AUSTIN PEAY STATE UNIVERSITY FINANCIAL REPORT. For The Year Ended June 30, 2014

Transcription

1 AUSTIN PEAY STATE UNIVERSITY FINANCIAL REPORT For The Year Ended June 30, 2014

2 Office of the President September 8, 2014 Chancellor John Morgan Tennessee Board of Regents 1415 Murfreesboro Road, Suite 350 Nashville, TN Dear Chancellor Morgan: We are providing this letter in connection with the transmittal of the financial statements for Austin Peay State University. The financial statements for fiscal year 2014 consist of: the Statement of Net Position; the Statement of Revenues, Expenses, and Changes in Net Position; the Statement of Cash Flows; and Notes to the Statements (the "Financial Statements"). We believe that the Financial Statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the Institution in conformity with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation in the Financial Statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. We represent to you that to the best of our knowledge and belief as of the date of this transmittal: 1. The Financial Statements are fairly presented in conformity with accounting principles generally accepted in the United States of America. 2. There are no material transactions that have not been properly recorded in the accounting records underlying the Financial Statements. 3. The financial statements of component units of the Institution have been accurately and appropriately incorporated into the Institution's Financial Statements. 4. The Notes are internally consistent with and conform to the Financial Statements as presented. Alisa White Mitch Robinson cc. Vice Chancellor for Business and Finance Austin Peay State University P.O. Box 4576 Clarksville, TN p: f:

3 Austin Peay State University Financial Report For Year ended June 30, 2014 TABLE OF CONTENTS Management s Discussion and Analysis... 1 Unaudited Statement of Net Position Unaudited Statement of Revenues, Expenses, and Changes in Net Position Unaudited Statement of Cash Flows Notes to the Financial Statements Supplementary Information... 30

4 MANAGEMENT S DISCUSSION AND ANALYSIS

5 Management s Discussion and Analysis This section of Austin Peay State University s annual financial report presents a discussion and analysis of the financial performance of the University during the fiscal year ended June 30, 2014, with comparative information presented for the fiscal year ended June 30, This discussion has been prepared by management along with the financial statements and related note disclosures and should be read in conjunction with the financial statements and notes. The financial statements, notes, and this discussion are the responsibility of management. The University has one discretely presented component unit, the Austin Peay State University Foundation. More detailed information about the foundation is presented in Note 18 to the financial statements. This discussion and analysis focuses on the University and does not include the foundation. Overview of the Financial Statements The financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), which establishes standards for external financial reporting for public colleges and universities. The financial statements are presented on a consolidated basis to focus on the University as a whole. The full scope of the University s activities is considered to be a single business-type activity, and accordingly, is reported within a single column in the basic financial statements. The University s financial report includes the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. Notes to the financial statements are also presented to provide additional information that is essential to a full understanding of the financial statements. The Statement of Net Position The Statement of Net Position is a point in time financial statement. The Statement of Net Position presents the financial position of the University at the end of the fiscal year. To aid the reader in determining the University s ability to meet immediate and future obligations, the statement includes all assets, liabilities, deferred outflows/inflows, and net position of the University and segregates the assets and liabilities into current and noncurrent components. Current assets are those that are available to satisfy current liabilities, inclusive of assets that will be converted to cash within one year. Current liabilities are those that will be paid within one year. The Statement of Net Position is prepared under the accrual basis of accounting; assets and liabilities are recognized when goods or services are provided or received despite when cash is actually exchanged. From the data presented, readers of the statement are able to determine the assets available to continue the operations of the University. They are also able to determine how much the University owes vendors, lenders, and others. Net position represents the difference between the University s assets and liabilities, along with the difference between deferred outflows and deferred inflows, and is one indicator of the University s current financial condition. The Statement of Net Position also indicates the availability of net position for expenditure by the University. Net position is divided into three major categories. The first category, net investment in capital assets, represents the University s total investment in property, plant, and equipment, net of outstanding debt obligations related to these capital assets. To the extent debt or deferred inflows of resources has been incurred but not yet expended for capital assets, such amounts are not included. The next category is restricted net position, which is sub-divided into two categories, nonexpendable and expendable. Nonexpendable restricted net position includes endowment and similar resources whose use is limited by donors or other outside sources and as a condition of the gift, the principal is to be maintained in perpetuity. Expendable restricted net position is available for expenditure by the University but must be spent for purposes as determined by donors and/or external entities that have placed time or 1

