SOUTHERN NEW HAMPSHIRE UNIVERSITY. Financial Statements. June 30, 2008 and (With Independent Auditors Report Thereon)

Transcription

1 Financial Statements (With Independent Auditors Report Thereon)

2 KPMG LLP Telephone High Street Fax Boston, MA Internet Independent Auditors Report The Board of Trustees Southern New Hampshire University: We have audited the accompanying statements of financial position of Southern New Hampshire University (the University) as of, and the related statements of unrestricted revenues and expenses, changes in net assets, and cash flows for the years then ended. These financial statements are the responsibility of the University 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 Southern New Hampshire University as of, and the changes in its net assets and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. October 14, 2008 KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

3 Statements of Financial Position Assets Cash and cash equivalents $ 2,267,699 2,297,538 Short-term investments, at fair value (note 3) 16,889,064 14,706,143 Student accounts and other receivable, net (note 4) 3,271,077 1,604,269 Other assets, net 2,833,753 3,018,200 Contributions receivable, net (notes 7 and 10) 226, ,238 Student loans receivable, net (note 4) 3,869,927 3,737,698 Deposits with trustees (note 6) 13,593,894 13,688,671 Long-term investments, at fair value (notes 3 and 12) 16,549,248 16,092,678 Property and equipment, net (notes 5 and 6) 52,654,860 52,436,648 Total assets $ 112,156, ,730,083 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses $ 8,747,833 10,163,367 Student deposits and advance payments 8,764,699 6,172,903 Notes and bonds payable (note 6) 57,306,407 58,798,812 Refundable advances U.S. Government grants 3,279,371 3,275,900 Total liabilities 78,098,310 78,410,982 Net assets: Unrestricted 25,779,935 22,361,465 Temporarily restricted (note 7) 1,621,418 2,267,578 Permanently restricted (note 8) 6,656,355 4,690,058 Total net assets 34,057,708 29,319,101 Total liabilities and net assets $ 112,156, ,730,083 See accompanying notes to financial statements. 2

4 Statements of Unrestricted Revenues and Expenses Years ended Operating: Revenues: Tuition and fees $ 81,103,743 74,156,065 Residence and dining 13,489,545 12,356,927 Less student aid (16,329,857) (14,766,248) Tuition and fees, net 78,263,431 71,746,744 Other auxiliary enterprises 1,992,584 1,602,141 Contributions 1,035, ,623 Grants and contracts 2,001,444 2,387,754 Long-term investment income (note 3) 1,223,545 1,267,303 Other interest income 554, ,919 Gain (loss) on sale of investments (note 3) (232,816) 139,829 Other income 2,029,415 1,367,237 Net assets released from restrictions (note 9) 406,464 71,029 Total operating revenues and net assets released from restrictions 87,274,095 79,856,579 Expenses: Instruction 32,482,585 30,336,176 Academic support 6,891,932 6,098,674 Student services 11,636,345 11,012,498 General institutional 16,106,778 15,397,877 Auxiliary enterprises 14,708,456 14,004,888 Total operating expenses 81,826,096 76,850,113 Increase in unrestricted net assets from operations 5,447,999 3,006,466 Nonoperating: Unrealized gains (losses) on unrestricted investments (note 3) (665,974) 861,862 Settlement expenses (note 16) (1,000,000) Write off of accounts receivable-other (363,555) Extinguishment of debt (note 6) (336,286) Increase (decrease) in unrestricted net assets from nonoperating revenue (expense) (2,029,529) 525,576 Increase in unrestricted net assets $ 3,418,470 3,532,042 See accompanying notes to financial statements. 3

5 Statements of Changes in Net Assets Years ended Changes in unrestricted net assets: Operating revenues $ 87,274,095 79,856,579 Operating expenses (81,826,096) (76,850,113) Nonoperating revenue (expense) (2,029,529) 525,576 Increase in unrestricted net assets 3,418,470 3,532,042 Changes in temporarily restricted net assets: Contributions 170,166 62,822 Reinvested endowment income and gains (losses) (note 3) (409,962) 675,060 Net assets released from restrictions (note 9) (406,464) (71,029) Change in donor intent 100 Increase (decrease) in temporarily restricted net assets (646,160) 666,853 Changes in permanently restricted net assets: Contributions 1,952,983 1,190,706 Reinvested endowment income and gains (note 3) 13,414 27,508 Change in donor intent (100) Increase in permanently restricted net assets 1,966,297 1,218,214 Increase in net assets 4,738,607 5,417,109 Net assets at beginning of year 29,319,101 23,901,992 Net assets at end of year $ 34,057,708 29,319,101 See accompanying notes to financial statements. 4

