Alaska Pacific University

Transcription

1 Financial Statements Years Ended June 30, 2013 and 2012 (With Independent Auditor s Report Thereon) This report was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Financial Statements Years Ended June 30, 2013 and 2012 (With Independent Auditor s Report Thereon)

3 Contents Page Independent Auditor s Report 1-2 Financial Statements Statements of Financial Position 4 Statements of Activities 5 Statements of Cash Flows

4 Tel: Fax: C Street, Suite 600 Anchorage, AK Independent Auditors Report Board of Trustees Alaska Pacific University Report on the Financial Statements We have audited the accompanying financial statements of Alaska Pacific University, which comprise the statement of financial position as of June 30, 2013, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 1

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alaska Pacific University as of June 30, 2013, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principle As described in Note 6 to the financial statements, Alaska Pacific University elected to change its method of accounting for real property held for investment in Our opinion is not modified with respect to the matter. Other Matters 2012 Financial Statements The 2012 financial statements of Alaska Pacific University were audited by other auditors whose report dated April 17, 2013 expressed an unmodified opinion on those statements. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 7, 2014 on our consideration of Alaska Pacific University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Alaska Pacific University s internal control over financial reporting and compliance. Anchorage, Alaska February 7,

6 Financial Statements 3

7 Statements of Financial Position June 30, Assets Current assets: Cash and cash equivalents $ 257,269 $ 1,442,264 Accounts and pledges receivable, net 1,408, ,439 Prepaid expenses and inventories 2,168,883 1,876,993 Investments 9,754 8,602 Total current assets 3,844,751 4,126,298 Other assets: Pledge receivable 505, ,000 Prepaid lease commissions 881, ,021 Deferred loan costs, net 201, ,421 Plant facilities, net 19,664,894 17,584,912 Real property held for investment 85,308,922 42,709,478 Investments in beneficial interests 17,256,348 16,683,769 Total other assets 123,817,833 78,534,601 Total Assets $ 127,662,584 $ 82,660,899 Liabilities and Net Assets Current liabilities: Accounts payable $ 600,847 $ 123,910 Accrued expenses 614, ,411 Deferred revenue 154, ,001 Interest payable 170, ,762 Current portion of notes payable 1,101,830 1,090,802 Current portion of bonds payable 130, ,000 Current portion of other long-term obligation 147, ,142 Total current liabilities 2,918,448 2,428,028 Other liabilities: Deposits 45,523 50,483 Notes payable, less current portion 33,838,922 33,418,764 Bonds payable, less current portion 505, ,000 Other long-term obligation, less current portion 622, ,531 Total liabilities 37,929,957 37,323,806 Net assets: Unrestricted 67,721,851 23,867,783 Temporarily restricted 6,906,678 6,477,105 Permanently restricted 15,104,098 14,992,205 Total net assets 89,732,627 45,337,093 Total Liabilities and Net Assets $ 127,662,584 $ 82,660,899 4 See accompanying notes to financial statements.

8 Statements of Activities Temporarily Permanently Temporarily Permanently Years Ended June 30, Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenues, gains and other support: Tuition and fees, net 7,242,949 $ - $ - $ 7,242,949 $ 7,233,367 $ - $ - $ 7,233,367 Net rental income 2,949, ,949,187 2,715, ,715,748 Investment loss, net (15) - - (15) (1,099) - - (1,099) Private gifts, grants and bequests 2,522,028 1,022,774 3,114 3,547,916 2,942,214 1,236,250 6,495 4,184,959 Government contracts and grants 438, , , ,362 Change in investments in beneficial interests - 463, , ,579 - (1,369,396) 562,538 (806,858) Auxiliary enterprises 1,399, ,399,665 1,500, ,500,452 Other sources 655,859 79, , ,496 79, ,416 Net assets released from restrictions 1,136,921 (1,136,921) ,891 (930,891) - - Total revenues, gains and other support 16,344, , ,893 16,886,125 16,326,431 (984,117) 569,033 15,911,347 Expenses: Instruction 5,720, ,720,652 5,666, ,666,432 Research 753, , , ,659 Public service 155, , , ,902 Academic support 729, , , ,388 Student services 3,279, ,279,388 3,152, ,152,091 Institutional support 3,792, ,792,085 3,107, ,107,541 Auxiliary enterprises 2,173, ,173,871 2,255, ,255,263 Total expenses 16,604, ,604,046 15,411, ,411,276 Increase (decrease) from operating activity (259,387) 429, , , ,155 (984,117) 569, ,071 Non-operating activity: Loss on sale of property and equipment (5,313) - - (5,313) (20,638) - - (20,638) Real property held for investment valuation adjustment 44,297, ,297, Interest expense and other financing costs (178,468) - - (178,468) (201,881) - - (201,881) 44,113, ,113,455 (222,519) - - (222,519) Change in net assets 43,854, , ,893 44,395, ,636 (984,117) 569, ,552 Net Assets, beginning of year, restated 23,867,783 6,477,105 14,992,205 45,337,093 23,175,147 7,461,222 14,423,172 45,059,541 Net Assets, end of the year $ 67,721,851 $ 6,906,678 $ 15,104,098 $ 89,732,627 $ 23,867,783 $ 6,477,105 $ 14,992,205 $ 45,337,093 See accompanying notes to financial statements. 5