6 purpose restrictions on the use of the resources. The final category is unrestricted net position. Unrestricted net position is available to the University for any lawful purpose of the University. The following table summarizes the University s assets, liabilities, deferred outflows/inflows, and net position at June 30, 2014, and June 30, Statement of Net Position (in thousands of dollars) Assets Current assets $ 28,785 $ 26,491 Capital assets, net 208, ,935 Other assets 42,599 47,777 Total Assets $ 280,006 $ 262,203 Deferred Outflows of Resources Deferred loss on debt refunding $ 192 $ - Total Deferred Outflows $ 192 $ - Liabilities Current liabilities $ 18,125 $ 14,435 Noncurrent liabilities 105,966 91,339 Total Liabilities $ 124,091 $ 105,774 Deferred Inflows of Resources Deferred gain on debt refunding $ - $ 466 Total Deferred Outflows $ - $ 466 Net Position Net investment in capital assets $ 107,897 $ 101,822 Restricted - nonexpendable 8,942 7,727 Restricted - expendable 3,989 4,657 Unrestricted 35,279 41,757 Total Net Position $ 156,107 $ 155,963 Current assets increased due to increases in accounts receivable. Student s third-party billing increased approximately $900 thousand primarily from federal agencies. Grant and contract receivables increased approximately $277 thousand from various sponsors and Unexpended Plant funds receivables increased $800 thousand as a result of receivables due for projects in progress. Capital assets, net increased because of new acquisitions of property and the construction of several campus projects. The university purchased additional property located in the campus master plan in the amount of $410 thousand to be used for future expansion of student facilities and other growth. The university completed various construction projects in the amount of $41,913 thousand. The New Student Housing added $33,496 thousand, and the Maynard Mathematics and Computer Science building added $7,732 thousand. While Construction in Progress had significant increases with new and continued projects, such as the new Football Stadium which added $12,180 thousand and the Library Mechanical replacement added another $1,047 thousand. The reduction of the completed projects resulted in a net $15,947 thousand reduction in projects in progress. 2

7 Other assets decreased due to the completion of renovation and construction projects. Noncurrent cash in Unexpended Plant funds decreased $6,532 thousand as project costs were expended. Current liabilities increased primarily because of an increase in accounts payable in Unexpended Plant funds. The increase in accounts payable is $2,454 thousand. Significant construction costs were recognized close to the end of the fiscal year causing accounts payable for the stadium project to exceed $3 million. Other notable increases included $402 thousand in the current portion of compensated absences, and $478 thousand in the current portion of long-term debt. Noncurrent liabilities increased due to a $14,790 thousand increase in long-term debt due to the construction and completion of several capital projects. The Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in Net Position presents the results of operations for the fiscal year. Revenues and expenses are recognized when earned or incurred, regardless of when cash is received. The statement indicates whether the University s financial condition has improved or deteriorated during the fiscal year. The statement presents the revenues received by the University, both operating and nonoperating, and the expenses paid by the University, operating and nonoperating, and any other revenues, expenses, gains, or losses received or spent by the University. Generally speaking, operating revenues are received for providing goods and services to the various customers and constituencies of the University. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the University. Nonoperating revenues are revenues received for which goods and services are not provided directly to the payor. Although Austin Peay State University is dependent upon state appropriations and gifts to fund educational and general operations, under GASB standards these funding sources are reported as nonoperating revenues, as is investment income. As a result, the University has historically reported an excess of operating expenses over operating revenues, resulting in an operating loss. A summary of the University s revenues, expenses, and changes in net position for the year ended June 30, 2014, and June 30, 2013, follows. 3

8 Statement of Revenues, Expenses, and Changes in Net Position (in thousands of dollars) Operating revenues $ 66,552 $ 65,224 Operating expenses 138, ,567 Operating loss $ (72,001) $ (66,343) Nonoperating revenues and expenses $ 69,749 $ 66,184 Loss before other revenues, expenses, gains, or losses $ (2,252) $ (159) Other revenues, expenses, gains, or losses: $ 2,396 $ 1,980 Increase (decrease) in net position $ 144 $ 1,821 Net position at beginning of year $ 155,963 $ 153,141 Prior period adjustment 1,001 Net position at end of year $ 156,107 $ 155,963 Operating Revenues The following summarizes the operating revenues by source that were used to fund operating activities for the last two fiscal years: 4

9 REVENUES BY SOURCE (IN THOUSANDS OF DOLLARS) $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5, $0 Net Tuition and Grants and Sales/Services of Auxiliaries Interest on student Other operating Fees Contracts other activities loans ,371 3,575 4,807 8, ,398 6,049 4,385 7, Comparison of FY 2014 to FY 2013 Net tuition and fees increased $1,974 thousand due to an overall average fee increase of three percent. However, grants and contract revenues realized a decrease in the amount of $2,474 thousand. Grants and Contracts the 2013 construction project for new residence halls, Eriksson and Governors Terrace North and South halls, included a $1,523 thousand Federal Emergency Management Agency (FEMA) grant to include safe shelters in each of the buildings of the construction project. Since Austin Peay does not have a significant number of grants, an overall decrease in grants and contracts such as the Title IV, Social Work grant also has a significant impact. Auxiliaries realized an increase from 2013 to 2014 primarily due to Residential Life. Student housing revenues increased over 2013 by the amount of $961 thousand from the addition of approximately 400 new beds as a result of the addition of the new residence halls, Eriksson Hall, and Governors Terrace North and South. The Wellness Center also realized an increase of $249 thousand over 2013 from an increase in the student recreation fee. 5

