STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS I MEDICAL COLLEGE OF GEORGIA AUGUSTA, GEORGIA REPORT ON AUDIT OF THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2004 Russell W. Hinton State Auditor MEDICAL COLLEGE OF GEORGIA - 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 2 B STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 4 C STATEMENT OF CASH FLOWS 6 D NOTES TO THE FINANCIAL STATEMENTS 9 SUPPLEMENTARY INFORMATION SCHEDULES SCHEDULES OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) 1 RESIDENT INSTRUCTION 41 2 OTHER ORGANIZED ACTIVITIES 42 3 RECONCILIATION OF SALARIES AND TRAVEL 45 SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL Russell W. Hinton STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 November 29, 2004 Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Regents ofthe University System of Georgia and Honorable Daniel W. Rahn, President Medical College of Georgia INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Ladies and Gentlemen: We have audited the accompanying basic financial statements of Medical College of Georgia, an organizational unit ofthe State ofGeorgia, and its' aggregate discretely presented component units as ofand for the year ended June 30, 2004, as listed in the table ofcontents. These financial statements are the responsibility of the College's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements ofMedical College ofGeorgia's discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for Medical College of Georgia Health, Inc., Medical College of Georgia Foundation, Inc., Medical College of Georgia Dental Foundation, Medical College of Georgia Research Institute and Medical College ofGeorgia Physicians Practice Group Foundation is based on the reports ofthe other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 and the report of other auditors provide a reasonable basis for our opinions. 04ARL-61 As discussed in Note 1, the financial statements of Medical College of Georgia are intended to present the financial position and changes in financial position (including cash flows) of only that portion ofthe business-type activities ofthe State of Georgia that is attributable to the transactions of Medical College of Georgia. They do not purport to, and do not, present fairly the financial position and changes in financial position (including cash flows) of the State of Georgia, in conformity with accounting principles generally accepted in the United States of America. In our opinion, based on our audit and the reports ofother auditors, the financial statements referred to above present fairly, in all material respects, the financial position ofMedical College of Georgia and of its aggregate discretely presented component units as of June 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the 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 opinions on the financial statements that collectively comprise the College's basic financial statements. The accompanying supplementary information (Schedules 1 through 3) 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 by us in the audit ofthe basic financial statements and, in our opinion, based on our audit, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respectfully submitted, ~"-~ Russell W. Hinton State Auditor RWH:as 04ARL-61 REQUIRED SUPPLEMENTARY INFORMATION MEDICAL COLLEGE OF GEORGIA Management's Discussion and Analysis Introduction Medical College of Georgia (MCG), the oldest school of medicine in Georgia, was incorporated in 1828 as the Medical Academy of Georgia and is one of the 34 institutions of the University System of Georgia. The College, located in Augusta, Georgia, has become known for its worldclass instructional, clinical, and research programs. The college offers more than 40 academic programs in allied health sciences, dentistry, graduate studies, medicine, and nursing at the certificate, baccalaureate, masters, doctoral and first professional levels. Additionally, MCG offers residency training in medical and dental specialty areas. This wide range of educational opportunities attracts a highly qualified faculty and student body of more than 2,400 students each year. A brief historical comparison of faculty and student levels follows: Faculty Students FY2004 FY2003 FY2002 646 2,526 625 2,453 590 2,377 Overview ofthe Financial Statements and Financial Analysis Medical College of Georgia 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. 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 Medical College of Georgia. 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. - 1- 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, 2004 June 30, 2003 Assets Current Assets Capital Assets, Net Other Assets $115,089,432.01 170,755,830.81 22,517,571.44 $106,507,810.45 168,815,412.70 12,533,283.65 Total Assets $308,362,834.26 $287,856,506.80 Liabilities Current Liabilities Noncurrent Liabilities $ 65,742,978.97 14,086,444.49 $ 57,656,742.24 10,857,869.01 Total Liabilities $ 79,829,423.46 $ 68,514,611.25 Net Assets Invested in Capital Assets, Net of Debt Restricted - Nonexpendable Restricted - Expendable Restricted - Capital Projects Unrestricted $166,746,503.57 1,669,065.78 48,261,364.73 22,352,303.00 -10,495,826.28 $168,555,739.14 1,573,714.52 46,123,898.57 3,088,543.32 Total Net Assets $228,533A1o.80 $219,341,895.55 The total assets of the institution increased by $20,506,327.46. A review of the Statement of Net Assets will reveal that the increase was primarily due to increases in current and other assets of $8,581,621.56 and $9,984,287.79, respectively, and $1,940,418.11 in capital assets, net of accumulated depreciation. The consumption of assets follows the institutional philosophy to use available resources to acquire and improve all areas of the institution to better serve the instruction, research and public service missions of the institution. The total liabilities for the year increased by $11,314,812.21. This was due to an increase in current liabilities of $8,086,236.73 and an increase in noncurrent liabilities of $3,228,575.48. The increase in long-term liabilities, primarily capital leases, contributed to the decrease in - ii - invested in capital assets, net of debt. The combination of the increase in total assets of $20,506,327.46 and the net increase in total liabilities of $11,314,812.21 yields an increase in total net assets of $9,191,515.25. The increase in total net assets primarily reflects an increase in restricted net assets. 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 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, 2004 June 30, 2003 Operating Revenues Operating Expenses $ 336,094,965.08 446,360,364.79 $ 297,335,091.29 425,524,783.73 Operating Loss $-110,265,399.71 $-128,189,692.44 Nonoperating Revenues and Expenses 117,966,094.71 127,300,150.25 Income (Loss) Before Other Revenues, Expenses, Gains or Losses $ 7,700,695.00 $ -889,542.19 Other Revenues, Expenses, Gains or Losses 1,490,820.25 Increase (Decrease) in Net Assets $ 9,191,515.25 $ -889,542.19 Net Assets at Beginning of Year, as Originally Reported $ 219,341,895.55 $ 218,082,277.80 Prior Period Adjustment 2,149,159.94 Net Assets at Beginning of Year Restated $219,341,895.55 $220,231,437.74 Net Assets at End of Year $ 228.533,410.80 $ 219.341,895.55 -111- The Statement of Revenues, Expenses and Changes in Net Assets reflects a positive year with an increase in the net assets at the end of the year. Some highlights of the information presented on the Statement of Revenues, Expenses and Changes in Net Assets are as follows: Revenue By Source For The Years Ended June 30, 2004 and June 30, 2003 Operating Revenue Tuition and Fees Grants and Contracts Rents and Royalties Sales and Services of Educational Departments Auxiliary Other Total Operating Revenue Nonoperating Revenue State Appropriations Investment Income Grants and Contracts Other Total Nonoperating Revenue Capital Gifts and Grants State Other Total Capital Gifts and Grants Total Revenues June 30, 2004 June 30, 2003 $ 15,950,698.23 304,750,650.48 6,653,351.45 6,674,361.66 2,065,903.26 $ 336,094,965.08 $ 13,601,178.73 268,074,697.59 360,093.36 4,188,326.49 4,411,014.01 6,699,781.11 $ 297,335,091.29 $ 106,404,347.20 888,589.28 11,174,456.00 -415, 767.40 $ 118,051,625.08 $ 112,519,021.42 598,332.14 15,016,134.48 -833,337.79 $ 127,300,150.25 $ 1,480,700.52 10,119.73 $ 1,490,820.25 $ 455!637A10.41 $ 424!635!241.54 - IV - Expenses (By Functional Classification) For