LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA

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1 LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA INDEPENDENT ACCOUNTANT S REVIEW REPORT FOR THE YEAR ENDED JUNE 30, 2013 ISSUED DECEMBER 11, 2013

2 LOUISIANA LEGISLATIVE AUDITOR 1600 NORTH THIRD STREET POST OFFICE BOX BATON ROUGE, LOUISIANA LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE FIRST ASSISTANT LEGISLATIVE AUDITOR AND STATE AUDIT SERVICES PAUL E. PENDAS, CPA DIRECTOR OF FINANCIAL AUDIT THOMAS H. COLE, CPA Under the provisions of state law, this report is a public document. A copy of this report has been submitted to the Governor, to the Attorney General, and to other public officials as required by state law. A copy of this report is available for public inspection at the Baton Rouge office of the Louisiana Legislative Auditor and at the office of the parish clerk of court. This document is produced by the Louisiana Legislative Auditor, State of Louisiana, Post Office Box 94397, Baton Rouge, Louisiana in accordance with Louisiana Revised Statute 24:513. One copy of this public document was produced at an approximate cost of $6.31. This material was produced in accordance with the standards for state agencies established pursuant to R.S. 43:31. This report is available on the Legislative Auditor s website at When contacting the office, you may refer to Agency ID No or Report ID No for additional information. In compliance with the Americans With Disabilities Act, if you need special assistance relative to this document, or any documents of the Legislative Auditor, please contact Elizabeth Coxe, Chief Administrative Officer, at

3 TABLE OF CONTENTS Independent Accountant s Review Report...2 Page Basic Financial Statements: Statement Statement of Net Position... A...4 Statement of Revenues, Expenses, and Changes in Net Position... B...6 Statement of Cash Flows... C Schedule Required Supplementary Information - Schedule of Funding Progress for the Other Postemployment Benefits Plan Exhibit Management Letter... A Appendix Management s Corrective Action Plan and Response to the Finding and Recommendation... A 1

4 LOUISIANA LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE November 15, 2013 Independent Accountant s Review Report LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Ruston, Louisiana We have reviewed the accompanying financial statements of the business-type activities of Louisiana Tech University (university), a university within the University of Louisiana System, a component unit of the State of Louisiana, as of and for the year ended June 30, 2013, which comprise the basic financial statements as listed in the table of contents. We did not review the financial statements of the Innovative Student Facilities, Inc., a blended component unit of the university, whose statements reflect total assets, liabilities, and revenues of 34%, 66%, and 3%, respectively, of the related university totals. These component unit financial statements were audited by another auditor whose report thereon has been furnished to us, and the results of our review expressed herein, insofar as it relates to the amounts included for this component unit, are based solely upon the report of the other auditor. A review includes primarily applying analytical procedures to management s financial data and making inquiries of university management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. University management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report NORTH THIRD STREET POST OFFICE BOX BATON ROUGE, LOUISIANA PHONE: FAX:

5 Independent Accountant s Review Report Based on our review and the report of the other auditor discussed previously, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the Schedule of Funding Progress for the Other Postemployment Benefits Plan on page 38 be presented to supplement the basic financial statements. Such information, though not a part of the basic financial statements, is required by the Government Accounting Standards Board (GASB) who considers it to be an essential part of financial reporting and for placing the basic financial statements in an appropriate operational, economic, or historical context. Such information was not audited, reviewed, or compiled by us, and we do not express an opinion or provide any assurance on it. Management has omitted the Management s Discussion and Analysis that accounting principles generally accepted in the United States of America requires to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the GASB who considers it to be an essential part of financial reporting and for placing the basic financial statements in an appropriate operational, economic, or historical context. The results of our review of the basic financial statements are not affected by this missing information. Respectfully submitted, KVL:BAC:BDC:THC:ch Daryl G. Purpera, CPA, CFE Legislative Auditor LTU

6 Statement A LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Statement of Net Position June 30, 2013 ASSETS Current assets: Cash and cash equivalents (note 2) $20,608,842 Receivables, net (note 4) 3,777,129 Due from state treasury 81,465 Due from federal government 3,693,718 Inventories 467,224 Deferred charges and prepaid expenses 2,156,182 Notes receivable, net (note 5) 751,237 Other current assets 193,514 Total current assets 31,729,311 Noncurrent assets: Restricted assets: Cash and cash equivalents (note 2) 15,164,635 Investments (note 3) 38,518,204 Notes receivable, net (note 5) 5,499,349 Capital assets, net (note 6) 194,378,480 Other noncurrent assets 1,702,780 Total noncurrent assets 255,263,448 Total assets 286,992,759 LIABILITIES Current liabilities: Accounts payable and accrued liabilities (note 7) 4,650,719 Deferred revenues (note 8) 6,345,510 Amounts held in custody for others 846,785 Compensated absences payable (notes 12 and 15) 378,064 Capital lease obligations (notes 14 and 15) 89,774 Bonds payable (notes 15 and 16) 1,977,668 Other current liabilities 1,200,440 Total current liabilities 15,488,960 Noncurrent liabilities: Compensated absences payable (notes 12 and 15) 3,601,535 Capital lease obligations (notes 14 and 15) 186,543 Other postemployment benefits payable (notes 11 and 15) 45,409,930 Bonds payable (notes 15 and 16) 70,284,391 Total noncurrent liabilities 119,482,399 Total liabilities 134,971,359 (Continued) See accompanying notes and independent accountant's review report. 4

7 Statement A LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Statement of Net Position June 30, 2013 NET POSITION Net investment in capital assets $123,633,502 Restricted for: Nonexpendable (note 20) 30,097,285 Expendable (note 20) 24,215,827 Unrestricted (25,925,214) Total net position $152,021,400 (Concluded) See accompanying notes and independent accountant's review report. 5

8 Statement B LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2013 OPERATING REVENUES Student tuition and fees (net of scholarship allowances of $18,809,652) $51,906,737 Federal grants and contracts 11,281,623 State and local grants and contracts 3,277,076 Nongovernmental grants and contracts 745,724 Sales and services of educational departments 332,548 Auxiliary enterprise revenues (net of scholarship allowances of $2,284,496, including revenues used as security for revenue bonds) 21,598,684 Other operating revenues 1,076,468 Total operating revenues 90,218,860 OPERATING EXPENSES Education and general: Instruction 45,464,171 Research 20,744,218 Public service 291,112 Academic support 10,725,130 Student services 5,207,969 Institutional support 10,129,846 Operations and maintenance of plant 9,071,976 Depreciation 9,901,913 Scholarships and fellowships 6,813,500 Auxiliary enterprises 31,294,818 Other operating expenses 175,487 Total operating expenses 149,820,140 OPERATING LOSS (59,601,280) NONOPERATING REVENUES (Expenses) State appropriations 37,309,487 Gifts 5,740,688 Federal nonoperating revenues 8,441,144 American Recovery and Reinvestment Act revenues 122,366 Net investment income 1,274,858 Interest expense (3,688,312) Other nonoperating revenues 1,246,912 Net nonoperating revenues 50,447,143 (Continued) See accompanying notes and independent accountant's review report. 6

9 Statement B LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended June 30, 2013 LOSS BEFORE OTHER REVENUES AND EXPENSES ($9,154,137) Capital appropriations 2,606,246 Other expenses, net (2,212,797) Change in Net Position (8,760,688) Net Position at Beginning of Year 160,782,088 Net Position at End of Year $152,021,400 (Concluded) See accompanying notes and independent accountant's review report. 7