9 Statements of Cash Flows Years Ended June 30, Cash Flows from Operating Activities Change in net assets $ 44,395,534 $ 277,552 Adjustment to reconcile change in net assets to net cash provided by operating activities: Depreciation 1,486,543 1,484,214 Depreciation of real property held for investment 43, ,323 Real property held for investment valuation adjustment (44,297,236) - Loss on disposal of property and equipment 5,313 20,638 Net realized and unrealized gain on investments (1,192) (177) Net decrease (increase) in investment in beneficial interests (572,579) 806,858 Changes in assets and liabilities that provided (used) cash: Accounts receivable (786,667) 613,646 Prepaid expenses and inventories (445,400) (362,659) Pledge receivable 130,000 (635,000) Deferred loan costs (7,717) 16,261 Accounts payable 496,937 (533,880) Accrued expenses 78,669 (63,189) Deferred revenue (68,716) (70,517) Interest payable (1,555) 84,185 Deposits (4,960) (1,425) Net Cash Provided by Operating Activities 450,054 2,270,830 Cash Flows from Investing Activities Purchases of investments (55) (3,008) Sales of investments Purchase or construction of property and equipment (317,126) (366,051) Net Cash Used by Investing Activities (317,086) (368,752) Cash Flows from Financing Activities Principal payments on notes payable (1,012,553) (835,308) Principal payments on other long term obligations (170,410) - Principal payments on lease payable - (63,957) Principal payments on bonds payable (135,000) (100,000) Net Cash Used by Financing Activities (1,317,963) (999,265) Net (decrease) increase in cash and cash equivalents (1,184,995) 902,813 Cash and Cash Equivalents, beginning of year 1,442, ,451 Cash and Cash Equivalents, end of year $ 257,269 $ 1,442,264 Supplemental disclosures of cash flow information: Interest paid $ 1,271,239 $ 1,079,920 Conversion of current payables to long term debt $ 20,000 $ 101,768 Purchase of property and equipment with long term debt $ 1,600,000 $ - Receivable reduction in lieu of long term debt payment $ 176,261 $ - Real property held for investment valuation adjustment $ 44,297,236 $ - Purchase of real property held for investment with long term debt $ - $ 6,624,000 Conversion of bonds payable to notes payable $ - $ 2,575,000 Conversion of other long-term obligations to interest payable $ - $ 111,873 6 See accompanying notes to financial statements.