The Years Ended June 30, 2004 and June 30, 2003 June 30, 2004 June 30, 2003 Operating Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Plant Operations and Maintenance Scholarships and Fellowships Auxiliary Enterprises Patient Care $ 97,805,943.55 33,792,915.91 86,721,673.74 20,720,728.55 2,550,399.68 27,013,837.18 9,893,712.75 1,574,924.58 7,619,266.93 158,666,961.92 $101,533,959.65 24,896,048.38 75,224,195.42 17,102,033.04 2,305,987.28 32,428,783.55 11,740,310.09 1,769,388.80 4,828,598.23 153,695,479.29 Total Operating Expenses $446,360,364.79 $425,524,783.73 Nonoperating Expenses Interest Expense (Capital Assets) 85,530.37 Total Expenses $446,445,895.16 $425.524,783.73 Total operating revenues increased by $38,759,873.79 from 2003 to 2004 due in part to increased tuition and fees of $2,349,519.50, and increased federal, state and nongovernmental grants of $11,690,882.70, $8,033,401.94 and $16,951,668.25 respectively. Other increases in operating revenues include $2,465,024.96 in sales and services of educational departments and $2,263,347.65 in auxiliary activity for the year. Increases were offset by a decrease in other operating revenues of $4,633,877.85. The compensation and employee benefits category increased by $9,675,267.63. The increase reflects incremental positions and increased salaries at the College. The increase also reflects costs of health insurance for the employees of the institution. Utilities decreased by $135,573.37 during the past year. The decrease was due to efficiencies realized during the past year. Under nonoperating revenues (expenses) state appropriations decreased by $6,114,674.22. The reduction of state appropriations system-wide, due to a sluggish economy, has created a challenge for all institutions of the University System of Georgia and, thus, for Medical College of Georgia. We are hopeful that the economy is now on an upward trend. Other nonoperating activity includes a decrease of $3,909,456.48 in nongovernmental grants, which were offset in part by a $290,257.14 increase in investment income. -v- Statement of Cash Flows The final statement presented by the Medical College of Georgia is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from noncapital financing activities. This section reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets. Cash Flows for the Years Ended June 30, 2004 and June 30, 2003, Condensed June 30, 2004 June 30, 2003 Cash Provided (Used) By: Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities $ -89,284,239.76 116,678,985.47 -8,872,907 .16 -9,551, 744.58 $-103, 141,581.15 120,474,896.09 -11,364,045.13 656,792.58 Net Change in Cash Cash, Beginning of Year $ 8,970,093.97 46,383,251.08 $ 6,626,062.39 39,757,188.69 Cash, End of Year $ 55,353,345.05 $ 46,383,251.08 Capital Assets The College had no significant capital asset additions for facilities in fiscal year 2004. For additional information concerning Capital Assets, see Notes 1, 6, 8, and 9 in the Notes to the Financial Statements. Long-Term Debt Medical College of Georgia had a total Long-Term Debt of $27,037,208.33 which was comprised of capital lease obligations and compensated absences. At June 30, 2004, the current liability portion was $12,950,763.84. For additional information concerning Long-Term Debt see Notes 1 and 8 in the Notes to the Financial Statements. - VI - Component Units In compliance with GASB Statement No. 39, Medical College of Georgia has included the financial statements and notes for all required component units for fiscal year 2004. Medical College of Georgia is reporting the activity for Medical College of Georgia Foundation, Inc., Medical College of Georgia Physicians Practice Group Foundation, Medical College of Georgia Research Institute, Medical College of Georgia Dental Foundation, and Medical College of Georgia Health, Inc. Details are available in Note 1, Summary of Significant Accounting Policies and Note 16, Component Units. Economic Outlook The College 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 College's overall financial position is strong. Even with a relatively flat funded year, the College was able to generate a modest increase in Net Assets. The College anticipates the current fiscal year will be much like last and will maintain a close watch over resources to maintain the College's ability to react to unknown internal and external issues. Daniel W. Rahn, M.D., President Medical College of Georgia - Vll - BASIC FINANCIAL STATEMENTS - 1- MEDICAL COLLEGE OF GEORGIA STATEMENT OF NET ASSETS JUNE 30 2004 ASSETS Current Assets Cash and Cash Equivalents Short-Term Investments Accounts Receivable Federal Financial Assistance Other Contributions Receivable Due from Component Units Notes Receivable Prepaid Items Inventories Other Assets Total Current Assets Noncurrent Assets Noncurrent Cash Investments Contributions Receivable Other Assets Notes Receivable Capital Assets, Net Total Noncurrent Assets Total Assets LIABILITIES Current Liabilities Contracts Payable Salaries Payable Accounts Payable and Accrued Liabilities Deposits Deferred Revenue Other Liabilities Funds Held for Others Capital Leases Compensated Absences Due to Related Party - Margin Allocation Estimated Third-Party Payor Settlements Total Current Liabilities Noncurrent Liabilities Compensated Absences Capital Leases Long-Term Liabilities Total Noncurrent Liabilities Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Nonexpendable Expendable Capital Projects Unrestricted Total Net Assets The notes to the financial statements are an integral part of this statement. -2- PRIMARY GOVERNMENT MEDICAL COLLEGE OF GEORGIA HEALTH, INC. $ 55,353,345.05 $ 4, 1BB,722.49 13,432,523.40 11,051,667.92 30,614,333.38 448,839.77 $ 115,089,432.01 $ 31,018,921.00 66,342,578.00 555,791.00 76,208,788.00 6,906,269.00 842 643.00 181 874 990.00 $ 17,622,269.09 $ 4,895,302.35 170,755,830.81 $ 193,273,402.25 $ $ 308,362,834.26 $ 15,306,844.00 60,207,828.00 75,514,672.00 257,389,662.00 $ 105,454.26 879,343.84 29,763,321.62 $ 19,400,997.20 1,140,876.48 1,502,221.73 1,336,043.98 11,614,719.86 $ 65,742,978.97 $ $ 11,413,161.23 2,673,283.26 $ $ 14,086 444.49 $ $ 79,829,423.46 $ 16,795,354.00 373,863.00 652,779.00 B, 101,765.00 11,300,141.00 10 774 000.00 47 997 902.00 1,441,934.00 6,328,000.00 7 769 934.00 55,767,836.00 $ 166,746,503.57 $ 1,669,065.78 48,261,364.73 22,352,303.00 -10,495,826.28 58,113,115.00 143 508 711.00 $ 228,533,410.80 $ 201,621,826.00 EXHIBIT"A" MEDICAL COLLEGE OF GEORGIA FOUNDATION, INC. COMPONENT UNITS MEDICAL COLLEGE OF GEORGIA DENTAL FOUNDATION MEDICAL COLLEGE OF GEORGIA RESEARCH INSTITUTE MEDICAL COLLEGE OF GEORGIA PHYSICIANS PRACTICE GROUP FOUNDATION $ 17,570,795.00 $ 337,212.00 2,153,575.00 198,067.00 127 010.00 $ 20,386,659.00 $ $ 261,392.00 91,909,627.00 $ 2,173,764.00 118,078.00 180,303.00 3,526,436.00 $ 98,169,600.00 $ $ 118,556,259.00 $ 114,488.00 $ 529,235.00 643 723.00 $ 2,780,552.00 $ 2 780 552.00 $ 3,424,275.00 $ 3,781,960.00 $ 5,836,218.00 15,058,820.00 24,530,899.00 280,760.00 9 618 178.00 $ 39,870,479.00 99,000.00 $ 15,212,220.00 99 000.00 $ 9,717,178.00 $ 5,486,690.00 20,698,910.00 60,569,389.00 $ 178,873.00 $ 3,424,275.00 $ 6,347,921.00 $ 5,777,432.00 793,617.00 2,018,579.00 15,981.00 $ 2,197,452.00 $ $ 0.00 $ $ 0.00 $ $ 2,197,452.00 $ $ 3,526,436.00 $ 86,275,133.00 22,281,374.00 4,275 864.00 $ 116,358,807.00 $ 3,424,275.00 $ 0.00 $ 0.00 $ 3,424,275.00 $ 0.00 $ 0.00 $ 6,347,921.00 $ 6,587,030.00 7 500.00 $ 7 500.00 $ 6,355,421.00 $ $ 446 483.00 446 483.00 7,033,513.00 5,486,690.00 3 361 757.00 3,361,757.00 $ 48,049,186.00 53,535,876.00 -3- MEDICAL COLLEGE OF GEORGIA STATEMENT OF REVENUES. EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30 2004 OPERATING REVENUES Student Tuition and Fees Less: Scholarship Allowances Grants and Contracts Federal State Nongovernmental Sales and Services of Educational Departments Auxiliary Enterprises Residence Halls Bookstore Parking/Transportation Health Services Other Organizations New Patient Service Revenue Gifts and Contributions Realized/Unrealized Gains (Losses) Interest and Dividend Income Rent and Other Income Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Salaries Faculty Staff Employee Benefits Other Personal Services Travel Scholarships and Fellowships Utilities Supplies and Other Services Depreciation Payments to or On-Behalf of the College Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) State Appropriations Grants and Contracts Federal State Nongovernmental