Arkansas Tech University

Transcription

1 Arkansas Tech University Russellville, Arkansas Basic Financial Statements and Other Reports LEGISLATIVE JOINT AUDITING COMMITTEE

2 ARKANSAS TECH UNIVERSITY TABLE OF CONTENTS JUNE 30, 2009 Independent Auditor's Report 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 Management Letter Management s Discussion and Analysis BASIC FINANCIAL STATEMENTS Comparative Statement of Net Assets A Arkansas Tech University Foundation, Inc. Comparative Statement of Net Assets A-1 Arkansas Tech University Facilities Development Foundation, Inc. Comparative Statement of Net Assets A-2 Comparative Statement of Revenues, Expenses and Changes in Net Assets B Arkansas Tech University Foundation, Inc. Comparative Statement of Revenues, Expenses and Changes in Net Assets B-1 Arkansas Tech University Facilities Development Foundation, Inc. Comparative Statement of Revenues, Expenses and Changes in Net Assets B-2 Comparative Statement of Cash Flows C Notes to Financial Statements Postemployment Benefits Other Than Pensions REQUIRED SUPPLEMENTARY INFORMATION SUPPLEMENTARY INFORMATION Schedule of Selected Information for the Last Five Years (Unaudited) 1 Exhibit Schedule

3 Sen. Bobby L. Glover Senate Co-Chair Rep. Johnny Hoyt House Co-Chair Sen. Bill Pritchard Senate Co-Vice Chair Rep. Beverly Pyle House Co-Vice Chair INDEPENDENT AUDITOR'S REPORT Arkansas Tech University Legislative Joint Auditing Committee We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of Arkansas Tech University (University), an institution of higher education of the State of Arkansas, as of and for the year ended, which collectively comprise the University s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Arkansas Tech University Foundation, Inc., and the Arkansas Tech University Facilities Development Foundation, Inc., which represent 100% of the assets, net assets, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Arkansas Tech University Foundation, Inc., and the Arkansas Tech University Facilities Development Foundation, Inc., is based on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Arkansas Tech University Foundation, Inc., and the Arkansas Tech University Facilities Development Foundation, Inc., were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports of other auditors, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of Arkansas Tech University as of, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Notes 1 and 11 to the financial statements, the University changed its methods of accounting for the Federal Perkins Loan Program-Federal Capital Contributions and bond premiums, discounts, and issuance costs for the fiscal year ended. In accordance with Government Auditing Standards, we have also issued our report dated October 29, 2009 on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

4 The Management s Discussion and Analysis and certain information pertaining to postemployment benefits other than pensions are not a required part of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the University s basic financial statements. The Schedule of Selected Information for the Last Five Years (Schedule 1) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Selected Information for the Last Five Years (Schedule 1) has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas October 29, 2009 EDHE13009 Roger A. Norman, JD, CPA, CFE Legislative Auditor - 2 -

5 Sen. Bobby L. Glover Senate Co-Chair Rep. Johnny Hoyt House Co-Chair Sen. Bill Pritchard Senate Co-Vice Chair Rep. Beverly Pyle House Co-Vice Chair 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 Arkansas Tech University Legislative Joint Auditing Committee We have audited the financial statements of the business-type activities and the aggregate discretely presented component units of Arkansas Tech University (University), an institution of higher education of the State of Arkansas, as of and for the year ended, which collectively comprise the University s basic financial statements and have issued our report thereon dated October 29, Our report was modified to include a reference to other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited the financial statements of the Arkansas Tech University Foundation, Inc., and the Arkansas Tech University Facilities Development Foundation, Inc., as described in our report on the University s financial statements. The financial statements of the Arkansas Tech University Foundation, Inc., and the Arkansas Tech University Facilities Development Foundation, Inc., were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the University s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the University s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified a certain deficiency in internal control over financial reporting that we consider to be a significant deficiency. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the University s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the University s financial statements that is more than inconsequential will not be prevented or detected by the University s internal control. We consider the deficiency described below in the Audit Findings section of this report to be a significant deficiency in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the University s internal control.

6 Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we consider the significant deficiency described above to be a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of the state constitution, state laws and regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the University in a separate letter dated October 29, MATERIAL WEAKNESS AUDIT FINDINGS The University s internal control did not prevent or detect material errors in the initial financial statements. The errors and misstatements were corrected during audit fieldwork. Key errors included the following: Comparative Statement of Net Assets a. Misclassification of net assets for certain construction in progress expenditures and related debt transactions totaling $20,780,171 as Net Assets - Restricted Expendable for Capital Projects instead of Invested in Capital Assets - Net of Related Debt. b. Misclassification of Deferred Charges - bond issuance cost in the amount of $396,825 as a reduction to bonds payable instead of an asset. Comparative Statement of Cash Flows a. Overstatement of accounts totaling $900,495 with a corresponding understatement of other accounts totaling $900,495 (errors did not affect total cash). The errors primarily pertained to the amounts reported for Received from Bond Trustee (Bond Proceeds), Construction in Progress Expenditures, and Proceeds from Sale and Maturities of Investments. b. Noncash transactions were not reported. Management Response: The deficiencies relate directly to change in Senior Accounting Personnel during the preparation of our financial statements which interrupted normal statement preparation. The personnel change removed one critical step in our review process and was a contributing factor for the statement errors. We intend to make the following adjustments to our Internal Control for preparation of financial statements: Reduce the closing time for the accounting records at the end of a fiscal year. The time savings in this process will be used to analyze and complete preparation of financial statements. There will be mandatory cross-checking by three different individuals of all financial reports and disclosures. Two of the three individuals will be senior level accounting personnel. The final statements will be forwarded through the Senior Vice President for Administration and Finance for review before they are submitted to Legislative Auditors. We believe these steps will correct the Internal Control deficiencies noted in our report. Problems of this type have not occurred in prior audits nor do we expect them to occur in the future. It is always our objective to provide financial statements that are correct and present fairly the financial condition of Arkansas Tech University. The University s response to the finding identified in our audit is described above. We did not audit the University s response and, accordingly, we express no opinion on it

7 This report is intended solely for the information and use of the Legislative Joint Auditing Committee, the governing board, University management, state executive and oversight management, and other parties as required by Arkansas Code, and is not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas October 29, 2009 Larry W. Hunter, CPA, CFE Deputy Legislative Auditor - 5 -

8 Sen. Bobby L. Glover Senate Co-Chair Rep. Johnny Hoyt House Co-Chair Sen. Bill Pritchard Senate Co-Vice Chair Rep. Beverly Pyle House Co-Vice Chair MANAGEMENT LETTER Arkansas Tech University Legislative Joint Auditing Committee STUDENT ENROLLMENT DATA - In accordance with Arkansas Code Annotated , we performed tests of the student enrollment data for the year ended, as reported to the State Department of Higher Education, to provide reasonable assurance that the data was properly reported. The enrollment data reported was as follows: Summer II Term Fall Term Spring Term Summer I Term Student Headcount 1,429 7,701 7,339 2,257 Student Semester Credit Hours 6,135 96,499 89,881 11,068 During our review, nothing came to our attention that would cause us to believe that the student enrollment data was not substantially correct. This letter is intended solely for the information and use of the Legislative Joint Auditing Committee, the governing board, University management, state executive and oversight management, and other parties as required by Arkansas Code, and is not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Arkansas Code Annotated , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas October 29, 2009 Larry W. Hunter, CPA, CFE Deputy Legislative Auditor

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10 Management s Discussion and Analysis - 7 -

11 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Overview of Financial Statements and Financial Analysis Arkansas Tech University is proud to present its consolidated financial statements for fiscal year Comparative data for fiscal years and is presented in the statements. The following discussion and analysis of Arkansas Tech University s consolidated financial statements provides an overview of the University s financial activities for the fiscal year ended. Management has prepared the financial statements, the related footnote disclosures, and Management s Discussion and Analysis as required by Governmental Accounting Standards Board (GASB) Statements 34 and 35. Arkansas Tech University has completed another fiscal year with positive results. We have continued our enrollment growth which translates into record occupancy and utilization of our various auxiliary services, such as residence halls, apartments, food services and the bookstore. We have been challenged during FY as the economic downturn has resulted in state funding decreases and our investment income has decreased as interest rates have declined to very low levels. Major emphasis has been placed on the management of our expenses, such as utilities, travel, vehicle maintenance and personnel cost to assure that our operations remain within established budgetary limits. The student population growth continues and we are encouraged by other positive trends during FY We were able to: Transfer $696,309 to Infrastructure Reserves. Transfer $174,440 to Funded Depreciation. Complete campus construction and renovations of $3,302,963. Purchase $883,618 in capital equipment. Complete our university-wide computer conversion. Dedicated $967,439 in funding to purchase equipment and other associated cost for connection to the ARE-ON Network. Funded $1,435,730 for critical maintenance repairs. There are three financial statements presented: Statement of Net Assets; Statement of Revenues, Expenses and Changes in Net Assets; and Statement of Cash Flows. Condensed Statement of Net Assets The Statement of Net Assets presents the assets, liabilities, and net assets of the University at the end of the fiscal year. The purpose of this statement is to show the financial position on a certain date in time and to present to readers a fiscal snapshot of Arkansas Tech University at year-end. The Statement of Net Assets presents year-end data concerning assets (current and noncurrent), liabilities (current and noncurrent), and net assets (assets minus liabilities)

12 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Condensed Statement of Net Assets (continued) The difference between current and noncurrent assets is discussed in the footnotes to the financial statements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors, investors and lending institutions. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and of their availability for expenditure by the institution. Net Assets are divided into three major categories. The first category invested in capital assets, net of debt provides information on the institution s equity in property, plant and equipment. The next asset category restricted assets is divided into two categories: nonexpendable and expendable. The corpus of nonexpendable restricted resources is only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on them. The final category unrestricted net assets is available to the institution for any lawful purpose of the institution. Condensed Statement of Net Assets Assets: June 30, 2008 Current assets $ 37,165,722 $ 32,242,568 Noncurrent assets 11,131,849 11,211,479 Capital assets, net 90,598,697 77,230,921 Total Assets $ 138,896,268 $ 120,684,968 Liabilities: Current liabilities $ 12,503,108 $ 7,514,601 Noncurrent liabilities 50,216,476 45,867,479 Total Liabilities $ 62,719,584 $ 53,382,080 Net Assets: Invested in capital assets, net of debt $ 41,051,082 $ 30,134,186 Restricted - expendable 6,835,813 9,489,961 Restricted - nonexpendable 354, ,929 Unrestricted 27,934,971 27,522,812 Total Net Assets $ 76,176,684 $ 67,302,

13 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Condensed Statement of Net Assets (continued) Net Assets Invested in capital assets, net of debt Unrestricted Restricted - expendable Condensed Statement of Revenues, Expenses and Changes in Net Assets Changes in total net assets as presented on the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received by the institution, both operating and nonoperating, and the expenses paid by the institution, both operating and nonoperating, and any other revenues, expenses, gains and losses received or expended by the institution. Generally speaking, operating revenues are received for providing goods and services to the various customers and constituencies of the institution. 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 institution. Nonoperating revenues are revenues received for which goods and services are not provided. (For example, state appropriations are nonoperating because they are provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services for those revenues.)