10 June 30, Summary of Accounting Policies Organization Alaska Pacific University (the University) is an accredited private university which conducts postsecondary education with a liberal arts and professional employment emphasis. The significant accounting policies followed by the University are described below. Basis of Presentation The University prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ( US GAAP ) and with standards established by the Financial Accounting Standards Board ( FASB ) for external financial reporting by not-for-profit organizations. Accordingly, the University s resources are classified and reported based upon the existence or absence of donor-imposed restrictions, as follows: Unrestricted net assets: Net assets that are not subject to donor-imposed restriction, that are general in nature, or are for operating purposes. Unrestricted net assets may be designated for specific purposes by the University s Board of Trustees. Temporarily restricted net assets: Net assets that are subject to donor-imposed time or use restrictions that have not been met. Permanently restricted net assets: Net assets that are subject to donor-imposed restrictions that the principal be invested in perpetuity and only the income or a portion thereof is made available for program operations, scholarships, or other purposes in accordance with donor restrictions. Fair Value Measurements Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosure (ASC 820) defines fair value, requires expanded disclosures about fair value measurements, and establishes a three-level hierarchy for fair value measurements based on the observable inputs to the valuation of an asset or liability at the measurement date. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 prioritizes the inputs to the valuation techniques used to measure fair value by giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). Furthermore, ASC 820 considers certain investment funds that do not have readily determinable fair values including private investments, hedge funds, real estate, and other funds. ASC 820 allows for using net asset value per share or its equivalent in estimating the fair value of interests in investment companies for which a readily determinable fair value is not available. 7

11 In addition, the fair value option allows entities to choose, at specified election dates, to measure eligible financial assets and financial liabilities at fair value that are not otherwise required to be measured at fair value. If an entity elects the fair value option for an eligible item, changes in that item s fair value in subsequent reporting periods must be recognized in current earnings. The University elected the fair value option for measurement of its real property held for investment effective July 1, The carrying amounts of cash and cash equivalents, student, research and contributions receivable, prepaid expenses and other assets, and accounts payable and accrued expenses approximate fair value due to the short maturity of these financial instruments. The carrying value of receivables has been reduced by an appropriate allowance for uncollectible accounts, based on historical collection experience and therefore approximates net realizable value Revenue and Expenses Recognition Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Appreciation or depreciation in the fair value of investments and gains and losses on other assets or liabilities are reported as increases or decreases in unrestricted net assets unless otherwise restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets are reported as net assets released from restrictions. Contributions, including unconditional promises to give, are recognized as revenues in the period received. Unconditional promises to give are recorded at their net realizable value if they are expected to be collected within one year or at fair value, which is measured using the present value of future cash flows, if they are expected to be collected over periods longer than one year. The University has been notified of certain intentions to give under various wills and trusts, the realizable amounts of which are not presently determinable. The University s share of such bequests is recorded when the University has an irrevocable right to the bequest and the proceeds are measurable. Contributions of assets other than cash are recorded at their estimated fair value at date of donation. Contributions to be received after one year are discounted using a riskadjusted rate of return. Amortization of discounts is recorded as additional contribution revenue reflecting donor-imposed restrictions, if any. An allowance for uncollectible contributions receivable is provided based upon management s judgment after considering prior collection history, type of contribution and nature of fundraising activity. Unrestricted net assets resulting from certain large contributions may be designated by the University s Board of Trustees for capital or long-term investment. Contributions of property, plant and equipment without donor stipulations restricting the use of such long-lived assets are reported as unrestricted support. Contributions of cash or other assets to be used to acquire land, buildings and equipment are reported as increases of temporarily restricted net assets. Restrictions are considered to be satisfied at the time of acquisition or completion of construction of such long-lived assets. 8

12 Auxiliary Enterprises Auxiliary enterprises include revenues and expenses primarily related to student housing, the campus store, student dining facilities, and conferencing services. An auxiliary enterprise exists to furnish goods or services to students, faculty, staff, or incidentally to the general public, and charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. The distinguishing characteristic of an auxiliary enterprise is that it is managed as an essentially self-supporting activity. The auxiliary enterprise category includes all expenditures, including internal charges, relating to the operation of auxiliary enterprises, including expenditures for operation and maintenance of plant and institutional support. Also included are other direct and indirect costs, whether charged directly as expenditures or allocated as a proportionate share of costs to other departments or units. Cash and Cash Equivalents The University considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Student Accounts Receivable Student accounts receivable represent credit extended to students with no underlying collateral. Such balances are due at the census date and are stated net of an allowance for doubtful accounts. The University determines its allowance based on the anticipated net realizable value of expected collections. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market and include items for sale in the campus store. Deferred Loan Costs Deferred loan costs are amortized using the straight-line method over the life of the loan. Plant Facilities Plant facilities, consisting of land, buildings and equipment, are stated at cost at the date of purchase or at fair value at the date of donation. Depreciation on buildings and equipment has been calculated on each class of depreciable property using the straight-line method. Real Property Held for Investment Real property held for investment is reported at fair value. These investments may not be readily marketable and are reported at fair value utilizing the most current information provided by external advisors, subject to assessments that the information is representative of fair value and in consideration of any additional factors deemed pertinent to the fair value measurement. 9