10 Operating Expenses Operating expenses may be reported by nature or function. The University has chosen to report the expenses in their natural classification on the statement of revenues, expenses, and changes in net position and has displayed the functional classification in the notes to the financial statements. The following summarizes the operating expenses by natural classifications for the last two fiscal years: EXPENSES BY NATURAL CLASSIFICATION (IN THOUSANDS OF DOLLARS) $60,000 $50,000 $40,000 $30,000 $20,000 $10, $0 Salaries Benefits Operating Scholarships Depreciation ,501 20,921 29,225 19,906 8, ,959 20,012 26,450 20,249 7, Comparison of FY 2014 to FY 2013 Salaries and Benefits expense increases mainly occurred due to a state 1.5% across the board salary increases, the university also provided an equity adjustment. The institution continues to increase faculty lines as possible to continue to improve the faculty to student ratio. Benefits expenses increased primarily as a result of salary increase; however, part of the increase was due to an increase in insurance rates. Operating expenses includes many accounts such as printing and duplicating, communications and shipping, maintenance and repairs, professional and administrative services, and supplies increased a total of $2,767 thousand. This increase is made up of many accounts being used by all the institutional units and departments and generally increased overall. The more significant increases occurred in utilities and supplies, which increased from 2013 to 2014 by $686 thousand, and $802 thousand, respectively. The utility increase is mostly due to the increased buildings, and a harsher winter than in the past. Supplies are controlled by each department and will vary from year-to-year. 6

11 Depreciation expenses increase is due to newly constructed and purchased buildings, and equipment placed in the buildings. Nonoperating Revenues and Expenses Certain revenue sources that the University relies on to provide funding for operations, including state noncapital appropriations, certain gifts and grants, and investment income, are defined by the GASB as nonoperating. Nonoperating expenses include capital financing costs and other costs related to capital assets. The following summarizes the University s nonoperating revenues and expenses for the last two fiscal years: NONOPERATING REVENUES AND EXPENSES (IN THOUSANDS OF DOLLARS) $42,000 $37,000 $32,000 $27,000 $22,000 $17,000 $12,000 $7, $2, $3,000 State noncapital Gifts and Grants Investment income Capital financing costs Other nonoperating appropriations revenues/(expenses) ,940 36,900 1,545 (2,633) (3) ,449 38,652 1,174 (2,955) (136) Comparison of FY 2014 to FY 2013 State noncapital appropriations increased because of the outcomes achieved by Austin Peay under the new funding formula. The new formula awards institutions that improve retention, progression, and graduation rates. The Tennessee Higher Education Commission (THEC) recommends funding each year based on calculations that measures outcomes. Nonoperating Gifts and Grants decreased because of a reduction in the amount of federal and state financial aid awarded to students. The federal awards, PELL and Federal Supplemental Educational Opportunity Grant (FSEOG) decreased $881 thousand chiefly due to the decrease in students. The state awards financial aid through Tennessee Student Assistance Corporation (TSAC) and the Hope Lottery funds. The state funded aid decreased by $227 thousand. 7

12 Other Revenues This category is composed of State appropriations for capital purposes, capital grants and gifts, and additions to permanent endowments. These amounts were as follows for the last two fiscal years: OTHER REVENUES (IN THOUSANDS OF DOLLARS) $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $ $ $0 State capital appropriations Capital Grants and Gifts Additions to permanent endowments , , Comparison of FY 2014 to FY 2013 State capital appropriations decreased as construction projects were completed. See the Capital assets section for additional information. Capital Grants and Gifts were received in the amount of $800 thousand to aid in the construction of the new Football stadium. An additional $86 thousand was received as a capital gift to provide partial funding for lighting on the Baseball field. Capital Assets and Debt Administration Capital Assets Austin Peay State University had $208,622 thousand invested in capital assets, net of accumulated depreciation of $101,759 thousand at June 30, 2014; and $187,935 thousand invested in capital assets, net of accumulated depreciation of $93,730 thousand at June 30, Depreciation charges totaled $8,999 thousand and $7,897thousand for the years ended June 30, 2014, and June 30, 2013, respectively. 8