Interest and Other Investment Income Interest Expense (Capital Assets) Combined Margin Allocation Other Nonoperating Revenues Net Nonoperaling Revenues Income (Loss) Before Other Revenues, Expenses, Gains, or Losses Capital Grants and Gifts State Local Additions to Permanent Endowment Total Other Revenues Increase (Decrease) 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. -4- PRIMARY GOVERNMENT MEDICAL COLLEGE OF GEORGIA HEALTH, INC. $ 17,846,924.65 -1,896,226.42 34,867,728.43 134,953,027.91 134,929,894.14 6,653,351.45 813,428.04 1,595,230.09 865,992.53 782,473.43 2,617,237.57 $ 314,804,658.00 2,065,903.26 $ 336,094,965.08 $ 7 415177.00 322,219,835.00 $ 87,486,537.03 152,047,344.53 $ 66,415,945.30 2,071,980.47 2,065,988.19 5,396,341.52 119,099,108.28 11,777,119.47 $ 446,360,364.79 $ $ -110,265,399.71 $ 127,716,273.00 42,328,938.00 38,111,691.00 257,037.00 2,896,070.00 111,498,527.00 10,234,404.00 333,042,940.00 -10,823,105.00 $ 106,404,347.20 178,610.00 $ 10,995,846.00 888,589.28 -85,530.37 -415 767.40 $ 117,966,094.71 $ $ 7,700,695.00 $ $ 1,480,700.52 10,119.73 $ 1,490,820.25 $ 9,191,515.25 $ $ 219,341,895.55 $ 4,692,522.00 33,168,087.00 1,280,503.00 -11,300,141.00 -2,038,610.00 25,802,361.00 14 979 256.00 14 979 256.00 186,642,570.00 $ 228,533,410.80 $ 201,621,826.00 EXHIBIT'B" MEDICAL COLLEGE OF GEORGIA FOUNDATION, INC. COMPONENT UNITS MEDICAL COLLEGE OF GEORGIA DENTAL FOUNDATION MEDICAL COLLEGE OF GEORGIA RESEARCH INSTITUTE MEDICAL COLLEGE OF GEORGIA PHYSICIANS PRACTICE GROUP FOUNDATION $ 36,369,460.00 5,448,783.00 $ 6,053,465.00 23,849.00 1,062,855.00 723,966.00 $ 3,498,509.00 $ 82,639,907.00 $ 7,864,135.00 $ 3 498 509.00 $ 41,818,243.00 $ 82,639,907.00 $ 41,687,608.00 $ 646,291.00 $ 168,588.00 11,710,170.00 115,907.00 32,971.00 14,714,201.00 16,524.00 12,105.00 18,274.00 $ 8,516.00 1,362,460.00 626,273.00 39,999.00 6,681,160.00 1,984,467.00 228,236.00 11,836,239.00 154,076.00 620,623.00 39,631,245.00 $ 7,626,063.00 $ 2,204,300.00 $ 39,867,997.00 $ 82,597,573.00 $ 238,072.00 $ 1,294,209.00 $ 1,950,246.00 $ 42 334.00 $ 11,075,371.00 $ 99,694.00 $ 36,146.00 $ 3,473,208.00 275 985.00 -1 393 903.00 -1,501,738.00 281,006.00 $ 11,351,356.00 $ -1,294,209.00 $ -1,465,592.00 $ _ _ _~3~7,~54~1=21~4~.oo~ $ 11,589,428.00 $ 0.00 $ 484 654.oo $ _ _ _-=3""7'""9"'6'"'-54""8"'.o=o $ 3 377 786.00 $ 3 377 786.00 $ 14,967,214.00 $ $ 101,391,593.00 $ $ 116,358,807.00 $ 0.00 $ 0.00 $ 0.00 $ 484 654.00 $ 2,877,103.00 $ 3,361,757.00 $ 3,796,548.00 49,739,328.00 53,535,876.00 -5- MEDICAL COLLEGE OF GEORGIA 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 Loans Issued to Students and Employees Collection of Loans to Students and Employees Auxiliary Enterprise Charges: Residence Halls Bookstore Parking/Transportation Health Services Other Organizations Other Receipts (Payments) Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations Agency Funds Transactions Gifts and Grants Received for Other than Capital Purposes Net Cash Flows Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES 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 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" $ 16,375,272.37 301,281,356.27 6,865,755.52 -184,532,407.04 -236,468,554.63 -2,065,988.19 -949,309.25 1,410,355.32 1,020,597.11 1,596,763.58 865,992.53 919,439.43 2,601,357.05 1 795 130.17 $ -89,284,239.76 $ 106,404,347.20 -899,817.73 11,174 456.00 $ 116,678,985.47 $ -8,037,850.97 -749,525.82 -85 530.37 $ -8,872,907.16 $ 4,986.25 443,172.54 -9,999,903.37 $ -9 551,744.58 $ 8,970,093.97 46,383,251.08 $ ====5=5,=35=3=,3=4=5=.0=5 -6 - MEDICAL COLLEGE OF GEORGIA STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30. 2004 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 Inventories Prepaid Items Notes Receivable 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 Fixed Assets Acquired by Incurring Capital Lease Obligations Change in Fair Market Value of Investments Recognized as a Component of Interest Income Gift of Capital Assets Reducing Proceeds of Capital Grants and Gifts EXHIBIT"C" $ -110,265,399.71 11,777,119.47 1,184,943.98 -12,066.59 345,986.00 461,046.07 6,976,172.64 879,343.84 -3,958,245.03 1,140,876.48 2,185,983.09 $ -89,284,239.76 $ ==4===49=9=1=7=9=e.5=0 $ =====44=5=4=1=6=7.=4 $ ==-=1,=49=0=,8=2=0=.2=5 The notes to the financial statements are an integral part of this statement. -7- MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Medical College of Georgia 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 Medical College of Georgia is one of thirty-four (34) 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 Medical College of Georgia 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. Medical College of Georgia does not have authority to retain unexpended State appropriations (surplus) for any given fiscal year. Accordingly, Medical College of Georgia 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 Reporting Standards. The Board of Regents of the University System of Georgia (and thus Medical College of Georgia) is required to implement GASB Statement No. 39 Determining Whether Certain Organizations are Component Unit - 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 in the Annual Financial Report for the institution. These statements (Balance Sheet and Statement of Activities) are reported discretely in the College's report. For fiscal year 2004, Medical College of Georgia is reporting the activity for the Medical College of Georgia Foundation, Inc., Medical College of Georgia Physicians Practice Group Foundation, Medical College of Georgia Research Institute, Medical College of Georgia Dental Foundation, and Medical College of Georgia Health, Inc. See Note 16, Component Units, for Foundation notes. 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 was required to implement -9- MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION GASB Statement No. 34 as of and for the year ended June 30, 2002. As an organizational unit of the State of Georgia, the 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 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, institutions of the University System of Georgia will continue to report summer revenues and expenses in the year in which the predominate activity takes place. GAAP requires that liabilities for capital lease obligations be recorded at the net present value of the future minimum lease payments at the inception of the lease. The Medical College of Georgia has recorded capital lease obligations that include interest, however, these amounts are not considered to be material. 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 in authorized financial institutions, and cash management pools that have the general characteristics of demand deposit accounts. This includes the State Investment Pool. 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. - 10 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. The Board of Regents Total Return Fund is 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 include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the College's grant and contracts. No provision has been made for uncollectible accounts. INVENTORIES Consumable supplies are recorded on the consumption method and are valued at cost using the first-in, first-out ("FIFO") basis. Resale Inventories are valued at cost using the first-in, first-out method. 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 $100,000.00 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 20 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 Financing and 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. - 11 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CAPITAL ASSETS Effective July 1, 2001, the GSFIC retains construction in progress on their books throughout the construction period and transfers the entire project to Medical College of Georgia when complete. For the year ended June 30, 2004, GSFIC did not transfer any capital additions to Medical College of Georgia. 