14 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Condensed Statement of Revenues, Expenses and Changes in Net Assets (Continued) June 30, 2008 Operating revenues $ 46,043,754 $ 44,860,564 Operating expenses (85,575,563) (84,911,469) Operating loss (39,531,809) (40,050,905) Nonoperating revenues and expenses 47,650,130 42,575,330 Income (loss) before other revenues, expenses, gains, or losses 8,118,321 2,524,425 Other revenues, expenses, gains or losses 1,233,419 3,074,473 Increase (Decrease) in Net Assets 9,351,740 5,598,898 Net Assets at beginning of year as originally reported 67,302,888 61,703,990 Adjustment for reclassification of Federal Perkins Loans (1,208,462) Adjustment for recognition of prior year unamortized discounts 353,202 Adjustment for recognition of prior year issuance costs 377,316 Net Assets at beginning of year - restated 66,824,944 61,703,990 Net Assets at end of year $ 76,176,684 $ 67,302,

15 Arkansas Tech University Operating Revenues Auxiliary 28% Other operating revenues 4% Sales & Serv E&G 1% Non-gov grants 4% State/Local Grants 10% Tuition & Fees 49% Federal grants and contracts 4% Note: Per GASB Statement No. 34, State General Revenues of $33,863,952 received by Arkansas Tech University are classified as Non-operating Revenue. Arkansas Tech University Operating Expenses Supplies and Services 25% Depreciation 6% Scholarships and Fellowships 15% Personal services 42% Benefits 12%

16 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Condensed Statement of Cash Flows The final statement presented by Arkansas Tech University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five sections. The first section shows the net cash used by the operating activities of the institution. The second section reflects cash flows from non-capital financing activities and specifically reflects the cash received and spent for nonoperating, non-investing and noncapital financing purposes. The third section deals with the cash flows from capital and related financing activities. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds and interest received from investing activities. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses and Changes in Net Assets. Condensed Statement of Cash Flows June 30, 2008 Cash provided (used) by: Operating activities $ (34,758,239) $ (33,931,322) Noncapital financing activities 43,551,446 42,775,138 Capital and related financing activities (6,938,907) (6,745,395) Investing activities 1,272,937 (1,852,377) Net Change in Cash $ 3,127,237 $ 246,044 Cash, beginning of year 8,902,854 8,656,810 Cash, end of year $ 12,030,091 $ 8,902,

17 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Capital Asset and Debt Administration Capital Assets At, the University had $153,399,717 invested in capital assets, less accumulated depreciation of $62,801,020. Depreciation charges total $4,926,192 for the current fiscal year. Details of these assets are shown below. Capital Assets (Net) June 30, 2008 Land, improvements and infrastructure $ 6,641,294 $ 6,698,172 Buildings 61,799,466 63,720,070 Construction in progress 18,196,335 2,668,723 Furniture, fixtures and equipment 2,463,776 2,629,905 Library holdings 1,329,020 1,375,869 Livestock for educational purposes 168, ,182 Total $ 90,598,697 $ 77,230,921 Major capital additions completed this year, and the source of the funding used for their acquisition, include: June 30, 2008 Baswell Hall--University Funds $ 10,762,874 Chambers Cafeteria--University Funds 374,571 Women s Sports Complex--University Funds 2,349,376 Physical Plant Building University Funds $ $2,446,171 Turner Hall--University Funds 799,252 Total $ 3,245,423 $ 13,486,821 More detailed information about the University s capital assets is presented in Note 8 and Note 13 to the financial statements

18 MANAGEMENT S DISCUSSION AND ANALYSIS For the year ended Capital Asset and Debt Administration (continued) Debt At, the University had $52,155,640 in debt outstanding versus $47,100,064 the previous year. Principal payments made on debt during the year were $1,905,654. The table below summarizes these amounts by type of debt instrument. Outstanding Debt June 30, 2008 Educational and general revenue bonds $ 18,640,000 $ 14,633,750 Auxiliary facility revenue bonds 31,100,000 29,651,250 Capital lease obligations 16,500 9,103 Installment contract 11,467 3,329 Notes payable 2,802,632 2,802,632 Unamortized bond discount/premium (414,959) Total $ 52,155,640 $ 47,100,064 More detailed information about the University s long-term liabilities is presented in Notes 10, 11 and 12 to the financial statements. Economic Outlook The University s overall financial position is strong. Consistent student enrollment growth makes us optimistic for the University s operations during FY We will manage our resources and make adjustments as necessary to assure the continued financial integrity of the University. Mr. David C. Moseley Vice President for Administration and Finance

19 Statement of Net Assets

20 COMPARATIVE STATEMENT OF NET ASSETS Exhibit A June 30, ASSETS Current Assets: Cash and cash equivalents $ 11,196,254 $ 7,929,652 Short-term investments 21,482,057 21,447,127 Accounts receivable (less allowances of $233,214 and $180,525,respectively) 2,824,671 1,872,207 Notes receivable (less allowances of $73,225 and $72,313, respectively) 152, ,864 Other receivables 88,686 40,804 Inventories 710, ,112 Prepaid expenses 710, ,802 Total Current Assets 37,165,722 32,242,568 Noncurrent Assets: Restricted cash and cash equivalents 833, ,202 Deposits with trustee 5,011,521 4,966,810 Endowment investments 2,166,569 2,508,720 Restricted Investments 1,129,350 1,127,361 Restricted accounts receivable 508, ,238 Notes receivable (less allowances of $536,983 and $502,512 for 2008) 1,077,171 1,137,819 Prepaid expenses 8,544 3,329 Deferred charges - bond issuance cost 396,825 Capital assets (net of accumulated depreciation of $62,801,020 and $59,221,683, respectively) 90,598,697 77,230,921 Total Noncurrent Assets 101,730,546 88,442,400 TOTAL ASSETS $ 138,896,268 $ 120,684,

21 COMPARATIVE STATEMENT OF NET ASSETS Exhibit A LIABILITIES Current Liabilities: June 30, Accounts payable and accrued liabilities $ 4,904,183 $ 1,904,112 Bonds, notes, installment contracts and leases payable 4,865,952 1,902,432 Compensated absences 1,273,173 1,636,534 Deferred revenue 868,142 1,039,425 Funds held in trust for others 569, ,549 Net other postemployment benefit liability 444,956 Other liabilities 22,233 20,593 Total Current Liabilities 12,503,108 7,514,601 Noncurrent Liabilities: Bonds, notes, installment contracts and leases payable 47,289,688 45,197,632 Compensated absences 378, ,122 Net other postemployment benefit liability 1,339, ,725 Refundable Federal Advances 1,208,462 Total Noncurrent Liabilities 50,216,476 45,867,479 TOTAL LIABILITIES 62,719,584 53,382,080 NET ASSETS Invested in capital assets, net of related debt 41,051,082 30,134,186 Restricted for: Nonexpendable: Scholarships and fellowships 155, ,929 Loans 198,889 Expendable: Scholarships and fellowships 404, ,134 Loans 1,498,188 Capital projects 1,128,923 2,302,843 Debt service 3,445,773 3,047,924 Education and General Departments 1,857,009 2,263,801 Other 27,071 Unrestricted 27,934,971 27,522,812 TOTAL NET ASSETS 76,176,684 67,302,888 TOTAL LIABILITIES and NET ASSETS $ 138,896,268 $ 120,684,968 The accompanying notes are an integral part of these financial statements

22 Statement of Net Assets- Component Units

23 COMPARATIVE STATEMENT OF NET ASSETS COMPONENT UNIT Exhibit A-1 ARKANSAS TECH UNIVERSITY FOUNDATION, INC. June 30, ASSETS Cash and cash equivalents $ 1,023,944 $ 1,240,336 Promises to give 456, ,465 Other receivable 18,977 Investments 12,132,448 13,903,972 TOTAL ASSETS 13,612,668 15,851,750 LIABILITIES AND NET ASSETS Liabilities: Accounts payable and accrued liabilities 49,186 64,674 Note Payable 1 University funds under management 1,687,706 2,029,857 Reserve for annuities payable 139, ,245 Deferred compensation 100,000 50,000 TOTAL LIABILITIES 1,976,886 2,257,777 NET ASSETS Unrestricted 1,399,805 2,044,592 Temporarily restricted 2,487,140 3,762,330 Permanently restricted 7,748,837 7,787,051 Total Net Assets 11,635,782 13,593,973 TOTAL LIABILITIES AND NET ASSETS $ 13,612,668 $ 15,851,