13 Fair value measurements of real estate are based on a combination of information obtained from independent appraisals and/or one or more industry standard valuation techniques (e.g., income approach, market approach, or cost approach). The income approach is primarily based on the investment s anticipated future income using one of two principal methods: the discounted cash flow method or the capitalization method. Inputs and estimates developed and utilized in the income approach may be subjective and require judgment regarding significant matters such as estimating the amount and timing of future cash flows and the selection of discount and capitalization rates that appropriately reflect market and credit risks. The market approach derives investment value through comparison to recent and relevant market transactions with similar investment characteristics. The cost approach is utilized when the cost of the investment is determined to be the best representation of fair value. This method is typically used for newly purchased or undeveloped assets. These valuations are determined by management of the University and are intended to be long-term. Gains and losses (realized and unrealized) on investments are recognized in the Statements of Activities. Beneficial Interests The University has an interest in three entities. It adjusts its interest in the net assets of the entities held, similar to the equity method of accounting. Income Taxes The University qualifies for tax-exemption under Section 501(c)(3) of the Internal Revenue Code as an educational organization whereby only unrelated business income, as defined by the Code, is subject to federal income tax. The University applies the provisions of Topic 740 of the FASB Accounting Standards Codification relating to accounting for uncertainty in income taxes. The University annually reviews its tax positions taken in accordance with the recognition standards. The University believes that it has no uncertain tax provisions which would require disclosure or adjustment in these financial statements. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from the estimates that were assumed in preparing the financial statements. Reclassification Certain 2012 financial information has been reclassified to conform to the 2013 presentation. 10

14 New Accounting Pronouncements Effective July 1, 2012, the University adopted Accounting Standards Update (ASU) , Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU aids entities in measuring fair value, as well as provides guidelines for additional quantitative and qualitative disclosures for instruments categorized within Level 3 of the FASB s fair value hierarchy. The effects of adopting this amendment are addressed in Note 6. The FASB issued ASU , Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows. ASU defines the appropriate financial reporting for the receipt of donated securities in the Statements of Cash Flows. Donated securities with no donor-imposed restrictions are to be included in the Operating section of the statement, while donated securities with donor-imposed long-term restrictions should be included in the financing section. The University is currently evaluating the impact the adoption of ASU will have on the financial statements. 2. Concentrations of Credit Risk Cash, cash equivalents, and investments are exposed to interest rate, market, and credit risks. The University maintains its cash and cash equivalents in various bank deposit accounts that, at times, may exceed federally insured limits. To minimize risk, the University s cash accounts are placed with high credit quality financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC). Bank balances of $23,932 and $66,161 were not insured by the FDIC at June 30, 2013 and 2012, respectively. 3. Accounts and Pledges Receivable Accounts receivable consist of the following at June 30: Pledge receivables, due in one year or less $ 544,265 $ 172,550 Student accounts 485, ,428 Rents 236, ,967 Grants and contracts 80,700 48,751 Other 102,113 97,232 1,449, ,928 Less allowance for doubtful student accounts receivable (40,489) (40,489) Net current accounts and pledges receivable 1,408, ,439 Pledge receivables, due in one to five years 505, ,000 $ 1,913,845 $1,433,439 As of June 30, 2013 and 2012, $635,000 and $770,000, respectively, of the total pledges receivable is associated with the Taxable Direct Obligation Bond (Note 9). The bond holder has pledged to collect the normally scheduled bond payments and then to remit these bond proceeds back to the University. The amounts that are due in more than one year are recorded at the present value of estimated future cash flows. 11