6 Statements of Cash Flows Years ended Cash flows from operating activities: Increase in net assets $ 4,738,607 5,417,109 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation and amortization expense 3,393,514 3,239,330 Realized and unrealized gain on investments 1,393,281 (1,641,919) Loss on extinguishment of debt 336,286 Write off of account receivable 363,555 Contributions for long-term investments (1,952,983) (1,190,706) Change in current assets (1,924,174) 309,959 Change in current liabilities 1,176,262 (2,497,579) Net cash provided by operating activities 7,188,062 3,972,480 Cash flows from investing activities: Purchase of equipment and building improvements (3,631,471) (3,210,002) Proceeds from sales of property and equipment 2,340 3,298 Purchase of investments (31,918,364) (30,060,469) Proceeds from sale of investments 27,885,592 28,158,075 (Increase) decrease in long-term student loans receivable, net (132,229) 63,645 Net cash used in investing activities (7,794,132) (5,045,453) Cash flows from financing activities: Proceeds from issuance of long-term debt 9,073,319 Payments on long-term debt (1,475,000) (9,320,000) Bond issuance costs (338,326) Decrease in deposits with trustees 94,777 1,860,799 Increase (decrease) in government grants refundable 3,471 (111) Contributions for long-term investments 1,952,983 1,190,706 Net cash provided by financing activities 576,231 2,466,387 Net change in cash and cash equivalents (29,839) 1,393,414 Cash and cash equivalents at beginning of year 2,297, ,124 Cash and cash equivalents at end of year $ 2,267,699 2,297,538 Supplemental disclosure: Interest paid $ 2,773,931 2,534,144 See accompanying notes to financial statements. 5

7 (1) Background Southern New Hampshire University (the University) is a private, coeducational institution. Enrollment consists of approximately 2,000 students in the day school, 7,600 enrollments in the graduate school, 10,200 enrollments in the division of continuing education, and 14,500 enrollments in distance education. It also offers associate s degrees in culinary arts and several business-related fields. Bachelor of Science degrees are offered in twenty areas of business, education, and liberal arts study and master s degrees in business administration, accounting, business education, computer information systems, community economic development, and international business. Doctoral degrees are offered in a Ph.D. in Community Economics Development and a DBA in International Business. (2) Summary of Significant Accounting Policies (a) Basis of Statement Presentation The accompanying financial statements, which are presented on the accrual basis of accounting, have been prepared to focus on the University as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned and capital gains, if any, on related investments for general or specific purposes. Temporarily Restricted Net Assets Net assets subject to donor-imposed and/or statutory stipulations that may or will be met by actions of the University and/or the passage of time. Unrestricted Net Assets Net assets not subject to donor-imposed stipulations. 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. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless explicit donor stipulations or law restrict their use. Expirations of temporary restrictions on net assets, that is, the donor-imposed stipulated purpose has been accomplished and/or the stipulated time period has elapsed, are reported as reclassifications between the applicable classes of net assets. Contributions, including unconditional promises to give, are recognized as revenues in the period received. Contributions subject to donor-imposed stipulations that are met in the same reporting period are reported as unrestricted support. Promises to give that are scheduled to be received after the balance sheet date are shown as increases in temporarily restricted net assets and are reclassified to unrestricted net assets when the purpose or time restrictions are met. Promises to give subject to donor-imposed stipulations that the corpus be maintained permanently are recognized as increases in permanently restricted net assets. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions to be received after one year are discounted at the appropriate rate commensurate with the risks involved. Amortization 6 (Continued)

