University'stotal investment of $22,070,533 in the Short-Term Fund, $22,070,533 is invested in debt securities.
The Effective Duration of the Legal Fund is 2.95 years. Of the University's total investment of $1,236,494 in the Legal Fund, $1,236,494 is invested in debt securities.
The Effective Duration of the Total Return Fund is 2.60 years. Of the University'stotal investment of $78,126 in the Total Return Fund, $14,649 is invested in debt securities.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

The Effective Duration of the Balanced Income Fund is 2.60 years. Of the University's total investment of $163,594 in the Balanced Income Fund, $103,132 is invested in debt securities.
Credit Ouality Risk Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University does not have a formal policy for managing credit quality risk.
The investments subject to credit quality risk are reflected below:

Credit Oualitv Risk

Fair Value

AAA

AA

Related Debt Investments Mutual Bond Fund

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

Student Tuition and Fees

$

Auxiliary Enterprises and Other OperatingActivities

Federal FinancialAssistance

Georgia State Financingand Investment Commission

Other

793,039 1,049,718 3,298,812 1,660,358
7,366,467

Less Allowance for Doubtful Accounts
Net Accounts Receivable
Note 4. Inventories
Inventories consisted of the following at June 30, 2010:
Bookstore 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 University for amounts cancelled under these provisions. As the University 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 University 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 $0.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Note 6. CapitalAsseb Followingare the changes in capital assets for the year ended June 30,2010:

Beginning Balance July 1,2009

Additions

Reductions

Ending Balance June 30,2010

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

$

5,450,256 $

514,400

$

5,964,656

3,410,041

210.201

3,620,242

545.800

645,849 $

262.979

928,670

Total Capital Assets, Not Being Depreciated $

9,406,097 $

1,370,450 $

262,979 $

10,513,568

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

Total Assets Being Depreciated

Less: Accumulated Depreciation: lnfrastructure Building and Building lmprovements Facilities and Other lmprovements Equipment Capital Leases Library Collections Capitalized Collections

Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net

$ 220,755,838 $ 18,231,509 $

-10,608 $ 238,997,955

Capital Assets, Net
Note 7. Deferred Revenue Deferred revenue consisted of the following at June 30, 2010:

Prepaid Tuition and Fees Other Deferred Revenue

Totals

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "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

Lease Lease Obligation

$ 96,247,616 $ 22,141.801 $ 3,536.767 $ 114,852,650 $ 3,336,702

Other Liabilities Compensated Absences

6,150,708

4,533,623

4,124,853

6,559,478

4,054,500

Total Long-Term Obligations $ 102,398,324 $ 26,675.424 $ 7,661,620 $ 121,412,128 $ 7,391,202

Note 9. Significant Commitments
The University had significant unearned, outstanding, construction or renovation contracts executed in the amount of $3.7 million as of June 30, 2010. This amount is not reflected in the accompanying basic financial statements.

In July 2010, the University executed a capital lease that becomes effective in July 2010, whereby the University leases a sports stadium, recreation fields, and a recreation facility for a thirty year period that expires on June 30, 2041. The rental payments do not begin until fiscal year 2012. The present value of the minimum lease payments is estimated to be about $59.0 million at an approximate interest rate of 5.5%. This amount is not reflected in the accompanying basic financial statements.

In July 2010, the University executed a capital lease that becomes effective in July 2010, whereby the University leases space in a multi-purpose building for a twenty-six year period that expires on June 30, 2036. The total rental amount for fiscal year 2 0 1 1 is $48,176. The present value of the minimum lease payments is estimated to be about $685,000 at an approximate interest rate of 5.25%. This amount is not reflected in the accompanying basic financial statements.

Note 10. fease Obligations
Kennesaw State University 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.