24 COMPARATIVE STATEMENT OF NET ASSETS COMPONENT UNIT Exhibit A-2 ARKANSAS TECH UNIVERSITY FACILITIES DEVELOPMENT FOUNDATION, INC. ASSETS Current Assets: June 30, Due from Arkansas Tech University $ 143,828 $ 72,420 Rent receivable (net of allowance for doubtful accounts of $7,779 and $5,421, respectively) 51,751 47,671 Other receivables 70 Unrestricted cash Total Current Assets 196, ,734 Restricted cash and cash equivalents 2,943,120 2,707,479 Property and equipment at cost: Property and equipment 7,719,755 7,719,755 Less accumulated depreciation 2,156,380 1,898,717 Net property and equipment 5,563,375 5,821,038 Other Assets: Unamortized Debt issuance cost 155, ,900 Unamortized Debt discount 135, ,766 Total Other Assets 290, ,666 TOTAL ASSETS $ 8,993,160 $ 8,953,917 LIABILITIES AND UNRESTRICTED Current Liabilities: Current maturities of long-term debt $ 210,000 $ 195,000 Accounts payable 1,399 17,632 Security deposits 79,250 83,375 Accrued interest 35,353 36,124 Total Current Liabilities 326, ,131 Long-term debt 7,350,000 7,560,000 Unrestricted net assets 1,317,158 1,061,786 TOTAL LIABILITIES AND NET ASSETS $ 8,993,160 $ 8,953,

25 Statement of Revenues, Expenses and Changes in Net Assets

26 COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the year ended Exhibit B OPERATING REVENUES Student tuition and fees (net of scholarship allowances of $10,656,443. and $9,668,187 respectively) 22,354,995 For the year ended June 30, $ $ 21,354,968 Federal grants and contracts 1,645,255 1,562,303 State and local grants and contracts 4,704,026 4,579,221 Non-governmental grants and contracts 2,002,086 3,172,514 Sales and services of educational departments 282, ,074 Auxiliary enterprises: Athletics (net of scholarship allowances of $685,484 and $558,265 respectively) 2,704,647 2,773,705 Residence life (net of scholarship allowances of $1,897,751 and $1,812,778 respectively) 3,957,213 3,852,908 Bookstore (net of scholarship allowances of $164,020 and $67,099 respectively) 3,264,413 3,005,892 Food service (net of scholarship allowances of $1,453,729 and $1,313,493 respectively) 2,860,071 2,738,169 Other auxiliary enterprises 203, ,073 Other operating revenues 2,064, ,737 TOTAL OPERATING REVENUES 46,043,754 44,860,564 OPERATING EXPENSES Personal services 35,919,144 34,996,887 Benefits 10,231,701 10,098,241 Scholarships and fellowships 12,660,588 12,619,571 Supplies and services 21,837,938 22,425,932 Depreciation 4,926,192 4,770,838 TOTAL OPERATING EXPENSES 85,575,563 84,911,469 OPERATING INCOME (LOSS) (39,531,809) (40,050,905)

27 COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the year ended Exhibit B For the year ended June 30, NON-OPERATING REVENUES (EXPENSES) State appropriations $ 33,863,952 $ 34,078,946 Governmental grants 9,765,214 8,511,867 Investment income (net of investment expense of $5,487 and $8,072 respectively) 1,012,416 1,531,877 Realized gain (loss) on investments (51,501) Unrealized gain (loss) on investments (360,001) (46,278) Interest on capital asset related debt (2,608,394) (1,947,525) Paying agents fees capital asset related debt (32,369) (27,840) Gain or (loss) on disposal of capital assets (2,734) (7,811) Unrealized gain on livestock valuation 67,431 32,006 Disposal of livestock for educational purposes (48,965) (52,723) Bond proceeds from act 1282 of ,008, ,884 Other revenues (expenses) 36,412 (40,073) NET NON-OPERATING REVENUES (EXPENSES) 47,650,130 42,575,330 INCOME BEFORE OTHER REVENUES, EXPENSES, GAINS OR LOSSES 8,118,321 2,524,425 Capital appropriations 1,475, ,733 Capital grants and gifts 26,286 2,648,639 Bond discount and issue costs (128,699) (107,551) Additions to endowments 34, Adjustments to prior year revenues and expenses (154,716) (48,491) Other (19,829) 18,158 INCREASE (DECREASE) IN NET ASSETS 9,351,740 5,598,898 NET ASSETS - BEGINNING OF YEAR AS ORIGINALLY REPORTED 67,302,888 61,703,990 Adjustment for reclassification of Federal Perkins Loans (1,208,462) Adjustment for recognition of prior year unamortized discounts 353,202 Adjustment for recognition of prior year unamortized issuance costs 377,316 NET ASSETS - BEGINNING OF YEAR, RESTATED 66,824,944 61,703,990 NET ASSETS - END OF YEAR $ 76,176,684 $ 67,302,888 The accompanying notes are an integral part of these financial statements

28 Statement of Revenues, Expenses and Changes in Net Assets- Component Units

29 COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS COMPONENT UNIT ARKANSAS TECH UNIVERSITY FOUNDATION, INC. Exhibit B-1 For the year ended Year ended June Public support revenues and reclassifications: Contributions $ 1,114,804 $ 2,835,017 Investment income (1,388,755) 333,133 Total public support, revenues and reclassifications (273,951) 3,168,150 Expenses Scholarships 430, ,310 Capital outlay 466,150 2,650,418 Supplies 173, ,043 Professional fees and services 132, ,394 Travel and travel items 123, ,552 Printing 15,079 21,875 Salaries and benefits 143, ,779 Investment fees 29,151 46,784 Annuity benefis 56,149 8,951 Other 113, ,422 Total expenses 1,684,240 3,897,528 Changes in net assets (1,958,191) (729,378) Net assets at beginning of year 13,593,973 14,323,351 Adjustments to net assets - - Net assets at end of year $ 11,635,782 $ 13,593,

30 COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS COMPONENT UNIT ARKANSAS TECH UNIVERSITY FACILITIES DEVELOPMENT FOUNDATION, INC. Exhibit B-2 For the year ended Year Ended June 30, Income: Rental $ 1,385,792 $ 1,367,263 Investment 26,213 79,087 Other 6,825 1,760 Total Income 1,418,830 1,448,110 Expenses: Maintenance and repairs 152,957 51,602 Utilities 196, ,417 Insurance 46,960 53,652 Depreciation and amortization 271, ,378 Interest expense 429, ,594 Bad debts 2,358 (568) Administrative cost-arkansas Tech University 39,855 39,379 Trustee fees 9,331 9,679 Audit fees 10,900 4,500 Other 3,313 2,450 Total Expenses 1,163,458 1,041,083 Increase in unrestricted net assets 255, ,027 Unrestricted net assets at beginning of year 1,061, ,759 Unrestricted net assets at end of year $ 1,317,158 $ 1,061,

31 Statement of Cash Flows

32 COMPARATIVE STATEMENT OF CASH FLOWS Exhibit C June 30, Cas h Flows From Operating Activities: Tuition and fees $ 22,610,411 $ 21,444,656 Grants and contracts 8,064,997 9,439,943 Payments to Suppliers (21,661,219) (21,685,327) Payments for pers onal s ervices (35,678,983) (34,593,355) Payments for benefits (10,231,701) (10,098,241) Payments for s cholars hips and fellows hips (12,660,588) (12,619,571) Loans issued to students (263,327) Collection of principal related to s tudent loans 45, ,272 Interes t collected on s tudent loans 24,747 11,342 Auxiliary Enterpris e Charges: Res idential life 3,682,554 3,857,024 Food s ervice 2,596,182 2,742,123 Books tore 3,264,413 3,005,893 Athletics 2,704,647 2,773,705 Health s ervices 203, ,073 Sales and s ervice of educational department 282, ,074 Other receipts (payments) 1,994, ,394 Net Cas h Provided (Us ed) by Operating Activities (34,758,239) (33,931,322) Cas h Flows From Noncapital Financing Activities: State appropriations 33,863,952 34,078,946 Non-Capital grants and gifts received 9,765,214 8,511,867 Principal paid on non capital debt and leas es (4,650) (39,197) Interes t paid on non capital debt and leas es (108,792) (875) Additions to endowment funds 34, Student organization/agency trans actions (net) 1, ,699 Other expens e and deductions 18,158 Prior period adjus tments 556 Net Cas h Provided (Us ed) by Noncapital Financing Activities 43,551,446 42,775,138 Cas h Flows From Capital and Related Financing Activities: Capital appropriations 1,475, ,733 Capital grants and gifts received 26,286 2,149,527 Purchas es of capital as s ets (1,972,802) (5,772,263) Cons truction In progres s expenditures (15,470,575) (2,877,703) Received from bond trus tees 6,966,481 1,074,370 Payments to bond trus tees (3,961,692) (3,623,183) Principal paid on capital debt and leas es (11,004) (106,698) Interes t paid on capital debt and leas es (32) (112,182) Proceeds from bond is s ues 1,457,143 Bond discounts and issue costs (40,023) Bond proceeds from act 1282 of ,008, ,884 Net Cas h Provided (Us ed) by Financing Activities (6,938,907) (6,745,395)