13 Schedule of Capital Assets, Net of Depreciation (in thousands of dollars) Land $ 9,730 $ 9,424 Land improvements and infrastructure 24,301 24,401 Buildings 152, ,939 Equipment 6,178 6,183 Library holdings 986 1,180 Intangible assets Projects in progress 14,350 30,297 Total $ 208,622 $ 187,935 Significant additions to capital assets occurred in fiscal year These additions were from the completion of construction of new residence halls, Eriksson Hall, Governors Terrace North and Governors Terrace South. The new residence halls will add approximately 400 new beds for male and female residents. The total amount added to capital assets related to the new residence halls is $33.5 million. The university also completed construction on its new Math and Computer Science building, Maynard Mathematics and Computer Science. The new Math and Computer Science building added $7.7 million to capital assets. Additionally, the university started construction on a new Football stadium that is scheduled to open with Austin Peay s first home game, September 13, The June 30, 2014 amount of construction in progress for the new stadium was $12.2 million. At June 30, 2014, outstanding commitments under construction contracts totaled $10.3 million for various renovations and repairs of buildings and infrastructure. Future state capital outlay appropriations will fund $2.4 million of these costs. More detailed information about the University s capital assets is presented in Note 5 to the financial statements. Debt The University had $100.9 million and $85.6 million in debt outstanding at June 30, 2014, and June 30, 2013, respectively. The table below summarizes these amounts by type of debt instrument. Schedule of Outstanding Debt (in thousands of dollars) TSSBA Bonds $ 90,807 $ 60,839 TSSBA Commercial Paper 10,110 24,809 Total Debt $ 100,917 $ 85,648 The TSSBA issued bonds with interest rates ranging from 0.35% to 5% due serially until November 2043 on behalf of Austin Peay State University. The University is responsible for the debt service of these bonds. The current portion of the $90.8 million outstanding at June 30, 2014, is $ 2.1 million. The TSSBA issued commercial paper on behalf of Austin Peay State University. The University is responsible for the debt service of these obligations. The outstanding amount at June 30, 2014, is $10.1 million. 9

14 The ratings on debt issued by the Tennessee State School Bond Authority at June 30, 2014, were as follows: Fitch Moody s Investor Service Standard & Poor s AA+ Aa1 AA More information about the University s long-term liabilities is presented in Note 7 to the financial statements. Economic Factors That Will Affect the Future For the fiscal year 2015, the Tennessee Board of Regents authorized an in state undergraduate fee increase of 5.6% and an in state graduate fee increase of 5.3%. The undergraduate and graduate out of state fees were not increased from the prior year. The state of Tennessee legislator s approved the Governor s budget, which included an outcome based increase to Austin Peay s funding in the amount of $1.041 million of new state funding The capital markets remain unstable, which will affect the university s investment income. 10

15 BASIC FINANCIAL STATEMENTS

16 AUSTIN PEAY STATE UNIVERSITY Unaudited Statement of Net Position June 30, 2014 University Component Unit ASSETS Current assets: Cash and cash equivalents (Notes 2 and 18) $ 20,274, $ 422, Short-term investments (Note 18) $ 12, Accounts, notes, and grants receivable (net) (Note 4) 6,835, , Due from primary government 104, Due from component unit 1,042, Pledges receivable (net) (Note 18) 63, Inventories (at lower of cost or market) 311, Prepaid expenses 83, Accrued interest receivable 132, , Total current assets 28,784, , Noncurrent assets: Cash and cash equivalents (Notes 2 and 18) 32,084, ,039, Investments (Notes 3 and 18) 9,471, ,503, Accounts, notes, and grants receivable (net) (Note 4) 1,043, , Pledges receivable (net) (Note 18) 8,220, Capital assets (net) (Notes 5 and 18) 208,621, ,544, Total noncurrent assets 251,221, ,475, Total assets $ 280,006, $ 36,038, DEFERRED OUTFLOWS OF RESOURCES Deferred loss on debt refunding 192, Total deferred outflows of resources $ 192, LIABILITIES Current liabilities: Accounts payable (Note 6) 5,844, , Accrued liabilities 2,832, Due to primary government 1,042, Student deposits 179, Unearned revenue 4,524, Compensated absences (Note 7) 832, Accrued interest payable 666, Long-term liabilities, current portion (Note 7) 2,127, Deposits held in custody for others 1,117, Total current liabilities 18,125, ,045, Noncurrent liabilities: Net OPEB obligation (Note 11) 4,708, Compensated absences (Note 7) 1,877, Long-term liabilities (Note 7) 98,789, Due to grantors (Note 7) 591, Total noncurrent liabilities 105,966, Total liabilities $ 124,091, $ 1,045, NET POSITION Net investment in capital assets 107,897, ,544, Restricted for: Nonexpendable: Scholarships and fellowships 8,826, ,495, Research 60, Instructional department uses 4, , Other 111, , Expendable: Scholarships and fellowships 1,289, ,799, Research 642, , Instructional department uses 339, ,898, Loans 73, Other 1,643, ,975, Unrestricted 35,278, , Total net position $ 156,106, $ 34,993, The notes to the financial statements are integral part of this statement. 11