CAPITAL LEASES Capital leases are generally payable in installments ranging from monthly to annually and have terms expiring in various years between 2019 and 2039. Expenditures for fiscal year 2010 were $11.1 million of which $6.9 million represented interest and $0.7 million represented executory costs. Total principal paid on capital leases was $3.5 million for the fiscal year ended June 30, 2010. Interest rates range from 2.0 percent to 9.14 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2010:

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBrr "D"

Land Buildings

Total Assets Held Under Capital Lease

$ 108,023,788

All capital leases are for one-year terms and provide for renewal options covering the remaining term. Nonrenewal is considered a remote possibility. Most of the leases indicate that the property will be donated to the University at the end of the lease term.
Kennesaw State University had thirteen capital leases with Kennesaw State University Foundation, Inc., a discretely presented component unit, in the current fiscal year.
In May 2002, Kennesaw State University entered into a capital lease of $3,965,768 at 9.14 percent whereby the University leases nine houses for a twenty-five year period that expires April 2027. Improvements were made to the houses in 2010 in the amount of $338,122, increasingthe value of the capital lease to $4,303,890. The outstanding liability at June 30, 2010 on this capital lease is $3,430,375.
In August 2002, the University entered into a capital lease of $21,016,938 at 4.7 percent whereby the University leases two parking decks for a twenty-four year period that expires July 2026. In August 2003, the lease payments increased because additional space was added to one of the decks, bringing the value of the lease to $24,093,887. The decks are constructed on land owned by the University and leased to Kennesaw State University Foundation, Inc. for $ 1 annually for a period of twenty-five years commencing in June 2001. At the expiration of the ground lease, ownership of the parking decks transfers to the University. The outstanding liability at June 30, 2010 on this capital lease is $18,640,163.
In January 2004, the University entered into a capital lease of $2,718,028 at 5.5 percent whereby the University leases a portion of a buildingfor a twenty-five year period that expires June 2029. The University has the right of first refusal to lease additional space in the building complex. Should the cumulative value of the rent payments equal the value of the Foundation's financing instrument and all additional rent under the terms of the agreement, Kennesaw State University Foundation, Inc. will gift the property to the University. In December 2004, the University entered into a capital lease at 5.5 percent for additional space in the complex, bringing the value of the lease to $3,378,929. In February 2007, the University substituted space and added additional space in a capital lease at 5.5 percent bringing the value of the lease to $4,326,537. In September 2007, the University entered into a capital lease at 5.5 percent for additional space in the complex, bringing the value of the lease to $6,232,158. In May 2010 and June 2010, the University entered into additional capital leases at 5.5 percent for additional space in the complex, bringing the value of the lease to $8,615,209. The outstanding liability at June 30, 2010 on these capital leases is $7,368,229.
In February 2004, the University entered into a capital lease of $200,000 at 2.0 percent whereby the University leases a house for a fifteen-year period that expires January 2019. The outstanding liability at June 30, 2010 on this capital lease is $121,715.
In September 2004, the University entered into a capital lease of $14,323,134 at 5.79 percent whereby the University leases a parking deck for a twenty-five year period that expires August 31, 2029. The deck is constructed on land owned by the University and leased to Kennesaw State University Foundation, Inc. for $197,600 annually for a period of twenty-five years commencing in September 2004. At the expiration of the ground lease ownership of the parking deck transfers to the University. The outstanding liability at June 30, 2010 on this capital lease is $12,491,354.
- 16-

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBlT "D"

