SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION…€¦ · The financial statements of Sonoma State ... The following discussion highlights management's understanding of the ... Sonoma

SONOMA STATE UNIVERSITY ACADEMIC

FOUNDATION, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

AND

FINANCIAL STATEMENT

JUNE 30,2006 AND 2005

Contents

INDEPENDENT AUDITOR'S REPORT

MANAGEMENT'S DISCUSSION AND ANALYSIS

FINANCIAL STATEMENTS

Statement of net assets 9

Statement of revenues, expenses and changes in net assets 10

Statement of cash flows 11-12

Notes to financial statements 13-36

I R MOSS ADAMS LLP Lr:) d

@ C E R T I F I E I ) P U B L I C A C C O U N T A N T S

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INDEPENDENT AUDITOR'S REPORT

Board of Directors Sonoma State University Academic Foundation, Inc. Rohnert Park, California

We have audited the accompanying basic financial statements of Sonoma State University Academic Foundation, Inc. (Foundation), a component unit of the California State University System, as of June 30, 2006 and 2005, as listed in the table of contents. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and,disclosure in 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of June 30, 2006 and 2005 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The management's discussion and analysis on pages 2 through 8, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.

Moss Adams LLP Eugene, Oregon August 23,2006

A member of Moores Rowland lnlernat~onal

accounting f~ rms throughout

Sonoma State University Academic Foundation, Inc. Management's Discussion and Analysis

June 30,2006

This section of the Sonoma State University Academic Foundation, Inc. (Foundation) annual financial report presents management's overview and analysis of the financial activities of the Foundation for the fiscal year ended June 30, 2006. We encourage the reader to consider the information presented here in conjunction with the financial statements as a whole.

Introduction to the Basic Financial Statements

This discussion and analysis is intended to serve as an introduction to the Foundation's audited financial statements, which are comprised of the basic financial statements (pages 9-12) and the footnotes (pages 13-36). This annual report is prepared in accordance with the Governmental Accounting Standards Board Statement 35, Basic Financial Statements - and Management's Discussion and Analysis - for Public Colleges and Universities.

The Business-Type Activity (BTA) reporting model has been adopted by the California State University (CSU) system for use by all of its member campuses. The CSU determined that the BTA model best represents the combined activities of the CSU and its auxiliary corporations.

The four auxiliary not-for-profit corporations serving Sonoma State University (University), of which the Foundation is one, have also adopted the BTA reporting model primarily for efficiencies gained in combining the four auxiliaries annual financial statements with the University and ultimately the combined CSU financial statements.

The required financial statements include the Statement of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. Notes to the financial statements, supplementary detail and/or statistical information, and this summary support these statements. All sections must be considered together to obtain a complete understanding of the financial picture of the Foundation.

The Foundation's financial statements include;

Statement of Net Assets: This statement includes all assets and liabilities using the accrual basis of accounting as of the statement date. The difference between the two classifications is represented as "Net Assets"; this section of the statement identifies major categories of restrictions on these assets and reflects the overall financial position of the Foundation as a whole.

Statement of Revenues, Expenses and Changes in Net Assets: This statement presents the revenues earned and the expenses incurred during the year using the accrual basis of accounting. Under accrual basis, all increases or decreases in net assets are reported as soon as the underlying event occurs, regardless of the timing of the cash flow. Consequently revenues and/or expenditures reported during this fiscal year may result in changes to cash flow in a future period.

Statement of Cash Flows: This statement reflects inflows and outflows of cash, summarized by operating, capital, financing and investing activities. The direct method was used to prepare this information, which means that gross rather than net amounts were presented for the year's activities.


June 30,2006

Notes to the Financial Statements: This additional information is essential to a full understanding of the data reported in the basic financial statements.

Reporting Entity

The financial statements of Sonoma State Universitjr will be separated between the University and its component units. The latter are separate I.R.C. 501(c)(3) not-for-profit, tax-exempt auxiliary corporations established to support and further the mission of the University.

The auxiliary corporations financial information will be presented in a discrete column and in the footnotes of the University's financial statements. Consequently, these auxiliaries must comply with the same governmental rulings and must present their individual separate audited financial statements in the same format.

Analytical Overview Summary

The following discussion highlights management's understanding of the key financial aspects of the Foundation's activities.

Included in management's discussion is an analysis of current year activities and balances; a discussion of restrictions of Foundation net assets; a discussion of capital assets and long term debt; and factors impacting future reporting periods.

Condensed S u m m a r y o f N e t Assets

Assets: Current assets $ 5,023,250 $ 9,470,840 $ 20,6 15,6 1 1 Restricted cash and cash equivalents 4,139,325 27,934,44 1 -- Other noncurrent assets 69,886,733 36,674,44 1 33,820,223

Total assets 79,049,308 74,079,722 54,435,834

Liabilities: Current liabilities 1,614,855 926,008 945,654 Long-term debt 12,697,480 12,7 15,285 - - Other noncurrent liabilities 5,604,23 8 5,552,6 13 5,667,671

Total liabilities 19,916,573 19,193,906 6,613,325

Net assets: Invested in Capital Assets Restricted, nonexpendable Restricted, expendable Unrestricted

Total net assets


June 30,2006

Assets

Current assets

Overall, current assets decreased by $4.4 million. The net decrease resulted from the July 2005 noncurrent investment of $5 million as a demand deposit with the University, and net transfers from long term investments into the short-term bond fund.

Noncurrent assets

Noncurrent assets are separated into categories: restricted cash and cash equivalents and other noncurrent assets.

Restricted cash and cash equivalents represent funds held by the Bank of New York for the Green Music Center Concert Hall. The $4.1 million includes $2.9 million in the construction fund and 1.2 million in the debt reserve accounts for interest payments. Over the year, the Foundation transferred $939 thousand dollars to the Bank of New York construction account. This represents collections of pledges and new contributions for the Green Music Center. $25 million of the June 30, 2005 restricted cash and cash equivalents balance was invested in debt securities (other noncurrent assets) during August 2005. These investments are restricted to the Green Music Center project.

Other noncurrent assets increased by $33 million; $25 million Green Music Center investment, $5 million demand deposit, new contributions, unrealized appreciation and reinvested investment income.

See the notes for furtherdetails on capital assets.

Liabilities

Current liabilities increased approximately $700 thousand over the prior year. This increase is the result of a deferred donation received by the Foundation. The donation was received, however, a final agreement regarding the purpose was not concluded at June 30,2006.

Long term debt is relatively unchanged from the prior year. Long- term debt of $12.7 million represents debt associated with the issuance of The Sonorna State University Academic Foundation, Inc. Auxiliary Organization Revenue Notes (Green Music Concert Hall), Series 2005, issued March 1, 2005. See the notes for further details on long term debt.

Other noncurrent liabilities represent the Foundation's liability to its charitable remainder trust beneficiaries.


June 30,2006

Net assets

Total net assets increased by $4.2 million, resulting from gifts received and investment income, less expenditures and transfers for University support. The Foundation's net assets at June 30, 2006 consisted of:

Invested in capital assets, net. of related debt - $1,099,37 1; represents the investment in townhouses net of accumulated depreciation. These townhouses had previously been included in the non-expendable endowments net asset category.

Restricted for:

Non-expendable - endowments of $ 27,375,602; represents endowments created by a multitude of donors over time. These endowments provide a perpetual stream of annual income in support of University academic and academic related programs and scholarships.