33 COMPARATIVE STATEMENT OF CASH FLOWS Exhibit C June 30, Cash Flows From Investing Activities: Proceeds from s ales and maturities of inves tments $ 25,085,136 $ 3,840,742 Purchas e of inves tments (24,824,615) (7,094,408) Inves tment income 1,012,416 1,401,289 Net Cas h Provided (Us ed) by Inves ting Activities 1,272,937 (1,852,377) Net increas e in cas h 3,127, ,044 Cas h-beginning of the year 8,902,854 8,656,810 Cas h-end of the year $ 12,030,091 $ 8,902,854 Reconciliation of net operating revenues (expens es) to net cash provided (used) by operating activities: Operating income (los s) $ (39,531,809) $ (40,050,905) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation expens e 4,926,192 4,770,838 Bad debt expens e 114,322 Loans issued to students (263,327) Collection of s tudent loans 244,272 Changes in assets and liabilities: Receivables (411,888) (100,872) Credit memos (47,881) 22,622 Inventories (89,412) (49,786) Prepaid expens es (543,426) 83,452 Payables 869,469 (24,611) Unapplied s tudent aid 156,615 (22,944) Unclaimed property (11,568) 8,247 Deferred revenue (314,692) 233,157 Compens ated abs ences (398,933) 403,532 Other pos temployment benefits 639, ,681 Net cas h provided (us ed) by operating activities $ (34,758,239) $ (33,931,322) Noncash transactions: Donated captial as s ets $ 561,844 Increase in market valuation of capital assets/ installment contract $ 31,189 32,006 Decreas e in market valuation of inves tments (46,278) Proceeds from bond is s ue depos ited with trus tee 7,216,301 3,347,857 Bond discount and issue cost 128,699 67,528 Payment of long-term debt principal paid directly from depos it with trus tee 1,890,000 Interest and fees on long-term debt paid directly from depos it with trus tee 2,147,838 Accrued interest on bond issue deposited with trustee 13,188 Cons truction expens es paid directly by trus tee 76,146 The accompanying notes are an integral part of these financial statements

34 Notes to the Financial Statements

35 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies Nature of Operations: Arkansas Tech University is a multi-purpose, state-supported institution of higher education dedicated to providing an opportunity for higher education to the people of Arkansas and to serving the intellectual and cultural needs of the region in which it is located. Arkansas Tech University Ozark Campus has over 1,200 students enrolled in three associate programs, as well as 15 technical and vocational programs. Reporting Entity: The financial reporting entity, as defined by Governmental Accounting Standards Board ( GASB ) Statement No. 14, The Financial Reporting Entity, consists of the primary government, organizations for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion could cause the financial statements to be misleading or incomplete. Arkansas Tech University is governed by a Board of Trustees. The State of Arkansas allocates and allots funds to each agency separately and requires that the funds be maintained accordingly. Because of this requirement, separate accounts are maintained for each agency. Arkansas Tech University was created in 1909 by Act 100 of the Arkansas General Assembly. Under the provisions of this Act, the State was divided into four agricultural school districts. The General Assembly in 1925 changed the name from the Second District Agriculture College to Arkansas Polytechnic College with power to grant degrees. In 1948, the Board of Trustees converted the college from a junior college to a degree-granting institution. In accordance with Act 343 of the Arkansas General Assembly of 1975, the name was changed to Arkansas Tech University effective July 9, The institution s programs are now divided into the Schools of Education, Liberal and Fine Arts, Physical and Life Sciences, Business and Systems Science, Community Education and Professional Development. Arkansas Valley Vocational Technical Institute (AVTI) merged with Arkansas Tech University effective July 1, Act 260 of 2007 changed the name of Arkansas Valley Technical Institute of Arkansas Tech University to Arkansas Tech University Ozark Campus. The Ozark Campus of ATU is located 50 miles west of Russellville. Enrollment is approximately 1,270 students and the Ozark Campus offers three associate programs, as well as 15 technical and vocational programs. The University is an institution of higher education of the State of Arkansas and is included in the financial statements of the State of Arkansas

36 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies (continued) The Arkansas Tech University Foundation, Inc. (the Foundation) is a legally separate, tax-exempt component unit of Arkansas Tech University (the University). The Foundation acts primarily as a fundraising and asset management organization to develop and supplement the resources that are available to the University in support of its mission and programs. The 33 member board of the Foundation is selfperpetuating and consists of graduates and friends 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 donors. Because these restricted resources held by the Foundation may only be used by, or for the benefit of the University, the Foundation is considered a component unit of the University under the guidelines established by Governmental Accounting Standards Board (GASB) Statement Number 39, Determining Whether Certain Organizations are Component Units. Accordingly, the financial statements of the Foundation are discretely presented in the University s financial statements in accordance with the provisions of GASB Statement Number 39. During the year ended, the Foundation transferred equipment and funds of $545,089 to the University for proper accountability and academic support. Complete financial statements for the Foundation may be obtained from the Foundation at P. O. Box 8820, Russellville, AR The Foundation reports under Financial Accounting Standards Board (FASB) standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the Foundation s financial information in the University s financial statements. The Arkansas Tech University Facilities Development Foundation Inc. (the Facilities Development Foundation) is a legally separate, tax-exempt component unit of Arkansas Tech University (the University). The Facilities Development Foundation acts primarily as a fund-raising and asset management organization to develop and supplement the resources that are available to the University in support of its mission and programs. The five member board of the Facilities Development Foundation is self-perpetuating and consists of graduates and friends of the University. Although the University does not control the timing or amount of receipts from the Facilities Development Foundation, all resources, or income thereon, that the Facilities Development Foundation holds and invests are restricted to the activities of the University by donors. Because these restricted resources held by the Facilities Development Foundation may only be used by, or for the benefit of the University, the Facilities Development Foundation is considered a component unit of the University under the guidelines established by Governmental Accounting Standards Board (GASB) Statement Number 39, Determining Whether Certain Organizations are Component Units. Accordingly, the financial statements of the Facilities Development Foundation are discretely presented in the University s financial statements in accordance with the provisions of GASB Statement Number 39. Complete financial statements for the Foundation may be obtained from the Facilities Development Foundation at 105 West O Street, Bryan Hall, Room 208, Russellville, AR

37 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies (continued) The Facilities Development Foundation reports under Financial Accounting Standards Board (FASB) standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the Development Foundation s financial information in the University s financial statements. Financial Statement Presentation: In June 1999, the GASB issued Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. As an institution of higher education of the State of Arkansas, the University was required to adopt GASB Statements No. 34 and No. 35. The financial statement presentation required by GASB Statements No. 34 and No. 35 provides a comprehensive, entity-wide perspective of the University s assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows. This replaces the fund-group perspective previously required. Basis of Accounting: For financial reporting purposes, the University is considered a special-purpose government, engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resource management focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been eliminated. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected not to apply FASB pronouncements issued after the applicable date. Cash Equivalents: For purposes of the statement of cash flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Investments: The University accounts for its investments at fair market value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported separately in the statement of revenues, expenses and changes in net assets. Nonparticipating contracts are reported at cost. The University has implemented GASB Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No. 3. This accounting standard establishes more comprehensive disclosure requirements related to investment and deposit risks, but does not affect reported amounts of investments, net assets, or changes in net assets

38 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies (continued) Accounts Receivables: Accounts receivables consist of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. Accounts receivables also include amounts due from the Federal Government, state and local governments or private sources in connection with reimbursement of allowable expenditures made pursuant to the University s grants and contracts. Accounts receivables are recorded net of estimated uncollectible amounts. Inventories: Inventories are carried at cost with cost being determined on a first-in, first-out ( FIFO ) basis. Capital Assets: Capital assets are recorded at cost on the date of acquisition or, in the case of gifts, fair market value on the date of donation. Livestock for educational purposes is recorded at estimated fair market value. The University s capitalization policy includes all items with a unit cost of $2,500 or more and an estimated useful life of greater than one year, including renovations to buildings, infrastructure and land improvements that significantly increase the value or extend the life of the structure. Routine repairs and maintenance are charged to operating expense in the year in which the expense is incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 30 years for buildings, 15 years for infrastructure and land improvements, 10 years for library books and 4 to 7 years for equipment. Deferred Revenues: Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. Compensated Absences: Employee annual and sick leave earned, but not paid, and related matching costs are recorded as a liability and expense on the University s financial statements as required by generally accepted accounting principles. An estimate is made to allocate this liability between its current and noncurrent components. Noncurrent Liabilities: Noncurrent liabilities include (1) principal amounts of revenue bonds payable, notes payable and capital lease obligations with contractual maturities greater than one year; (2) estimated amounts for accrued uncompensated absences and other liabilities that will not be paid within the next fiscal year

39 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies (continued) Net Assets: The University s net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. Amounts to the extent debt has been incurred but not yet expended for capital assets are not included as a component of invested in capital assets, net of related debt. Restricted net assets expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Restricted net assets nonexpendable: Nonexpendable net assets consist 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 be maintained inviolate and in perpetuity and be invested for the purpose of producing present and future income that may either be expended or added to principal. Unrestricted net assets: Unrestricted net assets 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 operation of the University and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources also include auxiliary enterprises that are substantially self-supporting activities providing services for students, faculty and staff. Income Taxes: The University, as a political subdivision of the State of Arkansas, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. The Foundations are exempt from income taxes under Section 501(C)(3) of the Internal Revenue Code. Classification of Revenues: The University has classified its revenues as either operating or nonoperating revenues according to the following criteria. Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, (3) most Federal, state, and local grants and contracts and Federal appropriations and (4) interest on institutional student loans

40 NOTES TO THE FINANCIAL STATEMENTS NOTE 1: Summary of Significant Accounting Policies (continued) Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB Statement No. 34, such as state appropriations and investment income. Scholarship Discounts and Allowances: Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses and Changes in Net Assets. 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 students 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. Refundable Federal Advances: The University reclassified the federal portion of the Perkins Loan Program from restricted net assets to a noncurrent liability for the year ended. The amount reclassified was $1,208,462 and it was recognized as an adjustment to beginning net assets. Noncurrent Cash and Investments: Cash and investments that are externally restricted for endowment scholarships and other purposes or to purchase or construct capital assets, are classified as noncurrent assets in the Statement of Net Assets. Additionally, this classification includes other long-term investments with original maturity dates greater than one year. Deposits with Trustees: Deposits with trustees are externally restricted and held by various banks for the University. They are maintained in order to make debt service payments, to maintain sinking or reserve funds as required by bond covenants, or to purchase or construct capital assets. Funds Held in Trust for Others: The University holds deposits as custodian or fiscal agent for students, student organizations, and certain other organized activities related to the University. Restricted/Unrestricted Resources: The University has no formal policy addressing which resources to use when both restricted and unrestricted net assets are available for the same purpose. University personnel decide which resources to use at the time expenses are incurred