17 AUSTIN PEAY STATE UNIVERSITY Unaudited Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2014 University Component Unit REVENUES Operating revenues: Student tuition and fees (net of scholarship allowances of $24,030,722.81) $ 49,371, Gifts and contributions $ 2,209, Endowment income (per spending plan) 304, Governmental grants and contracts 3,476, Non-governmental grants and contracts 98, Sales and services of other activities 4,806, Auxiliary enterprises: Residential life (net of scholarship allowances of $2,886, all residential life revenues are used as security for revenue bonds, see Note 9) 6,131, Bookstore (all bookstore revenues are used as security for revenue bonds, see Note 9) 464, Food service (all food service revenues are used as security for revenue bonds, see Note 9) 691, Wellness facility (net of scholarship allowances of $377, all welness facility revenues are used as security for revenue bonds, see Note 9) 792, Other auxiliaries 196, Interest earned on loans to students 31, Other operating revenues 489, , Total operating revenues $ 66,552, $ 2,735, EXPENSES Operating Expenses (Note 16) Salaries and wages $ 59,501, Benefits 20,920, Utilities, supplies, and other services 29,225, $ 219, Scholarships and fellowships 19,906, ,007, Depreciation expense 8,999, Payments to or on behalf of Austin Peay State University (Note 18) 2,089, Total operating expenses $ 138,552, $ 3,317, Operating loss $ (72,000,692.46) $ (582,540.67) NONOPERATING REVENUES (EXPENSES) State appropriations $ 33,940, Gifts, including $1,202, from component unit 628, Grants and contracts 36,270, Investment income (net of investment expense of $19, for the university and $72, for the component unit) 1,545, $ 2,415, Interest on capital asset-related debt (2,482,193.40) Bond issuance costs (151,040.70) University/College support 61, Other non-operating revenues (3,337.64) Net nonoperating revenues $ 69,748, $ 2,476, Income before other revenues, expenses, gains, or losses $ (2,252,059.77) $ 1,894, Capital appropriations 1,438, Capital grants and gifts, including $886, from component unit(s) 886, Additions to permanent endowments 70, $ 865, Total other revenues $ 2,395, $ 865, Increase (decrease) in net assets $ 143, $ 2,759, NET POSITION Net position - beginning of year $ 155,962, $ 24,863, Prior period adjustment (Note 18) $ - $ 7,369, Net position - end of year $ 156,106, $ 34,993, The notes to the financial statements are integral part of this statement. 12

18 AUSTIN PEAY STATE UNIVERSITY Unaudited Statement of Cash Flows for the Year Ended June 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 48,798, Grants and contracts 3,038, Sales and services of other educational activities 4,831, Payments to suppliers and vendors (27,606,732.98) Payments to employees (59,491,787.05) Payments for benefits (20,529,470.99) Payments for scholarships and fellow ships (19,906,106.67) Interest earned on loans to students 15, Auxiliary enterprise charges: Residence halls 6,108, Bookstore 679, Food services 688, Wellness facility 792, Other auxiliaries 196, Net cash used by operating activities $ (62,384,647.84) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES State appropriations $ 33,777, Gifts and grants received for other than capital or endow ment purposes, including $1,632, from APSU - Foundation to the institution 36,799, Private gifts for endow ment purposes 70, Federal student loan receipts 53,757, Federal student loan disbursements (53,856,483.00) Changes in deposits held for others (1,025,738.06) Other non-capital financing receipts (payments) 22, Net cash provided by non-capital financing activities $ 69,545, CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt $ 50,281, Capital - state appropriation 1,438, Capitalgrants and gifts received, including $86, from Austin Peay State University Foundation 86, Purchase of capital assets and construction (27,544,044.43) Principal paid on capital debt and lease (35,013,232.08) Interest paid on capital debt and lease (2,965,186.62) Bond issue costs paid on new debt issue (151,040.70) Net cash used by capital and related financing activities $ (13,865,847.89) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments $ 1,476, Income on investments 365, Purchase of investments (1,902,843.26) Net cash provided by investing activities $ (60,840.40) Net decrease in cash and cash equivalents (6,766,309.24) Cash and cash equivalents - beginning of year 59,125, Cash and cash equivalents - end of year (Note 2 ) $ 52,359, RECONCILIATION OF OPERATING INCOME/(LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating loss $ (72,000,692.46) Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Depreciation expense 8,999, Gifts in-kind 6, Other adjustments (1,404,873.90) Change in assets and liabilities: Receivables, net (1,017,909.73) Inventories (14,528.89) Prepaid/deferred items 108, Other assets (15,855.07) Accounts payable 2,469, Accrued liabilities 214, Unearned revenues 233, Deposits (800.00) Compensated absences 129, Due to grantors (90,723.97) Net cash used by operating activities $ (62,384,647.84) Non-cash transactions Unrealized gains on investments $ 928, Loss on disposal of capital assets $ 121, The notes to the financial statements are integral part of this statement. 13