Expendable:

Scholarships of $488,389; represents donations and annual endowment revenue distributions.

Debt service of $1,066,736; represents restricted cash and cash equivalents for the interest payments on the notes of $1.193 million less accrued interest expenses of $126,500.

Other of $24,637,393; represents a variety of University department programs that receive direct donations and the Green Music Center Concert Hall funds.

Unrestricted of $4,465,244; represents the general fund cumulative net revenue and net realized and unrealized capital gains. This category is not restricted by external restrictions. Its use is designated by management or the Board of Directors of the Foundation. The net general fund revenue is designated as an operational reserve and the capital gains are considered intergenerational growth and inflation hedge for long-term investments.


June 30,2006

J u n e 3 0 , 2 0 0 6 J u n e 3 0 , 2 0 0 5 J u n e 3 0 , 2 0 0 4

R e v e n u e s a n d e x p e n s e s : O p e r a t i n g r e v e n u e s O p e r a t i n g e x p e n s e s

N e t o p e r a t i n g r e v e n u e ( l o s s )

N o n - o p e r a t i n g r e v e n u e s ( e x p e n s e s ) G i f t s , n o n c a p i t a l 1 , 4 9 8 , 4 8 0 3 , 0 0 3 , 6 1 7 3 , 7 9 6 , 8 8 9 I n v e s t m e n t i n c o m e , n e t 9 1 2 , 1 5 2 8 3 3 , 6 3 3 2 , 8 5 2 , 2 8 8 E n d o w m e n t i n c o m e 2 , 8 3 0 , O 1 1 1 , 5 6 3 , 5 9 8 7 1 8 , 8 2 4 O t h e r n o n o p e r a t i n g r e v e n u e s ( e x p e n s e s ) ( 4 0 1 , 7 5 7 ) ( 2 8 9 , 6 1 4 ) 5 3 2 , 5 9 4

N e t n o n o p e r a t i n g r e v e n u e s 4 , 8 3 8 , 8 8 6 5 , 1 1 1 , 2 3 4 7 , 9 0 0 , 5 9 5

I n c o m e b e f o r e o t h e r a d d i t i o n s 3 , 5 7 0 , 4 4 9 4 , 7 5 5 , 6 4 2 7 , 9 3 0 , 5 6 2

G i f t s , c a p i t a l ( 6 0 , 7 0 8 ) ( 6 2 , 9 2 2 ) A d d i t i o n s t o p e r m a n e n t e n d o w m e n t s 7 3 7 , 1 7 8 2 , 3 0 7 , 6 6 5 1 , 5 7 9 , 2 9 2

0 t h e r r e v e n u e ( e x p e n s e s ) 6 7 6 , 4 7 0 2 , 3 0 7 , 6 6 5 1 , 5 1 6 , 3 7 0

I n c r e a s e in n e t a s s e t s

The increase in net operating loss of approximately $1 million is the result of an expenditure increase in support for the academic programs and a reduction in overall operating revenues.

Non-operating revenues decreased slightly, the decrease in gifts being offset by greatly improved investment return performance.

Gifts, nonkapital, of $1.4 million, is the net of gifts into the Foundation and gifts fi-om the Foundation to the University. These gifts do not include donations that support the endowments. Those gifts are reported as additions to endowments in the Statement of Revenues, Expenses and Changes in Net Assets.

Gifts to the Foundation to support programs and scholarships were over $2.7 million this year. These gifts may include direct gifts, matching gifts, pledges and gift annuities held at the California State University Foundation.

Gifts for the Green Music Center Academic Programs Scholarships Unrestricted Gift Annuities

Total Gifts to the Foundation


June 30,2006

Foundation gifts to the University were approximately $1.2 million. These gifts represent donations from the Foundation to the University in support of a variety of academic departments, scholarships, and for the Green Music Center. This year transfers consisted of:

2006 Scholarships $ 564,982

Academic Programs

Green Music Center

Total Gifts to the University $ 1,205,049

Investment income, net was $912 thousand. This income is the ordinary income, realized and unrealized gains or losses on investments, premium interest amortization and management fees for non-endowment investments. The primary investments that generated these results are the Green Music Center Bank of New York money market and bond holdings and the Morgan Stanley Active Assets. Net ordinary income generated from the Green Music Center was $841 thousand. This is the net of $1 .011 million in revenue and an unrealized fair market value loss on the Bank of New York bond holdings of $170,536. The impact of market value fluctuations on the bonds is mitigated since they are held until maturity.

The Morgan Stanley account had $66,536 unrealized gains. Other investment income is interest earnings on checking and the premium amortization on the bonds, which totaled $17,805 for the year.

2006

Investment income, Bank of New York $ 228,746 Investment income on bonds 802,198 Investment management fees (1 9,624) Other investment income 2,072

Realized gains, net of realized losses 2,760 Unrealized loss, net of unrealized gains (1 04,000)

Total investment, net $ 912,152

Endowment income, net was $2.8 million for the year, an increase of over $1.25 million from the prior year. This net income is ordinary income, realized and unrealized gains or losses on investments, and management fees for all endowment investments. Ordinary income, net of management fees on the endowments increased approximately $150 thousand, realized gains, net of realized losses decreased by approximately $400 thousand and unrealized gains, net of unrealized losses increased $1.5 million.

2006 Ordinary income, net of management fees $ 824,911 Realized gains, net of realized losses 473,062 Unrealized gains, net of unrealized losses 1,532,038

Total endowment income, net


June 30,2006

Additions to permanent endowments were $737 thousand. Additions to permanent endowments may include direct gifts, matching gifts, and gift annuities held at the California State University Foundation. Pledges made for endowments are not recorded until the actual gift has been made. The major gifts to endowments this year include $274 thousand received and held by the California State University Foundation, approximately $143 thousand received as additions to endowment charitable remainder trust, $248 thousand as contributions to endowments held by the Foundation and $72 thousand revenue recognized from the Charitable Remainder Trusts.

2006 Gifts held at the CSU Foundation $ 273,589 Additions and Changes to Charitable Remainder Trusts 215,531 Andrew Krantz Scholarship Endowment 32,325 Emmy Noether Fund 25,500 Wally Lowry Accounting and Finance 21,775 Donations of $5,000 or less 83,780 Donations between $5,000 and $20,000 84,678

Total additions to permanent endowments

The Foundation gifted to the University capital gifts valued at $60,708. These were two S W vehicles and an all terrain vehicle purchased and donated for the Galbreath Preserve;

Budgetary Highlights

The Foundation establishes a budget only for administrative expenses. The budget is approved annually by the Board of Directors.

Factors Impacting Future Periods

Construction of the Green Music Center, including the Green Music Center Concert Hall began late Spring 2006 with the Phase I contract of the concert hall foundation. All construction is expected to finish early 2008. Design and preliminary preparatory work began in spring 2005. The Green Music Center is a multi-purpose and multi-funded complex. It will consist of a world class concert hall, a music/faculty office building and a conference facility. Funding for the complex comes from private donations, California State obligation bonds and California State University system wide revenue bonds. The Foundation is assisting Sonoma State University in the planning and financing for the Green Music Center complex through on-going fundraising activities.

