The University of North Florida Financing Corporation, Inc.

Transcription

1 The University of North Florida Financing Corporation, Inc. Financial Statements and Supplementary Information as of and for the Years Ended June 30, 2015 and 2014, and Independent Auditor s Report

2 The University of North Florida Financing Corporation, Inc. Table of Contents June 30, 2015 and 2014 Independent Auditors Report... 1 Page Required Supplementary Information Management s Discussion and Analysis... 3 Basic Financial Statements Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to Financial Statements Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards... 30

3 Independent Auditors Report To the Board of Directors The University of North Florida Financing Corporation, Inc. Report on the Financial Statements We have audited the accompanying financial statements of The University of North Florida Financing Corporation, Inc. (the Financing Corporation ), a direct support organization and component unit of the University of North Florida, as of and for the years ended June 30, 2015 and 2014, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1

4 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Financing Corporation as of June 30, 2015 and 2014, and the respective changes in its financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 3 through 12 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 16, 2015, on our consideration of the Financing Corporation s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Financing Corporation s internal control over financial reporting and compliance. Jacksonville, Florida September 16,

5 The University of North Florida Financing Corporation, Inc. Management s Discussion and Analysis Overview of the Financial Statements and Financial Analysis The University of North Florida Financing Corporation, Inc. (the Financing Corporation ) presents its financial statements for the fiscal years ended June 30, 2015 and The Financing Corporation is a direct support organization and component unit of the University of North Florida (the University or UNF ), a governmental agency. The Financing Corporation s financial statements are presented on an accrual basis, which include 1) assets and liabilities as current and non-current; 2) revenues and expenses as operating and non-operating; 3) the use of the direct method for statements of cash flows; 4) a management s discussion and analysis (MD&A) of the financial results. The MD&A focuses on current activities, resulting changes and currently known facts to provide the reader with an overall summary of the accompanying financial statements. It should be read in conjunction with the basic financial statements and accompanying notes. The financial statements include the following: 1. Basic financial statementsa. Statements of Net Position b. Statements of Revenues, Expenses, and Changes in Net Position c. Statements of Cash Flows d. Notes to financial statements FINANCIAL HIGHLIGHTS 2015 The Financing Corporation s 2015 principal payments ($3.590 million) on the Capital Improvement Revenue Bonds and other debt service obligations ($900,971) were paid as scheduled: Revenue Bonds Amount o Student Housing System (Series 2007) $ 2,645,000 o Parking System (Series 1998) $ 445,000 o Student Union (Series 2007) $ 500,000 Mortgages Amount o The Flats $ 652,997 o East Park Warehouse $ 247,974 3

6 East Park Warehouse UNF Physical Facilities Department officially moved into the East Park Warehouse building in December Building improvements and renovations were funded by University funds of $1.749 million and a loan agreement executed in December 2014 of $1.2 million with The University of North Florida Foundation, Inc. (the Foundation ). The $1.2 million agreement with the Foundation has terms of 10 years at an interest rate of 3.00% and quarterly mortgage payments of $34,848. The $2.664 million mortgage with TD bank has terms of 10 years at an interest rate of 2.32% and monthly mortgage payments of $25,506. The Financing Corporation and University Operating Lease Agreement was amended in fiscal 2015 to increase the annual rent. The Flats at Kernan In October 2014, the Financing Corporation purchased The Flats at Kernan ( The Flats ) at a cost of $30.7 million. The Flats has eight three story buildings on acres with a capacity to house 192 students. The property is located at 4850 First Coast Technology Parkway in Jacksonville, Duval County, Florida. The purchase was financed with a $26.2 million mortgage with BBVA Compass Bank Mortgage Company and $4.5 million in University funds. The BBVA mortgage terms are 20 years at an interest rate of 2.87% with monthly payments of $143,605, which began in November The Flats is managed by the University s Housing Department. Capital Improvement Revenue Bonds Series 2007 (Housing Project) Reserve Requirement The Financing Corporation s bond insurers, the Financial Guaranty Insurance Company (FGIC), rating was downgraded in 2008 and the Trust Indenture required a reserve fund for Housing and Student Union. The funds for the reserve were approved by the UNF Board of Trustees and the Board accepted a loan of $9,600,000. National Public Finance Guarantee Corporation as success-in-interest to FGIC is the bond insurer. In May 2015, Financing Corporation received approval from National Public Finance regarding the reduction in the Trust Indenture reserve fund related to the Student Housing bonds from $8,206,000 to $2,643,000. The Trust Indenture reserve requirement for the Student Union bonds remains at $1,337,084. Investments of $9,677,501 are the funds on loan from the University as required by the trust indenture of which $5,563,000 are no longer restricted at June 30, 2015 as a result of the reduction in the Trust Indenture Reserve. Net Position at June 30, 2015 was a deficit of $43,065,144, which was a decrease of 14.2% from the 2014 net deficit position or approximately $7.139 million. The change in net position is principally attributed to the net of the cost of two buildings ($32 million) and prepaid lease amortization ($3.434 million) offset by the net of the new debt ($ million) and reduction in bonds payable ($4.170 million). 4