8 of the discount is recorded as additional contribution revenue in accordance with the donor-imposed restrictions, if any, on the contributions. The University reports contributions of land, buildings, or equipment as unrestricted support unless the donor places restrictions on their use. Contributions of cash or other assets that must be used to acquire long-lived assets are reported as unrestricted support provided the long-lived assets are placed in service in the same reporting period; otherwise, the contributions are reported as temporarily restricted support until the assets are acquired and placed in service. Dividends, interest, and net gains (losses) on investments are reported as follows: as increases in permanently restricted net assets if the terms of the gift require that they be added to the principal of a permanent endowment fund; as increases in temporarily restricted net assets if the terms of the gift impose restrictions on the current use of the income or net gains; and as increases in unrestricted net assets in all other cases. (b) Operations The Statement of Unrestricted Revenues and Expenses reports the change in unrestricted net assets from operating and nonoperating activities. Operating revenues consist of those items attributable to the University s academic programs or research conducted by the academic departments. Unrealized gains and losses on investments, nonrecurring gains and losses pertaining to physical plant assets, long-term debt refinancing, and settlements are reported as nonoperating items. Expenses associated with the operation and maintenance, debt interest, and depreciation expense of University plant assets are allocated on the basis of square footage utilized by the functional categories. Expenses associated with fundraising activities of the University were $1,164,328 and $1,123,832 in 2008 and 2007, respectively, and are included in institutional support in the Statement of Unrestricted Revenues and Expenses. The amount of cash contributions received was $3,080,339 and $2,020,603 in 2008 and 2007, respectively. (c) (d) Cash and Cash Equivalents For the purpose of the Statement of Cash Flows, the University considers cash equivalents as investments with maturities at date of purchase of three months or less. The cost of cash equivalents approximates fair value. Investments Investments are stated at fair value. The estimated fair value of investments is based on quoted market prices, except for an alternative investment, principally a privately held equity fund, for which quoted market prices are not readily available, but which is not significant to total investments. Management is responsible for the fair value measurements reported in the financial statements. The University has implemented policies and procedures to assess the reasonableness of 7 (Continued)

9 the fair values provided and believes that the reported fair values as of the statements of financial position dates are reasonable. (e) (f) (g) (h) Land, Buildings, and Equipment Constructed and purchased property and equipment are carried at cost. Long-lived fixed assets, with the exception of land, are depreciated using the straight-line method over their estimated useful lives, which range from three to forty-five years. Costs of library books and periodicals are expensed in the year acquired. Student Deposits and Advance Payments Students reservation deposits along with advance payments for tuition, room, and board and certain expenditures which relate to the University s summer or fall sessions have been deferred and will be recorded as unrestricted revenues and expenses as they are earned. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes The University is a tax-exempt organization as described in Section 501(c)(3) of the Internal Revenue Code and is generally exempt from income taxes pursuant to Section 501(a) of the Code. Effective July 1, 2007, the University adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income tax recognized in an entity s financial statements. FIN 48 requires entities to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest or penalties. A tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. The adoption of FIN 48 had no impact on the University s financial statements. (i) Reclassification Certain 2007 balances have been reclassified to conform to the 2008 presentation. 8 (Continued)

10 (3) Short-and Long-Term Investments The University s investments are summarized as follows at June 30: Fair value Short-term investments: Money market funds $ 2,352,322 1,459,619 Repurchase agreements 8,238,075 5,896,196 Certificates of deposit 6,298,667 6,951,280 Corporate bonds 100,063 U.S. government obligations 298,985 Total short-term investments 16,889,064 14,706,143 Long-term investments: Preferred stocks 190,696 25,310 Common stocks 8,185,264 8,667,154 Alternative investment 97,868 97,868 Corporate notes 68,929 60,000 Corporate bonds 1,101, ,353 U.S. government obligations 1,802,858 1,469,183 Money market funds 1,422,226 1,073,240 Mutual funds social fixed income 3,679,773 3,797,570 Total long-term investments 16,549,248 16,092,678 Total investments $ 33,438,312 30,798,821 The following is the return on investments for the years ended : Dividends and interest $ 1,321,488 1,329,643 Net gain (loss) on sale of investments (239,831) 211,396 Unrealized gain (loss) on investments (1,153,450) 1,430,523 Total return on investments $ (71,793) 2,971,562 The University has interpreted relevant State law as generally permitting the spending of gains on endowment funds over a stipulated period of time. State law allows the Board to appropriate a portion of earnings on endowment as is prudent considering the University s long-and short-term needs, present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions. Currently, the University records unrealized gains (losses) on the permanently restricted net assets as temporarily restricted until appropriated by the University. The University has agreed to make additional capital contributions totaling $200,000 in a private equity fund. The timing and the amount of the contributions will be determined by the general partner. 9 (Continued)