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. STATEMENT OF NET ASSETS

JUNE 30,2006 AND 2005

Assets:

Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Pledges receivable, net Prepaid expenses and other assets

Total current assets

Noncurrent assets: Restricted cash and cash equivalents Pledges receivable, net Endowment investments Other long-term investments Capital assets, net Other assets

Total noncurrent assets

Total assets

Liabilities:

Current liabilities: Accounts payable Accrued salaries and benefits payable Accrued compensated absences-current portion Other liabilities

Total current liabilities

Noncurrent liabilities: Accrued compensated absences, net of current portion Long-term debt obligations, net of current portion Other liabilities

Total noncurrent liabilities

Total liabilities

Net assets: Invested in capital assets, net of related debt Restricted for:

Nonexpendable-endowments Expendable:

Scholarships and fellowships Debt service Other

Unrestricted

Total net assets

The accompanying notes are an integral part of these statements. 9

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. STATEMENT OF REVENUES, EXPENSES AND CHANGES

IN NET ASSETS FOR THE YEARS ENDED JUNE 30,2006 AND 2005

Revenues: Operating revenues:

Grants and contracts, noncapital: Federal

Sales and services of educational activities Other operating revenues

Total operating revenues

Expenses:

Operating expenses: Instruction Public service Academic support Student services Institutional support Student grants and scholarships Depreciation

Total operating expenses Operating income (loss)

Nonoperating revenues (expenses):

Gifts, noncapital Investment income, net Endowment Income Ofher nonoperating revenues (expenses)

Net nonoperating revenues (expenses)

Income (loss) before other additions

Grants and gifts, capital Additions to permanent endowments

Total other additions

Increase (decrease) in net assets 4,246,9 19 7,063,307

Net assets: Net assets at beginning of year Net assets at end of year

The accompanying notes are an integral part of these statements. 10

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30.2006 AND 2005

Federal grants and contracts $ $ 480,824 Payments to suppliers (828,333) (874,205) Payments to employees (607,923) (1 13,749) Payment to students (7,7 10) (25,105) Sales and services of educational activities 23,742 1 18,703 Other operating receipts 186,59 1 5 16,526 Other operating payments (136,831)

Total cash from operating activities (1,233,633) (33,837)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

Gifts received Gifts made to the University Proceeds from issuance of revenue bonds Bond issuance costs incurred Interest paid Other nonoperating receipts

Total cash from noncapital activities

CASH FLOWS FROM INVESTING ACTIVITIES w

Sales and maturities of investments Purchase of investments Investment income received Investment expenses paid

Total cash from investing activities

NET CHANGE IN CASH AND CASH EQUIVALENTS (28,288,919) 33,787,378

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 34,148,5 19 361,141

CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,859,600 $ 34,148,519

€3 The accompanying notes are an integral part of these statements. 11

€!I

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. STATEMENT OF CASH FLOWS (Continued)

FOR THE YEARS ENDED JUNE 30,2006 AND 2005

CASH AND CASH EQUIVALENTS CONSIST OF: Current assets $ 1,720,275 $ 6,214,078 Restricted assets 4,139,325 27,934,44 1

Total $ 5,859,600 $ 34,148,519

RECONCILIATION OF OPERATING INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES

Operating income (loss)

Adjustments to reconcile operating income to net cash from operating activities: Depreciation Amortization

Change in assets and liabilities: Accounts receivable Prepaid expenses Accounts payable Accrued salaries Accrued compensated absences Other assets Other liabilities

Total adjustments

Net cash from operating activities

Non-cash transactions: Donation of equipment to the Foundation Equipment gifted to the University

The accompanying notes are an integralpart of these statements. 12

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. NOTES TO FINANCIAL STATEMENTS

(1) Organization

The Sonoma State University Academic Foundation, Inc., (Foundation) was established in 1974, as an auxiliary organization of the California State University system (the System), as defined in the California Education Code, Title V, Section 42400, to engage in activities furthering and enhancing the educational effectiveness of Sonoma State University (University) and supplement services provided by the State of California.

The Foundation manages assets and funds from the following programs and activities:

Campus programs and activities of the University departments and organizations. These activities are supported by restricted and unrestricted contributions and income generated from endowments. Expenditures and withdrawals are authorized and directed by the respective departments and organizations.

Endowments, consisting of money or other assets for which the donor has specified that the principal may not be expended.

The scholarship program provides scholarships and student aid to currently enrolled students. Support for this program is controlled and budgeted, subject to donor restrictions, by the Board of Directors.

The fiduciary trust program manages assets held in trust for donors under split interest agreements. Funds are disbursed to the beneficiaries under terms of the various trust documents.

(2) Summary of Significant Accounting Policies

(a) Financial Reporting Entiiy

The Foundation is a legally separate tax-exempt component unit of Sonoma State University (the University). The University is part of the California State University (CSU) System. The Foundation acts primarily as a fundraising organization to supplement the resources that are available to the University in support of its programs. The Foundation's board appointments require approval from the University President, and as a result, the Foundation follows the reporting principles promulgated by the Governmental Accounting Standards Board (GASB).

The financial statements present only the Statement of Net Assets, Statement of Revenues, Expenses, and Changes in Net Assets, and Statement of Cash Flows of Sonoma State University Academic Foundation, Inc. and do not purport to, and do not, present fairly the financial position of the California State University System as of June 30, 2006 and 2005 and its changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


(b) Basis of Presentation

The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB). Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met.

The basic financial statements required by Governmental Accounting Standards Board (GASB) Statements No. 34 and 35 include a statement of net assets, a statement of revenues, expenses, and changes in net assets, and a statement of cash flows. As a component unit of a public institution, The Foundation has chosen to present its basic financial statements using the reporting model for special-purpose governments engaged only in, business-type activities. The effect of internal activity between funds has been eliminated from these financial statements. In accordance with the business-type activities reporting model, The Foundation prepares its statement of cash flows using the direct method.

(c) Election of Applicable FASB Statements

The Foundation uses all applicable GASB pronouncements and all Financial Accounting Standards Board (FASB) Statements and Interpretations issued on or before November 30, 1989, unless these pronouncements conflict with or contradict GASB pronouncements. The Foundation has elected not to adopt the pronouncements issued by the FASB after November 30, 1989.

(4 Classification of Current and Noncurrent Assets and Liabilities

The Foundation considers assets to be current that can reasonably be expected, as part of its normal business operations, to be converted to cash and be available for liquidation of current liabilities within 12 months of the statement of net assets date. Liabilities that reasonably can be expected, as part of normal University business operations, to be liquidated within 12 months of the statement of net assets date are considered to be current. All other assets and liabilities are considered to be noncurrent.

(e) Cash Equivalents

The Foundation considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash and cash equivalents consist of checking accounts and money market funds.

@ Pledges Receivable

Unconditional pledges receivable are recorded as receivables and revenue. To be recorded, the pledge must be documented, reasonably measured and probable of collection. The Foundation distinguishes between contributions received for each asset category in accordance with donor-imposed restrictions. Pledges receivable are discounted to the anticipated net present value of future cash flows. Pledges received for endowments are not recorded until received in cash.


(g) Investments

Investments are reflected at fair value using quoted market prices, except for investments in land and real estate, which are reflected at cost. Realized and unrealized gains and losses are included in the accompanying statement of revenues, expenses, and changes in net assets as investment income, net.