15 4. Prepaid Expenses and Inventories Inventories and prepaid expenses consist of the following at June 30: Prepaid interest $ 1,803,991 $ 1,575,916 Lease commissions 953, ,367 Insurance 117, ,739 Campus store inventory 41,904 67,287 Other 133,506 51,705 $ 3,050,414 $ 2,605,014 The University holds a swap rate agreement with Alaska Housing Finance Corporation (AHFC). Interest is paid to AHFC based on a fixed rate but actual interest is accrued at a variable rate (Note 8). The prepaid interest represents the cumulative fixed interest payments less amounts owed based on the variable rate. Lease commissions are paid at the inception of new leases or are paid based on a payment plan (Note 17). The commission expense is amortized over the life of the related leases. 5. Plant Facilities Investment in plant facilities consists of the following at June 30: Buildings $ 36,910,657 $ 33,071,194 Furniture and equipment 3,616,831 3,600,034 Land improvements 1,477,392 1,263,794 42,004,880 37,935,022 Less accumulated depreciation (22,368,287) (20,422,899) Construction in progress 28,301 72,789 Plant Facilities, Net $ 19,664,894 $ 17,584,912 Depreciation expense for the years ended June 30, 2013 and 2012 was $1,486,543 and $1,484,214, respectively. Construction in progress consists of campus projects at June 30, 2013 and 2012, respectively. 12

16 6. Real Property Held for Investment Real property held for investment consists of the University s real estate holdings in developed, undeveloped and leased land and are classified as Level 3 as the inputs are not observable. To the extent available, the University s real property held for investment is recorded at fair value based on the best available information. Valuation usually requires a degree of judgment and can be determined considering a wide range of factors including market data, comparable transactions and discounted cash flow analysis. Selecting an appropriate valuation technique may be affected by the availability and reliability of relevant inputs. In some cases, one valuation technique may provide the best indication of fair value while in other circumstances, multiple valuation techniques may be appropriate. APU opted in FY13 to record the value of its real property held for investment at fair market and secured a property valuation of the entire campus. This reflects a change from the financial statement presentation of its invested real estate in preceding years. The decision was based in part on the strong economic influence the Municipality of Anchorage s recently updated University-Medical (U-Med) District land use plan has had on escalating land values. The U-Med District land use plan encompasses campus property. The unrealized gain is included in the Statements of Activities as a non-operating activity. For the year ended June 30, 2013, the gain for Level 3 investments still held was $44,297,236. The following table summarizes the University s Level 3 real property investment activities and transfers as of June, 30: Beginning Balance June 30, 2012 Purchases/ Additions Tranfers In/(Out) Net Unrealized Gains (Loss) Ending Balance June 30, 2013 Real Property Held for Investment $ 42,709,478 $ 67,677 $ (1,765,469) $ 44,297,236 $ 85,308,922 The remainder of this page left blank intentionally. 13

17 The following table presents the University s Level 3 investments, the valuation techniques used to measure the fair value of those investments, and the range of the significant unobservable inputs as of June 30, Level 3 investment fair value measurement may include both observable and unobservable inputs. The classification of an investment within Level 3 is based on the extent of the significance of unobservable inputs to the overall valuation. The observable inputs used in the valuation techniques, as presented below, are not included in the table. For each investment category and respective valuation technique, the range of the significant unobservable input is dependent on the nature and characteristics of the investment. The input range and weighted average values may vary at each balance sheet date. Investment Category Fair Value Valuation Technique Significant Unobservable Inputs Min Range Max Impact to valuation from an increase in input Improved Real Estate $ 50,205,273 Discounted cash flow Discount rate 7.9% 11.7% Decrease Capitalization rate 5.8% 9.0% Increase Market approach Comparable sales $294/sf $433/sf Increase Leased Land 5,028,528 Discounted cash flow Discount rate 7.9% 11.7% Decrease Unimproved Land 18,450,784 11,624,337 Real Property Held for Investment $ 85,308,922 Market approach Capitalization rate 5.8% 9.0% Increase Comparable sales $ 3.51/sf $ 5.00/sf Increase Comparable sales $ 21.88/sf $ 26.19/sf Increase 14