11 (4) Accounts and Loans Receivable Student accounts and other receivables at are composed of the following: Student accounts receivable $ 2,229, ,260 Grants receivable 1,357, ,714 Other receivables 259, ,295 Total 3,846,077 2,479,269 Less allowance for student accounts receivable 575, ,000 Less allowance for other receivables 300,000 Student accounts and other receivable, net $ 3,271,077 1,604,269 Student loans receivable is presented net of an allowance for doubtful accounts of $300,000 at June 30, 2008 and (5) Property and Equipment Property and equipment at are composed of the following: Land $ 6,841,680 5,709,266 Land improvement 1,222,692 1,192,132 Buildings and leasehold improvements 58,538,340 57,656,843 Furniture and equipment 15,440,068 14,180,457 Motor vehicles 593, ,611 Construction in process 2,536,202 2,433,540 Total 85,172,015 81,692,849 Less accumulated depreciation (32,517,155) (29,256,201) Net property and equipment $ 52,654,860 52,436,648 The University recorded depreciation expense of $3,305,166 and $3,134,010 for the years ended June 30, 2008 and 2007, respectively. Net interest in the amount of $354,048 and $392,523 was capitalized to construction in progress for the years ended, respectively. 10 (Continued)

12 (6) Notes and Bonds Payable Notes and bonds payable consist of the following at June 30: Bonds payable: Dormitory and Dining Facilities, Construction, and Consolidation Bonds of 1972 payable to the Department of Housing and Urban Development due serially to 2012 with interest at 3%. Certain dormitory buildings, the cafeteria and student center are pledged as collateral $ 300, ,000 Fixed Rate Revenue Bonds issued May 2000 to the New Hampshire Health and Education Facilities Authority with monthly installments of principal and interest until 2031; weighted average rate of 7.35% 2,065,000 2,500,000 Fixed Rate Revenue Bonds issued September 2003 to the New Hampshire Health and Education Facilities Authority with monthly installments of principal and interest until 2034; weighted average rate of 5.17% 9,450,000 9,800,000 Fixed Rate Revenue Bonds issued June 2005 to the New Hampshire Health and Education Facilities Authority with monthly installments of principal and interest until 2036; weighted average rate of 4.8% 36,535,000 36,815,000 Fixed Rate Revenue Bonds issued July 2006 to the New Hampshire Health and Education Facilities Authority with monthly installments of principal and interest until 2027; weighted average rate of 4.5% 8,570,000 8,890,000 Total bonds payable 56,920,000 58,395,000 Premiums paid on bonds: Premium on 2005 & 2006 Issues 386, ,812 Total notes and bonds payable and premium $ 57,306,407 58,798,812 In conjunction with the 2000, 2003, 2005 and 2006 bond issuances, the University is required to maintain certain financial ratios, and believes it is in compliance with these requirements at. In November 2006, the University issued Series 2006 bonds for $8,890,000. The proceeds were used to advance refund the Series 1997 Bonds. The advanced refunding resulted in a loss of $336, (Continued)

13 Scheduled aggregate principal repayments of notes and bonds payable outstanding at June 30, 2008 are as follows: Fiscal year ending June 30: 2009 $ 1,150, ,200, ,200, ,260, ,265,000 Thereafter 50,845,000 Total $ 56,920,000 The University has a $1,000,000 unsecured revolving line of credit. No borrowings were outstanding at any time during the years ended June 30, 2008 or Advances on the line of credit bear interest at the 1 Month LIBOR rate plus 1.5% (3.9625% at June 30, 2008). (7) Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at June 30: Purpose restrictions: Scholarships $ 205, ,039 Building 486, , , ,302 Unappropriated gains on investments 702,562 1,190,038 Time restrictions: Scholarships 226, ,238 $ 1,621,418 2,267,578 Unspent endowment gains and income are classified as temporarily restricted until the University appropriates and spends such sums in accordance with the terms of the underlying endowment and relevant State law, at which time they will be reclassified to unrestricted revenues. 12 (Continued)