41 NOTES TO THE FINANCIAL STATEMENTS NOTE 2: Cash and Cash Equivalents Cash deposits are carried at cost. The University s cash deposits at year-end are shown below: Carrying Value Bank Balance Insured (FDIC) $ 1,076,381 $ 1,076,851 Collateralized: Collateral held by the pledging bank or pledging bank s trust department in the University s name. 36,436,846 35,247,526 Total Deposits $ 37,513,227 $ 36,324,377 The above deposits do not include cash held on deposit in the State Treasury and cash on hand maintained by the University in the amounts of $1,195,965 and $24,375, respectively. The above total deposits include non-negotiable certificates of deposits of $23,090,271 reported as investments and classified as nonparticipating contracts. Additionally, the deposits include certificates of deposit reported as deposits with trustee in the amount of $3,613,205. Custodial credit risk for deposits is the risk that the University s deposits may not be returned in the event of a bank or depository failure. The State Treasurer requires that all state funds be either insured by Federal Deposit Insurance or collateralized by securities held by the cognizant Federal Reserve Bank. The University s deposits with the State Treasurer are pooled with funds of other State Agencies and then, in accordance with statutory limitations, placed in financial institutions or invested, as the Treasurer may determine, in the State s name. It is the University s policy to require collateralization of 105 percent of the total bank deposits. NOTE 3: Investments The University has implemented GASB Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No. 3. The new accounting standard establishes more comprehensive disclosure requirements related to investment risks, but does not affect reported amounts of investments, net assets, or changes in net assets. Credit risk for investments is the risk that an issuer or counterparty to the investment will not fulfill its obligations. Interest rate risk is the risk that interest rate fluctuations will adversely affect the fair value of an investment. The risks for the University s investments including the external investment pool and deposits with trustee are shown separately below:

42 NOTES TO THE FINANCIAL STATEMENTS NOTE 3: Investments (continued) External Investment Pool: The University has investments with the Arkansas Tech University Foundation, Inc. (ATUF) that are pooled with other ATUF funds. The pool was originally established in 1999 and the funds were invested in the Common Fund. In 2003, the funds were moved under the management of Monroe Vos Consulting Group. The total amount of the pool is $11,160,379 and Arkansas Tech University owns approximately 15 percent of that amount. The funds are invested based on the ATUF Board s approved policy of no more than five percent of the portfolio can be invested in one company. This policy reduces the concentration of credit risk. The following table contains information on the risk disclosure for the external investment pool: Type of Investment Market Value AAA AA A <BBB NR Corporate Bonds* $ 1,287,381 $550,097 $375,401 $143,414 $210,616 $ 7,853 US Stocks 202, ,969 Non-US Stocks 138, ,960 Other 58,395 58,395 Total investments $ 1,687,705 $550,097 $375,401 $143,414 $210,616 $408,177 *Note: Average Effective Maturity and Average Effective Duration were 2.74 and 3.37, respectively. Interest Rate Risk Interest rate risk is the risk that changes in the interest rates will adversely affect the fair value of an investment. Governments with investments in external investment pools are required to disclose the interest rate risk of such investments. Interest rate risk exposure for the corporate bonds and stocks would be minimal due to the Arkansas Tech University Foundation Board s policy that no more than five percent of the portfolio can be invested in one company. The institution does not have a policy designed to manage interest rate risk. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Governments are required to disclose the credit quality ratings of debt securities and external investment pools. Deposits with Trustee: At, the University s deposits with trustee in the amount of $5,011,521 were invested in certificates of deposit, Federated Treasury Obligations and a money market treasury. The money market fund was rated AAAm by Standard & Poor s, Aaa by Moody s Investors Service and AAA by Fitch and consisted of short term repurchase agreements and agencies in U.S. Treasuries. The effective average maturity was 47 days

43 NOTES TO THE FINANCIAL STATEMENTS NOTE 4: Donor Restricted Endowment The University has a donor restricted endowment, entitled Lillian Massie Permanent Endowment Fund, that is to be used by the Department of Liberal and Fine Arts for support and scholarship. The original contribution was $155,929 and the balance was $159,880 as of, for a net appreciation of $3,951. Investment income was $4,469 and transfers to the Department of Liberal and Fine Arts were $2,500. The University may not spend any of the principal. State law allows a governing board to expend a portion of the net appreciation in the fair value of the assets over the historic dollar value of the fund unless the applicable gift document states otherwise. State law stipulates that such expenses are to be for the purpose for which the endowment funds were established. The original principal of $155,929 was reported as nonexpendable restricted net assets and the $3,951 net appreciation was reported as expendable restricted net assets. The University does not utilize a spending rate for the net appreciation. NOTE 5: Disaggregation of Accounts and Other Receivables Accounts receivable consisted of the following at and June 30, 2008, respectively: June 30, 2008 Student tuition and fees $ 930,448 $ 664,801 Auxiliary enterprises and other operating activities 1,450,654 1,073,529 Scholarship 7,369 4,435 Federal, state and private grants and contracts 499, ,134 Accrued interest 22,618 30,024 Credit memos 88,686 40,804 Other 655, ,047 $ 3,654,603 $ 2,587,774 Less allowance for doubtful accounts (233,214) (180,525) Net accounts receivable $ 3,421,389 $ 2,407,

44 NOTES TO THE FINANCIAL STATEMENTS NOTE 6: Inventories Inventories consisted of the following at, and June 30, 2008, respectively: June 30, 2008 Museum $ 5,868 $ 9,808 Bookstore 663, ,299 Post Office 15,523 25,707 Lake Point Conference Center 23,622 18,762 Hospitality 1,857 1,536 $ 710,523 $ 621,112 NOTE 7: Notes Receivable Student loans made through the Federal Perkins Loan Program (the Program) comprise substantially all of the notes receivable at. The Program provides for cancellation of a loan at rates 10 percent to 30 percent per year up to a maximum of 100 percent if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. As the University determines that loans are uncollectible and not eligible for reimbursement by the Federal government, the loans are written off and assigned to the U.S. Department of Education. The University has provided an allowance for uncollectible notes that, in management s opinion, is sufficient to absorb loans that will ultimately be written off. At, the notes receivable was $1,230,038, net of the allowance for uncollectible loans of $610,

45 NOTES TO THE FINANCIAL STATEMENTS NOTE 8: Capital Assets Following are the changes in capital assets for the year ended : Capital assets not depreciated Balance June 30, 2008 Additions Retirements Land $ 2,293,297 $ 92,000 Landscaping 235,557 Livestock for educational purposes 138,182 82,323 $ (51,699) Construction in progress 2,668,723 16,384,404 (856,792) Total capital assets not being depreciated $ 5,335,759 $ 16,558,727 $ (908,491) $ $ Balance 2,385, , ,806 18,196,335 20,985,995 Other capital assets Capital Leases $ - $ 18,402 Non-major infrastructure networks 3,048, ,601 Land improvements 4,979, ,952 Buildings 104,044,992 1,216,359 Furniture, fixtures and equipment 11,327, ,618 $ (1,315,873) Library holdings 7,715, ,911 (81,093) Total other capital assets $ 131,116,845 $ 2,693,843 $ (1,396,966) $ $ 18,402 3,154,330 5,120, ,261,351 10,895,516 7,963, ,413,722 Less accumulated depreciation: Capital Leases $ - $ (2,147) Non-major infrastructure networks (1,518,943) (147,542) Land improvements (2,340,352) (251,273) $ 3,383 Buildings (40,324,922) (3,136,963) Furniture, fixtures, and equipment (8,697,867) (1,066,002) 1,315,874 Library materials (6,339,599) (322,265) 27,598 Total accumulated depreciation $ (59,221,683) $ (4,926,192) $ 1,346,855 $ $ (2,147) (1,666,485) (2,588,242) (43,461,885) (8,447,995) (6,634,266) (62,801,020) Other capital assets, net $ 71,895,162 $ (2,232,349) $ (50,111) $ 69,612,702 Capital Asset Summary: Capital assets not being depreciated $ 5,335,759 $ 16,558,727 $ (908,491) Other capital assets, at cost 131,116,845 2,693,843 (1,396,966) Total cost of capital assets 136,452,604 19,252,570 (2,305,457) Less accumulated depreciation (59,221,683) (4,926,192) 1,346,855 $ 20,985, ,413, ,399,717 (62,801,020) Capital assets, net $ 77,230,921 $ 14,326,378 $ (958,602) $ 90,598,

46 NOTES TO THE FINANCIAL STATEMENTS NOTE 9: Deferred Revenue Deferred revenue consists of the following at and June 30, 2008, respectively: June 30, 2008 Prepaid tuition and fees $ 46,955 $ 36,545 Grants and contracts 479, ,819 Scholarships 172,435 63,979 Other 169, ,082 Total $ 868,142 $ 1,039,425 NOTE 10: Long Term Liabilities Long-term liability activity for the year ended was as follows: Long Term June 30, June 30, Current Noncurrent Liabilities 2008 Additions Deletions 2009 Portion Portion Revenue bonds $ 44,285,000 $ 7,367,444 $2,327,403 $ 49,325,041 $ 2,057,556 $ 47,267,485 Capital leases 9,103 18,401 11,004 16,500 3,401 13,099 Installment Contract 3,329 12,788 4,650 11,467 2,363 9,104 Notes payable 2,802,632 2,802,632 2,802,632 Compensated absences 2,050, , ,253 1,651,724 1,273, ,551 Total $ 49,150,720 $ 7,862,954 $3,206,310 $ 53,807,364 $ 6,139,125 $ 47,668,239 Additional information regarding revenue bonds payable is included in Note 11. Additional information regarding capital leases, installment contracts and notes payable is included in Note 12. The allocation of the liability for other postemployment benefits between current and noncurrent is discussed in Note 15. Additions column include current year bond discount/premium amortization of $22,444. Deletions column include prior year unamortized bond discount/premium of $353,202 and current year bond discount of $84,200. NOTE 11: Bonds Payable Debt Service payments on the existing bonds amounted to $1,890,000 for the fiscal year ended June 30, The retirement of some bond issues is secured by a specific pledge of certain gross revenues, surplus revenues and specific fees. Debt service accounts are funded at various times during the year by transfers from the applicable funds