In April 2006, the University entered into a capital lease of $4,015,944 at 8.22 percent whereby the University leases a portion of an office building for a twenty-four year period that expires June 30, 2030. The University is obligated to lease additional space in the building as it becomes available. At the expiration of the lease, ownership of the building transfers to the University. In September 2006, the University entered into a capital lease at 8.22 percent for additional space in the complex, bringing the value of the lease to $4,157,971. In July 2007, January 2008, April 2008, and May 2008 the University entered into additional capital leases at 8.22 percent for additional space in the complex, bringing the value of the lease to $7,955,987. In December 2009 and February 2010, the University entered into additional capital leases at 8.22 percent for additional space in the complex, bringing the value of the lease to $8,599,056. The outstanding liability at June 30, 2010 on this capital lease is $8,103,750.
In April 2006, the University entered into a capital lease of $1,814,402 at 5.07 percent whereby the University leases 7.242 acres of unimproved land for a twenty-four year period that expires June 30, 2030. At the expiration of the lease, ownership of the land transfers to the University. The outstanding liability at June 30, 2010 on this capital lease is $1,631,356.
In November 2006, the University entered into a capital lease of $1,041,207 at 5.38 percent whereby the University leases classroom space in a multi-purpose building for a twenty-three year period that expires June 30, 2030. The building is constructed on land owned by the University and leased to Kennesaw State University Foundation, Inc. for $10 for a twenty-five year period commencing in June 2004. At the expiration of the ground lease, ownership of the building transfers to the University. The outstanding liability at June 30, 2010 on this capital lease is $907,684.
In July 2007, the University entered into a capital lease for an office/classroom building of $11,493,855 at 7.09 percent whereby the University leases a portion of a building for a twelve year period that expires June 30, 2019. The outstanding liability at June 30, 2010 on this capital lease is $9,404,990.
In August 2008, the University entered into a capital lease of $32,625,518 a t 5.94 percent whereby the University leases a parking deck for a thirty year period that expires June 30, 2038. The deck is constructed on land owned by the University and leased to Kennesaw State University Foundation, Inc. for $10 annually for a period of thirty years commencing in August 2008. At the expiration of the ground lease, ownership of the parking deck transfers to the University. The outstanding liability at June 30,2010 on this capital lease is $32,193,572.
In November 2008, the Universityentered into a capital lease of $1,637,679 at 9.0 percent whereby the University leases a classroom building for a thirty-one year period that expires on June 30, 2039. At the expiration of the lease, ownership of the building transfers to the University. The outstanding liability at June 30, 2010 on this capital lease is $1,607,603.
In November 2008, the University entered into a capital lease of $18,535,311 at 6.95 percent that became effective in August 2009, whereby the University leases a dining hall facility for a thirty year period that expires on June 30, 2039. The building is constructed on land owned by the University and leased to Kennesaw State University Foundation, Inc. for $10 for a thirty year period commencing in August 2009. At the expiration of the lease, ownership of the building transfers to the University. The outstanding liability at June 30,2010 on this capital lease is $18,712,262.
In January 2010, the University entered into a capital lease of $242,257 at 6.04 percent whereby the University leases a house for a thirty year period that expires December 31, 2039. At the expiration of the lease, ownership of the building transfers t o the University. The outstanding liability at June 30, 2010 on this capital lease is $239,597.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

OPERATING LEASES In August 2008, the University entered into an operating lease whereby the University leases space in a multi-purpose building for a period of four months that expired on November 30, 2008. The University continued to lease the space on a month-to-month basis through June 30, 2010. See
Note 9,Significant Commitments for more information on this space.
In September 2009, the University entered into an operating lease whereby the University leases a recreation facility and recreation fields for a period of ten months that expired on June 30, 2010. See Note 9, Significant Commitments for more information on this property.
FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) having remaining terms in excess of one year as of June 30, 2010, were as follows:

Real Property and
Equipment Capital Leases

Year Ending June 30:
2011 2012 2013 2014 2015
2016 - 2020
2021- 2025 2026 - 2030 2031- 2035 2036 - 2039

Total Minimum Lease Payments $ 238,793,860

Less: Interest Less: Executory Costs (if paid)
Principal Outstanding

99,387,651 24,553,559
$ 114,852,650

Kennesaw State University's fiscal year 2010 expense for rental of real property and equipment under operating leases was $235,676.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "DM

Note 11. Retirement Plans
Teachers Retirement System of Georgia
Plan Description Kennesaw State University participates in the Teachers Retirement System of Georgia (TRS), a costsharing multiple-employer defined benefit pension plan established by the Georgia General Assembly. TRS provides retirement allowances and other benefits for plan participants. 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 from the Georgia Department of Audits and Accounts.
Funding Policy Employees of Kennesaw State University who are covered by TRS are required by State statute to contribute 5%of their gross earnings to TRS. Kennesaw State University 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 2010, the employer contribution rate was 9.74% 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

Employees' Retirement System of Georgia
Plan Description Kennesaw State University participates in the Employees' Retirement System of Georgia (ERS), a cost-sharing multiple-employer defined benefit pension plan established by the General Assembly of Georgia for the purpose of providing retirement allowances for employees of the State of Georgia.
The benefit structure of ERS is defined by State statute and was significantly modified on July 1, 1982. Unless elected 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. Employees 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 both the old plan and new plan, members become vested after 10 years of creditable service. A member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