7 2014 The Financing Corporation s 2014 principal payments ($2.940 million) on the Capital Improvement Revenue Bonds and other debt service obligations were paid as scheduled: Revenue Bonds Amount o Student Housing System (Series 2007) $ 2,115,000 o Parking System (Series 1998) $ 400,000 o Student Union (Series 2007) $ 425,000 Parking System o U.S. Bank acquired the trustee services from Deutsche Bank effective August Payments were made monthly. o The commission for the Letter of Credit ( LOC ) with Wells Fargo remains at 85 basis points per annum on the average daily available amount. Payments were made quarterly. GASB 65 Items Previously Reported as Assets and Liabilities Accounting Pronouncement The Financing Corporation implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities (GASB 65) for the fiscal year GASB 65 establishes accounting and financial reporting standards that reclassify as deferred outflows of resources or deferred inflow of resources, certain items that were previously reported as assets and liabilities. GASB 65 also requires that costs associated with the issuance of longterm debt be expensed in the period incurred, rather than deferred and amortized over the term of the related debt. As a result of the retroactive application of this guidance, certain amounts previously reported as of and for the year ended June 30, 2013, have been restated and a cumulative effect adjustment has been recorded to net position as of June 30, East Park Warehouse In November 2013, the Financing Corporation purchased a 67,224 square foot warehouse building (the Building ) on a parcel of land in East Park adjacent to the University campus in Duval County, Florida, for $2,724,915. The purchase was financed with a mortgage loan from TD Bank. The terms are 10 years at an interest rate of 2.32%. Monthly mortgage payments of $25,506 began in December The purpose of the Building will be to house the University Physical Facilities Maintenance Department. The Building will be renovated prior to placing it into service. The renovation costs will be funded by existing University funds and a $1.2 million line of credit from the UNF Foundation, Inc. At fiscal year-end, renovation costs of $200,258 have been incurred and no funds have been advanced against the Foundation s line of credit. 5

8 Investments of $9,664,219 are the funds on loan from the University as required by the trust indenture. Net Position at June 30, 2014 was a deficit of $50,204,520, which was an increase from the 2013 restated net deficit position of.3% or approximately $163,000. The change in net position balance is principally attributed to $9,237,616 in lease revenue offset by $3,434,567 in prepaid lease amortization and $6,003,371 in interest expense. Net position as of June 30, 2013 was restated by $1,379,239 related to writing off deferred bond issuance costs in connection with the implementation of GASB 65. Statements of Net Position The purpose of the Statements of Net Position is to present the reader with a look at the Financing Corporations financial condition as of the end of the fiscal year. In reading the Statements of Net Position, the reader will be able to determine the Financing Corporation s ability to continue operations; how much it owes to vendors, and other lending institutions; and to see a snapshot of the net position and the availability for expenditures by the Financing Corporation. As of June 30 (in thousands), Increase (decrease) Change 2013 Increase (decrease) Change Assets Current assets $ 10,401 $ 4,743 $ 5, % $ 4,574 $ % Noncurrent assets 113,534 89,213 24, % 89,723 (510) -0.6% Total assets 123,935 93,956 29, % 94,297 (341) -0.4% Liabilities: Current liabilities 12,192 4,852 7, % 3, % Non-current liabilities 154, ,309 15, % 140,692 (1,383) -1.0% Total liabilities 167, ,161 22, % 144,664 (503) -0.3% Net position: Unrestricted net position (49,450) (50,547) 1, % (50,367) (180) 0.4% Net investment in capital assets 6, , % % Total liabilities and net position $ 123,935 $ 93,956 $ 29, % $ 94,297 $ (341) -0.4% The Statements of Net Position are presented as part of the basic financial statements. The year s activity included the following: Current Assets 2015 In fiscal 2015, current assets totaled $10,401,336. Current assets include the current portion of prepaid rent totaling $3,434,567, lease income receivable of $1,056,284 for the Housing and Student Union bond interest ($974,368) related to May and June portion of the payment due in November 2015 and funds from the University for the amended lease ($81,916), accounts receivable of $61,100 representing funds to be received from the University for The Flats debt service reserve, unrestricted cash of $169,111 for East Park and The Flats 6