10 Statement C LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Statement of Cash Flows For the Fiscal Year Ended June 30, 2013 Cash flows from operating activities: Tuition and fees $52,116,919 Grants and contracts 14,379,955 Sales and services of educational departments 336,278 Auxiliary enterprise receipts 21,804,609 Payments for employee compensation (66,063,975) Payments for benefits (23,133,969) Payments for utilities (6,302,509) Payments for supplies and services (30,862,443) Payments for scholarships and fellowships (9,180,325) Loans to students (928,822) Collections of loans to students 727,309 Other receipts 1,021,064 Net cash used by operating activities (46,085,909) Cash flows from noncapital financing activities: State appropriations 37,650,322 Gifts and grants for other than capital purposes 6,187,421 Pell Grant receipts 8,196,405 Taylor Opportunity Program for Students receipts 13,682,071 Taylor Opportunity Program for Students disbursements (13,693,409) American Recovery and Reinvestment Act receipts 139,011 Direct lending receipts 27,768,291 Direct lending disbursements (27,665,135) Other receipts 1,292,009 Net cash provided by noncapital financing sources 53,556,986 Cash flows from capital financing activities: Proceeds from capital debt 23,040,000 Capital appropriations received 25,825 Capital grants and gifts received Purchases of capital assets (3,950,455) Principal paid on capital debt and leases (25,253,414) Interest paid on capital debt and leases (2,747,166) Other sources (1,402,862) Net cash used by capital financing activities (10,288,072) Cash flows from investing activities: Interest received on investments 600 Net cash provided by investing activities 600 Net decrease in cash and cash equivalents (2,816,395) Cash and cash equivalents at beginning of year 38,589,872 Cash and cash equivalents at end of year $35,773,477 (Continued) See accompanying notes and independent accountant's review report. 8

11 Statement C LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Statement of Cash Flows For the Fiscal Year Ended June 30, 2013 Reconciliation of operating loss to net cash used by operating activities: Operating loss ($59,601,280) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation expense 9,901,913 Loss on Impairment 387,062 Changes in assets and liabilities: Decrease in accounts receivable, net 115,097 Decrease in inventories 41,889 (Increase) in deferred charges and prepaid expenses (119,020) Decrease in notes receivable 137,283 (Increase) in other assets (830) (Decrease) in accounts payable and accrued liabilities (256,909) (Decrease) in deferred revenue (480,261) Increase in amounts held in custody for others 43,040 (Decrease) in compensated absences (164,859) Increase in other postemployment benefits payable 3,880,997 Increase in other liabilities 29,969 Net cash used by operating activities ($46,085,909) NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Capital appropriations $2,584,011 Increase in fair market value of assets 1,274,395 Capital assets acquired through capital leases 345,138 Disposition of capital assets (45,141) RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and cash equivalents classified as current assets 20,608,842 Cash and cash equivalents classified as noncurrent assets 15,164,635 Total cash and cash equivalents $35,773,477 (Concluded) See accompanying notes and independent accountant's review report. 9

12 NOTES TO THE FINANCIAL STATEMENTS INTRODUCTION Louisiana Tech University (university) is a publicly supported institution of higher education. The university is a part of the University of Louisiana System (System), which is a component unit of the State of Louisiana, within the executive branch of government. The university is under the management and supervision of the University of Louisiana System Board of Supervisors; however, certain items like the annual budget of the university and changes to the degree programs and departments of instruction require the approval of the Board of Regents for Higher Education. As a state university, operations of the university s instructional programs are funded through annual lapsing appropriations made by the Louisiana Legislature. The university is located in Ruston, Louisiana. The university offers associate, baccalaureate, and selected masters, specialists, and doctorate degrees in various academic areas. Net enrollment at the university was 11,306; 8,444; and 9,134, respectively, during the fall, winter, and spring quarters of fiscal year At June 30, 2013, the university has approximately 1,046 full-time faculty and staff members. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. BASIS OF PRESENTATION The Governmental Accounting Standards Board (GASB) promulgates accounting principles generally accepted in the United States of America and reporting standards for state and local governments. These principles are found in the Codification of Governmental Accounting and Financial Reporting Standards, published by the GASB. The accompanying financial statements have been prepared in accordance with such principles. B. REPORTING ENTITY GASB Codification Section 2100 has defined the governmental reporting entity to be the State of Louisiana. Louisiana Tech University is part of the University of Louisiana System, which is considered a component unit of the State of Louisiana because the state exercises oversight responsibility and has accountability for fiscal matters as follows: (1) a majority of the members of the governing boards are appointed by the governor; (2) the state has control and exercises authority over budget matters; (3) the state issues bonds to finance certain construction; and (4) the universities within the System primarily serve state residents. The accompanying financial statements present information only as to the transactions of the programs of the university. 10

13 Annually, the State of Louisiana issues a comprehensive financial report, which includes the activity contained in the accompanying financial statements within the System amounts. The Louisiana Legislative Auditor audits the basic financial statements of the System. Criteria described in GASB Codification Section 2100 were used to evaluate whether potential component units should be blended with the university, discretely presented, disclosed in the notes to the financial statements, or excluded from the reporting entity. This evaluation was made to identify those component units for which the university is financially accountable and other organizations for which the nature and significance of their relationship with the university are such that exclusion would cause the financial statements of the university to be misleading or incomplete. Blended Component Unit The Innovative Student Facilities, Inc., is a Louisiana nonprofit corporation created on March 26, The purpose of the organization is to promote, assist, and benefit the mission of the university primarily through the development and construction of student housing facilities as well as other campus facilities. Since its inception, the corporation developed plans, sold $73,510,000 of revenue bonds, and constructed 30 new student apartment-style housing units and a new recreational facility. The proceeds from the student housing will be used to repay the bonds and maintain the facilities. Although the facility corporation is legally separate, it is considered a blended component unit of the university because it is fiscally dependent on the university. Other external auditors audited the Innovative Student Facilities, Inc., for the years ended June 30, 2013 and To obtain a copy of the audit report, write to: Office of the Comptroller Louisiana Tech University Post Office Box 7924 Ruston, Louisiana This blended component unit is a private nonprofit organization that reports under Financial Accounting Standards Board (FASB) standards, including FASB 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria, presentation, and disclosure requirements are different from GASB revenue recognition criteria and presentation features. With the exception of presentation adjustments, no modifications have been made to this component unit s financial information in the university s report for these differences. Condensed information regarding this blended component unit is provided in note