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 accrued vacation payable 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. Medical College of Georgia had accrued liability for compensated absences in the amount of $20,841,898.00 as of July 1, 2003. For fiscal year 2004, $16,174,056.45 was earned in compensated absences and employees were paid $13,988,073.36, for a net increase of $2,185,983.09. The ending balance as of June 30, 2004, in accrued liability for compensated absences was $23,027,881.09. Compensated absences include a current liability of $11,614,719.86. NONCURRENT LIABILITIES Noncurrent liabilities include (1) liabilities that will not be paid within the next fiscal year; (2) capital lease obligations with contractual maturities greater than one year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets. NET ASSETS The 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. The term "debt obligations" as used in this definition does not include debt of the GSFIC as discussed previously in Note 1 - Capital Assets section. Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested - 12 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS 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. The College's Expendable Restricted Net Assets include the following: Restricted - E&G and Other Organized Activities Federal Loans Institutional Loans Quasi- Endowments Total Restricted Expendable June 30, 2004 $ 34,889,947.75 6,129,805.30 1,314,774.71 5,926,836.97 $ 48,261,364.73 Restricted net assets - expendable - Capital Projects: This represents resources for which the College is legally or contractually obligated to spend resources for capital projects in accordance with restrictions imposed by external third parties. The Medical College of Georgia has $22,352,303.00 in Restricted Net Assets-Capital Projects. These funds are on deposit with GSFIC and will be used for the construction of the Health Sciences Building, the Cancer Research Center and the expansion of the Interdisciplinary Research Building, which will be capitalized when completed. Expected dates of completion range from fiscal year 2005 to 2006. Unrestricted 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 College, and may be used at the discretion of the governing board to meet current expenses for those purposes, except for unexpended state appropriations (surplus) of $1,437,693.01. Unexpended state appropriations must be refunded to the Board of Regents of the University System of Georgia, University System of Georgia - Administrative Central Office for remittance to the Office of Treasury and Fiscal Services. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. The College's Unrestricted Net Assets includes the following items which are quasi-restricted by management. - 13 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET ASSETS June 30, 2004 R&RReserve Reserve for Encumbrances Reserve for Inventory Other Unrestricted $ 2,078,189.72 14,358,055.99 444,189.56 -27,376,261.55 Total Unrestricted Net Assets $-10,495,826.28 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 Medical College of Georgia, 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 non-operating 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, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans. 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 state appropriations and investment income. 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. - 14 - MEDICAL COLLEGE OF GEORGIA 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 Medical College of Georgia) 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, bill, certificates of indebtedness, notes, or other direct obligations of the United States or of the State of Georgia. 2. Bonds, bills, certificates of indebtedness, notes, 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, 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 that allow agencies of the State of Georgia (and thus Medical College of Georgia), the option of exempting demand deposits from the collateral requirements. 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. CATEGORIZATION OF DEPOSITS The College's cash deposits are categorized by risk as follows: - 15 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF DEPOSITS 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. 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. Medical College of Georgia 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 $44,950,591.87 $ 54,237,373.13 $54,237,373.13 4,494,582.90 4,494,582.90 $ 125,958.33 $ 4,368,624.57 Total Cash Deposits $49,445,174.77 $58,731,956.03 $ 125,958.33 $ 4 368,624.57 $ 54,237 373.13 Component Units At June 30, 2004, Medical College of Georgia Health, Inc. 's cash deposits were as follows: Carrying Amount Bank Balances Risk Categories 2 3 Cash Deposits Investment Portfolio Accounts $31,135,108.00 $36,374,789.00 $ 500,000.00 $ 4,754,014.00 4,754,014.00 100,000.00 0.00 $35,874,789.00 4,654,014.00 Total Cash Deposits $ 35.889 122.00 $41,128,803.00 $ 600,000.00 $======0""'.0"""0 $ 40.528 803.00 At June 30, 2004, Medical College of Georgia Foundation, Inc.'s cash deposits were as follows: Carrying Amount Bank Balances Risk Categories 2 3 Cash Deposits Investment Portfolio Accounts $ 17,832,187.00 $ 17,832,187.00 $ 100,000.00 $ 1,003,548.00 1,003,548.00 100,000.00 0.00 $17,732,187.00 903,548.00 Total Cash Deposits $18,835,735.00 $ 18 835 735.00 $ 200,000.00 $=====0""'.0-0 $ 18,635,735.00 - 16 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF DEPOSITS Component Units At February 29, 2004, Medical College of Georgia Dental Foundation's cash deposits were as follows: Cash Deposits Carrying Amount Bank Balances Risk Categories 2 $ 114,488 oo $ 114 488 oo $ 100 ooo oo $.===='o""".o""o $ 3 14,488 oo At June 30, 2004, Medical College of Georgia Research Institute's cash deposits were as follows: Cash Deposits Carrying Amount Bank Balances Risk Categories 2 3 $ 3.78196000 $ 4 11140658 $ 399.000 00 $======'0,..,0,...0 $ 3,712.406 58 At June 30, 2004, Medical College of Georgia Physicians Practice Group Foundation's cash deposits were as follows: Cash Deposits Carrying Amount Bank Balances Risk Categories 2 3 s 15 058.820 oo $ 15.058 820 oo $ 100 ooo oo $.===='o""o""'o $14,258.820 oo CATEGORIZATION OF INVESTMENTS The College's 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. Medical College of Georgia At June 30, 2004, the College's investments consisted of the following: - 17 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Medical College of Georgia Tx1:1e oflnvestments Corporate Bonds $ U. S. Government Securities Totals $ Investments Not Subject to Categorizations: Board of Regents Total Return Fund Investment Portfolio Accounts Mutual Funds State Investment Pool Total Investments Risk Categories 2 0.00 $ 110,000.00 $ 5,418,862.33 0.00 $ 5 528,862.33 $ Carrying 3 Amount 0.00 $ 110,000.00 5,418,862.33 0.00 $ 5,528,862.33 7,133,123.45 465,700.41 I 0,380,360.18 $ 23 508,046 37 Funds invested in an investment pool managed by another governmental entity are not required to be categorized since the College did not own any specific, identifiable investment securities of the pool. Component Units At June 30, 2004, Medical College of Georgia Health, Inc.'s investments consisted of the following: Tx1:1e oflnvestments Corporate Bonds $ U.S. Government Securities Totals $ Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds Other Investments Joint Venture Insurance Company University Health System Total Investments Risk Categories 2 0.00 $ 1,030,668.00 $ 14,380,493.00 0.00 $ 15 411 161.00 $ Carrying 3 Amount 0.00 $ 1,030,668.00 14,380,493.00 0.00 $15,411,161.00 60,374,484.00 311,157.00 120,000.00 562,419.00 $ 76 779 221.00 - 18 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Component Units At June 30, 2004, Medical College of Georgia Foundation, Inc.'s investments consisted of the following: Type of Investments Common Stock $ Corporate Bonds U. S. Government Securities Totals $ Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds Real Estate Partnership Interest Total Investments Risk Categories 2 3 Carrying Amount 0.00 $ 0.00 $31,630,410.00 $31,630,410.00 208,260.00 208,260.00 766,339.00 766,339.00 o oo $======o"=.o"=o $ 32.605.009.oo $ 32,60s,oo9.oo 50,248,743.00 1,117,212.00 7,272,327.00 $ 91 243 291.00 At February 29, 2004, Medical College of Georgia Dental Foundation's investments consisted of the following: Type oflnvestments U. S. Government Securities Risk Categories 2 3 Carrying Amount $===-o-.o=o $ 2.1so,552.oo $===-o"".o"""o $ 2 1so 552 oo At June 30, 2004, Medical College of Georgia Research Institute's investments consisted of the following: Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds $ 99,000.00 - 19 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 2: CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS CATEGORIZATION OF INVESTMENTS Component Units At June 30, 2004, Medical College of Georgia Physicians Practice Group Foundation's investments consisted of the following: Type of Investments Common Stock $ Corporate Bonds U.S. Government Securities Totals $ Investments Not Subject to Categorizations: Investment Portfolio Accounts Mutual Funds Other Investments Deferred Compensation Joint Venture Total Investments Risk Categories 2 3 Carrying Amount 0.00 $ 0.00 $ 9,881,845.00 $ 9,881,845.00 10,452,727.00 10,452,727.00 8,189,936.00 8,189,936.00 0.00 $ . = = ~0.0-0 $ 28,524,508 00 $ 28,524,508.00 10,187,128.00 446,483.00 585,000.00 $39.743,119 00 NOTE 3: ACCOUNTS RECEIVABLE The College's 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 $ 17,156.40 29,370.59 4,188,722.49 13,385,996.41 Total Accounts Receivable $ 17,621,245.89 NOTE 4: INVENTORIES The College's Inventories consisted of the following at June 30, 2004. Bookstore Other $ 399,287.00 49,552.77 Total $ 448,839.77 - 20 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 5: NOTES/LOANS RECEIVABLE Notes/Loans receivable primarily consist of student loans made through the Federal Perkins Loan Program (the Program) comprise substantially all of the loans receivable at June 30, 2004 and 2003. 