9 July 2015 mortgage payments and administrative funds for $16,379, unrestricted investments and interest receivable of $5,657,417, and a prepaid expense of $6,478 (Letter of Credit and analytical fees). The prepaid rent represents the current portion of the amortization of the lease agreement between the UNF and the Financing Corporation. Annually, the Financing Corporation receives administrative funds from the University Housing and Student Union Auxiliaries and Parking Systems funds In fiscal 2014, current assets totaled $4,742,831. Current assets include the current portion of prepaid rent totaling $3,434,567, lease income receivable of $999,333 for the Housing and Student Union bond interest related to May and June bond due in November 2014, unrestricted cash of $220,652, unrestricted investments and interest receivable of $81,135, and a prepaid expense of $7,144 (Letter of Credit and analytical fees). Non-Current Assets 2015 In fiscal 2015, non-current assets totaled $113,533,406, which is an increase of $24,319,816 or 27.3% from the prior year. Non-current assets includes funds advanced to the University as prepaid rent in the amount of $73,270,766 for the Student Housing and the Student Union projects, $3,938,916 in restricted investments; $81,171 in restricted cash and cash equivalents and $801,905 in The Flats debt service fund. The restricted investments include those required for the Trust Indenture reserves. Capital assets. At June 30, 2015, the East Park building net capital asset value totalled $5,915,545 net of accumulated depreciation of $103,655, and The Flats net capital asset value totalled $29,525,103 net of accumulated depreciation of $483, In fiscal 2014, non-current assets totaled $89,213,590, which is a decrease of $1,888,633 or 2.1% from the prior year. Non-current assets includes funds advanced to the University as prepaid rent in the amount of $76,705,333 for the Student Housing and the Student Union projects, $9,287,720 in restricted investments; $295,364 in restricted cash and cash equivalents. The restricted investments include those required for the Trust Indenture reserves. Capital assets. At June 30, 2014, The East Park building, totalled $2,925,173 and related construction-in-progress Total Assets 2015 Total assets were $123,934,742 an increase of $29,978,321 or 31.9% Total assets were $93,956,421, a decrease of $1,719,642 or 1.8%. 7

10 Liabilities 2015 Current liabilities totaled $12,191,812, representing an increase of $7,340,195, or 151.3%. The increase is due to an increase in the current portion of the bond principal payments due of $580,000, an increase for the current portion of the Building mortgages of $1,114,212, an increase in advances and accounts payable of $90,160, a decrease of $7,178 for the mortgage interest payable, and an increase of $5,563,000 related to reduction of Trust Indenture reserve for Housing Bonds, a decrease of $25,631 for the Housing and Student Union interest accrual for the November 2015 payments, and a decrease of $10,780 for the LOC fee payable. Non-current liabilities totaled $154,808,075, an increase of $15,498,751 or 11.1%. The increase is attributed to the mortgage note totaling $24,290,079 and note totaling $1,068,912 with the Foundation related to the purchase of The Flats, and offset by the reduction in the non-current portion of the Capital Revenue Bonds of $4,170,000, the amount of unamortized premium on the bonds of $127,240 and $5,563,000 related to the reduction for the Trust Indenture reserve for Housing Bonds Current liabilities totaled $4,851,617, representing an increase of $879,490, or 22.1%. The increase was due to an increase in the current portion of the bond principal payments due of $650,000, an increase for the current portion of the Building mortgage of $247,974, an increase in advances and accounts payable of $11,977, an increase of $666 for the mortgage interest payable, a decrease of $20,347 for the Housing and Student Union interest accrual for the November 2014 payments, and a decrease of $10,780 for the LOC fee payable. Non-current liabilities totaled $139,309,324, a decrease of $1,382,453 or 1.0%. The decrease is attributed to the reduction in the non-current portion of the Capital Revenue Bonds of $3,590,000, a decrease in the amount of unamortized premium on the bonds of $127,241, which was offset by an addition of the non-current portion of the Building mortgage payable of $2,334,788. Net Position 2015 The net deficit position at June 30, 2015 totaled $43,065,144. The unrestricted administration net position is the amount available to the Financing Corporation for any purpose in support of its mission. Net investment in capital assets reflects the cost of the East Park Warehouse building and related construction costs and The Flats purchase reduced by the outstanding balances of the related debt. 8