It is the policy of the Foundation to invest all funds that are not required for day-to-day operations. The four general pools are current f~mds (working capital) funds, general endowment pool, special investment pool and charitable remainder pool. Certain types of investments are discouraged such as trading in commodities, interests in oil and gas wells, and limited partnerships. Although other types of investment methods may be considered, in no case are assets to be invested exclusively in trading in securities on margin, selling short, the selling and purchasing of warrants and options or derivatives, with the exception of convertible preferred, convertible bonds, FNMA or GNMA bond issues.

The investment goal of the general endowment pool is to achieve a total return (actual value minus inflation) that preserves the purchasing power of the assets, while generating sufilcient illcome to support the Foundation's campus accounts. The minimum total return objective for the portfolio shall be inflation plus five percent.

(h) Capital Assets

Capital assets are stated at cost or estimated historical cost if purchased, or if donated, at estimated fair value at date of donation. Capital assets, including infrastructure, with a value of $5,000 or more and with a useful life of one year or more are capitalized. Depreciation is computed using the straight-line method over the estimated usef~11 lives of assets, which range from five to thirty-five years.

Depreciation expense is shown separately in the statement of revenues, expenses, and changes in net assets rather than being allocated among other categories of operating expenses.

(i) Compensated Absences

Foundation employees accrue annual leave at rates based on length of service and job classification.

0) Net Assets

Sonoma State University Academic Foundation, Inc.'s net assets are classified into the following net asset categories:

Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets.

Restricted - nonexpendable: Net assets subject to externally imposed conditions that The Foundation retains them in perpetuity. Net assets in this category consist of endowments held by The Foundation.


Restricted - expendable: Net assets subject to externally imposed conditions that can be fulfilled by the actions of The Foundation or by the passage of time.

Unrestricted: All other categories of net assets. In addition, unrestricted net assets may be designated for use by management or the Board of Directors of The Foundation.

The Foundation has adopted a policy of generally utilizing restricted - expendable funds, prior to unrestricted funds, when an expense is incurred for purposes for which both are available.

(k) Classification of Revenues and Expenses

The Foundation considers operating revenues and expenses in the statement of revenues, expenses, and changes in net assets to be those revenues and expenses that result from exchange transactions or from other activities that are connected directly to Sonoma State University Academic Foundation, Inc.'s primary functions. Exchange transactions include charges for services rendered and the acquisition of goods and services. Certain other transactions are reported as non-operating revenues and expenses or capital contributions in

. accordance with GASB Statement 35. These non-operating activities include net investment income, gifts, and interest expense.

( I ) Income Taxes

The Foundation is a not-for-profit corporation and is exempt from federal and state income taxes under provisions of Section 501(c)(3) of the Internal Revenue Code. Continuance of such exemption is subject to compliance with laws and regulations of the taxing authorities. Certain activities considered unrelated to the tax exempt purpose of The Foundation may generate income that is taxable. No provision has been recorded for income taxes, as the net income, if any, from any unrelated business in the opinion of management, is not material to the basic financials statements taken as a whole.

(m) Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the accompanying financial statements. Actual results could differ from those estimates.

(n) Comparative data/reclass~ftcations

Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year's presentation. See Note 5.


(3) Cash, Cash Equivalents and Investments

The majority of the Foundation's cash and investments are pooled; however, separate accounting is maintained as to the amounts allocable to the various funds and programs.

i. Cash and Cash Equivalents

Cash and cash equivalents at June 30

Book balance $ 1,720,275 6,2 14,078

Bank balances 1,988,947 6,340,273

Difference between Book Balance and Bank $ (268,673) (126,195)

Significant reconciling items consist of: Deposits in Transit Outstanding Checks

Restricted cash and cash equivalents at June 30,2006 and 2005, respectively.

Restricted cash and cash equivalents at June 39

Portion o f restricted cash and cash equivalents

related to endowments

All other restricted cash and cash equivalents

Total restricted cash and cash equivalents

Restricted cash is held at the Bank of New York as part of the construction of the Green Music Center concert hall and debt-service payments on the notes payable that were issued on March 1, 2005. In August 2005, the Foundation invested $25 million of restricted cash into Federal Agency Coupon Securities.

ii. Composition of investments

Investments include demand deposits, real property, debt and equity securities, and notes from individuals and corporations. Debt and equity securities are reported at fair market value. All notes are secured by deeds of trust with the exception of one note to a related auxiliary (see Note 18). Changes in the fair value of investments are reported as part of Investment income, net in the Statement of Revenues, Expenses, and Changes in Net Assets.

Quoted market prices are used to value the Foundation's debt and equity investments. These quoted prices are estimates from financial institutions as of June 30,2006 and 2005.


Composi t ion of inves tments a t J u n e 30, 2006: C u r r e n t N o n c u r r e n t T o t a l

State of California Surplus Money Investment Fund $ State of California Local Agency Investment Fund Met West Short Term Fund Met West Medium Term Fund Met West Equity Fund Debt securities Equity securities

Fixed income securities (Treasury notes, GNM A's) Real estate Certificates of deposit Notes receivable Mutual funds Collateralized mortgage obligations:

Inverse floaters Interest-only strips Agency pass-throughs Private pass-through

Other investments: Demand Deposit Investment Annuity and life insurance Other collectibles

Total investments $ 679,583 64,264,290 64,943,873

Current investments are reported as Short-term investments on the Statement of Net Assets and totaled $679,583 at June 30,2006.

Noncurrent investments are reported as Endowment investments of $26,381,482 and Other long-term investments of $37,882,808 at June 30,2006.

$24,837,139 included in fixed income securities above is a restricted investment held by the Bank of New York in a bond trustee account. The 2005 Revenue Notes (Note 9 ) require donations received for the Green Music Center project to be deposited into this account for the future repayment of the bond in addition to capital expenditures for the project.


Composi t ion of investments a t J u n e 30, 2005: C u r r e n t Noncu r r en t Tota l -

State of California Surplus Money Investment Fund $ State of California Local Agency Investment Fund Met West Short Term Fund Met West Medium Term Fund Met West Equity Fund Debt securities Equity securities Fixed income securities (Treasury notes, GNMA's) Real estate Certificates of deposit Notes receivable Mutual funds Collateralized mortgage obligations:

Inverse floaters Interest-only strips Agency pass-throughs Private pass-through

Other investments: Demand Deposit Investment Annuity and life insurance Other collectibles

- - -

Total investments $ 636,245 3 1,846,597 32,482,842

Current investments are reported as Short-term investments on the Statement of Net Assets and totaled $636,245 at June 30,2005.

Noncurrent investments are reported as Endowment investments of $21,612,405 and Other long-term investments of $10,234,192 at June 30, 2005. In the prior year statements, Endowment investments included $1,133,787 in townhouses, net of accumulated depreciation. This property has been reclassified as Capital Assets for the current year presentation. See note 5.

iii. Investments held under contractual agreements:

The Foundation does not hold investments on behalf of others.


iv. Aggregated costs and fair values of debt, equity and real estate investments at June 30 are as follows:

2006 Cost Fair Value

Notes receivable with interest between 7.5% and 9.5% per annum, final maturies due on demand through October 2013, secured by deeds of trust with the exception of one note receivable (see Note 18) $ 9,680,016 $ 9,680,016 Demand deposit investment Mutual funds Equity Securities Debt & Fixed Income Securities Annuity and life insurance Other collectibles

Real property at cost includes the following: Undeveloped land

The Foundation has leased undeveloped land to the University since July 1, 2002. The University pays $99,000, per annum. This rental income is included in Other operatitig rt?venue.s on the Statement of Revenues, Expenses, and Changes in Net Assets. The lease terminates on June 30, 2008. The land is carried at cost of $884,584.