47 NOTES TO THE FINANCIAL STATEMENTS NOTE 11: Pledged Revenues Bonds Payable (continued) Amount Authorized and Issued Debt Outstanding Maturities to Revenue Bonds Series % % Issuance Date : April 1, 1996 Final Maturity Date: October 1, 2016 Net cafeteria revenues and net bookstore revenues will be maintained at a level equal to at least 120% of the combined maximum annual debt service. $ 1,300,000 $ 670,000 $ 630,000 Refunding Bonds Series % % Issuance Date: December 15, 2004 Final Maturity Date: June 1, 2029 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 120% of the combined maximum annual debt service. 5,785,000 5,020, ,000 Refunding Bonds Series % % Issuance Date: December 15, 2004 Final Maturity Date: March 1, 2030 Housing revenues will be maintained at a level equal to at least 100% of the combined maximum annual debt service. 3,960,000 3,445, ,000 Revenue Bonds Series % % Issuance Date: June 1, 2001 Final Maturity Date: December 1, 2031 Housing revenues will be maintained at level equal to at least 100% of the combined annual debt service. 10,000,000 8,710,000 1,290,000 (Continued on next page)

48 NOTES TO THE FINANCIAL STATEMENTS NOTE 11: Pledged Revenues Bonds Payable (continued) Amount Authorized and Issued Debt Outstanding Maturities to Revenue Bonds Series % - 5% Issuance Date: October 1, 2003 Final Maturity Date: December 1, 2033 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 125% of the combined maximum annual debt service. $ 4,000,000 $ 3,620,000 $ 380,000 Revenue Bonds Series % % Issuance Date: March 1, 2005 Fianl Maturity Date: March 1, 2035 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 120% of the combined maximum annual debt service. 1,000, ,000 80,000 Revenue Bonds Series % % Issuance Date: December 1, 2005 Final Maturity Date: December 1, 2010 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 100% of the combined maximum annual debt service. 4,525,000 1,900,000 2,625,000 Refunding Bonds Series % % Issuance Date: May 1, 2006 Final Maturity Date: May 1, 2036 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 100% of the combined maximum annual debt service. 10,000,000 9,625, ,000 (Continued on next page)

49 NOTES TO THE FINANCIAL STATEMENTS NOTE 11: Bonds Payable (continued) Pledged Revenues Amount Authorized and Issued Debt Outstanding Maturities to Revenue Bonds Series % % Issuance Date: March 1, 2007 Final Maturity Date: March 1, 2037 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 100% of the combined maximum annual debt service. $ 2,720,000 $ 2,625,000 $ 95,000 Revenue Bonds Series % % Issuance Date: March 1, 2007 Final Maturity Date: March 1, 2037 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 100% of the combined maximum annual debt service. 1,180,000 1,140,000 40,000 Revenue Bonds Series % % Issuance Date: February 1, 2008 Final Maturity Date: February 1, 2038 Housing revenues will be maintained at level equal to at least 120% of the combined annual debt service. 1,505,000 1,480,000 25,000 Revenue Bonds Series % % Issuance Date: April 1, 2008 Final Maturity Date: April 1, 2038 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 120% of the combined maximum debt service. 3,300,000 3,240,000 60, (Continued on next page)

50 NOTES TO THE FINANCIAL STATEMENTS NOTE 11: Bonds Payable (continued) Pledged Revenues Amount Authorized and Issued Debt Outstanding Maturities to Revenue Bonds Series % % Issuance Date: December 1, 2008 Final Maturity Date: December 1, 2038 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 120% of the combined maximum debt service. $ 3,090,000 $ 3,090,000 Revenue Bonds Series % % Issuance Date: December 1, 2008 Final Maturity Date: December 1, 2038 Student fees will be maintained at a level to produce annual pledged revenues equal to at least 120% of the combined maximum debt service. 2,105,000 2,105,000 - Revenue Bonds Series % % Issuance Date: April 1, 2009 Final Maturity Date: April 1, 2039 Housing revenues will be maintained at level equal to at least 120% of the combined annual debt service. 2,150,000 2,150,000 - Unamortized bond discount/premium (457,039) (414,959) $ (42,080) Totals $ 56,162,961 $ 49,325,041 $ 6,837,

51 NOTES TO THE FINANCIAL STATEMENTS NOTE 11: Bonds Payable (continued) Principal and interest on these revenue bonds are collateralized by a pledge of revenues produced by the facilities constructed with the bond proceeds and/or student activity fees and facility fees. Certain of these bonds payable are callable at the option of the Board of Trustees. The University was required to maintain debt service reserves aggregating $1,957,955 in The University s reserve balances exceeded these amounts at. There was an adjustment of $353,202 to recognize the prior year unamortized bond discounts in to correctly state bonds payable. Additionally, prior year unamortized issuance costs of $377,316 were also recognized in Both amounts were recognized as an adjustment to beginning net assets. The changes in bonds payable are as follows: Balance Balance July 1, 2008 Issued Retired $ 44,285,000 $ 7,367,444 $ 2,327,403 $ 49,325,041 The principal and interest payments are as follows: Year Ending June 30 Principal Interest Total 2010 $ 2,057,556 $2,301,937 $ 4,359, ,147,277 2,222,143 4,369, ,222,277 2,160,078 3,382, ,267,277 2,112,172 3,379, ,317,277 2,060,232 3,377, ,268,454 9,409,593 16,678, ,686,556 7,661,440 16,347, ,951,555 5,349,624 16,301, ,388,374 2,588,836 11,977, ,018, ,904 5,644,342 Total $ 49,325,041 $ 36,491,959 $ 85,817,000 Bond principal due within one year is reported as short-term bonds, while all principal due over one year is reported as long-term bonds. Short-term and long-term bonds payable at were $2,057,556 and $47,267,485, respectively

52 NOTES TO THE FINANCIAL STATEMENTS NOTE 12: Capital Leases, Installment Contracts and Note Payable Capital Lease Payable: The University entered into an agreement with Crockett Business Machines in November, 2008, to lease an Electronic Mailing System. The lease term is five years with payments made from Current Funds Unrestricted and the asset balance at was $16,500. Total capital lease principal and interest payments are as follows: Year Ending June 30, Principal Interest Total 2010 $ 3,401 $ 805 $ 4, , , , , , , , ,752 Totals $ 16,500 $ 2,074 $ 18,574 Installment Contract Payable: The University entered into an agreement with Crockett Business Machines in November, 2008 for meter rental and maintenance on the Electronic Mailing System. The installment contract term is five years with payments made from unrestricted current funds. Total installment contract principal and interest payments are as follows: Year Ending June 30, Principal Interest Total 2010 $ 2,363 $ 559 $ 2, , , , , , , , ,218 Totals $ 11,467 $ 1,439 $ 12,

53 NOTES TO THE FINANCIAL STATEMENTS NOTE 12: Capital Lease, Installment Contracts and Note Payable (continued) Note Payable: The University entered into a three year balloon note, in the amount of $2,802,632 on September 25, The loan was used to fund the purchase of the Lake Point Conference Center. The note is payable to Liberty Bank and matures on September 25, The stated interest rate is 3.89%, with interest due on March 25th and September 25th during each of the three years. Total note payable principle and interest payments are as follows: Year Ending June 30, Principal Interest Total 2,010 $ 2,802,632 $ 54,959 $ 2,857,591 NOTE 13: Commitments The Institution was contractually obligated for the following at : Project Name Construction in Progress Balance Remaining on Contract Completion Date Are On Networking $686,392 11/30/2009 Brown Hall $136,544 8/05/2009 Centenary Hall 8,634,830 3,022,942 11/21/2009 Corley Expansion 576,901 1,076,485 11/11/2009 Critz Hall 1,349, ,253 8/05/2009 Highway 333 South 39,208 9/20/2009 Hughes Hall 1,151,932 1,089,077 8/05/2009 McEver Hall Renovation 111,762 58,453 6/30/2010 McEver Hall Expansion 40,756 7/21/2010 Ozark Student Services Bldg. 2,200,846 20,729 8/01/2009 Physical Plant Building 3,266, ,430 06/30/2009 PF Capacitor Utility Dist. 39,818 12/03/2009 Tech Special Programs Facility 15,590 8/05/2009 Witherspoon Elevator Project 82, ,838 8/15/2009 Total $ 18,196,335 $ 6,195,

54 NOTES TO THE FINANCIAL STATEMENTS NOTE 14: Employee Retirement Benefits Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) Plan Description: Arkansas Tech University participates in TIAA/CREF, a defined contribution plan. The plan is a 403(b) program as defined by Internal Revenue Service Code of 1986 as amended and is administered by TIAA/CREF. TIAA is an insurance company offering participants a traditional annuity with guaranteed principal and a specific interest rate plus the opportunity for additional growth through dividends. CREF is an investment company that offers a variable annuity. Arkansas Code Annotated authorizes participation in the plan. The University s contributions to TIAA/CREF for the years ended, 2008 and 2007 were $2,432,869, $2,376,678 and $2,212,382, respectively. Participants contributions were $1,923,602 for the year ended. Funding Policy: TIAA/CREF has contributory plans. Contributory members contribute a minimum of six percent of earnings to the plan. The University matches 10 percent for contributory members. On September 1, 2004, the University also began offering the 457(b) plan. The plan is on a voluntary basis. Employees must reach their maximum contribution to the 403(b) plan before participating in the 457(b) plan and they are eligible to contribute up to the maximum amount established by the IRS. Employees have the same investment options under this plan as they do under the current 403(b) plan. Arkansas Teacher Retirement System: Plan Description: The University contributes to the Arkansas Teacher Retirement System (ATRS), a cost sharing, multiple employer defined benefit pension plan for employees who do not elect a qualified alternative retirement plan. ATRS, administered by a Board of Trustees, provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by State law and can be amended only by the Arkansas General Assembly. The Arkansas Teacher Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for ATRS. That report may be obtained by writing to Arkansas Teacher Retirement System, 1400 West Third Street, Little Rock, Arkansas or by calling Funding Policy: ATRS has contributory and noncontributory plans. Contributory members are required by State law to contribute six percent of their salaries. Each participating employer is required by State law to contribute at a rate determined by the Board of Trustees, based on the annual actuarial valuation. The current employer rate is 14 percent of covered salaries, the maximum allowed by State law. The University contributions to ATRS for the years ended, 2008 and 2007 were $455,973, $453,353 and $403,315, respectively, equal to the required contributions for each year