19 NOTES TO THE FINANCIAL STATEMENTS

20 Austin Peay State University Standard Notes to the Financial Statements June 30, Summary of Significant Accounting Policies REPORTING ENTITY The university is a part of the State University and Community College System of Tennessee (Tennessee Board of Regents). This system is a component unit of the State of Tennessee because the state appoints a majority of the system s governing body and provides significant financial support; the system is discretely presented in the Tennessee Comprehensive Annual Financial Report. The financial statements present only that portion of the Tennessee Board of Regents activities that is attributable to the transactions of Austin Peay State University. The Austin Peay State University Foundation is considered a component unit of the university. Although the university does not control the timing or amount of receipts from the foundation, the majority of resources, or income thereon that the foundation holds and invests are restricted to the activities of the university by the donors. Because these restricted resources held by the foundation can only be used by, or for the benefit of, the university, the foundation is considered a component unit of the university and is discretely presented in the university s financial statements. See Note 18 for more detailed information about the component unit and how to obtain the report. BASIS OF PRESENTATION The university s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to governmental colleges and universities engaged in business-type activities as prescribed by the Governmental Accounting Standards Board (GASB). BASIS OF ACCOUNTING For financial statement purposes, the university is considered a special-purpose government engaged only in business-type activities. Accordingly, the financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. All significant interfund transactions have been eliminated. The university has classified its revenues and expenses as either operating or nonoperating according to the following criteria: Operating revenues and expenses are those that have the characteristics of exchange transactions. Operating revenues include 1) tuition and fees, net of scholarship discounts and allowances, 2) most federal, state, local and private grants and contracts, 3) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, and 4) interest on institutional loans. Operating expenses include 1) salaries and wages, 2) employee benefits, 3) scholarships and fellowships, 4) depreciation, and 5) utilities, supplies, and other services. Nonoperating revenues and expenses include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other activities that are defined as nonoperating by GASB Statement 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities that Use Proprietary Fund Accounting, and GASB Statement 34, such as state appropriations and investment income. When both restricted and unrestricted resources are available for use, it is the university s policy to determine whether to use restricted or unrestricted resources first depending upon existing facts and circumstances. 14

21 CASH EQUIVALENTS This classification includes instruments that are readily convertible to known amounts of cash and have original maturities of three months or less. INVENTORIES Inventories are valued at the lower of cost or market. COMPENSATED ABSENCES The university s employees accrue annual and sick leave at varying rates, depending upon length of service or classification. Some employees also earn compensatory time. The amount of the liabilities for annual leave and compensatory time and their related benefits are reported in the Statement of Net Position. There is no liability for unpaid accumulated sick leave since the university s policy is to pay this only if the employee is sick or upon death. CAPITAL ASSETS Capital assets, which include property, plant, equipment, library holdings, works of art, historical treasures/collections, and intangible assets, are reported in the Statement of Net Position at historical cost or at fair value at date of donation, less accumulated depreciation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets useful lives are not capitalized. A capitalization threshold of $100,000 is used for buildings and $50,000 is used for infrastructure. Equipment is capitalized when the unit acquisition cost is $5,000 or greater. The capitalization threshold for additions and improvements to buildings and land is set at $50,000. The capitalization threshold for intangible assets is set at $100,000. The capitalization threshold for art, historical treasures/collections, and similar assets is set at $5,000. These assets, with the exception of works of art and historical treasures/collections deemed inexhaustible and land, are depreciated/amortized using the straight-line method over the estimated useful lives of the assets, which range from 5 to 40 years. NET POSITION The university s net position is classified as follows: NET INVESTMENT IN CAPITAL ASSETS: This represents the university s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets. RESTRICTED NET POSITION NONEXPENDABLE: Nonexpendable restricted net position consists of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be expendable or added to principal. RESTRICTED NET POSITION EXPENDABLE: Restricted expendable net position includes resources in which the university is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. UNRESTRICTED NET POSITION: Unrestricted net position represents 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 university to meet current expenses for any purpose. The auxiliary enterprises are substantially self-supporting activities that provide services for students, faculty, and staff. 15

22 SCHOLARSHIP DISCOUNTS AND ALLOWANCES Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discount 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 goods and services provided by the university, and the amount that is paid by the student and/or third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs are recorded as either operating or nonoperating revenues in the university s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the university has recorded a scholarship discount and allowance. 2. Cash This classification includes demand deposits and petty cash on hand. At June 30, 2014, cash consists of $1,823, in bank accounts, $14,384 of petty cash on hand, $49,183, in the State of Tennessee Local Government Investment Pool administered by the State Treasurer, and $1,337, in the LGIP Deposits Capital Projects account. LGIP Deposits Capital Projects - Payments related to the university s capital projects are made by the State of Tennessee s Department of Finance and Administration. The university s estimated local share of the cost of each project is held in a separate Local Government Investment Pool (LGIP) account. As expenses are incurred, funds are withdrawn from the LGIP account by the Tennessee Board of Regents and transferred to the Department of Finance and Administration. The funds in the account are not available to the university for any other purpose until the project is completed and the Tennessee Board of Regents releases any remaining funds. The Local Government Investment Pool (LGIP) is administered by the State Treasurer. The LGIP is part of the State Pooled Investment Fund. The fund s required risks disclosures are presented in the State of Tennessee s Treasurer s Report. That report is available on the state s website at or by calling (615) Investments All investments permitted to be reported at fair value under GASB Statement 31 are reported at fair value, including those with a maturity date of one year or less at the time of purchase. As of June 30, 2014, the university had the following investments and maturities Investment Maturities (In Years) Investment Type Fair Value Less than 1 1 to 5 6 to 10 More than 10 No Maturity Date US Treasury $ 214, $ 5, $ 144, $ 64, US Agencies 182, , , $ 100, Corporate Stocks 2,104, $ 2,104, Corporate Bonds 425, , , , Mutual Bond Funds 1,739, ,739, Mutual Equity Funds 4,168, ,168, Certificates of Deposit 595, , , Money Market 41, , Total $ 9,471, $ 694, $ 578, $ 1,824, $ 100, $ 6,273, Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of a debt investment. The university does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The university is authorized by statute to invest funds in accordance with Tennessee Board of Regents policies. Under the current policy, funds other than endowments may be invested only in obligations of the United States or its agencies which are backed by the full faith and credit of the United States, repurchase agreements for United States securities, certificates of deposit in banks and savings 16