14 C. BASIS OF ACCOUNTING For financial reporting purposes, the university is considered a special-purpose government engaged only in business-type activities. All activities of the university are accounted for in a single proprietary (enterprise) fund. Accordingly, the university s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-university transactions have been eliminated. In the current fiscal year, the university has included the blended component unit that follows FASB Accounting Standards Codification 958. D. BUDGET PRACTICES The State of Louisiana s appropriation is an annual lapsing appropriation established by legislative action and by Title 39 of the Louisiana Revised Statutes. The statute requires that the budget be approved by the Board of Regents for Higher Education and certain legislative and executive agencies of state government. The Joint Legislative Committee on the Budget grants budget revisions. In compliance with these legal restrictions, budgets are adopted on the accrual basis of accounting, except that (1) depreciation is not recognized; (2) leave costs are treated as budgeted expenditures to the extent that they are expected to be paid; (3) summer school tuition and fees and summer school faculty salaries and related benefits for June are not prorated, but are recognized in the succeeding year; and (4) inventories are recorded as expenditures at the time of purchase. E. CASH AND CASH EQUIVALENTS AND INVESTMENTS Cash includes cash on hand, demand deposits, and interest-bearing demand deposits. Cash equivalents include amounts in time deposits and money market funds. Under state law, the university may deposit funds within a fiscal agent bank organized under the laws of the State of Louisiana, the laws of any other state in the Union, or the laws of the United States. Furthermore, the university may invest in certificates of deposit of state banks organized under Louisiana law and national banks having their principal offices in Louisiana. Cash equivalents reported on the Statement of Net Position include all negotiable certificates of deposit, with a maturity of three months or less when purchased. These terms are also used in preparing the Statement of Cash Flows. Under state law, these deposits (or the resulting bank balances) must be secured by federal deposit insurance or similar federal security or the pledge of securities owned by the fiscal agent bank. The fair market value of the pledged securities plus the federal deposit insurance must at all times be equal to or greater than the amount on deposit with the fiscal agent. In accordance with Louisiana Revised Statute (R.S.) 49:327(c)(3), the university is authorized to invest funds in direct U.S. Treasury obligations, U.S. government agency obligations, and money market funds. In addition, funds derived from gifts and grants, 12

15 endowments, and reserve funds established in accordance with bond issues may be invested as stipulated by the conditions of the gift instrument or bond indenture. In addition, investments are maintained in investment accounts in external foundations as authorized by policies and procedures established by the Board of Regents and are reported at fair value in accordance with GASB Statement 31. Changes in the carrying value of investments, resulting in unrealized gains or losses, are reported as a component of investment income in the Statement of Revenues, Expenses, and Changes in Net Position. Investments in common and preferred stocks, mutual funds, diamonds, and an external investment pool are reported by the university as investments on the Statement of Net Position. For purposes of the Statement of Cash Flows, the university considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash equivalents. F. INVENTORIES Inventories are valued at average cost under a periodic inventory system using the consumption method. G. RESTRICTED CASH AND INVESTMENTS Cash and investments that are externally restricted to make debt service payments, to maintain sinking or reserve funds, or to purchase or construct capital or other noncurrent assets are reported as noncurrent restricted assets. Noncurrent restricted investments also include endowments and similar type accounts for which donors or other outside sources have stipulated that, as a condition of the gift instrument, the principal is to be maintained inviolate and in perpetuity. H. CAPITAL ASSETS The university follows the capitalization policies established by the Louisiana Division of Administration, Office of Statewide Reporting and Accounting Policy. Capital assets are reported at cost at the date of acquisition or their estimated fair value at the date of donation. Construction-in-progress costs are capitalized during construction. For movable property, the university s capitalization policy includes all items with a unit cost of $5,000 or more and an estimated useful life greater than one year. Purchased or internally developed software exceeding $1,000,000 is capitalized. Renovations to buildings and land improvements that significantly increase the value or extend the useful life of the structure are capitalized if they exceed $100,000. Any infrastructure exceeding $3 million must be capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense is incurred. Depreciation is computed using the straight-line method over the estimated useful life of the assets, generally 40 years for buildings, 20 years for depreciable land improvements, and three to 10 years for most movable property and software. Library collections regardless of age with a total acquisition value of $5 million or more will be capitalized and depreciated. 13

16 I. DEFERRED REVENUES Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but are related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. J. COMPENSATED ABSENCES Employees accrue and accumulate annual and sick leave in accordance with state law and administrative regulations. The leave is accumulated without limitation; however, ninemonth faculty members do not accrue annual leave but are granted faculty leave during holiday periods when students are not in classes. Employees who are considered having non-exempt status according to the guidelines contained in the Fair Labor Standards Act may be paid for compensatory leave earned. Upon separation of employment, both classified and non-classified personnel or their heirs are compensated for accumulated annual leave not to exceed 300 hours. In addition, academic and non-classified personnel or their heirs are compensated for accumulated sick leave not to exceed 25 days upon retirement or death. Act 343 of 1993 allows members of the Louisiana State Employees Retirement System, upon application for retirement, the option of receiving an actuarially determined lump sum payment for annual and sick leave which would otherwise have been used to compute years of service for retirement. Unused annual leave in excess of 300 hours plus unused sick leave are used to compute retirement benefits for the Teachers Retirement System of Louisiana and the Louisiana State Employees Retirement System but not for the Optional Retirement System. Upon termination or transfer, a classified employee will be paid for any one and one-half hour compensatory leave earned and may or may not be paid for any straight hour-forhour compensatory leave earned. Compensation paid will be based on the classified employee s hourly rate of pay at termination or transfer. K. NONCURRENT LIABILITIES Noncurrent liabilities include principal amounts of revenue bonds payable and notes payable with maturities greater than one year, estimated amounts for accrued compensated absences, and other postemployment benefits that will not be paid within the next fiscal year. L. NET POSITION Net position comprises the various net earnings from operation, nonoperating revenues, expenses, and contributions of capital. Net position is classified in the following components: 14

17 (a) (b) (c) (d) Net investment in capital assets consists of the university s total investment in capital assets, net of accumulated depreciation, and reduced by the outstanding balances of any bonds or other borrowings attributable to the acquisition, construction, or improvement of those assets. Restricted - nonexpendable consists of endowments and similar type funds for which donors or other outside sources have stipulated that, as a condition of the gift instrument, the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. Restricted - expendable consists of resources that the university is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. Unrestricted consists of resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the university and may be used at the discretion of the governing board to meet current expenses and for any purpose. When an expense is incurred that can be paid using either restricted or unrestricted resources, the university s policy is to first apply the expense toward unrestricted resources, then toward restricted resources. M. CLASSIFICATION OF REVENUES AND EXPENSES The university has classified its revenues and expenses as either operating or nonoperating according to the following criteria: (a) (b) (c) Operating revenue includes activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship discounts and allowances; (2) sales and services of auxiliary enterprises, net of scholarship discounts and allowances; and (3) most federal, state, and local grants and contracts. Nonoperating revenue includes activities that have the characteristics of nonexchange transactions, such as gifts and contributions, state appropriations, certain federal revenues (Pell), and investment income. Operating expenses generally include transactions resulting from providing goods or services, such as (1) payments to vendors for goods or services; (2) payments to employees for services; and (3) payments for employee benefits. 15

18 (d) Nonoperating expenses include transactions resulting from financing activities, capital acquisitions, and investing activities. N. SCHOLARSHIP DISCOUNTS AND ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses, and Changes in Net Position. Scholarship discounts and allowances are the difference between the stated charge for services (tuition and fees) provided by the university and the amount that is paid by students and/or third parties making payments on the student s behalf. O. USE OF 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 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. P. ELIMINATING ACTIVITY All activities among departments and auxiliary units of the university are eliminated for purposes of preparing the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position. Q. ADOPTION OF NEW ACCOUNTING PRINCIPLES For the year ended June 30, 2013, the university implemented the following accounting standards: GASB Statement 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements 14 and 34. This statement sets forth additional requirements for identifying component units, presenting condensed combining information for blended component units, and accounting for certain equity interests. The implementation of Statement 61 resulted in the presentation of condensed financial information in note 25. GASB Statement 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement is intended to enhance the usefulness of its Codification by incorporating guidance that previously could only be found in certain Financial Accounting Standards Board and American Institute of Certified Public Accountants pronouncements. The implementation of Statement 62 had no significant impact on the financial statements or notes. 16