55 NOTES TO THE FINANCIAL STATEMENTS NOTE 14: Employee Retirement Benefits (continued) Arkansas Public Employees Retirement System Plan Description: The University contributes to the Arkansas Public Employees Retirement System (APERS), a cost sharing and multiple-employer defined benefit pension plan. Employees may elect coverage under APERS as a qualified retirement system. APERS, administered by a Board of Trustees, provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by State Law and can be amended only by the Arkansas General Assembly. The Arkansas Public Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for APERS. That report may be obtained by writing to Arkansas Public Employees Retirement System, 124 West Capitol, Suite 400, Little Rock, Arkansas or by calling Funding Policy: APERS has contributory and noncontributory plans. Contributory members are required by State law to contribute five percent of their salaries. Each participating employer is required by State law to contribute at a rate determined by the Board of Trustees, based on the annual actuarial valuation. The current employer rate for higher education entities is percent of covered salaries. The University s contributions to APERS for the years ended, 2008 and 2007 were $460,026, $503,180 and $482,859, respectively, equal to the required contributions for each year. Alternate Retirement Plans: VALIC and Delta Life Arkansas Tech University Ozark Campus offers two different Alternate Retirement Plans. The Alternate Retirement Plans are defined contribution plans. The plans are 403(b) programs as defined by IRS Code of 1986 as amended, and is administered by the Arkansas State Board of Workforce Education and Career Opportunities and the respective plan providers. The administrator provides insurance policies and annuity contracts and when they are issued they become property of the participant. Act 480 of 1983 provides alternative retirement plans, as approved by the Arkansas State Board of Workforce Education and Career Opportunities, for the staff members of Arkansas Tech University - Ozark Campus. Funding Policy: The participants contributions are tax-sheltered and amount to a minimum of six percent of compensation. Arkansas Tech University - Ozark Campus contribution rate is 12 percent. Participants become vested after one year. Arkansas Tech University - Ozark Campus contributions to VALIC and Delta Life for Arkansas Tech University - Ozark Campus staff that were employed prior to July 1, 2003 for the year ended, were $71,953 and $5,530, respectively. The participants contributions for VALIC and Delta Life for the year ended, were $58,127 and $3,210, respectively

56 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits Arkansas Tech University implemented GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, during fiscal year This statement calls for the measurement and recognition of the cost of other postemployment benefits ( OPEB ) during the period that employees render their services. This statement also requires disclosure of information regarding the actuarially calculated liability and funding level of the benefits associated with past services. The authority under which the plan s benefit provisions are established or amended is the University Board of Trustees. Any amendments to the plan are approved by the Board of Trustees. Medical Plan Description The University presently offers a single-employer, defined benefit plan where an employee is eligible to elect medical coverage upon retiring. Eligibility for medical coverage is based on reaching age 60 and the completion of 10 years of service. The University pays the premium for health insurance coverage until the retiree reaches Medicare eligibility. Coverage is also provided to spouses of retirees who are currently receiving benefits. If the retiree predeceases the spouse, coverage for the surviving spouse ceases. For participants retiring before July 1, 1998, eligibility is based on attainment of age 55 and completion of 20 years of service or completion of 30 years of service at any age. The University pays the premium for health insurance coverage for the lifetime of the retiree. Life Insurance Plan Description The University also offers a life insurance plan to retirees. Maximum coverage is the lower of either $50,000 or two times the employee s annual salary. Coverage reduces by 33 1/3% at age 65 and at age 70. Upon retirement, benefits reduce to a maximum of $20,000. Funding Policy Expenses for postemployment health care benefits are currently recognized on a pay-as-you-go basis. Although research is being conducted on the establishment of trusts to accumulate and invest assets necessary to fund the related liability, these financial statements assume that pay-as-you-go funding will continue. The University paid the employer portion of premiums for the medical and life insurance plans in the amount of $3,887,612 for the year ended. Of this amount, the retiree premiums for the benefits described above were paid monthly by the University and totaled $254,810 for the year ended. As part of adopting GASB 45, the University accrued $639,094 in additional retiree healthcare expense during the fiscal year The calculation of this amount is shown below. The plan does not issue a stand-alone financial report. For inquiries relating to the plan, please contact Mr. David Moseley, Vice President for Finance and Administration, 1509 North Boulder Avenue, Administration Building Room 207, Russellville, AR

57 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits (continued) The required schedule of funding progress contained in the Required Supplementary Information immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Determination of Annual Required Contribution and End of Year Net OPEB Obligation Year ended Unfunded actuarial accrued liability at July 1, 2007 Normal Costs Current Year Normal Cost as of July 1, 2007 Assumed Interest to the End of the Year Current Year Normal Cost as of June 30, 2008 $ 9,053,874 $ 479,485 23,974 $ 503,459 Determination of Current Year Amortization Payment Amortization Amount as of July 1, Assumed Interest to the End of the Year Amortization Amount as of June 30, 2008 $ 560,921 28,046 $ 588,967 Determination of Annual Required Contribution Normal Cost at year end $ 503,459 Amortization of UAL 588,967 Annual Required Contribution (ARC) $ 1,092,426 Determination of Net OPEB Obligation Annual Required Contribution $ 1,092,426 Interest on prior year Net OPEB Obligation 35,034 Adjustment to ARC (43,410) Annual OPEB Cost 1,084,050 Contributions made 2 444,956 Increase in Net OPEB Obligation $ 639,094 Net OPEB Obligation beginning of year $ 700,681 Net OPEB Obligation end of year $ 1,339,775 1 The Amortization of UAL was calculated with a level dollar amortization factor of and the maximum permissible amortization period of 30 years. 2 Actual contributions for postemployment premiums in fiscal year were $254,810 plus retiree premium subsidy of $190,

58 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits (continued) Schedule of Employer Contributions Fiscal Year Ended Annual OPEB Cost Contributions Made 4 Percentage of OPEB Cost Contributed Net OPEB Obligation June 30, 2008 $1,092,426 $391, % $700,681 $1,084,050 $444, % $1,339,775 4 Since there is no funding, these are actual payments of $254,810 plus expected retiree subsidy payments of $190,146. Schedule of Funding Progress Actuarial Valuation Date Actuarial Value Of Assets Actuarial Liabilities (AL) 1 Unfunded Actuarial Liabilities (UAL) 2 Funded Ratio Covered Payroll UAL as a Percentage of Covered Payroll July 1, 2006 N/A N/A N/A N/A N/A N/A July 1, 2007 $0 $9,053,874 $9,053, % $30,325, % July 1, 2008 $0 $9,053,874 $9,053, % $36,169, % 1 Actuarial liability determined under the entry age normal cost method. 2 Actuarial accrued liability less actuarial value of assets. General Overview of the Valuation Methodology The estimation of the retiree healthcare benefit obligation is generally based on per participant contributions developed from recent periods for which claims experience is available. The University provided actual per participant premiums for Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Calculations are based on the types of benefits provided under the terms of the plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future

59 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits (continued) Actuarial Cost Method and Assumptions The actuarial cost method determines the incidence of employer contributions required to provide plan benefits. The cost of the plan is derived by making certain assumptions, such as discount rates, mortality, withdrawal, etc., about the probability of occurrence of events far into the future. Valuation year: July 1, 2007 June 30, 2008 Actuarial Cost Method: Entry Age Normal Amortization method: 30 years, level dollar open amortization Actuarial Liability: Actuarial Present Value of benefits accrued as of the valuation date. Unfunded Actuarial Liability: Difference between the Actuarial Liability and the Valuation Assets. It is amortized over the maximum permissible period under GASB 45 of 30 years. The actuarial assumptions used for the calculation of costs and liabilities are as follows. Discount Rate: Mortality Rates: 5.0% per annum, compounded annually 1983 Group Annuity Mortality table for respective gender for retirees

60 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits (continued) Withdrawal Rates: Sample rates of employee withdrawal are illustrated below. Sample Ages Death Disability Other Years of Male Female Male Female Male Female Service Rates Rates Rates Rates Rates Rates % 25.00% % 12.00% % 9.00% % 9.00% % 7.00% 20 5 & Up 0.02% 0.01% 0.10% 0.09% 4.60% 4.60% % 0.01% 0.10% 0.09% 4.60% 4.84% % 0.02% 0.08% 0.07% 3.94% 4.40% % 0.02% 0.08% 0.07% 3.20% 3.10% % 0.03% 0.14% 0.13% 2.70% 2.20% % 0.05% 0.24% 0.22% 2.08% 2.00% % 0.08% 0.53% 0.47% 1.62% 1.70% % 0.13% 0.88% 0.79% 1.50% 1.50% % 0.21% 1.00% 0.90% 1.50% 1.50% % 0.35% 1.00% 0.90% 1.50% 1.50% Retirement Rates: Sample rates of retirement are illustrated below. Ages Male Female 60 14% 17% 61 14% 15% 62 28% 25% 63 17% 18% 64 17% 17% 65 27% 38% % 30% 75 and over 100% 100%