14 (8) Permanently Restricted Net Assets Permanently restricted net assets consist of the following at June 30: Endowment funds for: Academic support $ 378, ,744 Student aid 6,278,277 4,319,314 $ 6,656,355 4,690,058 (9) Net Assets Released from Restrictions Net assets released from temporary donor restrictions were as follows for the years ended June 30: Purpose restrictions: Student aid and other $ 399,164 64,829 Time restrictions: Student aid and other 7,300 6,200 $ 406,464 71,029 (10) Contributions Receivable Contributions receivable are summarized as follows at June 30: Unconditional promises expected to be collected in: Less than one year $ 202, ,719 One year to five years 115, , , ,775 Less allowance for uncollectibles (79,310) (53,194) Less discount to present value (11,436) (11,343) Contributions receivable $ 226, ,238 (11) Retirement Plan and Trust The University has a defined contribution retirement plan (the Plan) covering substantially all full-time employees. The Master Agreement between the University and its professional employees provides for a Plan contribution by the University equal to 8% of each participant s base salary for plan year 2006 with a quarter point increase each year thereafter until the plan reaches 9%. Total pension expense attributable to the Plan was approximately $1,982,000 in 2008 ($1,881,000 in 2007). Total employer contributions to the Trust were $1,881,219 for August 31, 2007 ($1,727,279 for August 31, 2006). 13 (Continued)

15 Contributions are fully vested after attainment of more than three years of 1,000 or more hours of service by the participant. Normal retirement age is 55 years old. Under the terms of the Master Agreement between the University and the faculty and professional staff, certain covered employees are eligible for a supplemental payment related to prior changes to the University s benefit plans. The University expects to distribute $56,000 as specified in the Master Agreement. (12) Deferred Compensation Effective December 2002, the University offered a deferred compensation plan under which eligible employees may elect to defer a portion of their annual compensation for payment in future periods. Under the plan, deferred wages are payable at the participant s election at a date certain, or at times of unforeseeable emergency, or at termination of the participant s employment with the University. Participation in the plan is limited to a select group of management and highly compensated employees. Assets of the plan are recorded at fair value and were approximately $308,000 at June 30, 2008 (approximately $256,000 at June 30, 2007, and consisted primarily of investments in mutual fund securities. An offsetting liability has been recorded for these amounts. (13) Operating Leases The University leases certain classrooms and office space under various leases. The leases generally require that the University pay for insurance, maintenance and certain other operating expenses, and provide for rent adjustments in the event of changes in real estate taxes. Rent expense under operating leases was $1,325,647 in 2008 ($1,288,005 in 2007). Scheduled future minimum rental payments under operating leases as of June 30, 2008 are as follows: Fiscal year ending June 30: 2009 $ 1,167, , , , ,913 Thereafter 4,101,957 (14) Disclosure About Fair Value of Financial Instruments In accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosures About the Fair Value of Financial Instruments, the estimated fair values of the University s financial instruments as of have been determined by using, where practicable, appropriate valuation methodologies. 14 (Continued)

16 Using discounted cash flow analysis, the University determined that the estimated fair value of its total indebtedness was approximately $51,546,000 and $57,840,000 at, respectively. The University further determined that the difference between the carrying values and estimated fair values of its other financial assets and liabilities at were not material. (15) Sale of Property In 2005, the University sold certain real estate located in Hooksett, New Hampshire, referred to as North Campus, in the aggregate amount of $2,719,003 resulting in a gain on sale of $2,037,396. The University received a note receivable in the amount of $150,000 resulting from the sale with zero percent (0%) interest and due on or before August 14, The maturity has been subsequently extended by mutual consent to November (16) Litigation The University is engaged in routine civil litigation, including employment, personal injury and other claims. Additionally, in fiscal 2008, the University settled a civil action filed in Federal District Court, New Hampshire entitled Israel College v. the Southern New Hampshire University. The settlement was for $1,500,000 of which $500,000 was accrued by the University in the 2007 fiscal year and was included in general institutional expenses. The $1,000,000 current year settlement is included as nonoperating expense in