19 GASB Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This statement provides guidance for reporting deferred outflows and inflows of resources, and net position in a statement of financial position and related note disclosures. The implementation of Statement 63 primarily affected the replacement of the term net assets with net position. 2. CASH AND CASH EQUIVALENTS At June 30, 2013, the university has cash and cash equivalents (book balances) of $35,773,477 as follows: Petty cash $78,806 Demand deposits 28,342,054 Money market accounts 7,324,316 Certificates of deposit 28,301 Total $35,773,477 These cash and cash equivalents are reported on the Statement of Net Position as follows: Current assets $20,608,842 Noncurrent assets 15,164,635 Total $35,773,477 Custodial credit risk is the risk that in the event of a bank failure, the university's deposits may not be recovered. Under state law, the university s deposits (or the resulting bank balances) must be secured by federal deposit insurance or similar federal security or the pledge of securities owned by the fiscal agent bank. The fair market value of the pledged securities plus the federal deposit insurance must at all times equal the amount on deposit with the fiscal agent. These securities are held in the name of the university or the pledging bank by a holding or custodial bank that is mutually acceptable to both parties. At June 30, 2013, the university has $36,977,150 in deposits (collective bank balances), which are secured from risk by federal deposit insurance plus pledged securities. 3. INVESTMENTS At June 30, 2013, the university has investments totaling $38,518,204. The university s investment policy follows state law [R.S. 49:327(c)(3)], which authorizes the university to invest funds in direct U.S. Treasury obligations, U.S. government agency obligations, direct security repurchase agreements, reverse direct repurchase agreements, investment grade commercial paper, investment grade corporate notes and bonds, and money market funds. The money 17

20 market mutual funds totaling $11,952 are rated 3 Stars by Morning Star and the remaining investments are not rated. A summary of the university s investments follows: Investment Maturities in Years Fair Less Than Percentage of Value 1 Year 1-5 Years 6-10 Years Investments Type of investment: Common and preferred stock $13,125, % Money market mutual funds 11, % Diamonds 8, % U.S. Treasury Notes 1,158,604 $451,872 $706, % Federal Home Loan Mortgage Corp. 588,544 $355, ,611 17, % Federal National Mortgage Asso. 442, , , % Government National Mortgage Asso. 90,790 90, % Federal Home Loan Bank 814, , , % Federal Farm Credit Bank 237, , % Mutual Funds 19,390, % Corporate Bonds Obligations 2,398, ,340 1,295, , % Certificates of Deposit 60,000 60, % Other 190, % Total investments $38,518,204 $649,263 $2,405,116 $2,736, % Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits the university s investments by type as described previously. The university does not have a policy to further limit credit risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the university will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The university s investment policy generally requires that issuers must provide the university with safekeeping receipts, collateral agreements, and custodial agreements. Concentration of credit risk is the risk of loss attributed to the magnitude of an entity s investment in a single issuer. State law requires that at no time shall the funds invested in U.S. government agency obligations exceed 60% of all monies invested with maturities of 30 days or longer. In addition, state law limits the investment in commercial paper and corporate notes and bonds to 20% of all investments. The university does not have policies to further limit concentration of credit risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. State law as applicable to institutions of higher education does not address interest rate risk. In addition, the university does not have policies to limit interest rate risk. Investments held by a private foundation in an external investment pool are managed in accordance with the terms outlined in a management agreement executed between the university and the Louisiana Tech University Foundation, with the university being a voluntary participant. 18

21 At June 30, 2013, these investments total $38,475,494 and are managed in accordance with the Board of Regents guidelines for Investment of Endowed Chairs and Endowed Professorships. These funds are audited annually by an outside certified public accounting firm. 4. RECEIVABLES Receivables as shown on the Statement of Net Position, net of an allowance for doubtful accounts, are all scheduled for collection within one year and are composed of the following: Allowance Accounts for Doubtful Net Accounts Type Receivable Accounts Receivable Student tuition and fees $1,674,267 $307,869 $1,366,398 Auxiliary enterprises 714,447 65, ,142 Contributions and gifts 72,116 72,116 Federal, state, and private grants and contracts 1,168,938 1,168,938 State appropriations 40,198 40,198 Other 480, ,337 Total $4,150,303 $373,174 $3,777, NOTES RECEIVABLE Notes receivable are comprised of loans to students under the Federal Perkins Loan Program. Restricted federal and state contributions and interest on the loans provide the funding for the Perkins Loan Program. This program provides for the cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. If loans are determined to be uncollectible and not eligible for reimbursement by the federal government, the loans can be written off and assigned to the U.S. Department of Education. These receivables are shown on the Statement of Net Position, net of allowance for doubtful accounts. These receivables are composed of the following for the year ended June 30, 2013: Allowance for Notes Notes Doubtful Receivable Noncurrent Type Receivable Accounts (Net) Portion Federal Perkins Loans $6,732,747 $482,161 $6,250,586 $5,499,349 19

22 6. CHANGES IN CAPITAL ASSETS A summary of changes in capital assets is as follows: Balance Balance June 30, 2012 Additions Transfers Retirements June 30, 2013 Capital assets not being depreciated: Land $16,999,594 $1,422,840 $18,422,434 Construction-in-progress 667,251 1,116,687 ($1,470,135) 313,803 Total capital assets not being depreciated $17,666,845 $2,539,527 ($1,470,135) NONE $18,736,237 Other capital assets: Infrastructure $3,046,531 $3,046,531 Less accumulated depreciation (76,163) ($76,163) (152,326) Total infrastructure 2,970,368 (76,163) NONE NONE 2,894,205 Land improvements 5,934, ,236 $686,666 7,184,905 Less accumulated depreciation (2,119,911) (343,530) (2,463,441) Total land improvements 3,814, , ,666 NONE 4,721,464 Buildings 267,773,061 1,931, ,469 ($2,598,355) 267,889,597 Less accumulated depreciation (107,603,390) (6,006,245) 2,211,293 (111,398,342) Total buildings 160,169,671 (4,074,823) 783,469 (387,062) 156,491,255 Equipment (including library books) 65,539,060 2,943,656 (1,357,455) 67,125,261 Less accumulated depreciation (53,426,281) (3,475,975) 1,312,314 (55,589,942) Total equipment 12,112,779 (532,319) NONE (45,141) 11,535,319 Total other capital assets $179,066,910 ($4,462,599) $1,470,135 ($432,203) $175,642,243 Capital asset summary: Capital assets not being depreciated $17,666,845 $2,539,527 ($1,470,135) $18,736,237 Other capital assets, at cost 342,292,655 5,439,314 1,470,135 ($3,955,810) 345,246,294 Total cost of capital assets 359,959,500 7,978,841 NONE (3,955,810) 363,982,531 Less accumulated depreciation (163,225,745) (9,901,913) NONE 3,523,607 (169,604,051) Capital assets, net $196,733,755 ($1,923,072) NONE ($432,203) $194,378, ACCOUNTS PAYABLE AND ACCRUALS Accounts payable and accrued expenses at June 30, 2013, are as follows: Account Name Vendor payables $1,208,578 Accrued salaries and payroll deductions 3,332,803 Other 109,338 Total $4,650,719 20