61 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Marriage: Postemployment Healthcare and Life Insurance Benefits (continued) For active participants, it is assumed that wives are three years younger than husbands at retirement. 25% of men and 25% of women are assumed to have spouses who will elect coverage. Health Care Trend: Claim costs in future years equal the starting claim costs adjusted for the assumed ongoing cost trends. Such trends are based on the health care cost trend rate adjusted for the impact of plan design, cost containment features and Medicare coordination. Medical Year Pre-65 Trend Post-65 Trend % 7.50% % 7.00% % 6.50% % 6.00% % 5.50% % 5.00% % 5.00% % 5.00% % 5.00% % 5.00% % 5.00% Dental Year Trend %

62 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits (continued) Pharmacy Year Pre-65 Trend Post-65 Trend % 10.50% % 10.00% % 9.50% % 9.00% % 8.50% % 8.00% % 7.50% % 7.00% % 6.50% % 6.00% % 5.50% % 5.00% Participation: All eligible members are assumed to elect coverage at retirement. Annual Retiree Claim Costs*: Age Medical Pharmacy Dental 50 $4, $1, $ $5, $4, $ $6, $1, $ $1, $1, $ $1, $1, $ $1, $1, $ $1, $1, $ *Calculated by a combination of a census and rating model and Health Cost Guidelines

63 NOTES TO THE FINANCIAL STATEMENTS NOTE 15: Postemployment Healthcare and Life Insurance Benefits (continued) Administrative Costs: Included in claims. Life Insurance: The gross life insurance premiums are $0.62 per month per $1,000 coverage. Upon retirement, benefits reduce to a maximum of $20,000. Employee Contributions: The life insurance contribution for employees is $0.31 per month per $1,000 coverage. Medical contributions are shown below. Medical Annual Amounts Employee Spouse Pre 65* $3, $3, Post 65* $2, $2, *Includes pharmacy and dental. Children: Children are not valued

64 NOTES TO THE FINANCIAL STATEMENTS Note 16: Risk Management Due to the diverse risk exposure, the insurance maintained by the University contains a comprehensive variety of coverage. These coverages are outlined as follows: Items Insured Coverage Contributions Administrator Buildings Contents Replacement value or agreed amount ($25,000 deductible for each incident) Replacement value ($25,000 deductible for each incident.) N/A N/A State of Arkansas Multi-Agency Property Program State of Arkansas Multi-Agency Property Program General liability Automobile fleet Life insurance program N/A N/A Arkansas Claims Commission Comprehensive or liability N/A State of Arkansas Automobile Insurance Policy N/A 50% Employee 50% University USAble Health care program N/A No employee contribution for individual coverage; entire premium amount for covered dependents. Arkansas Blue Cross Blue Shield Workers' compensation Reimbursement of medical expenses and loss of salary due to job-related injury or illness. The administrator is reimbursed quarterly for claims paid and administrative expenses Arkansas Public Employees Claims Division The University participates in the Arkansas Fidelity Bond Trust Fund administered by the Governmental Bonding Board. Coverage is provided for actual losses incurred as a result of fraudulent or dishonest acts by State employees or officials. There is a limit of $250,000 and a $1,000 deductible for each loss. The Department of Finance and Administration withholds the amounts for the premiums from the University s State Treasury funds. The University participates in the Property Insurance Trust Fund Program administered by the Risk Management Division of the Arkansas Insurance Department. The program s general objectives are to formulate, develop and administer on behalf of members, a program of insurance to obtain lower costs for property coverage and to develop a comprehensive loss control program. The fund uses a reinsurance policy to reduce exposure to large losses on insured events. The University pays an annual premium for this coverage

65 NOTES TO THE FINANCIAL STATEMENTS Note 16: Risk Management (continued) The University participates in the Vehicle Insurance Trust Fund Program administered by the Risk Management Division of the Arkansas Insurance Department. The general objective of the program is to allow member districts a means of insuring vehicles. The fund uses a reinsurance policy to reduce exposure to large losses on insured events. The University pays an annual premium for this coverage. The University maintains workers compensation coverage through the State of Arkansas program, Arkansas Code Annotated Annual premiums are based on a formula calculated by the Arkansas Department of Finance and Administration. Settled claims have not exceeded this commercial insurance coverage in any of the past three fiscal years. There were no significant reductions in insurance coverage from the prior year in the major categories of risk. Note 17: Natural Classifications with Functional Classifications The University s operating expenses by functional classification were as follows: Functional Personal Scholarships & Supplies & Depreciation & Classification Services Benefits Fellowships Services Amortization Total Instruction $ 20,513,613 $ 5,611,318 $ 134,020 $ 3,519,637 $ 29,778,588 Research 655, ,477 9, , ,984 Public service 22, ,901 25,631 Academic support 2,644, ,203 1,097,790 4,741,066 Student services 2,506, , ,805 4,143,534 Institutional support 5,384, ,867 2,074,214 3,484,506 11,239,201 Operation of plant 1,802, ,282 3,238,512 5,781,721 Scholarships 9,420,616 9,420,616 Depreciation $4,926,192 4,926,192 Auxiliary enterprises $ 2,389,155 $ 1,667,635 1,021,986 $ 9,469,254 14,548,030 Total expenses $ 35,919,144 $ 10,231,701 $ 12,660,588 $ 21,837,938 $ 4,926,192 $ 85,575,563 NOTE 18: Disaggregation of Payables The accounts payable and other liabilities of $4,904,183 consisted of $1,595,983 due to vendors, salaries and other payroll related items, $1,270,967 of construction contract retainages held, $1,653,131 due for construction contractor payments and $384,102 due for bond interest

66 NOTES TO THE FINANCIAL STATEMENTS NOTE 19: Construction Bonds The University issued $5,195,000 in construction bonds with interest rates from 3.00 to 5.75% on December 1, 2008 and issued $2,150,000 in construction bonds with interest rates from 2.50 to 5.375% on April 1, NOTE 20: Pledged Revenues At, the University s pledged revenues were as follows: MATURITY DATE PURPOSE PLEDGED GROSS REVENUE COLLECTED BONDS ISSUE DATE Cafeteria Bonds /1/ /1/2016 Cafeteria Addition Food Service Fees $ 4,174,156 Housing Bonds /1/ /1/2031 Construct Nutt Hall Housing Fees 5,854,964 Student Fee Revenue Bonds /1/ /1/2033 Construct Art Building Student Fee Refunding Bonds /15/2004 6/1/2029 Construct Hull Building Student Tuition & Fees 33,004,045 Student Tuition & Fees 33,004,045 Student Fee Refunding Bonds /15/2004 6/1/2029 Hull Building Athletic Revenues 3,390,131 Housing Refunding Bonds /15/2004 3/1/2030 Paine Hall Housing Fees 5,854,964 Student Fee Revenue Bonds /1/2005 3/1/2035 Construct Art Building Student Fee Revenue Bonds /1/ /1/2010 Housing Revenue Upgrade computer system & software Student Tuition & Fees 33,004,045 Student Tuition & Fees 33,004,045 Bonds /1/2006 5/1/2036 Construct Baswell Hall Housing Fees 5,854,964 Athletic Revenue Bonds /1/2007 3/1/2037 Construct athletic facilities & Baswell Hall Athletic Revenues 3,390,131 Housing Revenue Bonds /1/2007 3/1/2037 Construct Baswell Hall Housing Fees 5,854,964 Housing Revenue Bonds /1/2008 2/1/2038 Renovate Campus Courts and Eastgate Apartments Housing Fees 5,854,964 Student Fee Revenue Bonds /1/2008 4/1/2038 Construct new Physical Plant Facility Student Tuition & Fees 33,004,045 Student Fee Revenue Bonds /1/ /1/2038 Student Fee Revenue Bonds /1/ /1/2038 Housing Revenue Bonds /1/2009 4/1/2039 Construct Advising Center Building Student Tuition & Fees 33,004,045 Construct Ozark Student Services Building Student Tuition & Fees 33,004,045 Renovate Hughes and Critz Hall Housing Fees 5,854,964 (continued on next page)

67 NOTES TO THE FINANCIAL STATEMENTS NOTE 20: Pledged Revenues (continued) FY 2009 PRINCIPAL PAID FY 2009 INTEREST PAID PRINCIPAL OUTSTANDING 6/30/2009 INTEREST OUTSTANDING 6/30/2009 BONDS ISSUE Cafeteria Bonds-1996 $ 1,300,000 $ 65,000 $ 38,635 $ 670,000 $ 160,326 Housing Bonds ,000, , ,121 8,710,000 6,146,549 Student Fee Revenue Bonds ,000,000 85, ,131 3,620,000 2,559,688 Student Fee Refunding Bonds ,338, , ,741 3,765,000 2,106,699 Student Fee Refunding Bonds ,446,250 41,250 57,247 1,255, ,233 Housing Refunding Bonds ,960, , ,018 3,445,000 2,042,723 Student Fee Revenue Bonds ,000,000 20,000 41, , ,189 Student Fee Revenue Bonds ,525, ,000 81,590 1,900,000 67,515 Housing Revenue Bonds ,000, , ,573 9,625,000 7,627,045 Athletic Revenue Bonds ,720,000 50, ,260 2,625,000 2,024,670 Housing Revenue Bonds ,180,000 20,000 51,535 1,140, ,983 Housing Revenue Bonds ,505,000 25,000 66,324 1,480,000 1,228,330 Student Fee Revenue Bonds ,300,000 60, ,238 3,240,000 2,623,755 Student Fee Revenue Bonds ,090,000 78,484 3,090,000 3,095,709 Student Fee Revenue Bonds ,105,000 53,399 2,105,000 2,100,931 Housing Revenue Bonds ,150,000 2,150,000 2,022,656 The approximate percentages of revenues pledged for the year ended were as follows: Student tuition and fees 5.82% Food service fees 2.48% Housing fees 29.27% Athletic revenues 7.84%

68 NOTES TO THE FINANCIAL STATEMENTS NOTE 21: Subsequent Events On August 13, 2009, the Board of Trustees authorized the issuance of bonds in the amount of $9,200,000 for the purpose of funding the completion of Centenary Hall, the expansions of Corley and McEver Halls, retirement of an existing loan used to purchase Lake Point Conference Center and various other capital improvements

69 Required Supplementary Information