18 7. Investments in Beneficial Interests Alaska Pacific University Foundation, Inc. The Alaska Pacific University Foundation, Inc. (the Foundation) was established March 15, 1994, to solicit donations and to hold and manage assets for the benefit of the University. The Foundation reimbursed the University for the direct costs of administrative services in the amount of $47,403 and $43,990, and direct fund raising support costs in the amount of $38,307 and $30,029 for the years ended June 30, 2013 and 2012, respectively. For the years ending June 30, 2013 and 2012, the Foundation provided $611,559 and $643,915, respectively, in contributions to the University. Revenues and support include unrealized gains/(losses) of $401,744 and $(269,662) in 2013 and 2012, respectively. Cardinal Newman Professorship Foundation, Inc. The Cardinal Newman Professorship Foundation, Inc. (the Foundation) was established October 8, 1993, to invest, manage, and administer the initial donation and all other assets donated to it to pay for the expenses of the chaired professorship of Catholic Theology at the University. For the year ending June 30, 2013, the Foundation provided $75,000 in contributions to the University. Revenues and support include unrealized gains of $343,807 and $38,581 in 2013 and 2012, respectively. DeWolf Kellogg Trust The DeWolf Kellogg Trust (the Trust) was established October 30, 1974, to make real estate available for education, scientific and literacy purposes to private institutions. The University is currently using the land for a master s program in compliance with the land use agreement. The remainder of this page left blank intentionally. 15

19 Summarized financial data of the beneficial interests for the years ended June 30, 2013, is as follows: June 30, 2013 Alaska Pacific University Foundation, Inc. Cardinal Newman Professorship Foundation, Inc. DeWolf Kellogg Trust Total Summary of financial position: Cash, investments and other $ 14,597,327 $ 1,476,834 $ 52,286 $ 16,126,447 Land and building - - 1,151,600 1,151,600 Total Assets $ 14,597,327 $ 1,476,834 $ 1,203,886 $ 17,278,047 Net Assets $ 14,575,628 $ 1,476,834 $ 1,203,886 $ 17,256,348 Summary of activity: Revenues and support $ 965,832 $ 439,246 $ 44,911 $ 1,449,989 Expenses (779,816) (75,000) (22,594) (877,410) Increase (decrease) in net assets $ 186,016 $ 364,246 $ 22,317 $ 572,579 Summarized financial data of the beneficial interests for the years ended June 30, 2012, as restated, is as follows: June 30, 2012 Alaska Pacific University Foundation, Inc. Cardinal Newman Professorship Foundation, Inc. DeWolf Kellogg Trust Total Summary of financial position: Cash, investments and other $ 14,617,222 $ 1,112,588 $ 29,968 $ 15,759,778 Land and building - - 1,151,600 1,151,600 Total Assets $ 14,617,222 $ 1,112,588 $ 1,181,568 $ 16,911,378 Net Assets $ 14,389,613 $ 1,112,588 $ 1,181,568 $ 16,683,769 Summary of activity: Revenues and support $ 36,222 $ 59,649 $ 34,768 $ 130,639 Expenses (797,552) (110,065) (29,880) (937,497) Increase (decrease) in net assets $ (761,330) $ (50,416) $ 4,888 $ (806,858) 16

20 8. Long-Term Debt Notes payable consists of the following at June 30: Note payable to Washington Capital Joint Master Trust Mortgage Income Fund with a fixed interest rate of 5.75%, due in monthly principle and interest payments of $75,825 through August 1, 2024; collateralized by University Lake Medical Building and property, with a carrying value of $9,376,741. $ 7,484,878 $ 7,949,790 Note payable to Washington Capital Joint Master Trust Mortgage Income Fund with a fixed interest rate of 6.0%. Monthly interest only due through Construction Phase beginning August 15, 2011, with principal and interest payments of $43,168 beginning September 1, 2012 through April 30, 2028; collateralized by Glenn Olds Hall Expansion project of $6,705,327. 6,611,226 6,624,000 Note payable to Alaska Housing Finance Corporation with a variable interest rate (0.51% at June 30, 2013), due in semi-annual principle and interest payments of $232,106 through November 1, 2035 collateralized by cash and investments. 6,523,556 5,151,187 Note payable to Washington Capital Joint Master Trust Mortgage Income Fund with a fixed interest rate of 6.5%, due in monthly principle and interest payments of $37,136 through August 1, 2028; collateralized by the Glenn Olds Hall Building, with a carrying balance of $7,180,661. 4,991,023 5,108,079 Note payable to Alaska Pacific University Foundation with an interest rate of.95% compounded annually. One time lump sum payment due July 1, 2015 for entire note balance. 3,427,078 3,603,339 Note payable to Rasmuson Foundation with an interest rate of 1.0%. Principal and interest of $80,500 is payable semiannually in arrears, on April 15 and October 15. Interest rate changes to 2.0% effective April 16, Total payments to increase to $538,912 each year, thereafter. 3,417,999 3,543,874 17