11 2014 The net deficit position at June 30, 2014 totaled $50,204,520. The unrestricted administration net position is the amount available to the Financing Corporation for any purpose in support of its mission. Net investment in capital assets reflects the cost of the East Park Warehouse building and related construction costs reduced by the outstanding balance of debt incurred for the purchase of the building For the year ended June 30 (in thousands), Increase (decrease) Change 2013 Increase (decrease) Change Operating revenue $ 18,346 $ 9,618 $ 8, % $ 8,564 $ 1, % Operating expenses 11,302 9,537 1, % 9,626 (89) -0.9% Operating income (loss) 7, , % (1,062) 1, % Non-operating revenue % % Change in net position 7, , % (1,035) 1, % Net position, beginning of year (50,205) (50,367) % (49,332) (1,035) 2.1% Net position, end of year $ (43,065) $ (50,205) $ 7, % $ (50,367) $ % Statement of Revenues, Expenses, and Changes in Net Position The purpose of the Statement of Revenues, Expenses, and Changes in Net Position is to provide the details of the Financing Corporation s operating and non-operating activities for the fiscal year. This includes the revenues displayed by major source (net of discounts and allowances), expenses, and gains and losses received or expended by the Financing Corporation. The Statement of Revenues, Expenses, and Changes in Net Deficit includes the following categories: Operating revenues are primarily received in connection with lease agreements, funding from UNF for purchase of capital assets and other miscellaneous revenues. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for operating revenues, and to carry out the mission of the Financing Corporation. Net operating income (loss) represents the amount of operating revenue in excess of the year s operating expenses and does not include non-operating revenue. Non-operating revenue is received from sources for which no service is provided by the Financing Corporation (e.g. investment earnings). The change in net position is the result of the fiscal year s excess of total revenues over expenses. 9

12 The Statements of Revenues, Expenses, and Changes in Net Position are presented as part of the basic financial statements. For fiscal year ended June 30, 2015, the Financing Corporation s net position totaled ($43,065,144). The Statements highlights are as follows: Operating Revenues 2015 Operating revenues totaled $18,345,517, which is an increase of $8,726,986, or 90.7%. This represents lease revenue of $11,236,863, transfers from the University of $7,078,654 to fund capital expenditures related to the East Park Warehouse building and purchase of The Flats and miscellaneous revenue of $30,000, which the Financing Corporation received for administrative operating funds from the Student Housing, Parking and Student Union University Auxiliary accounts Operating revenues totaled $9,618,531, which was an increase of $1,054,842, or 12.3%. This represented lease revenue of $9,237,616, transfers from the University of $350,915 for reimbursement of capital expenditures related to the Eastpark building and miscellaneous revenue of $30,000, which the Financing Corporation received for administrative operating funds from the Student Housing, Parking and Student Union University Auxiliary accounts. Operating Expenses 2015 Operating expenses totaled $11,302,497, which is an increase of $1,765,387 or 18.5%. Program expenses totaled $740,405. Financing acquired $660,000 in equipment with The Flats purchase, Financing provided $72,666 in funds to UNF Training & Services Institute, Inc. for accounting services and provided, expenses totaling $7,739 related to rating agency fees, bank fees and other annual filing fees. Professional fees totaled $79,348, which was a decrease of $4,617 or 5.5%. The Parking System Bonds letter of credit fee totaled $54,231, which is a reduction of $10,277 from prior year. The remaining amount of $25,117 is associated with parking debt services fees of $6,517 (e.g. rating, remarketing and trustee), consulting and audit fees. Expenses associated with student housing and student union of $3,434,567 were for operating lease expenses. Interest expense totaled $6,461,477. Depreciation expense totaled $586,700 and related to The Flats and East Park Warehouse. 10

13 2014 Operating expenses totaled $9,537,110, which was a decrease of $88,505 or.9%. Program expenses totaled $15,207. Financing provided $15,000 in funds to UNF Training & Services Institute, Inc. for accounting services provided and expenses totaling $207 include bank fees, meeting expenses, and other annual filing fees. Professional fees totaled $83,965, which is a decrease of $8,050 or 8.7%. The Parking System Bonds letter of credit fee totaled $64,508, which is a reduction of $3,112 from prior year. The remaining amount of $19,457 is associated parking debt services fees of $4,157 (e.g. rating, remarketing and trustee) and the audit fees. Expenses associated with student housing and student union of $3,434,567 were for operating lease expenses. Interest expense totaled $6,003,371. Non-operating Revenues 2015 In fiscal year 2015, the non-operating revenues totaled $96,356, which represents interest income of $94,839 and net appreciation of $1,517 on investments In fiscal year 2014, the non-operating revenues totaled $81,139, which represents interest income of $135,359 and net depreciation of $54,220 on investments. Statements of Cash Flows The Statements of Cash Flows shows the cash provided and used for operating, capital and related financing activities and investing activities. Operating activities include miscellaneous cash receipts and payments made for the Financing Corporation s operations which excludes the operating lease activity since that was a non-cash transaction. Capital and related financing activities include deposits from UNF, bond principal/interest payments and payments of construction costs. Investing activities represent purchases of investments and proceeds from the sale of investments. 11