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 College for amounts cancelled under these provisions. As the College 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. At June 30, 2004, no provision had been made for uncollectible loans. NOTE 6: CAPITAL ASSETS Following are the changes in the College's capital assets for the year ended June 30, 2004: Beginning Balance July 1, 2003 Additions Reductions Ending Balance June 30, 2004 Capital Assets, Not Being Depreciated: Land $ 8,998,281.93 Construction Work-In-Progress 0.00 $ 2,262,912.42 $ 8,998,281.93 2,262,912.42 Total Capital Assets Not Being Depreciated $ 8,998,281.93 $ 2,262,912.42 $ 11,261,194.35 Capital Assets, Being Depreciated: Building and Building Improvements Facilities and Other Improvements Equipment Capital Leases Library Collections $222,018,980.33 2,339,679.00 48,094,418.52 417,436.60 14,020,412.62 $ 6,807,322.63 4,499,179.50 563,890.43 $ 263,318.99 $221,755,661.34 2,339,679.00 1,762,458.11 53,139,283.04 132,770.60 4,783,845.50 495,685.95 14,088,617.10 Total Assets Being Depreciated $286,890,927.07 $ 11,870,392.56 $ 2,654,233.65 $296,107,085.98 Less: Accumulated Depreciation: Buildings and Building Improvements $ 86,289,203.46 $ 5,407,988.60 $ 111,910.58 $ 91,585,281.48 Facilities and Other Improvements 1,248, I06.20 91,405.19 1,339,511.39 Equipment 30,098,086.64 4,777,532.90 1,512,490.49 33,363,129.05 Capital Leases 283,779.00 741,440.76 118,379.23 906,840.53 Library Collections 9,154,621.00 758,752.02 495,685.95 9,417,687.07 Total Accumulated Depreciation $127,073,796.30 $11,777,119.47 $ 2,238,466.25 $136,612,449.52 Total Capital Assets, Being Depreciated, Net $159,817,130.77 $ 93,273.09 $ 415 767.40 $159,494,636.46 Capital Assets, Net $168,815 412.70 $ 2 356,185.51 $ 415,767.40 $170,755 830.81 - 21 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 7: DEFERRED REVENUE The College's Deferred revenue consisted of the following at June 30, 2004. Prepaid Tuition and Fees Research Other Deferred Revenue $ 3,489,231.21 15,801,096.20 110,669.79 Totals $ 19.400.997.20 NOTE 8: LONG-TERM LIABILITIES The College's Long-Term liability activity for the year ended June 30, 2004 was as follows: Beginning Balance July I, 2003 Additions Reductions Ending Balance June 30, 2004 Current Portion Leases Lease Obligations $ 259,673.56 $ 4,499,179.50 $ 749,525.82 $ 4,009,327.24 $ 1,336,043.98 Other Liabilities Compensated Absences 20,841,898.00 16,174,056.45 13,988,073.36 23,027,881.09 11,614,719.86 Total Long-Term Obligations $ 21 101 571.56 $ 20 673,235.95 $ 14 737 522.18 $ 27,Q37,208.33 $ 12,250,763.84 NOTE 9: SIGNIFICANT COMMITMENTS The College had significant unearned, outstanding, construction or renovation contracts executed in the amount of $5,671,498.00 as of June 30, 2004. This amount is not reflected in the accompanying basic financial statements. NOTE 10: LEASE OBLIGATIONS Medical College of Georgia is obligated under various operating leases for the use 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 monthly installments and have terms expiring in various years between 2005 and 2009. Expenses for fiscal year 2004 were $835,056.19 of which $85,530.37 represented interest. Total principal paid on capital leases was $749,525.82 for the fiscal year ended June 30, 2004. Interest rates range from 3.25 percent to 3.90 percent. The following is a summary of the carrying values of assets held under capital lease at June 30, 2004: Equipment $ 3,877,004.97 - 22 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 10: LEASE OBLIGATIONS CAPITAL LEASES 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. Medical College of Georgia has various leases for equipment with an outstanding balance at June 30, 2004 in the amount of $4,009,327.24. OPERATING LEASES Medical College of Georgia's noncancellable operating leases having remaining terms of more than one year expire in fiscal year 2006. All agreements are cancellable if the State of Georgia does not provide adequate funding, but that is considered a remote possibility. In the normal course of business, operating leases are generally renewed or replaced by other leases. Operating leases are generally payable on a monthly basis. Examples of property under operating leases are copiers and other small business equipment. Noncancellable operating lease expenditures in fiscal year 2004 were $6,564.00 for real property. FUTURE COMMITMENTS Future commitments for capital leases (which here and on the Statement of Net Assets include other installment purchase agreements) and for noncancellable operating leases having remaining terms in excess of one year as of June 30, 2004, were as follows: Capital Leases Operating Leases Year Ending June 30: 2005 2006 2007 2008 2009 Total NOTE 11: RETIREMENT PLANS $ 1,336,043.98 $ 924,046.10 832,191.05 803,085.68 113,960.43 $ 4,009,327.24 $ 6,564.00 6,564.00 13,128.00 TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description Medical College of Georgia 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 - 23 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS TEACHERS RETIREMENT SYSTEM OF GEORGIA Plan Description 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 Georgia Department of Audits and Accounts. Funding Policy Employees of Medical College of Georgia who are covered by TRS are required by State statute to contribute 5% of their gross earnings to TRS. Medical College of Georgia 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 2003 2002 100% 100% 100% $12,164,375.94 $11,850,917.51 $11,359,998.41 EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Plan Description Medical College of Georgia participates in the Employees' Retirement System of Georgia (ERS), a single-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. All other members are "new plan" members subject to the modified plan provisions. 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 65. If 10 years of service is completed and age 60 is reached, the member may retire with a reduced benefit. Additionally, there are certain provisions allowing for retirement after 25 years of service regardless of age. - 24- MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EMPLOYEES' lIBTIREMENT SYSTEM OF GEORGIA Plan Description 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 statue, 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 College's payroll for the year ended June 30, 2004, for employees covered by ERS was $233,288.00. The College's total payroll for all employees was $239,533,881.56. Under the old plan, member contributions consist of 7.16% of annual compensation. Of these member contributions, the employee pays the first 1.5% and the College pays the remainder on behalf of the employee. Under the new plan, member contributions consist solely of 1.5% of annual compensation paid by employee. The College also is required to contribute at a specified percentage of active member payroll determined annually by actuarial valuation. For the year ended June 30, 2004, the ERS employer contribution rate for the College amount to 10.41% of covered payroll and included the amounts contributed on behalf of the employees under the old plan referred to above. Employer contributions are also made on amounts paid for accumulated leave to retiring employees. Total contributions to the plan made during fiscal year 2004 amounted to $27,802.65, of which $24,285.15 was made by the College and $3,517.50 was made by employees. These contributions met the requirements of the plan. - 25 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA Actuarial and Trend Information Actuarial and historical trend information is presented in the ERS June 30, 2004, financial report, which may be obtained through ERS. 