21 Note payable to Alaska Pacific University Foundation with an interest rate of 1.0%. Principal and interest is payable semiannually on March 1 and September 1 for approximately $37,010 until September 1, 2016 at which time the approximate payment becomes $160,000. Interest rate changes to 2.0% effective September 1, Principal and interest payments due semi-annually through March 1, $ 2,475,000 $ 2,505,000 Note payable to Wells Fargo Equipment Finance with an interest rate of 7.9%. Monthly principal and interest payments of $869 through June 8, ,992 19,227 Note payable to Audi Finance/ VW Credit with an interest rate of 4.8%. Monthly principal and interest payments of $575 through March, 15, ,070 Total notes payable 34,940,752 34,509,566 Less current maturities (1,101,830) (1,090,802) $ 33,838,922 $ 33,418,764 Principal maturities of total notes payable for each of the five years subsequent to June 30, 2013, are as follows: Year Ending June 30, Amount 2014 $ 1,101, ,573, ,203, ,613, ,676,534 Thereafter 24,772,354 $ 34,940,752 The remainder of this page left blank intentionally. 18

22 9. Bonds Payable Bonds payable consists of the following at June 30: Taxable Direct Obligation Bonds, due September 1, 2016 with annual sinking fund requirements of various amounts, interest rate of 6%. Approximate interest and principle payments of $160,000 is to be made each year. $ 635,000 $ 770,000 Less current maturities (130,000) (135,000) $ 505,000 $ 635,000 The following is a schedule of sinking fund requirements based on the modified terms of the Taxable Direct Obligation Bonds for the next five years and thereafter. Year Ending June 30, Amount 2014 $ 130, , , ,000 $ 635,000 Payments on the bond in 2013 and 2012 were $480,000 and $465,000, respectively and were made based on the unmodified terms of the bond. The excess payments were reimbursed/reimbursable to the University by the Alaska Pacific University Foundation. 10. Other Long-Term Obligation Other long-term obligation consists of the following at June 30: Payable to the Municipality of Anchorage with a variable interest rate of prime plus 2.0% (5.10% at June 30, 2013), due in annual interest and principle payments of approximately $207,851 beginning August 15, 2013 through August 16, $ 769,263 $ 939,673 Less current maturities (147,199) (148,142) $ 622,064 $ 791,531 19

23 Principal maturities of the other long term obligations for each of the years subsequent to June 30, 2013, are as follows: Year Ending June 30, Amount 2014 $ 147, , , ,298 $ 769,263 The payable to the Municipality of Anchorage is related to a settlement agreement entered into regarding property tax assessments for on certain campus property. In 2012, that campus property attained tax exemption status and is no longer subject to property tax. 11. Temporarily Restricted Net Assets Temporarily restricted net assets are as follows at June 30: Educational and general programs $ 6,759,151 $ 6,307,997 Plant activities 147, ,108 Total Temporarily Restricted Net Assets $ 6,906,678 $ 6,477,105 Temporarily restricted net assets were released from restrictions as follows: June 30, Educational and general programs $ 1,115,340 $ 740,167 Plant activities 21, , Permanently Restricted Net Assets Permanently restricted net assets are as follows: $ 1,136,921 $ 930,891 Investment in perpetuity, the income from which is expendable to support as of June 30: Educational and General Programs $ 15,104,098 $ 14,992,205 20