14 Economic Outlook The Financing Corporation will continue with its operational plans and has no knowledge of any current facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations. Management believes the Financing Corporation is functioning as intended to support capital projects for the University. With detailed monitoring of each account, the Financing Corporation has sufficient funds to cover its current obligations. Requests for Information This financial report is designed to provide a general overview of the Financing Corporation s finances for all those with an interest therein. Questions concerning any of the information provided in this report or requests for additional information may be addressed to: Beverly A. Evans, Director University of North Florida TSI/Foundation Accounting 1 UNF Drive UNF Hall, Suite 2900 Jacksonville, FL (904)

15 The University of North Florida Financing Corporation, Inc. STATEMENT OF NET POSITION June 30, 2013 and 2012 ASSETS CURRENT ASSETS Cash and cash equivalents $ 185,490 $ 220,652 Prepaid expenses 6,478 7,144 Interest receivable from investments 22,550 24,567 Investments 5,634,867 56,568 Lease income receivable 1,056, ,333 Accounts receivable 61,100 - Prepaid rent 3,434,567 3,434,567 Total current assets 10,401,336 4,742,831 NON-CURRENT ASSETS Restricted cash and cash equivalents 883, ,364 Restricted investments 3,938,916 9,287,720 Prepaid rent 73,270,766 76,705,333 Capital assets, net 35,440,648 2,925,173 Total non-current assets 113,533,406 89,213,590 Total assets $ 123,934,742 $ 93,956,421 LIABILITIES AND NET POSITION CURRENT LIABILITIES Advances $ 6,478 $ 7,144 Accounts payable 97,326 6,500 Interest payable 992, ,999 Current portion of long-term debt 11,095,186 3,837,974 Total current liabilities 12,191,811 4,851,617 NON-CURRENT LIABILITIES Long-term debt 154,808, ,309,324 Total liabilities 166,999, ,160,941 NET POSITION Unrestricted (49,449,827) (50,546,931) Net investment in capital assets 6,384, ,411 Total net position (43,065,144) (50,204,520) Total liabilities and net position $ 123,934,742 $ 93,956,421 The accompanying notes are an integral part of these financial statements. 13

16 The University of North Florida Financing Corporation, Inc. STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION Years ended June 30, 2013 and OPERATING REVENUES Lease revenues $ 11,236,863 $ 9,237,616 Transfer-in from UNF 7,078, ,915 Miscellaneous revenues 30,000 30,000 Total operating revenues 18,345,517 9,618,531 OPERATING EXPENSES Program expenses 740,405 15,207 Professional fees 79,348 83,965 Expense associated with Student Housing and Student Union operating leases 3,434,567 3,434,567 Interest expense 6,461,477 6,003,371 Depreciation expense 586,700 - Total operating expenses 11,302,497 9,537,110 OPERATING INCOME 7,043,020 81,421 NON-OPERATING REVENUES Interest and dividends 94, ,359 Net appreciation (depreciation) in investments 1,517 (54,220) Total non-operating revenues 96,356 81,139 Change in net position 7,139, ,560 Net position, beginning of year (50,204,520) (50,367,080) Net position, end of year $ (43,065,144) $ (50,204,520) The accompanying notes are an integral part of these financial statements. 14

17 The University of North Florida Financing Corporation, Inc. STATEMENTS OF CASH FLOWS Years ended June 30, 2013 and CASH FLOWS FROM OPERATING ACTIVITIES: Miscellaneous revenue $ 30,000 $ 30,000 Payments to suppliers for goods and services (98,992) (30,508) Net cash used in operating activities (68,992) (508) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Lease revenue proceeds from UNF 11,236,863 9,237,617 Proceeds from UNF for reimbursement of capital expenditures 1,749, ,915 Proceeds received from UNF for debt service fund 801,905 - Interest paid on long-term debt (6,587,721) (6,129,945) Proceeds from issuance of long-term debt 1,200,000 - Principal payments on long-term debt (4,409,834) (3,017,271) Payments for fees related to Parking System Improvement Revenue Bonds (60,748) (68,665) Net cash provided by capital and related financing activities 3,929, ,651 CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends received 96, ,869 Proceeds from the sale of investments 8,536, ,067 Purchase of capital assets (3,094,027) (193,758) Purchase of investments (8,846,891) (199,172) Net cash provided by (used in) investing activities (3,308,220) 64,006 Net increase in cash and cash equivalents 552, ,149 Cash and cash equivalents, beginning of year 516,016 79,867 Cash and cash equivalents, end of year $ 1,068,566 $ 516,016 Reconciliation of operating income to net cash provided by (used in) operating activities: Operating income $ 7,043,020 $ 81,421 Adjustments to reconcile operating income to net cash provided by (used in) operating activities: Depreciation expense 586,700 - Lease revenue recorded for bond reimbursement agreement (11,236,863) (9,237,617) Amortization of prepaid rent for operating lease agreement with University of North Florida 3,434,568 3,434,567 Proceeds from UNF for reimbursement of capital expenditures (1,749,297) (350,915) Purchase of capital assets paid directly by UNF (4,527,452) - Proceeds received from UNF for debt service fund (801,905) - Interest expense paid directly by University of North Florida 6,570,929 6,130,611 Amortization of premium on Revenue Bonds included as part of interest expense (127,240) (127,240) Program expenses related to equipment purchase 660,000 - Expenses paid directly by the University of North Florida 60,761 68,665 Changes in assets and liabilities: Accrued interest 17,787 - Prepaid expenses (666) 5,477 Lease income receivable (24,963) (999,333) Deferred revenue 666 (5,477) Interest and letter of credit payables 24, ,333 Net cash used in operating activities $ (68,992) $ (508) Reconciliation of cash and cash equivalents to the statements of net position: Cash $ 185,490 $ 220,652 Restricted cash and cash equivalents 883, ,364 Total cash and cash equivalents $ 1,068,566 $ 516,016 Supplemental Disclosure: Non-cash investing and financing activities in connection with purchase of capital assets $ 30,008,148 $ 2,724,915 The accompanying notes are an integral part of these financial statements. 15