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. 4721-1 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 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 Medical College of Georgia 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 2004, the employer contribution was 10.03% of the participating employee's earnable compensation. Employees contribute 5% of their earnable compensation. Amounts attributable to all plan contributions are fully vested and nonforfeitable at all times. Medical College of Georgia and the covered employees made the required contributions of $6,735,777.31 (10.03%) and$ 3,357,172.12 (5%), respectively. GEORGIA DEFINED CONTRIBUTION PLAN Plan Description Medical College of Georgia 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. -26- MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS GEORGIA DEFINED CONTRIBUTION PLAN 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 $ 3,500.00 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 and Vesting Member contributions are seven and one-half percent (7.5%) of gross salary. There are no employer contributions. Contribution rates are established by State statute. Earnings are credited to each member's account in a manner established by the Board of Trustees. Upon termination of employment, the amount of the member's account is refundable upon request by the member. Total contributions made by employees during fiscal year 2004 amounted to $217,707.80 which represents 7.5% of covered payroll. These contributions met the requirements of the plan. EARLY RETIREMENT PENSION PLAN Plan Description The Medical College of Georgia (MCG) Early Retirement Pension Plan (ERP) is a singleemployer defined benefit pension plan administered by Buck Consultants. The plan was devised by MCG as a means of manpower reduction and was approved by the Board of Regents of the University System of Georgia (BOR) effective January 1, 2000. The manpower reduction plan was designed to allow vested employees aged 55 or employees of any age with 25 years of creditable service to retire without penalties as applied by the Teachers Retirement System of Georgia (TRS) for early retirement. The plan would allow for all participants to retire as if they were vested and aged 60 or had attained 30 years of creditable service. No other benefits will be paid by this plan. A financial statement is maintained by the Medical College of Georgia, Controller's Division, and is available for review during normal business hours. Funding Policy The plan is to be funded by the purchase of an annuity utilizing salary savings of departed employees. The funding period for the annuity is 15 years. The fund sources that provided for - 27 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EARLY RETIREMENT PENSION PLAN Funding Policy an employees salary, as of December 31, 1999, would be responsible for funding the annuity to provide the retiree benefits. There is no additional funding cost to the employee/retiree, BOR, or the State of Georgia for this plan. Since this plan was not pre-funded, MCG is taking an aggressive approach to collect and deposit as much into the annuity fund in the earlier years as is possible, thereby realizing a greater return on investment. Annual Pension Cost and Net Pension Obligation The ERP's annual pension cost and net pension obligation for fiscal year 2004 was as follows: Total MCG Other Units Annual Required Contribution Interest on Net Pension Obligation Adjustments on Annual Required Contributions $ 15,260,789.00 $ 8,235,882.56 $ 7,024,906.44 -693,403.25 -645,601.23 -47,802.02 I, 195,222.24 1,112,825.69 82,396.55 Annual Pension Cost $ 15,762,607.99 $ 8,703,107.02 $ 7,059,500.97 Contributions Made -15,848,347.28 -8,613,230.00 -7,235,117.28 Increase (Decrease) in Net Pension Obligation $ -85,739.29 $ 89,877.02 $ -175,616.31 Net Pension Obligation Beginning of Year -9,245,376.60 -8,608,016.38 -637,360.22 Net Pension Obligation End of Year $ -9,331,115.89 $ -8,518, 132.36 $ -812,276.53 - 28 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 11: RETIREMENT PLANS EARLY RETIREMENT PENSION PLAN Annual Pension Cost and Net Pension Obligation Three-Year Trend Information FY2004 Total MCG Other Units Annual Pension Cost (APC) $ 15,762,607.99 $ 8,703,107.02 $ 7,059,500.97 Percentage of APC Contributed 100.54% 98.97% 102.49% Net Pension Obligation End of Year $ -9,331,115.89 $ -8,518,139.36 $ -812,976.53 FY 2003 Total MCG Other Units Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation $ 15,723,093.77 $ 8,676,620.11 $ 7,046,473.66 97.63% 93.53% 102.68% $ -9,245,376.60 $ -8,608,016.38 $ -637,360.22 FY2002 Total MCG Other Units Annual Pension Cost (APC) (1) Percentage of APC Contributed Net Pension Obligation $16,394,952.15 $ 9,023,758.08 $ 7,371,194.07 96.68% 95.32% 98.35% $ -9,618,485.37 $ -9,169,768.49 $ -448,716.88 ( l) Prior to fiscal year 2003, actuarial benefit valuations and annual required contributions were determined using the Unit Credit actuarial cost method. As a result of the change in fiscal year 2003 to the Entry Age actuarial cost method, the fiscal year 2002 Annual Pension Cost (APC) and year end Net Pension Obligation as reported in the three-year trend information above have been adjusted for the effects ofthis change in actuarial valuation methods. The annual required contribution for the current year was determined as part of the November 20, 2002 actuarial valuation using the Entry Age actuarial cost method. The remaining amortization period is 13 years utilizing the Level Dollar, Closed method. The asset valuation method is 5 year smoothed market value. The actuarial assumptions included (a) 7.5% rate of return on investment, (b) annual inflation of 3.5%, and (c) annual cost of living increases of 3.0%. -29 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 12: RISK MANAGEMENT Medical College of Georgia is a participant in the Board of Regents of the University System of Georgia Health Benefits Plan, which is a self-insurance program of health and dental benefits for employees and retirees of the University System of Georgia. Medical College of Georgia and participating employees and retirees pay premiums to the Health Benefits Plan for this health insurance coverage. The Health Benefits Plan is 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 of the Health Benefits Plan. The Health Benefits Plan is considered a self-sustaining risk fund that provides health coverage for its members up to a maximum lifetime benefit of $2,000,000.00 per person and dental coverage up to an annual maximum of $1,000.00 per person. The Board of Regents has contracted with Blue Cross Blue Shield of Georgia to process claims in accordance with the Health Benefits Plan as established by the Board of Regents. 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. Medical College of Georgia, 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 Medical College of Georgia expects such amounts, if any, to be immaterial to its overall financial position. - 30 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 13: CONTINGENCIES Litigation, claims and assessments filed against Medical College of Georgia (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, 2004. NOTE 14: POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS Pursuant to the general powers conferred by the Official Code of Georgia Annotated Section 203-31, 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 University System 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. As of June 30, 2004, there were 2,692 employees who had retired or were disabled that were receiving these post-employment health and life insurance benefits. For the year ended June 30, 2004, Medical College of Georgia recognized as incurred $6,192,986.32 of expenditures, which was net of $2,387,060.91 of participant contributions. NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The College's operating expenses by functional classification are shown below: - 31 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 15: NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS Statement of Operating Expenses - Natural vs Functional Classifications For the Fiscal Year Ended June 30, 2004 Functional Classification Natural Classification Salaries Faculty Staff Employee Benefits Travel Scholarship and Fellowships Utilities Supplies and Other Services Depreciation Instruction Research Public Service Academic Su1mort Student Services Institutional Su1mort $35,845,490.10 23,403,065.66 16,613,786.84 703,906.34 $ 7,228,534.70 10,320,546.35 3,677,816.35 578,097.29 $37,195,711.17 30,722,250.53 11,313,406.48 253,896.61 $ 1,594,280.62 $ 22,877.03 $ 25,084.25 8,965,947.31 1,153,454.60 9,929,364.63 5,463,857.95 283,728.44 11,447,952.10 146,574.06 23,120.64 147,208.57 436,682.50 752,795.95 2,425.32 71,729.80 23,863.82 431,193.93 22,092.00 201,432.25 5,999.97 19,414.02 181,679.10 11,742,359.66 8,307,856.50 11,564,880.50 348,885.60 6,605,225.86 176 125.34 3,305,259.62 1,021,284.74 1,003,464.37 38 340.61 4,697,054.43 585 494.10 Total Operating Expenses $ 97,805 943.55 $ 33 792 915.91 $ 86 721,673 74 $20 720 728 55 $ 2 550 399.68 $ 27013837.18 Natural Classification Salaries Faculty Staff Employee Benefits Travel Scholarship and Fellowships Utilities Supplies and Other Services Depreciation Total Operating Expenses Plant Operations and Maintenance Functional Classification Scholarship and Fellowshigs Auxiliary Entemrises Patient Care Total Operating Exgenses $ 3,863,446.25 1,084,355.44 4,709.40 $ 64,018.46 1,881,618.00 579,728.40 10,047.01 $ 5,510,540.70 61,807,651.20 15,951,313.30 204,420.55 $ 87,486,537.03 152,047,344.53 66,415,945.30 2,071,980.47 $ 1,574,924.58 3,405,740.83 71,554.32 260,801.32 2,065,988.19 5,396,341.52 1,483,979.55 51 481.28 3,764,649.44 1,247,651.30 74,932,234.85 119,099,108.28 11 777 119.47 $ 9 893 712 7_5 $ 1 574,924.58 $ 7_ 619 266.93 $158,666 961.92 $446 360 364 7_9 NOTE 16: COMPONENT UNITS Medical College of Georgia Foundation, Inc. (Foundation) is a legally separate, tax-exempt component unit of Medical College of Georgia (College). The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the College in support of its programs. The thirty-eight member Board of Directors including fourteen ex officio members has the legal responsibility to govern the corporation. Although the College does not control the timing or amount of receipts from the Foundation, the majority of resources and income that the Foundation holds and invests are 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. 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 - 32 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS 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 $6.6 million to the College for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the Alumni Center at 919 15th Street, Augusta, Georgia 30912 or from the Foundation's website at www.mcgfoundation.org. Investments for Component Units Medical College of Georgia Foundation, Inc. holds endowment investments in the amount of $91.2 million. The corpus of the endowment is nonexpendable, but the earnings on the investment may be expended as restricted by the donors. The Foundation, in conjunction with the donors, disburses funds that are used to provide financial assistance to students as well as maintain and improve the high standard of instruction, advance study and research at the Medical College of Georgia. Medical College of Georgia Dental Foundation Medical College of Georgia Dental Foundation (Foundation) is a legally separate, tax-exempt component unit of Medical College of Georgia (College). The Foundation receives and manages funds that are ultimately used to maintain and improve the high standard of instruction at the Medical College of Georgia Dental School. Substantially all revenue of the Foundation is received from clinical and patient fees for dental services performed for the public by resident and faculty of the College. The Foundation does not have any employees, and depends on the College for staff support. Resources of the Foundation are used for research and advanced study at the Medical College of Georgia. 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 are restricted to the activities of the College. 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. 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 from March 1, 2003 through February 29, 2004. - 33 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS Medical College of Georgia Dental Foundation During the year ended February 29, 2004, the Foundation distributed $1,393,903 to the College for both advanced study and research purposes. Complete financial statements for the Foundation can be obtained from the Administrative Office of Medical College of Georgia, School of Dentistry, AD 1104, Augusta, Georgia 30912. Medical College of Georgia Dental Foundation holds investments in the amount of $2.8 million. The Foundation's by-laws allow the annual increases in net assets to be used for support of the Dental School. The Foundation has established a spending plan whereby 75% of earnings are used for Dental School support, 10% are used for the Dental School Dean's Fund, and 15% are used for Dental School departmental support. Medical College of Georgia Research Institute The Medical College of Georgia Research Institute (Institute) is a legally separate, tax-exempt component unit of the Medical College of Georgia (College). The Institute was established in 1980 to contribute to the educational, research and service functions of the Medical College of Georgia. Managed by an Executive Committee reporting to a twenty-seven member Board of Directors, the Institute obtains contracts from individuals, industrial, government and public agencies for the performance of sponsored research, development, and other programs by the various departments and units of the College. All research contracts awarded to the Institute are sub-contracted to the College, which is responsible for the fiscal administration of the research projects. Although the College does not control the timing or amount of activity, all grant awards are sub-contracted and managed by the College. Because of this special relationship, the Institute is considered a component unit of the College and is discretely presented in the College's financial statements. The Institute 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 Institute's fiscal year is July 1 through June 30. During the year ended June 30, 2004, the Institute sub-contracted $39.7 million of research programs to the College. Complete financial statements for the Institute can be obtained from the Administrative Office at 1120 15th Street, Augusta, Georgia 30912 or from the Institute's website at www.mcg.edu/grantscontracts/mcgri. The Medical College of Georgia Research Institute holds investments of $99,000.00. These funds are used to support research related activities at the Medical College of Georgia. - 34 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS Medical College of Georgia Physicians Practice Group Foundation The Medical College of Georgia Physicians Practice Group Foundation (PPG) is a legally separate, tax-exempt component unit of the Medical College of Georgia (College). The PPG acts primarily as a nonprofit organization for the purpose of enhancing the clinical, research, and educational missions of the College and billing and collecting for medical services provided to patients. Revenues are obtained primarily from physician fees charged to patients at Medical College of Georgia Hospital and Clinics, which is operated by Medical College of Georgia Health Inc. The PPG Properties, LLC is a limited liability company formed in 2001 by PPG to manage real estate rental properties. PPG Alternative Collections, LLC is a limited liability company formed in 2003 by PPG to bill and collect for anesthesia services provided to patients. PPG is the sole partner and has sole voting control of both LLC's. Because the PPG's purpose is to support the clinical, research, and educational missions of the College, it is considered a component unit of the College and is discretely presented in the College's financial statements. The PPG is a private nonprofit organization that reports under FASB standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations with the exceptions as noted below. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. The PPG's consolidated financial statements have been prepared substantially on the basis of cash receipts and cash disbursements with the exception of the following: interest earned on investments, salary supplements due to College, incentive compensation, and retirement plan contribution expense are accounted for using the accrual method of accounting. Additionally, four-year scholarship awarded to College students are expensed in the year awarded, and property and equipment are capitalized and depreciated. Prior to fiscal year 2003, PPG recorded its investments in mutual funds, equity securities, and debt securities at amortized cost. On July 1, 2002, PPG elected to apply the provisions of Statement of Financial Accounting Standards (SFAS) No. 124, Accounting Investments Held by Not-for-Profit Organizations. SFAS No. 124 requires that investment in equity securities with readily determinable fair values and all investments in debt securities be reported at fair value with gains and losses included in a statement of activities. The adjustment to record its investments at fair value at the date of adoption was an unrealized loss of approximately $518,000 and is included in the statement of revenues collected and expenses paid for the year ended June 30, 2003. Other adjustments required under accounting principles generally accepted in the United Sates of America for the accrual basis of accounting have not been reflected in the accompanying financial statements, including the equity method of accounting for PPG's investments in a joint venture. The equity method of accounting requires that the carrying value of investments meeting certain criteria be adjusted to reflect the investor's share of the investee's income and losses with the income or losses included in a statement of activities. The FASB reports were reclassified to the GASB presentation for external financial reporting purposes in the financial statements. The PPG's fiscal year is July 1 through June 30. - 35 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS Medical College of Georgia Physicians Practice Group Foundation During the year ended June 30, 2004, the PPG distributed $48,935,000 to the College for salaries and departmental support. Complete financial statements for the PPG can be obtained from the Administrative Office at 1499 Walton Way, Suite 1400, Augusta, Georgia 30901. The Medical College of Georgia Physicians Practice Group Foundation holds investments in the amount of $39.7 million. These funds are used to support the salaries and department activities at the Medical College of Georgia. Medical College of Georgia Health, Inc. Medical College of Georgia Health, Inc. (Company) is a legally separate, tax-exempt component unit of Medical College of Georgia (College). The Company is organized to further the health sciences, patient care, research, and education missions of the Medical College of Georgia Hospitals and Clinics (Hospital). The Hospital, which is owned by the Board of Regents of the University System of Georgia (Regents), consists of a 632 licensed bed acute care hospital and related outpatient care facilities principally located in Augusta, Georgia. Because of the special relationship with the College, the Company is considered a component unit and is discretely presented in the College's financial statements. The Company utilizes the accrual basis of accounting using the economic resources measurement focus. Pursuant to, and as permitted by GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Company has elected to apply the provisions of all relevant pronouncements of the Financial Accounting Standards Board (FASB), including those issued after November 30, 1989, that do not conflict with or contradict GASB pronouncements. The Company's fiscal year is July 1 through June 30. Complete financial statements for the Company can be obtained from the Administrative Office at 1120 15th Street, Augusta, Georgia 30912. The Medical College of Georgia Health, Inc. (Company) holds investments in the amount of $81.6 million. These funds are used to support on-going operations. Long-Term Liabilities for Component Units The Medical College of Georgia Health, Inc. is the lessee of certain equipment under noncancellable leases expiring in various years through 2008. Interest rates range from 5.45% to 6.68%. Professional liability is the self-insured portion of professional liability risks. Accrued professional liability costs are determined actuarially. - 36 - MEDICAL COLLEGE OF GEORGIA NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004 EXHIBIT "D" NOTE 16: COMPONENT UNITS Long-Term Liabilities for Component Units Changes in long-term liabilities for component units for the fiscal year ended June 30, 2004 are shown below: Leases Lease Obligations Other Liabilities Professional Liabilities Total Long-Term Debt Beginning Balance Jul:t 1, 2003 Additions Reductions Ending Balance June 30, 2004 Amounts Due Within One Year $ 2,046,548.00 $ 1,007,868.00 $ 959,703.00 $ 2,094,713.00 $ 652,779.00 3,462,000.00 2,866,000.00 6,328,000.00 $ 5.508 548 00 $ 3 873.868 00 $ 959.703 00 $ 8,422.713.00 $ 652 779 00 Annual debt service requirements to maturity for capital leases are as follows: Year Ending June 30: 2005 2006 2007 2008 Lease Obligations PrinciQal Interest Total $ 652,778.80 $ 108,239.28 $ 761,018.08 642,371.48 70,881.60 713,253.08 613,216.22 32,434.23 645,650.45 186,346.50 5,697.22 192,043.72 $ 2,094,713.00 $ 217,252.33 $ 2,311,965.33 - 37 - SUPPLEMENTARY INFORMATION - 39 - MEDICAL COLLEGE OF GEORGIA SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) RESIDENT INSTRUCTION YEAR ENDED JUNE 30. 2004 SCHEDULE "1" REVENUES State Appropriations Other Revenues Retained BUDGET ACTUAL (1) VARIANCEFAVORABLE (UNFAVORABLE) $ 107,032,481.00 $ 107,032,481.00 $ 342,015,147.00 341,070,401.52 0.00 -944 745.48 $ 449,047,628.00 $ 448.102,882.52 $ _ _ _-_94_4~,7_4_5._48_ EXPENDITURES Personal Services: Education, General and Departmental Services Sponsored Operations Operating Expenses: Education, General and Departmental Services Sponsored Operations Capital Outlay Special Funding Initiative Student Education Enrichment Program Research Consortium $ 106,264,676.00 $ 105,129,573.52 $ 189.964,519.00 194,157,215.94 33,664,071.00 116,429,867.00 694,671.00 1,603,065.00 326,759.00 100,000.00 29,047,228.32 110,906,552.26 745,216.25 1,603,044.47 326,721.10 94,900.12 1,135,102.48 -4, 1 9 2 , 6 9 6 . 9 4 4,616,842.68 5,523,314.74 -50,545.25 20.53 37.90 5,099.88 $ 449,047,628.00 $ 442,010,451.98 $ _ _ _7'-,0_37-',_17_6_.0_2 Excess of Revenues over Expenditures $ 6,092,430.54 $ ===6=,0=9=2=,4=3=0=.5=4 (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. See notes to the financial statements. - 41 - MEDICAL COLLEGE OF GEORGIA SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS) OTHER ORGANIZED ACTIVITIES YEAR ENDED JUNE 30. 2004 SCHEDULE "2" MEDICAL COLLEGE OF GEORGIA HOSPITAL AND CLINICS REVENUES Other Revenues Retained BUDGET ACTUAL(1) VARIANCEFAVORABLE (UNFAVORABLE) $ 193,500.00 $ 193,500.00 $ _ _ _ _ _o_.o_o EXPENDITURES Operating Expenses: Education, General and Departmental Services $ 193,500.00 $ 193,500.00 $ _ _ _ _ _o_.o_o Excess of Revenues over Expenditures $ 0.00 $ = = = = = =0.0=0 (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. See notes to the financial statements. -42- MEDICAL COLLEGE OF GEORGIA SCHEDULE OF REVENUES AND EXPENDITURES COMPARED TO BUDGET - (NON-GAAP BASIS} OTHER ORGANIZED ACTIVITIES YEAR ENDED JUNE 30. 2004 SCHEDULE "2" GEORGIA RADIATION THERAPY CENTER REVENUES Other Revenues Retained BUDGET ACTUAL (1) VARIANCEFAVORABLE (UNFAVORABLE) $ 3,625,810.00 $ o.oo $ _ _-_3-'-.6_25....:.,a_1_0_.o_o EXPENDITURES Personal Services: Education, General and Departmental Services Operating Expenses: Education, General and Departmental Services $ 2,224,653.00 $ 1,401.157.00 $ 3,625,810.00 $ 0.00 $ 0.00 2,224,653.00 1,401,157.00 o.oo $ _ _ _3-'-,6_25....:.,a_1_0_.o_o Excess of Revenues over Expenditures $ 0.00 $ = = = = = =0.0=0 (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. See notes to the financial statements. -43- MEDICAL COLLEGE OF GEORGIA RECONCILIATION OF SALARIES AND TRAVEL YEAR ENDED JUNE 30. 2004 SCHEDULE "3" Totals per Annual Supplement Accruals June 30. 2004 Compensated Absences June 30, 2004 June 30, 2003 SALARIES TRAVEL $ 236,623.898.53 $ 2.071.980.47 879.343.84 21,391,436.22 -19,360, 797 .03 $ 239,533,881.56 $ 2,071,980.47 See notes to the financial statements. -45- SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS MEDICAL COLLEGE OF GEORGIA 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.