23 and loan associations, banker's acceptances, commercial paper, money market mutual funds and the State of Tennessee Local Government Investment Pool. The policy requires that investments of endowments in equity securities be limited to funds from private gifts or other sources external to the university and that endowment investments be prudently diversified. Securities are rated using Standard and Poor s, Moody s, and/or Fitch s and are presented below using the Standard and Poor s rating scale. TBR policy restricts investments in banker s acceptances and commercial paper. The policy requires that prime banker s acceptances must be issued by domestic banks with a minimum AA rating or foreign banks with a AAA long-term debt rating by a majority of the rating services that have rated the issuer. Prime banker s acceptances are required to be eligible for purchase by the Federal Reserve System. To be eligible, the original maturity must not be more than 270 days, and it must 1) arise out of the current shipment of goods between countries or with the United States, or 2) arise out of storage within the United States of goods under contract of sale or expected to move into the channel or trade within a reasonable time and that are secured throughout their life by a warehouse receipt or similar document conveying title to the underlying goods. The policy requires that prime commercial paper shall be limited to that of corporations that meet the following criteria: 1) Senior long-term debt, if any, should have a minimum rating of A1 or equivalent, and short-term debt should have a minimum rating of A1 or equivalent, as provided by a majority of the rating services that rate the issuer. If there is no long-term debt rating, the short-term debt rating must be A1 by all rating services (minimum of two). 2) The rating should be based on the merits of the issuer or guarantee by a nonbank. 3) A financial review should be made to ascertain the issuer s financial strength to cover the debt. 4) Commercial paper of a banking institution should not be purchased. Prime commercial paper shall not have a maturity that exceeds 270 days. As of June 30, 2014, the university s investments were rated as follows: Credit Quality Rating Investment Type Fair Value AAA AA A BBB BB B CCC CC C Unrated Local Government Investment Pool (LGIP) $ 50,521, $ 50,521, US Agencies 182, $ 78, , Corporate Bonds 425, $ 52, , $ 183, $ 80, $ 1, , Mutual Bond Funds 1,739, $ 203, , , , $ 28, $ 49, $ 38, $ 6, $ , Total $52,868, $256, $212, $311, $313, $29, $49, $38, $6, $ $51,649, Custodial 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 does not have a deposit policy for custodial credit risk. At June 30, 2014, the university had $2,968, of uninsured and unregistered investments for which the securities are held by the counterparty and $5,907, of uninsured and unregistered investments for which the securities are held by the counterparty s trust department or agent but not in the university s name. Concentration of Credit Risk. Concentration of credit risk is the risk of loss attributed to the magnitude of the university s investment in a single issuer. TBR policy restricts investments in banker s acceptances, commercial paper, and money market mutual funds. The policy limits banker s acceptances to not exceed twenty percent of total investments on the date of acquisition and limits the combined amount of banker s acceptances and commercial paper to not exceed thirty-five percent of total investments at the date of acquisition. The amount invested in any one bank shall not exceed five percent of total investments on the date of acquisition. Additionally, no more than five percent of total investments at the date of acquisition may be invested in the commercial paper of a single issuer. The policy further limits the total holdings of an issuer s commercial paper to not more than two percent of the issuing corporation s total outstanding commercial paper. TBR policy limits investments in money market mutual funds to not exceed ten percent of total investments on the date of acquisition. Investments of endowment and similar funds are composed on the following: 17

24 Carrying Value Certificates of Deposit $ 30, Regions Investment Account US Treasury $ 214, US Agencies 182, Corporate Stocks 2,104, Corporate Bonds 425, Money Market Account 41, Total Regions Investment Account $ 2,968, The Commonfund Mutual Bond Funds $ 1,739, Mutual Equity Funds 4,168, Total Commonfund $ 5,907, Total $ 8,906, The Certificate of Deposit and Regions Investment Account are each the investment of a single endowment fund. Investments for the remaining endowment funds are composed of two mutual funds managed by the Commonfund. Assets of endowment funds are pooled on a fair value basis, with each individual fund subscribing to or disposing of units on the basis of the value per unit fair value at the beginning of the calendar quarter within which the transaction takes place. At June 30, 2014, there were a total of 14, units in the Multi-Strategy Equity Fund, each unit had a fair value of $287.22, and a total of 115, units in the Multi-Strategy Bond Fund, each unit had a fair value of $ The following tabulation summarizes changes in relationships between cost and fair values of the pooled assets: Pooled Assets Market Cost Common Fund: Multi-Strategy Equity Fund June 30, 2014 $ 4,168, ,928, July 1, 2013 $ 3,296, ,110, Net Gains (Losses) Fair Value per Unit $ $ 2,239, $ 2,186, $ 53, Multi-Strategy Bond Fund June 30, 2014 $ 1,739, $ 1,518, $ 221, July 1, 2013 $ 1,303, $ 1,748, (444,103.10) $ 665, Total net gains (losses) $ 719, The average annual earnings per unit were $3.707 per unit for the Multi-Strategy Equity Fund and $5.762 per unit for the Multi-Strategy Bond Fund for the year ended June 30,