18 The University of North Florida Financing Corporation, Inc. NOTES TO FINANCIAL STATEMENTS June 30, 2015 and 2014 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Reporting entity The University of North Florida Financing Corporation, Inc. (the Financing Corporation ) was created in October 2005 as a not-for-profit entity organized to receive, hold, invest and administer property and to issue revenue bonds or other forms of indebtedness (finance or refinance capital projects), with the associated expenditures and debt service, exclusively for the University of North Florida (the University ). The Financing Corporation is governed by a five-member board. The board members are appointed by the University s board of trustees. The Financing Corporation is a direct support organization and component unit of the University under Governmental Standards Board Statement No. 14, The Financial Reporting Entity. These financial statements include all funds and departments controlled by the Financing Corporation. 2. Basic financial statements The Financing Corporation is considered a special purpose government entity engaged in a single business-type activity. Business-type activities are those activities primarily supported by user fees and charges. As such, the Financing Corporation presents only the statements required of enterprise funds, which include the Statements of Net Position, Statements of Revenues, Expenses and Changes in Net Position, and Statements of Cash Flows. 3. Basis of presentation The financial statements of the Financing Corporation have been prepared using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recognized when they are incurred. The following accounting pronouncements have been implemented and incorporated into the Financing Corporation s financial statement presentation: GASB Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments; GASB Statement No. 35, Basic Financial Statements - and Management s Discussion and Analysis - for Public Colleges and Universities; GASB Statement No. 37, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments: Omnibus - an amendment of GASB Statements No. 21 and No. 34; GASB Statement No. 38, Certain Financial Statement Note Disclosures; GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position; and GASB 65 Items Previously Reported as Assets and Liabilities. 16

19 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued GASB Statements No. 34, 35 and 63 establish standards for external financial reporting which include a statement of net position a statement of revenues, expenses and changes in net position, and a statement of cash flows using the direct method. GASB Statements No. 34, 35 and 63 also include a requirement that management provide a discussion and analysis of the basic financial statements and it requires the classification of net position into three components net investment in capital assets; restricted net position; and unrestricted net position. These classifications are defined as follows: Net investment in capital assets - consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any debt that is attributable to those assets. Restricted net position - consists of assets that have externally imposed constraints placed upon their use, either by creditors (such as through debt covenants) or through laws, regulations, or restrictions imposed by law through constitutional provisions or enabling legislation, reduced by any liabilities to be paid from these assets. Unrestricted net position - consists of net position that do not meet the definition of restricted or net investment in capital assets. As provided by GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, the Financing Corporation has elected to adopt Financial Accounting Standards Board statements that do not conflict with GASB. 4. Budgeting procedures The Financing Corporation's Bylaws and related amendments have established the following budgetary procedures for the annual operating budget for its accounts. These include: Prior to July 1 of each year, Financing Corporation shall prepare and submit its budget to the Board Members for the ensuing fiscal year. The Board may increase or decrease the budget requested by Financing Corporation on a total basis or a line-by-line basis. Once adopted, the total budget may only be increased through action of the Board. The Board-approved budget is shared with the University s Board of Trustees as an information item. All approved budgeted amounts lapse at the end of each fiscal year and must be reappropriated. 17