2005 Cost Fair Value

Notes receivable with interest between 7.5% and 9.5% per annum, final maturies due on deman through October 2013, secured by deeds of trust with the exception of one note receivable (see Note 14). $ 9,862,836 $ 9,862,836 Mutual funds 18,584,632 20,056,648 Equity securities 1,311,107 64 1,993 Debt and Fixed Income Securities 984,301 992,881 Annuitv and life insurance 18.900 18.900 Other dollectibles

Real property at cost includes the following: Undeveloped land 884,584 884,584


v. Deposit and Investment Risk

(a) Custodial Risk

Custodial credit risk is the risk that in the event of the failure of a counterparty, the Foundation would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party.

Financial instruments that potentially subject The Foundation to custodial risk consist primarily of bank demand deposits and investments in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investors Protector Corporation (SIPC). The Foundation places its cash investments, including savings accounts and money market funds with a number of high-credit, quality financial institutions to limit the exposure to loss by any one institution. The Foundation has cash, cash equivalent and restricted cash deposits with a bank balance of $6,138,273 at June 30, 2006, of which $5,685,481 is not covered by the FDIC or SIPC. The majority of this is restricted cash totaling $4,139,326 held at the Bank of New York as trustee for the Green Music Center project and the notes issued to fund the project. In August 2005, the Foundation purchased Federal Agency Coupon Securities which are held at the Bank of New York. The fair value of these investments is $24,837,139 at June 30, 2006.

Investments other than cash are held in the name of the Foundation.

(b) Concentration of Credit Risk

The Foundation does not limit the amount that may be invested in any one issuer. At June 30, 2006, the Foundatioil has $24,079,056 or 37% of its noncurrent iilvestmellts in the Common Fund. These investments are mutual hnds and are diversified into debt, equity, and realty funds. These funds are not rated, however, the Commoil Fund carries $50 million coverage for Errors and Omissioils (E&O) and Directors and Officcrs (D&O).

In August 2005, the Foundation invested restricted cash at the Bank of New York in Federal Agency Coupon Securities. At June 30, 2006, the fair market was $24,837,139, which represents 39% of the noncurrent investments.

At June 30, 2006, The Foundation has notes reccivable from three separate borrowers with balances representing 85% of the total notes receivable. These notes receivable are included in Endo~v~lzent investments and Otlter long-term investllzents in the Statement of Net Assets. These notes receivable are fully collateralized with the exception of the note from a related auxiliary (see Note 13), which has a principal balance or $5,5 13,230 at June 30,2006.

(c) Interest Rate Risk

Interest rate risk is the risk of exposure to fair value losses resulting fi-om rising interest rates. The Foundation has various types of fixed income investments.

Notes receivable. The notes have interest rates ranging from 7.5% to 9.5%. The notes receivable are private money and are not rated. As noted in (3) (vi) (c), these notes are fully collateralized with the exception of the note from a related auxiliary.


Mutual hild investments. The other investments subject to interest rate risk are bond funds, which are invested in mutual funds that mitigate interest rate risk through a multi- strateby approach. The mutual funds are also not rated.

Federal Agency Coupon Securities. The Foundation has 19 Federal Agency Coupon Securities with a Par Value of $25,180,000. The S & P ratings are AAA. The stated interest rates range from 2.625% to 6.625%. These securities will mature beginning in October 2006 and each month thereafter until April 2008. The fair value at June 30, 2006 was $24,837,139.

Demand deposit investment. In July 2005, the Foundation placed $5,000,000 on deposit with the University. This investment does not have a staled time, and may be terminated by either party upon 30 days written notice. The interest on this deposit is the prime rate, as posted in the Wall Street Journal, plus 1.25%. Interest is adjusted each calendar quarter. The minimum interest rate is 5.5% per annum. The actual interest rates earned this year ranged from 7.5% to 9.0%.

Investment Maturities (in Years) Investment Tvve Fair Value ~ e s s Than 1 1-5 6-10 More than 10

Federal Agency Coupon Securities $ 24,837,139 $ 13,360,177 $ 11,476,962 $ - $ 928,261 Totals $ 24,837,139 $ 13,360,177 $ 11,476,962 $ - $ 928,261

vi. Endowment investments

The Foundation receives endowment funds from donors that stipulate the principle of the gift (corpus) is not expendable. The corpus is to remain in perpetuity and to be invested in order to produce present and future income, which may be expended or added to the endowment principle. The endowment investment will also experience capital changes over time - additional contributions or gains and losses, both realized and unrealized (net appreciation). The Uniform Management Institutional Funds Act (LMIFA) authorizes the spending of net appreciation. California adopted this act in 1973. The Board of Directors has authority to authorize these expenditures, subject to any donor-imposed restrictions. The Foundation policy for the spending of investment illcome states a total-return goal of inflation plus five percent.

Undistributed endowment earnings are included in the Restricted, Expendable - Other net asset category.

Net capital gains, realized and unrealized, are reported in the Unrestricted net asset category on the Statement of Net Assets.


(4) Receivables

(i) Composition of accounts receivable

Accounts receivable at June 30,2006 consisted of the following:

Curren t

Due From SSU Accrued Interest Receivable

Total

2006 Noncurrent . Total

The accrued interest income was earned, but not received on the fixed income securities invested at the Bank of New York. These securities have stated interest rates ranging from 2.625% to 6.625%. These securities will mature beginning in October 2006 and each month thereafter until April 2008. The fair value at June 30, 2006 was $24,837,139. Interest payments are received monthly. Total investment income, net of purchased interest was $802,198 for the year ended June 30, 2006 and is included in Investment income, net in the Statement of Revenues, Expenses, and Changes in Net Assets.

Accounts receivable at June 30,2005 consisted of the following:

2005 Cur ren t Noncurrent Total

Due From SSU Other accounts receivable

Total

(ii) Pledges Receivable

Pledges receivable at June 30,2006 consisted of the following:

2006 Curren t Noncurrent Total

Year ending June 30, 2007 $ 2,474,504 - 2,474,504 Years ending June 30, 2008 through 2010 2,637,944 2,637,944

Thereafter - 145,979 145,979

Total Pledges at full pledged value $ 2,474,504 2,783,923 5,258,427

Less: Allowance for Uncollectible Pledges (1 23,725) (139,196) (262,92 1) Reduction in Noncurrent Pledges for Present Value

Total Pledges, Net


Pledges receivable at June 30,2005 consisted of the following: 2005

Current Noncurrent Total

Year ending June 30,2006 $ 2,724,532 - 2,724,532 Years ending June 30,2007 through 2010 2,074,770 2,074,770

Thereafter - 139.780 139.780

Total Pledges at full pledged value $ 2,724,532 2,214,550 4,939,082

Less: Allowance for Uncollectible Pledges (139,85 1) (96,595) (236,446) Reduction in Noncurrent Pledges for Present Value - (336,39 1) (336,391)

Total Pledges,Net $ 2,584,68 1 1,781,564 4,366,245

(5) Capital Assets (i) Composition of Capital Assets

Capital assets activity for the year ended June 30, 2006 consisted of the following:

Composition of capital assets at June 30,2006:

Nondepreciable capital assets Land and land improvements Works of art and historical treasures Consmction work in progress

Total n~nde~reciable capital assets Depreciable capital assets

Buildings and building improvements Improvements, other than buildings Infiasmchlre Leasehold improvements Personal properly:

Equipment Library books and materials

Intangible assets Total depreciable capital assets

Total cost Less accumulated depreciation:

Buildings and building improvements Improvements, other than buildings In ikmchl re Leasebold improvements Personal property:

Equipment Librarv books and materials

Balance June 30, Prior Period Reclassifi Balance June Reductio Transl Balance June

2005 Adjustments cations 30,2005 Additions ns ers 30,2006

Intangible assets - - - - - - - --- - Total accumulated depreciation (22,000) (4 13,037) - (435,037) (34,415) - - (469,452)

Net capital assets $ - 1,133,786 - 1,133,786 (34,415) - - --- S 1,099,371

In the prior year, the townhouses owned by the Foundation were reported as investments in the statement of net assets, and included in the nonexpendable endowment net asset category. This year, those assets are reported as capital assets, net and are in the invested in capital assets, net of related debt net asset category. The total long-term investments and total net assets are unchanged by this re-categorizing of the assets. Although this presentation restricts the reporting of this re-categorizing as a prior period adjustment, it is not an adjustment to prior year results and the total net assets as reported are unchanged.

Depreciation expense is $34,4.15 for the year ended June 30, 2006, and is included in Operating expenses in the Statement of Revenues, Expenses, and Changes in Net Assets.

24


Capital assets activity for the year ended June 30,2005 consisted of the following:

Composition ofcapital assets at June 30,2005:

Prior Period

Balance June Adjustmen Reclassification Balance June Reduclio Transfer Balance June 30, 30,2004 rS I 30,2004 Additions ns I 20D5

Nondepreciable capital assets Land and land improvements S - - - - - - - 6 - Works of an and historical heasures - - - - - - - -

Construction work in progress - - - - - - - -- - Total nondepreciable capital assets - - - - - - - -

Depreciable capital assets Buildings and building improvements - - - - - - - - Improvements, other than buildings - - - - - - - - Infrastructure - - - - - - - - Leasehold improvements - - - - - - - - Personal property: -

Equipment 22,000 - A 22,000 - - 22,000 Library books and materials - - - - - - -

Intangible assets - - - - - A - -- - - Total depreciable capital assets 22,000 - 22,000 - - - -- 22,000

Total cost 22,000 - 22,000 - - - -- 22,000 Less accumulated depreciation:

Buildings and building improvements - - - - - - - - Improvements, other than buildings - - - - - - - - Infrastructure - - - - - - - - Leaxhold improvements - - - - - - - -

Personal property: A

Equipment (22.000) - - (2?,000) - - - (22,000) Library books and materials - - - - - - - -

Intangible assets - - - - - - - -- - - Total accumulated depreciation (22,000) - (22,000) - - - -- (22;OOO)

Net capital assets S - - - - - - - -- - -- E

Depreciation expense is $36,172 for the year ended June 30, 2005, and is included in Operating expenses in the Statement of Revenues, Expenses, and Changes in Net Assets.

Rental income and associated costs on the townhouses, excluding depreciation expense and reserves for future repairs and maintenance, were as follows:

Rental Income

Expenses Utilities Repairs and Maintenance Homeowner association and management fees Property Taxes

Total Expenses

Net rental income before transfers Interfund transfers

Excess net rental income after interfund transfers $ - -


The townhouses are rented under leases of varying terms to the University's staff, faculty members, and visiting scholars for $1,450 per month. Rental income and associated expenses are recognized in a specific fund. The net revenues are transferred to the endowment fund for investment and then allocated to specific funds for disbursement. Fees equaling 5% of rents are paid to the University's Facility Services to manage the properties.

(6) Restricted investments and other assets

The Foundation is the beneficiary of several charitable remainder trusts (CRTs) whereby a donor contributes assets and designates beneficiaries to receive distribution for a period of time. The assets are invested in long-term notes receivable and are included in Other long-term investments in the Statement of Net Assets (see Note 1). The Foundation is the trustee on these agreements.

The assets from these charitable remainder trusts are recorded at fair value along with a liability for the present value of the estimated future payments expected to be made to the beneficiaries. The difference between the fair value of these assets and the liability to the beneficiaries is recognized as restricted contributions. Adjustments to the liability to reflect any revaluation of expected future payments to beneficiaries are made annually and recognized in the Statement of Revenues, Expenses and Changes in Net Assets as a change in value of charitable remainder trusts. The Foundation uses applicable mortality tables and discounts rates, which vary from 5.75% to 10% when revaluing the liability. The liability is included in Other liabilities (current and non-current).

The Foundation is also the remainder beneficiary of charitable remainder trusts that are administered by an.independent third party. The Foundation records an asset and a restricted contribution for its share of the assets based on the present value of the estimated future distributions expected to be received. On an annual basis, The Foundation revalues the asset and restricted contribution. Discount rates used for this purpose were approximately 8% at June 30, 2006. These assets are included in Other assets in the Statement of Net Assets.

The Foundation is the beneficiary of a perpetual trust agreement that is administered by an independent third party. The principal assets will remain part of the trust for perpetuity. The Foundation will receive a stream of income from this trust, which is included in Investment income, net in the Statement of Revenues, Expenses, and Changes in Net Assets. The trust's assets are recorded on the Statement of Net Assets at fair value under Other assets.


(7) Composition of Other Assets at June 30:

Beneficial Interest in Charitable Remainder Trusts $ 1,698,232 $ 1,618,458 Gift Annuities held at CSU Foundation 299,602 -

Cost of Issuance on notes payable, net of amortization 2 13,845 294,036 Total Other Assets $ 2,211,679 $ 1,912,494

The Foundation is the beneficiary of two charitable remainder trusts. The Foundation also has Gift Annuities that are held at the CSU Foundation. These assets are recorded at their present valuation. Each year, these assets increase and revenue is recognized. The contribution revenue is included in Gifts, noncapital, on the statement of revenues, expenses and changes in net assets.

The costs of issuance for the notes that were issued in March 2005 totaled $320,767, and are amortized over the life of the notes. The amortization expense is $80,192 and $26,371 for the years ended June 30, 2006 and 2005 and is included in Other non-operating expense in the statement of revenues, expenses and changes in net assets.

(8) Composition of Other Liabilities (current) at June 30:

CRT liability, current portion Accrued interest payable Deferred donation revenue Deposits Other

Total other liabilities

(9) Long-Term Debt Obligations

(a) Limited Obligation Notes

Thc Sonoma State University Academic Foundation, Inc. Auxiliary Organization Revenue Notes (Green Music Concert Hall), Series 2005 (the Notes) were issued and delivered to finance (i) the construction of a music complex known as the Green Music Concert Hall (the Project) on the Sonoma State University campus (the Campus); (ii) to pay costs related to the issuance of the Notes; and (iii) to fund a portion of the interest on the Notes to their maturity on March 1, 2009. The Project is a component facility of a larger complex consisting of a music/faculty office building and a conference facility.