Retirement benefits paid to members are based upon a formula which considers the monthly average of the member's highest twenty-four consecutive calendar months of salary, the number of years of creditable service, and the member's age at retirement. Postretirement cost-of-living adjustments are also made to member's benefits. 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.
In addition, the ERS Board of Trustees created the Supplemental Retirement Benefit Plan (SRBP) effective January 1, 1998. The SRBP 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 SRBP is to provide retirement benefits to employees covered by ERS whose benefits are otherwise limited by IRC 415.
The ERS issues a financial report each fiscal year, which may be obtained through ERS.
Funding Policy As established by State statute, all full-time employees of the State of Georgia and its political subdivisions, who are not members of other state retirement systems, are eligible to participate in the ERS. Both employer and employee contributions are established by State statute. The University's payroll for the year ended June 30, 2010, for employees covered by ERS was $103,621. The University'stotal payroll for all employees was $121,156,962.
For the year ended June 30, 2010 under the old plan, member contributions consist of 4% of annual compensation up to $4,200 plus 6% of annual compensation in excess of $4,200. Of these member contributions, the employee pays the first 1.50% and the University pays the remainder on behalf of the employee.
Under the new plan, member contributions consist solely of 1.50% of annual compensation paid by employee. The University also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation for both old and new plans. For the year ended June 30, 2010, the ERS employer contribution rate for the University amounted to 10.41% of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. During 2010 an additional $3,119 was paid relating to prior years for one employee. Employer contributions are also made on amounts paid for accumulated leave to retiring employees.
Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2010 financial report, which may be obtained through ERS.

KENNESAW STATE UNIVERSIlY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

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. 47-21-1 et.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 TIAA-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 Kennesaw State University 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 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.
Kennesaw State University and the covered employees made the required contributions of $4,455,371 (9.24%)and $2,410,501 (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 Kennesaw State University 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.
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.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "DM

Total contributions made by employees during fiscal year 2010 amounted to $510,510 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. Kennesaw State University and participating employees and retirees pay premiums to either of the self-insured healthcare plan options to access benefits coverage. The respective selfinsured 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. Kennesaw State University, as an organizational unit of the Board of Regents of the University System 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.
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 Kennesaw State University expects such amounts, if any, to be immaterial to its overall financial position.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "D"

Litigation, claims and assessments filed against Kennesaw State University (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-Employment Benefits 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 College 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 289 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, Kennesaw State University recognized as incurred $1,204,783 of expenditures, which was net of $516,885 of participant contributions.

KENNESAW STATE UNIVERSrrY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30,2010

EXHIBIT "Dm

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

Natural Classification

Instruction

Research

Functional Classification Public Service

Academic Support

Student Services

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

Total Operating Expenses

$ 90,798,621 $

1,270,622 $

5,846,741 $ 28,058,859 $ 16,634,355

Natural Classification

Institutional Support

Functional Classification

Plant Operations

Scholarships

and

and

Maintenance

Fellowships

Auxiliary 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

$ 27,816,903 $

21,674,774 $

16,402.322 $ 35,147,758 $ 243,650,955

Note 16. AMliated Organizations
In accordance with GASB Statement No. 39, Determining Whether CerLain Organtzations are
Component Units, an amendment of GASB Statement No. 14, The Reporting EnCity, which became effective for the year ended June 30, 2004, Kennesaw State University Foundation is a legally separate, tax exempt organization whose activities primarily support Kennesaw State University, a unit of the University System of Georgia (an organizational unit of the State of Georgia). The State Accounting Office determined Component Units of the State of Georgia, as required by GASB Statement No. 39, should not be assessed in relation to its significance to Kennesaw State University, but instead based on its significance to the State of Georgia. Accordingly, Kennesaw State University has not included financial activity for this affiliated organization in these financial statements.

KENNESAW STATE UNIVERSITY NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2010

EXHIBIT "D"

Kennesaw State University Foundation has been determined significant to the State of Georgia for the year ended June 30, 2010, and as such, is reported as a discretely presented component unit in the Comprehensive Annual Financial Report of the State of Georgia (CAFR). The significant discretely presented component unit issued a separate audited financial statement that can be obtained from the Board of Regents of the UniversitySystem of Georgia.

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SUPPLEMENTARY INFORMATION

KENNESAW STATE UNIVERSITY BALANCE SHEET (NON-GAAP BASIS)
BUDGET FUND JUNE 30,2010
ASSETS
Cash and Cash Equivalents Investments Accounts Receivable
Federal Financial Assistance Other Prepaid Expenditures
Total Assets
LIABILITIES AND FUND EQUITY
Liabilities Accrued Payroll Encumbrances Payable Accounts Payable Deferred Revenue
Total Liabilities
Fund Balances Resewed Department Sales and Services Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds Uncollectible Accounts Receivable Tuition Carry-Over
Total Fund Balances
Total Liabilities and Fund Balances

SCHEDULE "1"

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compliance with budgetary statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.