20 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued 5. Cash and cash equivalents The Financing Corporation defines cash and cash equivalents as cash on hand and cash on deposit. 6. Lease income receivable Lease income receivable represents a two month accrual of Housing and Student Union bond interest and letter of credit fees. See footnote disclosure 12 for revenue recognition related to lease income. 7. Accounts Receivable Accounts receivable represents amounts due from the University in connection with The Flats debt service fund requirement. 8. Capital Assets Purchased or constructed additions to capital assets are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets which are as follows: Building East Park Warehouse Building The Flats at Kernan 25 Years 35 Years Interest cost incurred on borrowed funds will be expensed as incurred for capital additions not related to construction. 9. Investments Investments are recorded at fair value based on quoted market prices and consist of United States ( U.S. ) Treasury notes and U.S. Government agency bonds. As of June 30, 2015 and 2014, restricted investments represent loan funds established from the University s Auxiliary Funds. The Financing Corporation was required to place additional funds on deposit with the Trustee under the terms of the Trust Indenture. Unrestricted investments reported in current assets represent funds that are not restricted by the Trust Indenture and expected to be liquidated within the next year to repay a portion of the loan to the Univeristy. 10. Interest payable Interest payable represents a two month accrual for Housing and Student Union bond interest. 11. Premiums on revenue bonds Premiums on revenue bonds incurred for the Financing Corporation are deferred and amortized over the life of the issue using the straight-line method. For the years ended 18

21 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued June 30, 2015 and 2014, premium amortization of $114,988 (Student Housing) and $12,252 (Student Union) was recorded for each year. 12. Operating income The Financing Corporation s operating income includes all revenues and expenses associated with the organization s daily activities that are primarily attributed to lease activities and debt financing. Interest income, dividend income and net gains/(losses) on investments are excluded from operating income. There were no grants received for fiscal years ended June 30, 2015 and Income taxes The Financing Corporation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue code; accordingly, the accompanying financial statements do not reflect a provision or liability for federal and state income taxes. The Financing Corporation has determined that it does not have any material unrecognized tax benefits or obligations as of June 30, Fiscal years ending on or after June 30, 2012 remain subject to examination by federal and state tax authorities. 14. Revenue recognition The Financing Corporation recognizes lease income based on debt service payments. Transfers and miscellaneous revenue are recognized once the related funds have been received. NOTE B - CASH, CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents As of June 30, 2015 and 2014, unrestricted cash and cash equivalents consisted of a bank demand account subject to immediate withdrawal. Restricted cash and cash equivalents consisted of a money market fund. Custodial credit risk - deposits. Custodial credit risk for deposits is the risk that, in the event of a depository financial institution s failure, the Financing Corporation s deposits may not be returned to it. All of the Financing Corporation s cash deposits were insured by the Federal Deposit Insurance Corporation (FDIC) as of June 30, 2015 and Investments The Financing Corporation does not have an investment policy since the balance on hand at June 30, 2015 is held by the bond trustee as a debt service reserve fund as required under the Trust Indenture. 19

22 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued Credit risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The quality ratings assigned by Standard & Poor s Ratings Group and Moody s Investor Services, Inc. are as follows: Quality Rating at June 30, 2015 Investment Type Fair Value AAA Unrated U.S. Government agency bonds $ 2,758,814 $ 2,758,814 $ - U.S. Treasury notes 6,814,969 6,814,969 - Money market funds 883, ,076 Total $ 10,456,859 $ 9,573,783 $ 883,076 Quality Rating at June 30, 2014 Investment Type Fair Value AAA Unrated U.S. Government agency bonds $ 4,385,239 $ 4,385,239 $ - U.S. Treasury notes 4,959,049 4,959,049 - Money market funds 295, ,364 Total $ 9,639,652 $ 9,344,288 $ 295,364 *Money market funds are classified as cash and cash equivalents on the Financing Corporation s statement of net position. Interest rate risk. Interest rate risk is the risk that changes in the interest rates will adversely affect the fair value of an investment. The Financing Corporation s policy for managing its exposure to fair value loss occurring from interest rate risk is through maintaining diversification of its investments and investment maturities so as to minimize the impact of downturns in the market. All investments have maturities of 2 to 5 years as of June 30, Income on investments. The following summarizes net investment income for the years ended as follows: Net unrealized and realized gains (losses) $ 1,517 $ (54,220) Dividends and interest 94, ,359 Total $ 96,356 $ 81,139 20