The Notes were authorized and issued pursuant to an Indenture, dated as of February 1, 2005, (the Indenture), by and between the Foundation and The Bank of New York Trust Company, N.A., as Trustee (the Trustee). The Notes were issued in the aggregate piincipal amount of $12,650,000 and are dated March 1,2005. The Series 2005 Notes shall mature on March 1,2009 and bear interest at a rate of three percent (3%) per annum, computed on the basis of a 360-day year comprised of twelve 30-day months.


The Notes are limited obligations of the Corporation and are payable solely from certain revenues derived from cash donations received by the Foundation and all moneys derived by the Trustee Erom drawings under seven stand-by letters of credit issued for the accounts of certain donors of the Project, (collectively, the Letters of Credit). These Letters of Credit are held by the Tiustee for the benefit of the registered Noteholders(s) and from certain other funds held under the Indenture.

The Notes shall be initially issued in the fonn of a separate single certificated fully-registered Note for each maturity of the Notes, registered in the name of Cede & Co., as nominee of The Depository Trust Company.

The Series 2005 Notes will be issued as fully registered Notes in the denomination of five thousand dollars ($5,000) or any multiple thereof, so long as no Note shall have principal maturing in more than one year. The Series 2005 Notes are not subject to redemption prior to their maturity date.

Interest on the Series 2005 Notes shall be payable semiannually on March 1 and September 1 in each year, coinmencing September 1, 2005. Interest expense of $379,500 is reported as other noiloperating expenses, on the Statement of Revenues, Expenses and Changes in Net Assets. Accrued interest payable of $126,500 is included in Current liabilities - Other liabilities, on the Statement of Net Assets.

These notes were issued as tax exempt financing and to that end the Foundation will comply with all requirements of section 148 of the Internal Revenue Service Code to the extent applicable to the notes. In March 2006, an interim arbitrage rebate analysis was completed by Bond Logistix, LLC, the bond management company. This analysis was conducted for the interim period of March 1, 2005 through March 1, 2006. The allowable yield on investments was 2.850075%. The return on investments was 3.301652%. As a result, the Foundation has a Cumulative Rebate Liability of $54,000 and a Yield Restriction Liability of $65. 'The Cumulative Rebate Liability is required to be rebated to the United State no later than 60 days after March 1, 2009, the final maturity date of the Notes. This liability has been recorded by the Foundation and is included in Statement of Net Assets under Noncurrent liabilities - Other liabilities.


@) Long-term debt obligations of The Foundation consist of the following as of June 30:

Fiscal Original Amount Outstanding Interest maturity issue a t June 30,

Description rate date amount 2006 2005

Other:

The Sonoma State University Academic Foundation, Inc. Auxiliary Organization Revenue Notes (Green Music Concert Hall) Series 2005

Premium on Series 2005 Notes

Total long-term debt

Less current portion

Long-term debt, net of current portion

(10) Long-Term Liabilities Activity

Long-term liabilities activity for the year ended June 30, 2006 was as follows:

Long-term liabilities activiry schedule:

Prior Period Reclassi

Balance June Adjustm fication Balance June Balance June Long-term Current 30.2005 ents s 30.2005 Additions Reductions 30,2006 portion portion

Accrued compensated absences 16,410 , 16,410 5,250 (4,263) 17.397 13,135 4,263 Capitalized lease obligations:

Gross balance Unamommd premium on

Total capitalized lease obligations

Long-term debt obligations: Revenue Bonds Other bonds (non-Revenue Bonds) Commercial Paper Otber:

Foundation Series 2005 Notes Description Description Description Descriution Descnphon - - - - -- - - - - - --

Total long-term 12,650,000 - - - - 12,650,000 12,650,000 12,650,000 - Unamortized bond premium 65,285 - - 65,285 - ( I 7 805) 47,480 47,480 - Unamortized loss on refunding - - - - - - - - -- -- -

Total long-term debt 12,715,285 - - 12,715,285 (17 80.0 12,697,480 12,697,480 - - Total long-term l~abll~hes $ 12,731,695 -- 12,731,695 5,250 (22,068) 12,714,877 12,710,615 4,263 --


Long-term liabilities activity for the year ended June 30, 2005 was as follows:

Long-term liabilities activity schedule:

Prior Period

Adjustm ents -

Balance June 30,

Reclassi tication

S

-

- - -

Balance June Balance June Long-term Current 30,2004 Additions

39,631 7,247 Reductions 30,2005

(30.1681 16,410 portion

9,479 portion

6,93 1 Accrued compensated absences Capitalized lease obligations:

Gross balance Unamonized premium on

Total capitalized lease obligations

Long-term debt obligations: Revenue Bonds Other bonds (non-Revenue Bonds) Commercial Paper Other:

Foundation Series ZOO5 Notes Description Description Description Description . Description - - - - -- - - - - -

Total long-term - - - - - -- 12,650,000 12,650,000 12,650,000 - Unamortized bond premium - - - - 71,220 (5.935) 65.285 65,285 - -- Unamortized loss on refunding - - - - - - - - -- -

Total long-term debt - - - - 12,721,220 , (5.935) 12,715,285 12,715,285 - -- - - 39,631 12,728,467 (36,401) 12,731,695 12,724,764 6,931 Total long-term liabilities $ 39,63 1 --

(11) Long-term debt principal obligations and related interest mature in the following fiscal years:

Long-term debt obligation schedule All other long-term

Revenue Bonds debt obligations Total Principal Interest Principal Interest Principal Interest

Year ending June 30: 2007 % - - - 379,500 379,500

2008 - - - 379,500 379,500

2009 - - 12,650,000 379,500 12,650,000 379,500 Total $ - - 12,650,000 1,138,500 12,650,000 1,138,500


-

(12) Other noncurrent liabilities

Other long-term liabilities CRT liability

Total Other liabilities

The other long-term liability is the arbitrage liability for the invested note proceeds. This amount was determined by an interim arbitrage rebate analysis complete for the period March 1, 2005 through March 1, 2006. The Cumulative Rebate Liability is subject to and is to be rebated to the United States 60 days after March 1, 2009, the final maturity date of the notes. Should the notes be retired prior to that date, the cumulative rebate liability (reduced by any applicable computation date credits) will become due within 60 days of the retirement date. This arbitrage rebate has reduced current year investment income, and is included in investment income, net on the statement of revenues, expenses, and changes in net assets.

(13) Pension Plan and Postretirement Benefits

The Foundation has an Internal Revenue Service code section 403(b) defined contribution pension plan funded by individual annuity contracts. Employees are eligible to participate in the plan upon reaching age 21 and following completion of two years of service, consisting of no less than 1,000 hours worked in consecutive 12-month periods. The plan is mandatory.

The funding sponsors are Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF). The Foundation administers the plan and has authority for plan provisions and rates but must follow the California Education Code governing employee benefits for Auxiliary Organizations.

Participants are required to contribute 5 percent of gross salary, with The Foundation's contribution of 10 percent of salary, and are fully vested at time of contribution.

The contributions to the plan during the most recent three fiscal years were as follows:

Employee Employer $4,104 $8,207 $5,065 $10,130 $3,090 $6,179

(14) Risk Management

The Foundation is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The Foundation has joined together with other CSU Auxiliaries in the CSU Risk Management Authority, a public entity risk pool. The Foundation pays an annual premium to the Authority for its general insurance coverage. The intent is for the Authority to remain self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of $15,000,000 limit per each insured event. There have been no claims against the insurance in any of the past three years. Annual premiums totaled $30,667 and $32,234 for the years ending June 30,2006 and 2005.