KENNESAW STATE UNIVERSITY SUMMARY BUDGET COMPARISON AND SURPLUS ANALYSIS REPORT (NON-GAAP BASIS)
BUDGET FUND YEAR ENDED JUNE 30.2010

REVENUES
State Appropriation State General Funds
Federal Funds Other Funds
Total Revenues
CARRY-OVER FROM PRIOR YEAR
Transfers from Resewed Fund Balance
Total Funds Available
EXPENDITURES
Research Consortium Teaching
Total Expenditures
Excess of Funds Available over Expenditures
FUND BALANCE JULY 1
Resewed
ADJUSTMENTS
Prior Year ReceivableJRevenues Early Return of Surplus in Current FiscalYear Non-MandatoryTransfers Prior Year ReservedFund Balance Included in Funds Available FUND BALANCEJUNE 3 0
SUMMARY OF FUND BALANCE
Reserved Department Sales and Sewices Indirect Cost Recoveries Technology Fees Restricted/Sponsored Funds UncollectibleAccounts Receivable Tuition Carry-Over
Total Fund Balance

BUDGET

ACTUAL

SCHEDULE "2"
VARIANCE FAVORABLE (UNFAVORABLE)

Actual amounts were prepared on a prescribed basis of accounting that demonstrates compl~ancewith budgetaly statutes and regulations of the State of Georgia, which is a comprehensive basis of accounting other than generally accepted accounting principles.

KENNESAW STATE UNIVERSITY STATEMENT OF PROGRAM REVENUES AND MPENDITURES BY FUNDING SOURCE COMPARED TO BUDGET
(NON-GAAP BASIS) BUDGEl FUND MAR ENDEDJUNE 30,2010

Research ConsorUum State Approprlatlon State General Funds

Or~glnal Appropriation

Flnal Budget

current year Revenues

Funds AvailabieCompared to Budget

~ r l oyrear Carry Over

Total Funds Available

varlance Positive (Negative)

Speclal Fundlng lnltlstlve State Appropriation State General Funds

Teaching State Approwtatlon S m e General Funds Federal Funds American Recovery and ReinvestmentAct of 2009 Federal Stab~llzatlonFunds Otner Federal Funds Other Funds
Total Teaching

Grand Totels - All Programs

Actual amount5 were preparedon a prescribedbasls of amuntlngthat demonstrates mmpliance with budgetaly?,tatutes and regulations of the State of Georgia. whlch is a mmpehensive basisof accounting ooer tnan generally acceptedacmuntlng principles

Expenditures Comparedto Budget

Variance

Positive

Actllal

(Neeatwe)

Anual FundsAvailable Over/(Under)
Expenditures

Prlor Period Adjustments

Other Adjustments

Early ~emlmnce of Surplus

Program Fund
Balances

Transfers

Total

- ProgramFund Balances

Fund

Reserve Sumlus

Balance

Unexpendable Reserves Unmllenible Accounts Receivable

858.857.37
- $ 7.245.920.13

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KENNESAW STATE UNIVERSITY RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDEDJUNE 30,2010

SCHEDULE "4"

Totals per Annual Supplement

Accruals June 30,2010 June 30,2009

Compensated Absences June 30,2010 June 30,2009

Prepaid Expenses June 30,2010 June 30.2009

Adjustments

Shared Services on Jointly Staffed Personnel

Atlanta Metropolitan College

Devine,

Flora

Board of Regents of the UniversitySystem of Georgia

Noble,

Linda

Georgia Highlands College

Myles,

Nicoly

Wilson,

Mary

Georgia Perimeter College

Elley,

Kristen

Hopkins,

Amy

Shaw,

Alan

Georgia Southern University

Roberts,

Gaw

Georgia State University

Frisch,

Jennifer

Graham,

Dorothy

Southern Polytechnic State University

VanBrackle,

Lewis

University of Georgia

Dias,

Michael

Keller,

Brian

University of West Georgia

Collins,

Mitchell

Unidentified Variance

SALARIES

TRAVEL

$ 121,082,098.52 $ 2,613,740.83

SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

KENNESAW STATE UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30,2010
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. FEDERAL AWARD FINDINGS AND OUESTIONED COSTS No matters were reported.