23 8. DEFERRED REVENUES Deferred revenues at June 30, 2013, are as follows: Prepaid tuition and fees $3,435,858 Prepaid athletic ticket sales 863,870 Grants and contracts 1,919,820 Other 125,962 Total $6,345, PENSION PLANS Plan Description - Substantially all employees of the university are members of two statewide, public employee retirement systems. Academic employees are generally members of the Teachers' Retirement System of Louisiana (TRSL), and classified/unclassified state employees are generally members of the Louisiana State Employees' Retirement System (LASERS). Both plans are administered by separate boards of trustees. TRSL is a cost-sharing, multiple-employer defined benefit pension plan and LASERS is considered a single-employer defined benefit pension plan because the material portion of its activity is with one employer--the State of Louisiana. Both plans provide retirement, disability, and survivors benefits to plan members and beneficiaries. The State of Louisiana guarantees benefits granted by the retirement systems by provisions of the Louisiana Constitution of Generally, all full-time employees are eligible to participate in the systems, with employee benefits vesting after five years of service for TRSL and 10 years of service with LASERS. Article 10, Section 29 of the Louisiana Constitution of 1974 assigns the authority to establish and amend benefit provisions to the state legislature. The systems issue annual publicly available financial reports that include financial statements and required supplementary information for the systems. The reports may be obtained by writing to the Teachers' Retirement System of Louisiana, Post Office Box 94123, Baton Rouge, Louisiana , online at or by calling (225) , and/or the Louisiana State Employees' Retirement System, Post Office Box 44213, Baton Rouge, Louisiana , online at or by calling (225) Funding Policy - The contribution requirements of employee plan members and the university are established and may be amended by the state legislature. The legislature annually sets the required employer contribution rate equal to the actuarially required employer contribution as set forth in R.S. 11:102. For fiscal year 2013, TRSL employees contribute 8% and LASERS employees contribute 7.5% (8% for LASERS employees hired after July 1, 2006 and 9.5% for hazardous duty employees) of covered salaries. The state contributed 24.4% or 24.5% (Lab School) of covered salaries to TRSL and 29.1% or 28% (hazardous duty) of covered salaries to LASERS. The State of Louisiana, through the annual appropriation to each university, funds the employer contribution. The employer contributions to TRSL for the years ended June 30, 2013, 2012, and 2011 were $3,601,379; $3,624,594; and $3,241,892 respectively, and to LASERS for 21

24 years ended June 30, 2013, 2012, and 2011 were $2,915,489; $2,918,864; and $2,668,026, respectively, equal to the required contributions for each year. 10. OPTIONAL RETIREMENT SYSTEM R.S. 11:921 created an optional retirement plan for academic and administrative employees of public institutions of higher education. This program was designed to aid universities in recruiting employees who may not be expected to remain in the TRSL for five or more years. The purpose of the optional retirement plan is to provide retirement and death benefits to the participants while affording the maximum portability of these benefits to the participants. The optional retirement plan is a defined contribution plan that provides for full and immediate vesting of all contributions remitted to the participating companies on behalf of the participants. Eligible employees make an irrevocable election to participate in the optional retirement plan rather than the TRSL and purchase retirement and death benefits through contracts provided by designated companies. R.S. 11:927 set the contribution requirements of the plan members and the system equal to the contribution rates established for the regular retirement plan of TRSL. Total contributions by the university are 24.4% of the covered payroll for fiscal year The participant's contribution (8%), less any monthly fee required to cover the cost of administration and maintenance of the optional retirement plan, is remitted to the designated company or companies. Upon receipt of the employer's contribution, the TRSL pays over to the appropriate company or companies, on behalf of the participant, an amount equal to the employer's portion of the normal cost contribution as determined annually by the actuarial committee. The TRSL retains the balance of the employer contribution for application to the unfunded accrued liability of the university. Benefits payable to participants are not the obligations of the State of Louisiana or the TRSL. Such benefits and other rights of the optional retirement plan are the liability and responsibility solely of the designated company or companies to whom contributions have been made. Employer and employee contributions to the optional retirement plan were $6,812,657 and $2,233,654, respectively, for the fiscal year ended June 30, OTHER POSTEMPLOYMENT BENEFITS Plan Description - Employees of the university voluntarily participate in the State of Louisiana s health insurance plan. The Office of Group Benefits (OGB) provides medical and life insurance benefits to eligible retirees and their beneficiaries. Participants are eligible for retiree benefits if they meet the retirement eligibility as defined in the applicable retirement system and they must be covered by the active medical plan immediately prior to retirement. The postemployment benefits plan is a cost-sharing, multiple-employer defined benefit plan but is classified as an agent multiple-employer plan for financial reporting purposes since the plan is not administered as a formal trust. R.S. 42: provides the authority to establish and amend benefit provisions of the plan. OGB does not issue a publicly available financial report; however, the entity is included in the Louisiana Comprehensive Annual Financial Report (CAFR). You may obtain a copy of the CAFR on the Office of Statewide Reporting and Accounting Policy s website at 22

25 Funding Policy - The plan is currently financed on a pay as you go basis. The contribution requirements of plan members and the university are established and may be amended by R.S. 42: Employees do not contribute to their postemployment benefits cost until they become retirees and begin receiving those benefits. The retirees contribute to the cost of retiree healthcare based on a service schedule. Contribution amounts vary depending on what healthcare provider is selected from the plan and if the member has Medicare coverage. OGB offers three standard plans for both active and retired employees: the Preferred Provider Organization (PPO) Plan, the Health Maintenance Organization (HMO) Plan, and the Medical Home HMO Plan. OGB also offers the Consumer Driven Health Plan with a Health Savings Account (CDHP with HSA) to active employees. OGB also offered the Regional HMO Plan for the first part of the fiscal year which ended December 31, Retired employees who have Medicare Part A and Part B coverage also have access to three OGB Medicare Advantage plans: the Peoples Health HMO-POS Plan, the Vantage HMO-POS Plan, and the Vantage Zero- Premium HMO-POS Plan. There is also a Health Exchange Plan which is not an OGB plan; however, OGB is partnering with Extend Health to offer access to multiple Medicare plans. There are no premiums to the state for the Vantage Zero-Premium HMO-POS Plan or the Health Exchange Plan. During calendar year 2012, OGB offered five Medicare Advantage plans: Humana HMO Plan, Peoples Health HMO-POS Plan, Vantage HMO-POS Plan, Humana PPO Plan, and United Healthcare PPO Plan. Employees hired before January 1, 2002, pay approximately 25% of the cost of medical coverage (except single retirees under age 65 pay approximately 25% of the active employee cost). Employees hired on or after January 1, 2002, pay a percentage of the total contribution based on the following schedule: Service Retiree Share State Share Under 10 years 81% 19% years 62% 38% years 44% 56% 20 + years 25% 75% 23