25 4. Accounts, Notes, and Grants Receivable Accounts receivable included the following: June 30, 2014 Student accounts receivable $ 6,336, Grants receivable 1,232, Notes receivable 12, Other receivables 838, Subtotal $ 8,419, Less allowance for doubtful accounts (1,584,123.59) Total $ 6,835, Federal Perkins Loan Program funds include the following: June 30, 2014 Perkins loans receivable $ 1,376, Less allowance for doubtful accounts (332,683.75) Total $ 1,043, Capital Assets Capital asset activity for the year ended June 30, 2014, was as follows: Beg Balance Additions Transfers Reductions End Balance Land $ 9,423, $ 306, $ 9,729, Land improve & Infrastructure 35,104, , $ 643, , ,626, Buildings 185,196, ,430, ,892, $ 36, ,482, Equipment 15,559, ,394, , ,389, Library holdings 3,695, , , ,413, Intangible assets 2,389, ,389, Projects in progress 30,296, ,589, (29,536,235.02) 14,349, Total $ 281,665, $ 29,807, $ - $ 1,091, $ 310,381, Less accumulated depreciation/amortization: Land improve & infrastructure $ 10,706, $ 1,645, $ 27, $ 12,324, Buildings 69,256, ,439, , ,660, Equipment 9,372, ,305, , ,211, Library holdings 2,514, , , ,427, Intangible assets 1,879, , ,134, Total $ 93,730, $ 8,986, $ 958, $ 101,759, Capital assets, net $ 187,935, $ 20,820, $ - $ 133, $ 208,621, Accounts Payable Accounts payable included the following: June 30, 2014 Vendors payable $ 5,827, Unapplied student payments 17, Other payables - Total $ 5,844,

26 7. Long-term Liabilities Long term liability activity for the year ended June 30, 2014, was as follows: Beg Balance Additions Reductions End Balance Curr Portion Payables: TSSBA debt: Bonds $ 56,584, $ 29,328, $ 1,633, $ 84,280, $ 2,127, Unamortized bond premium/discount 4,254, ,565, , ,526, Commercial Paper 24,808, ,808, Revolving credit facility 18,121, ,011, ,109, Subtotal $ 85,648, $ 50,015, $ 34,746, $ 100,916, $ 2,127, Other Liabilities Compensated Absences $ 2,580, $ 2,467, $ 2,337, $ 2,710, $ 832, Due to grantor 682, , , Subtotal $ 3,262, $ 2,467, $ 2,428, $ 3,301, $ 832, Total long-term liabilities $ 88,910, $ 52,482, $ 37,174, $ 104,218, $ 2,959, TSSBA Debt - Bonds Payable Bonds, with interest rates ranging from 0.35% to 5%, were issued by the Tennessee State School Bond Authority. The bonds are due serially until November 2043 and are secured by pledges of the facilities revenues to which they relate and certain other revenues and fees of the university, including state appropriations, see Note 9 for further details. The bonded indebtedness with the Tennessee State School Bond Authority included in long-term liabilities on the Statement of Net Position is shown net of assets held by the authority in the debt service reserve and net of unexpended debt proceeds. The reserve amount was $320, at June 30, Unexpended debt proceeds were $0.00 at June 30, Debt service requirements to maturity for the university s portion of TSSBA bonds at June 30, 2014, are as follows: For the Year(s) Ending June 30 Principal Interest Total 2015 $ 2,127, $ 3,886, $ 6,013, ,075, ,798, ,873, ,166, ,707, ,874, ,222, ,610, ,833, ,337, ,504, ,841, ,363, ,737, ,101, ,617, ,241, ,858, ,573, ,062, ,635, ,286, ,577, ,864, ,510, ,379, ,890, Total $ 84,280, $ 60,505, $ 144,786, TSSBA Debt Revolving Credit Facility The Tennessee State School Bond Authority issues loans from the revolving credit facility to finance costs of various capital projects during the construction phase. When projects are placed in service, long-term, fixed-rate debt is issued by TSSBA to finance the project over its useful payback period and the revolving credit facility debt is redeemed. The amount outstanding for projects at the university was $10,109, at June 30, More detailed information regarding the bonds and the revolving credit facility can be found in the notes to the financial statements in the financial report for the Tennessee State School Bond Authority. That report is available on the state s website at 20