24 13. Tuition and Fees Tuition and fees are recognized at established rates, net of financial aid and scholarships provided directly to students, in the period in which the sessions are primarily provided. Deposits and other advanced payments are reported as a liability. Tuition and fees consist of the following at June 30: Tuition $ 10,072,240 $ 10,143,808 Fees 318, ,680 Less scholarships and tuition discounts (3,106,618) (3,160,310) Less bad debts (41,218) (73,811) Tuition and Fees, Net $ 7,242,949 $ 7,233, Rental Income under Tenant Leases Net rental income consists of following at June 30: Commercial property rental income $ 5,073,505 $ 5,110,464 Facility rental income 97,892 91,836 Less operation & maintenance expense (1,065,441) (1,071,317) Less interest expense (1,113,689) (780,911) Less depreciation expense (43,080) (634,324) Net Rental Income $ 2,949,187 $ 2,715,748 Minimum future rental income under non-cancelable leases with terms greater than one year is as follows: Year Ending June 30, Amount 2014 $ 4,777, ,856, ,936, ,017, ,106,819 Thereafter 41,733,410 $ 66,427,492 21

25 15. Defined Contribution Retirement Plan Eligible employees with one year of service may contribute up to 100% of their wages or the maximum set by the Internal Revenue Service, whichever is less, to a defined contribution retirement plan. For the 2013 fiscal year, the matching contribution was 6%. For the 2012 fiscal year, the matching contribution was 7% until to October 1, 2011, when the matching contribution was reduced to 6%. University contribution expense totaled $215,502 and $244,146 for the years ended June 30, 2013 and 2012, respectively. 16. Related Party Transactions The University has notes payable with an investment management company of which a member of the board of trustees is a principal. The outstanding principal balance on the notes at June 30, 2013 and June 30, 2012 was $19,087,094 and $19,681,869, respectively. The University has two notes payable to the Alaska Pacific University Foundation as described in Note 8. The outstanding balance on the notes at June 30, 2013 and 2012 was $5,902,078 and $6,108,339, respectively. Included in private gifts, grants and bequests are donations from various board members of which individual gifts greater than $20,000 totaled approximately $195,000. The remainder of this page left blank intentionally. 22

26 17. Commitments and Contingencies Lease Commissions The University is obligated to pay lease commissions to a broker as payment for negotiating tenant leases on behalf of the University (Note 14). The payment schedule is as follows Year Ending June 30, Amount 2014 $ 147, , , ,137 Memorandum of Agreement $ 415,392 The University has entered into a memorandum of agreement with the Municipality of Anchorage (the Municipality ). As part of the agreement, the University has agreed to provide local match funding of $566,214 to the Municipality for a road extension project. Of the $566,214, the University will deposit funds with the Municipality totaling $263,940 based on defined phases of the project. After the deposits are made, the Municipality is obligated to pay fair market value for the necessary right-of-way property owned by the University. The first $263,940 of the proceeds from the sale will be reimbursed to the University. The remainder of the proceeds in excess the of $566,214 funding obligation will be held by the Municipality until the Municipality has certified with the State of Alaska that the project is completed at which time the balance will be paid to the University. The University is obligated to pay the difference between the sales proceeds and $566,214 if the sale proceeds are insufficient to meet the $566,214 funding requirement. The University is also obligated to the Municipality, at their election, for certain costs not reimbursable to the Municipality by federal funds. For the year ended June 30, 2013, $90,300 of funds the University deposited with the Municipality as part of the agreement is included in inventories and prepaid expenses. Contingencies Expenditures made pursuant to grants, contracts, and other forms of financial aid are subject to audit by governmental agencies or their representatives. Management of the University believes that no significant liabilities will result from any such audits and, accordingly, no provision for liability is included in the accompanying financial statements. The University is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its operations. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the University. 23

27 18. Subsequent Events Land Use Limitations Up until June 30, 2013, the University campus land was encumbered by numerous use limitations arising from U.S. land patents, and agreements with the University of Alaska and the Department of the Interior Bureau of Land Management. The patents and agreements described certain permitted uses of the land for educational purposes, and included the specified time periods for which the patents and agreements were in effect. The patents also included a reversion clause which stated that the land would return to the Federal government ownership if used for purposes other than specified. Effective January 10, 2014, the University has entered into an agreement with the University of Alaska to rescind the restrictions on the University s campus land in exchange for a right of first offer to purchase campus lands. Note Payable to Alaska Pacific University Foundation On July 17, 2013, the Alaska Pacific University Foundation Board of Trustees approved an extension of the $3,427,078 note receivable so that the maturity of principal and interest will be July 1,