26 Shown below are the monthly premium rates in effect for the plan year Medical Home HMO PPO HMO Plan CDHP Plan Active Single $576 $544 $536 $447 With Spouse $1,223 $1,156 $1,122 $950 With Children $702 $664 $651 $545 Family $1,290 $1,219 $1,183 $1,001 Retired, No Medicare and Re-employed Retiree Single $1,071 $1,015 $985 N/A With Spouse $1,892 $1,793 $1,727 N/A With Children $1,193 $1,131 $1,095 N/A Family $1,883 $1,784 $1,719 N/A *Retired, with 1 Medicare Single $348 $336 $330 N/A With Spouse $1,287 $1,228 $1,180 N/A With Children $603 $578 $561 N/A Family $1,715 $1,634 $1,567 N/A *Retired, with 2 Medicare With Spouse $626 $602 $582 N/A Family $775 $746 $717 N/A *All members who retire on or after July 1, 1977, must have Medicare Part A and B to qualify for the reduced premium rates. The following table shows the Medicare Advantage Plans monthly premium rates in effect for the plan year Calendar Year 2013 Calendar Year 2012 Retired with Retired with Medicare Supplemental Rates 1 Medicare 2 Medicare 1 Medicare 2 Medicare Humana HMO Plan N/A N/A $156 $312 People's Health HMO Plan $234 $468 $167 $334 Vantage HMO Plan $184 $369 $279 $558 Humana PPO Plan N/A N/A $150 $300 United Health Care PPO Plan N/A N/A $214 $428 24

27 OGB also provides eligible retirees Basic Term Life, Basic Plus Supplemental Term Life, Dependent Term Life, and Employee Accidental Death and Dismemberment coverage, which is underwritten by The Prudential Insurance Company of America. The total monthly premium is approximately $1 per thousand dollars of coverage of which the employer pays fifty cents for retirees and twelve cents for spouses. The monthly premium is reduced to less than $1 per thousand for retired employees age 70 and over. Maximum coverage is capped at $50,000 with a reduction formula of 25% at age 65 and 50% at age 70, with accidental death and dismemberment coverage ceasing at age 70 for retirees. Annual Other Postemployment Benefit Cost and Liability - The university s annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution (ARC) of the employer and is an amount actuarially determined in accordance with GASB 45, which was initially implemented for the year ended June 30, The ARC represents a level of funding that, if paid on an ongoing basis, would cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) over a period of 30 years. A 30-year, open amortization period has been used. The total ARC for fiscal year 2013 is $7,237,900. The following schedule presents the components of the university s OPEB obligation for fiscal year 2013: ARC $7,237,900 Interest on net OPEB obligation 1,661,200 ARC adjustment (1,586,900) Annual OPEB cost 7,312,200 Contributions made - current year retiree premiums (3,431,203) Increase in net OPEB obligations 3,880,997 Beginning net OPEB obligation at July 1, ,528,933 Ending net OPEB obligation at June 30, 2013 $45,409,930 The university s annual OPEB cost contributed to the plan using the pay as you go method and the OPEB obligations for the fiscal year ended June 30, 2013, and the preceding two fiscal years were as follows: Percentage Annual of Annual Fiscal Year OPEB OPEB Cost Net OPEB Ended Cost Contributed Obligation June 30, 2011 $9,919, % $37,707,286 June 30, 2012 $7,355, % $41,528,933 June 30, 2013 $7,312, % $45,409,930 25

28 Funded Status and Funding Progress - Act 910 of the 2008 Regular Session established the Postemployment Benefits Trust Fund effective July 1, 2008; however, during fiscal year 2013, neither the university nor the State of Louisiana contributed to it. Since no contributions were made, the university s entire actuarial accrued liability (AAL) of $99,246,500 was unfunded. The funded status of the plan, as determined by an actuary as of July 1, 2012, was as follows: AAL $99,246,500 Actuarial value of plan assets NONE Unfunded actuarial accrued liability (UAAL) $99,246,500 Funded Ratio (actuarial value of plan assets/aal) 0% Covered payroll $39,582,400 UAAL as a percentage of covered payroll 251% Actuarial Methods and Assumptions - Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing the benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities consistent with the long-term perspective of the calculations. In the July 1, 2012, OGB actuarial valuation, the projected unit credit actuarial cost method, was used. The actuarial assumptions included a 4% discount rate and initial annual healthcare trend rate of 8% and 6% for pre-medicare and Medicare eligibles, respectively, scaling down to ultimate rates of 4.5% per year. The RP 2000 Mortality Table was used in making actuarial assumptions. Retirement rate assumptions differ by employment group and date of plan participation. The state s unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll over an open amortization period of 30 years. Annual per capita medical claims costs were updated to reflect an additional year of actual experience. 26

29 12. COMPENSATED ABSENCES At June 30, 2013, employees of the university have accumulated and vested annual, sick, and compensatory leave of $2,786,900; $1,131,442; and $61,257, respectively. These balances were computed in accordance with GASB Codification Section C60. The leave payable is recorded in the accompanying financial statements. The schedule of changes in the liability associated with compensated absences is presented in note CONTINGENT LIABILITIES AND RISK MANAGEMENT Losses arising from judgments, claims, and similar contingencies are considered state liabilities and paid upon appropriation by the legislature and not the university. As of June 30, 2013, the university was involved as a defendant in one lawsuit which is being handled by contract attorneys. The attorneys have estimated no monetary liability related to this lawsuit. This note does not include any lawsuits filed with the university system or the Office of Risk Management, the agency responsible for the state s risk management program. 14. LEASE OBLIGATIONS Operating Leases For the fiscal year ended June 30, 2013, total operating lease expenses were $54,086. The following is a schedule by fiscal years of future minimum annual rental payments required under operating leases that have initial or noncancelable lease terms in excess of one year as of June 30, 2013: Nature of Lease Fiscal Year Thereafter Total Land $13,226 $4,981 $5,070 $5,161 $5,254 $27,725 $30,312 $33,140 $36,232 $39,612 $164,457 $365,170 The lease agreements have nonappropriation exculpatory clauses that allow lease cancellation if the legislature does not make an appropriation for its continuation during any future fiscal period. 27

30 Capital Leases The university records items under capital leases as assets and obligations in the accompanying financial statements. The following are schedules of future minimum lease payments under these capital leases, together with the present value of minimum lease payments: Fiscal Year Ending June 30, 2014 $94, , , ,133 Total minimum lease payments 288,026 Less - amount representing executory costs NONE Net minimum lease payments 288,026 Less - amount representing interest (11,709) Present value of net minimum lease payments $276,317 The gross amount of assets held under capital leases as of June 30, 2013, includes equipment totaling $373,136. Lessor - Operating Lease The leasing operations consist primarily of leasing property for the purposes of providing food services to students. The following schedule provides an analysis of the university s cost and carrying amount of the university s investment in property on operating leases and property held for lease as of June 30, 2013: Cost Accumulated Depreciation Carrying Amount Office space $2,389,938 $1,458,822 $931,116 The following is a schedule by years of minimum future rentals on noncancelable operating lease as of June 30, 2013: Total Minimum Nature of Future Operating Lease Rentals University - food service $170,000 $170,000 $170,000 $170,000 $170,000 $850,000 $170,000 $1,870,000 28