23 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued NOTE C - FAIR VALUE MEASUREMENTS The Financing Corporation has provided additional information about fair value measurements which is based on the assumptions that market participants would use when pricing an asset or liability. A fair value hierarchy was established that prioritizes the information used to develop these assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 Level 2 Level 3 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Financing Corporation has the ability to access at the measurement date; Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Inputs that are unobservable. Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. The Financing Corporation uses the market approach valuation technique to value its investments. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs. Following is a description of the valuation methodologies use for assets measured at fair value. Level 1 Fair Value Measurements The fair values of U.S. Government securities and U.S. Treasury notes are based on quoted market prices. 21

24 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued The following tables present the investments carried on the statements of net position by level within the valuation hierarchy as of June 30, 2015 and Assets at Fair Value as of June 30, 2015 Level 1 Level 2 Level 3 Total U.S. U.S. Government and and agency securities $ 2,758,814 $ - $ - $ 2,758,814 U.S. Treasury notes 6,814, ,814,969 Total $ 9,573,783 $ - $ - $ 9,573,783 Assets at Fair Value as of June 30, 2014 Level 1 Level 2 Level 3 Total U.S. U.S. Government and and agency securities $ 4,385,239 $ - $ - $ 4,385,239 U.S. Treasury notes 4,959, ,959,049 Total $ 9,344,288 $ - $ - $ 9,344,288 NOTE D - RELATED PARTY TRANSACTIONS The University provides, as in-kind contributions to the Financing Corporation, support services such as office space, furnishings, and fiscal management at no cost. No value has been assigned to these items in the accompanying statement of revenues, expenses, and changes in net position, since there is no objective basis for determining the value. During 2008, the financial institution holding the outstanding revenue bonds determined that additional collateral was required. This was the result of a downgrade in the financial stability of the current bond insurer. The requirement was to provide additional funding to the financial institution of $9,583,084 during To assist the Financing Corporation, the University provided additional capital directly to the financial institution. See footnote disclosure G for further discussion of note payable and footnote disclosure K for further discussion regarding reduction in collateral required for Student Housing bonds. See footnote disclosures F and H for funds received from the University for capital assets, transfers of equipment to the University and operating lease commitments with the University. 22

25 The University of North Florida Financing Corporation, Inc. Notes to the Financial Statements, Continued NOTE E - SEGMENT INFORMATION The Financing Corporation has issued separate revenue bonds to finance Housing and Student Union, accepted assignment of the Parking facilities bonds, and purchased the East Park Warehouse. The four segments are accounted for in a single fund group, but the covenants rely on the revenue generated by the individual segments to determine coverage and ability to repay the revenue bonds. The University operates the Student Union, University Parking, University Housing, and the East Park Warehouse facilities. Summary financial information for each segment is presented below as of and for the years ended June 30, 2015 and 2014, respectively. Condensed Statements of Net Position University As of June 30, 2015 Student Union Student Housing Parking Services East Park Warehouse The Flats at Kernan Assets: Current assets $ 166,501 $ 6,465,286 $ 6,478 $ 140,494 $ 204,843 Non-current assets 1,377,085 2,643,000-5,915,547 30,327,008 Prepaid rent (current and long-term) 16,607,458 60,097, Total assets $ 18,151,044 $ 69,206,161 $ 6,478 $ 6,056,041 $ 30,531,851 Liabilities: Current liabilities $ 612,982 $ 9,594,386 $ 506,478 $ 403,271 $ 1,064,294 Non-current liabilities 20,046, ,067,742 6,000,000 3,149,970 24,543,809 Total liabilities 20,659, ,662,128 6,506,478 3,553,241 25,608,103 Net position: Unrestricted (2,508,492) (41,455,967) (6,500,000) 96, ,648 Net investment in capital assets ,406,583 3,978,100 Total net position (2,508,492) (41,455,967) (6,500,000) 2,502,800 4,923,748 Total liabilities and net position $ 18,151,044 $ 69,206,161 $ 6,478 $ 6,056,041 $ 30,531,851 Condensed Statements of Net Position As of June 30, 2014 Student Union Student Housing University Parking Services East Park Warehouse Assets: Current assets $ 167,877 $ 912,590 $ 7,144 $ 178,893 Non-current assets 1,377,085 8,206,000-2,925,173 Prepaid rent (current and long-term) 17,351,074 62,788, Total assets $ 18,896,036 $ 71,907,416 $ 7,144 $ 3,104,066 Liabilities: Current liabilities $ 601,023 $ 3,488,309 $ 507,144 $ 255,140 Non-current liabilities 20,518, ,955,730 6,500,000 2,334,788 Total liabilities 21,119, ,444,039 7,007,144 2,589,928 Net position: Unrestricted (2,223,794) (41,536,623) (7,000,000) 171,727 Net investment in capital assets ,411 Total net position (2,223,794) (41,536,623) (7,000,000) 514,138 Total liabilities and net position $ 18,896,036 $ 71,907,416 $ 7,144 $ 3,104,066 23