(15) Commitments and Contingencies

Historically, The Foundation received a portion of its support from grants, which are subject to government audit. Although The Foundation no longer has active grants, the ultimate determination of amounts received under these programs generally is based upon allowable costs reported to and audited by the government. Until any such audits have been completed and final settlement reached, there exists a contingent liability to refund any amount received in excess of allowable costs. Management believes that it has adhered to the terms of its grants and that any disallowed expenditures resulting from such review would not have a material effect on the financial position of Sonoma State University Academic Foundation, Inc.

Green Music Center Hall:

The Foundation has issued notes and raised private donations for the purpose of financing the construction of a concert hall known as the Green Music Concert Hall (the Project) on the Sonoma State University Campus located in Sonoma County, California. The Foundation has partnered with the Santa Rosa Symphony to help raise the necessary funds. The Project will consist of a main concert hall estimated to have approximately 57,700 square feet of space, with a capacity of approximately 1,400 seats and supporting backstage to accommodate certain performances in the music and fine arts program. The project is a component facility of a larger complex (Green Music Center) consisting of a music/faculty office building and a conference facility funded by public moneys through the State of California. The complex, including the concert hall component, is expected to be completed early 2008.

The Project component will be funded by private cash donations received by the Foundation and from the proceeds of the Auxiliary Organization Revenue Notes (Green Music Concert Hall), Series 2005. (Refer to Note 9, Long Term Debt Obligations.) The Notes are secured by Revenues in all funds and accounts established under the February 1, 2005 Indenture (other than the Rebate Fund). Revenues consist of Cash Donations received by the Foundation (except donations restricted so they cannot be used for construction or principal and interest) and all moneys derived by the Trustee from drawings under seven irrevocable stand-by letters of credit. The Letters of Credit are issued by Bank of America, N.A., Wells Fargo Bank, N.A., United States Trust Company of New York, Union Bank of California, N.A. and Royal Bank of Canada for the accounts of seven donors of the Project. The letters of credit must be reduced or released in accordance with the Indenture to the extent that Notes are defeased prior to maturity. The Bank of New York Trust Company, N.A., will act as Trustee under the Indenture.

The contractor of record for the Green Music Center, including the Concert Hall component, is the Sonoma State University. The Foundation will transfer funds to the University to fund construction costs. The University will capitalize the costs and record the asset on its books of record. For the year ending June 30, 2006 fimds drawn against the Bank of New York and remitted to the University for reimbursement of construction costs were $83,780. As of June 30, 2006, the cumulative transfers to the University for the Green Music Center were $440,772.


(16) Classification of Operating Expenses

The Foundation has elected to report operating expenses by functional classification in the statement of revenues, expenses, and changes in net assets, but to provide the natural classification of those expenses as an additional disclosure. For the years ended June 30, 2006 and 2005, operating expenses by natural classification consisted of the following:

Scholarships Supplies and Depreciation and other and

2006 Salaries Benefits fellowships services Amortization Total

Functional classification: Instruction Research Public service Academic support Student SMC~S

Institutional support Operation and maintenance of

plant '

Student grants and scholarships Auxiliary enterprise expenses Depreciation

Total $ 486,193 122,636 7,710 8 18,094 34,415 1,469,048

Scholarships Supplies and Depreciation and other and

2005 Salaries Benefits fe!lowships services Amortization Total

Functional classification: Instruction R-n:h Public senice Academic support Student servioes Institutional support Operation and maintenance of

plant Student grants and scholarships Auxiliary entaprise expenses Depreciation

Total $ 91,121 - 25,105 841,619 36,172 994,017

(17) Calculation of Net Assets Invested in Capital Assets, Net of Related Debt

Capital assets, net of accumulated depreciation $ 1,099,371 $ 1,133,786 Net assets - invested in capital assets, net $ 1,099,371 $ 1,133,786

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. I

NOTES TO FINANCIAL STATEMENTS

(18) Transactions with Related Entities

The Foundation has an operating agreement with the University for executive management oversight, financial resource, and logistical services at no charge.

The Foundation receives support from the University that allows The Foundation to carry out programs and activities controlled and budgeted for by the Board of Directors. This support is included in Other nun-operating revenues/(expenses) in the Statement of Revenues, Expenses, and Changes in Net Assets.

The University also paid rent on land owned by The Foundation. This rental income is included in Other operating revenues in the Statement of Revenues, Expenses, and Changes in Net Assets.

The Foundation manages donations received on behalf of all the programs and activities. The Foundation transfers funds to the University as authorized and directed by the respective programs.

Included in the Transfers to the University are amounts for scholarships, support of programs, and beginning in March 2005, reinlbursements for the Green Music Center construction.

The Foundation is the beneficiary of gift annuities that are held by the California State University Foundation. These gift annuities are reported as a receivable for the Foundation. Each year, an annual update of the gift annuities is provided and the changes in the values are recognized as additional revenues and receivables.


The accompanying financial statements include the following transactions with related parties as of and for the years ended June 30:

Support from the University

Interest payments from University on demand deposit 392,808 - Rental Income from the University 99,000 99,000

$ 813,957 $ 486,074

Transfers to the University and related auxiliary for program activities $ 2,040,305 $ 1,582,554 Gifts to the University, non-cash 60,708 -

Transfers to related auxiliary for program activities, net of transfers in from other auxiliaries 1 13,056 -

$ 2,214,069 $ 1,582,554

Note receivable from other auxiliary, unsecured, interest rate is 8% per annum, final maturity is June 2007 (included in Other long-term investments in the Statement of Net Assets $ 5,513,230 $ 5,677,783

Note receivable principle payments received from other auxiliary. Note receivable interest payments received from other auxiliary.

Gift annuities held by the California State University Foundation (included in Other Assets )

Demand deposit investment with the University (included in Endowment investments) . Unsecured, interest rate is prime + 1.25% adjusted quarterly.

Accounts receivable from University or other auxiliary organizations included in Accounts receivable in the Statement of Net Assets

(19) The nature and amount of the prior period adjustment recharacterization recorded to beginning net assets

During the year ended June 30, 2006 a change was made to the Foundation's beginning Net Assets, investment in capital assets, net of related debt and the non-expendable, endowments. See Note 5.


The nature and amount of the prior period adjustment(s) recorded to beginning net assets - GASB Auxiliary Organizations: Net Asset

Class Amount Dr. (Cr.)

Net assets as of June 30,2005, as previously reported $ 54,885,816 Prior period adjustments:

Invested in Reclassify Townhouse investments net of capital assets, accumulated depreciation fiom investments to capital net of related

1 assets debt 1,507,537 Reclassify Townhouse investments net of accumulated depreciation fiom investments to capital Nonexpendable

2 assets Endowments (1,507,537) Net assets as of June 30,2005, as restated $ 54,885,816

Breakdown of the journal entries booked to record each prior period adjustments: Debit Credit

Net asset class: Invested in capital assets, net of related debt 1 (breakdown of adjusting journal entry)

Capital Assets $ 1,546,823 Accumulated Depreciation (447,452) Fund Balance Transfer (1,507,537)

Net asset class: Nonexpendable endowments 2 (breakdown of adjusting journal entry)

Fund Balance Transfer Endowment investments Accumulated Depreciation

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION…€¦ · The financial statements of Sonoma State ... The following discussion highlights management's understanding of the ... Sonoma