31 15. LONG-TERM LIABILITIES The following is a summary of long-term debt transactions of the university for the year ended June 30, 2013: Amounts Balance Balance Due Within June 30, 2012 Additions Reductions June 30, 2013 One Year Bonds payable $73,031,259 $23,677,632 $24,446,832 $72,262,059 $1,977,668 Other liabilities: Compensated absences payable 4,144,458 1,658,494 1,823,353 3,979, ,064 Capital lease obligations 24, ,138 93, ,317 89,774 Other postemployment benefits payable 41,528,933 3,880,997 45,409,930 Subtotal 45,697,984 5,884,629 1,916,767 49,665, ,838 Total $118,729,243 $29,562,261 $26,363,599 $121,927,905 $2,445, BONDS PAYABLE Bonds Payable, as of June 30, 2013 Interest Outstanding Outstanding Outstanding Date of Original June 30, Issued June 30, Interest June 30, Issue Issue Issue 2012 (Redeemed) 2013 Maturities Rates 2013 Louisiana Tech University: Revenue Bonds Series 7/1/2002 $5,920,000 $3,820,000 ($3,820,000) Revenue Refunding Bonds Series 10/24/2012 3,975,000 3,655,000 3,655, % $384,580 Innovative Student Facilities, Inc.: 2003 Series Revenue Bonds 7/1/ ,840,000 19,945,000 (19,945,000) 2007 Series Revenue Bonds 9/26/ ,670,000 50,020,000 (685,000) 49,335, %-5.25% 34,586, Refunding Series 6/6/ ,065,000 19,065,000 19,065, %-5% 8,105,005 Total 102,470,000 73,785,000 (1,730,000) 72,055,000 $43,076,235 Unamortized Discounts and Premiums Innovative Studemt Facilities, Inc.: 2003 Series Revenue Bonds 7/1/2003 (436,386) (305,473) 305, Series Revenue Bonds 9/26/2007 (530,845) (448,268) 17,695 (430,573) 2013 Series Refunding Bonds 6/6/ , , ,632 (329,599) (753,741) 960, ,059 Total $102,140,401 $73,031,259 ($769,200) $72,262,059 $43,076,235 29

32 The annual requirements to amortize the university s bonds outstanding at June 30, 2013, including interest of $43,076,235 are as follows: June 30, 2013 Principal Interest Total 2014 $1,965,000 $2,379,514 $4,344, ,815,000 2,944,084 4,759, ,970,000 2,882,544 4,852, ,115,000 2,815,249 4,930, ,250,000 2,743,099 4,993, ,450,000 2,664,896 5,114, ,585,000 2,571,952 5,156, ,770,000 2,464,360 5,234, ,890,000 2,349,608 5,239, ,555,000 2,237,825 4,792, ,665,000 2,130,001 4,795, ,785,000 2,008,232 4,793, ,910,000 1,881,330 4,791, ,045,000 1,747,180 4,792, ,185,000 1,605,131 4,790, ,330,000 1,464,805 4,794, ,465,000 1,325,138 4,790, ,620,000 1,178,025 4,798, ,780,000 1,024,563 4,804, ,965, ,587 4,810, ,455, ,850 4,112, ,915, ,237 3,411, ,045, ,138 3,407, ,190, ,850 3,411, ,335,000 75,037 3,410,037 72,055,000 Unamortized discount (430,573) (430,573) Unamortized premium 637, ,632 Total $72,262,059 $43,076,235 $115,338,294 30

33 The following is a summary of the debt service reserve requirements of the various bond issues outstanding at June 30, 2013: Bond Issue Reserves Available Reserve Requirement Excess Innovative Student Facilities Series $3,416,782 $3,416,725 $57 Innovative Student Facilities Series 684, ,484 NONE Total $4,101,266 $4,101,209 $ DEBT REFUNDING In October 2012, the university issued $3,975,000 in Series 2012 Revenue Bonds. The purpose of the issue was to refund the Series 2002 Revenue Bonds in the amount of $3,820,000 including a redemption premium of $38,200. The Series 2012 Bonds were issued under private placement for 10 years at a fixed rate of 2.05%. The refunding was accomplished to achieve an interest cost savings of $422,819 ($385,463 net present value benefit) over the 10-year life of the new bonds. In June 2013, Innovative Student Facilities, Inc., issued $19,065,000 in Series 2013 Revenue Refunding Bonds with a reoffering premium of $637,632. The purpose of the issue was to refund the Innovative Student Facilities, Inc., Series 2003 Revenue Bonds in the amount of $19,520,000 including a Redemption Premium of $190,600. The net Series 2013 Bonds proceeds of $19,559,645 along with the Series 2003 Debt Service Reserve Fund of $1,485,475 were deposited in escrow with the Trustee for full redemption of the 2003 Bonds and payment of issuance costs. As a result, the Series 2003 Revenue Bonds are considered legally defeased, and the liability for the bonds has been removed from long-term debt. The Trustee fully redeemed the Series 2003 in July A new Debt Service Reserve Fund was also established in the amount of $684,484. The refunding was accomplished to achieve debt service cost savings of $2,359,786 ($1,752,306 net present value benefit) over the 21-year life of the new Series 2013 bonds. 18. REVENUE USED AS SECURITY FOR REVENUE BONDS Pledged revenues are specific revenues that have been formally committed to directly collateralize or secure debt of the pledging government or directly or indirectly collateralize or secure debt of a component unit. Pledged revenues must be disclosed for each period in which the secured debt remains outstanding and for each secured debt issued. The university has pledged revenues for the following revenue bond issues: Revenue Bonds Series 2012 Revenue pledged for this bond includes all auxiliary fund revenues. The original issue of the bonds was $3,975,000 and these bonds were issued to refund the Series

34 Revenue Bonds, which were in turn issued for the installation of a turbine generation system. The debt secured by the pledge is $3,655,000. The approximate remaining amount of the pledge is $4,039,580. The term of commitment is October 24, 2012, through April 1, For the year ended June 30, 2013, the requirements for principal and interest were $320,000 and $35,538, respectively. The amount of pledged revenues recognized for fiscal year 2013 was $5,325, ALTERNATIVE FINANCING AGREEMENTS On July 1, 2003, the Louisiana Local Government Environmental Facilities and Community Development Authority agreed to issue revenue bonds totaling $21,840,000 for the Innovative Student Facilities Inc., a nonprofit corporation, for constructing student housing and related facilities for the Board of Supervisors of the University of Louisiana System. On September 26, 2007, the Louisiana Local Government Environmental Facilities and Community Development Authority agreed to issue revenue bonds totaling $51,670,000 for the Innovative Student Facilities Inc., for acquiring land to be purchased by the Board of Supervisors for the University of Louisiana System and financing the development, design, construction, renovation, and equipping of certain student housing and recreational facilities, including all furnishings, fixtures, and equipment necessary for the completion of the projects. Pursuant to the terms of the ground lease agreements, the corporation leased land from the board upon which the facilities were built. The facilities are leased by the corporation to the board in accordance with the provisions of agreements to lease (facilities leases). In accordance with the facilities leases, the corporation constructed student housing facilities and leased back the facilities to the board for use by students, faculty, and staff of the university. The rental income derived from the facilities leases are used to pay the bonds. 20. RESTRICTED NET POSITION The university has the following restricted net position at June 30, 2013: Nonexpendable - endowments $30,097,285 Expendable: Student fees $3,425,786 Grants and contracts 39,122 Gifts - restricted by donors 857,323 Endowment 10,628,512 Student loan fund 6,743,351 Capital construction/plant projects 2,081,378 Debt service 18,324 Scholarships 320,717 Lab School 101,314 Total expendable $24,215,827 Of the total net position at June 30, 2013, $2,312,072 is restricted by enabling legislation. 32

35 21. DONOR RESTRICTED ENDOWMENTS If a donor has not provided specific instructions, state law permits the university to authorize expenditure of the net appreciation (realized and unrealized) of the investments of endowment funds. Any net appreciation that is spent is required to be spent for the purposes for which the endowment was established. At June 30, 2013, net appreciation of donor restricted endowments is equal to $10,707,923, which is available to be spent for restricted purposes. The university limits endowment spending to the income earned in a given year for purposes specified by donors. The donated portion of the endowments is reported in restricted net position - nonexpendable in the Statement of Net Position; the endowment income is reported in restricted net position - expendable. 22. AFFILIATED ORGANIZATIONS The accompanying financial statements do not include the accounts of the Louisiana Tech University Foundation, Inc. The foundation is not included in the university s financial statements as a component unit since they do not meet the criteria for inclusion established by the Division of Administration, Office of Statewide Reporting and Accounting Policy. The foundation is a separate corporation whose financial statements are subject to audit by independent certified public accountants. However, the accompanying financial statements do include the accounts of the Innovative Student Facilities, Inc. These accounts have been audited by an independent auditor. 23. ON-BEHALF PAYMENTS FOR SALARIES AND FRINGE BENEFITS On-behalf payments for salaries and fringe benefits are direct payments made by one entity to a third-party recipient for the employees of another legally separate entity. On-behalf payments include pension plan contributions, employee health and life insurance premiums, and salary supplements or stipends. For example, a nongovernmental fund-raising foundation affiliated with a governmental university may supplement salaries of certain university employees. Those payments constitute on-behalf payments for purposes of reporting by the university. The amount of on-behalf payments for salaries and fringe benefits included in the university s accompanying financial statements for the fiscal year ended June 30, 2013, totaled $993, DEFERRED COMPENSATION PLAN Certain employees of the university participate in the Louisiana Public Employees Deferred Compensation Plan adopted under the provisions of the Internal Revenue Code Section 457. Complete disclosures relating to the Plan are included in the separately issued audit report for the Plan, available on the Internet at 33

36 25. BLENDED COMPONENT UNIT Condensed financial information for the university s blended component unit for the fiscal year ended June 30, 2013, is presented as follows: CONDENSED NET POSITION Innovative Student Facilities, Inc. Assets: Current assets $71,693 Capital assets 69,896,178 Other assets 8,920,602 Total Assets $78,888,473 Liabilities: Current liabilities $2,627,859 Long-term liabilities 67,004,391 Total Liabilities $69,632,250 Net Position: Net investment in capital assets $3,002,677 Unrestricted net position 6,253,546 Total Net Position $9,256,223 34

37 CONDENSED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Innovative Student Facilities, Inc. Operating revenues $5,012,103 Operating expenses (201,568) Depreciation expense (2,057,746) Net operating income 2,752,789 Nonoperating revenues (expenses): Investment income 429 Interest expense (3,219,788) Other (net) (433,914) Changes in net position (900,484) Net Position, beginning of the year 10,156,707 Net Position, end of the year $9,256,223 CONDENSED STATEMENT OF CASH FLOWS Innovative Student Facilities, Inc. Net cash flows provided (used) by: Operating activities $30,228 Noncapital financing 17,148 Capital and related financing (502,990) Investing activities 429 Net decrease in cash (455,185) Cash, beginning of the year 7,761,179 Cash, end of the year $7,305,994 35

38 26. IMPAIRMENT OF CAPITAL ASSET GASB Statement 42 established accounting and financial reporting standards for impairment of capital assets. Governments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset generally should be considered impaired if both the decline in service utility of the capital asset is large in magnitude and the event or change in circumstance is outside the normal life cycle of the capital asset. The state s Office of Statewide Reporting and Accounting Policy provides guidance on impairment test criteria by stating that the greater of the capitalization threshold, $100,000 or 20% of the capitalized cost of the building impaired by physical damage be used as the test of whether the magnitude in the decline was significant. The university recognized an impairment loss of $387,062 representing the carrying value of the university s Business Administration building closed and demolished before the end of its original useful life. The university determined that the impairment did not meet the requirement of an extraordinary item and recorded the loss as instruction expense. 27. SUBSEQUENT EVENTS On August 20, 2013, the Board of Supervisors approved Louisiana Tech University s request to accept the bequest and complete the transfer of property of approximately 120 acres from Ms. Frances Baxter Mitchell. The bequest gives usufruct in favor of Neal Watts Gallien and would place Louisiana Tech University in naked ownership of the property until the terms of the usufruct are fulfilled. On July 15, 2013, the Office of the Commissioner notified Louisiana Tech University of the transfer of a certain tract of immovable property of approximately 150 acres to the university from the Louisiana Department of Health and Hospitals pursuant to Act 236 of This land transfer should be reflected on the State Land Office records during the 2014 fiscal year. 36

39 SCHEDULE REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress for the Other Postemployment Benefits Plan The schedule of funding progress is required supplementary information that presents certain specific data regarding the funding progress for the Other Postemployment Benefits Plan, including the unfunded actuarial accrued liability. 37

40 Schedule 1 LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Schedule of Funding Progress for the Other Postemployment Benefits Plan Fiscal Year Ended June 30, 2013 Actuarial Accrued Liability UAAL as a Actuarial (AAL) - Unfunded Percentage of Actuarial Value of Projected AAL Funded Covered Covered Valuation Assets Unit Cost (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) [(b-a)/c] July 1, 2010 NONE $122,621,700 $122,621, % $39,043, % July 1, 2011 NONE $91,120,400 $91,120, % $38,955, % July 1, 2012 NONE $99,246,500 $99,246, % $39,582, % See independent accountant's review report. 38

41 EXHIBIT A Management Letter

42 LOUISIANA LEGISLATIVE AUDITOR DARYL G. PURPERA, CPA, CFE November 15, 2013 LOUISIANA TECH UNIVERSITY UNIVERSITY OF LOUISIANA SYSTEM STATE OF LOUISIANA Ruston, Louisiana We have reviewed the financial statements of Louisiana Tech University, as of and for the year ended June 30, 2013, and have issued our independent accountant s review report thereon dated November 15, Louisiana Tech University (university) is a university within the University of Louisiana System (System), a component unit of the State of Louisiana. The university s accounts are an integral part of the System s financial statements, upon which the Louisiana Legislative Auditor expresses opinions. A review is substantially less in scope than an audit conducted 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, the objective of which is the expression of an opinion regarding the basic financial statements. Accordingly, we did not express such an opinion in our independent accountant s review report referred to previously. We did not review the financial statements of the Innovative Student Facilities, Inc., a blended component unit of the university, which are included in the university s financial statements. The financial statements of this component unit were audited by another auditor whose report thereon has been furnished to us, and the results of our review expressed herein, insofar as it relates to the amounts included for that component unit, is based solely upon the report of the other auditor. The separate audit report for the Innovative Student Facilities, Inc. is available at the address listed in note 1-B to the financial statements. Our review of the financial statements did not disclose any transactions entered into by the university during the year that were both significant and unusual or transactions for which there is a lack of authoritative guidance. For purposes of this letter, a disagreement with management is defined as a matter, whether or not resolved to our satisfaction, concerning a financial accounting or reporting matter that could be significant to the university s financial statements or the accountant s report. No such disagreements arose during our review procedures NORTH THIRD STREET POST OFFICE BOX BATON ROUGE, LOUISIANA PHONE: FAX: