KENTUCKY COMMUNITY AND TECHNICAL COLLEGE SYSTEM FOUNDATION, INC. Versailles, Kentucky FINANCIAL STATEMENTS
KENTUCKY COMMUNITY AND TECHNICAL COLLEGE SYSTEM FOUNDATION, INC. Versailles, Kentucky FINANCIAL STATEMENTS CONTENTS REPORT OF INDEPENDENT AUDITORS... 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION... 2 STATEMENTS OF ACTIVITIES... 3 STATEMENTS OF CASH FLOWS... 5... 6
Crowe Horwath LLP Independent Member Crowe Horwath International REPORT OF INDEPENDENT AUDITORS Board of Directors Kentucky Community and Technical College System Foundation, Inc. Versailles, Kentucky We have audited the accompanying statements of financial position of Kentucky Community and Technical College System Foundation, Inc. (the Foundation ) as of, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kentucky Community and Technical College System Foundation, Inc. as of, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Louisville, Kentucky August 20, 2009 Crowe Horwath LLP 1.
STATEMENTS OF FINANCIAL POSITION 2009 2008 ASSETS Cash $ 982,872 $ 977,991 Investments, at fair value 718,358 815,598 Contributions receivable, net 183,065 190,803 Prepaid expenses and other assets 3,502 3,334 Furniture and fixtures, net of accumulated depreciation of $8,343 and $3,677 in 2009 and 2008, respectively 7,243 11,909 Total assets $ 1,895,040 $ 1,999,635 LIABILITIES Accounts payable $ 362 $ - Annuities payable 54,529 55,959 Total liabilities 54,891 55,959 NET ASSETS Unrestricted 131,283 96,636 Temporarily restricted 845,726 1,034,020 Permanently restricted 863,140 813,020 Total net assets 1,840,149 1,943,676 Total liabilities and net assets $ 1,895,040 $ 1,999,635 See accompanying notes. 2.
STATEMENT OF ACTIVITIES Year ended June 30, 2009 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support Contributions (other than in-kind) $ 29,853 $ 363,188 $ 50,120 $ 443,161 Contributions (in-kind) 112,687 - - 112,687 Total contribution revenue 142,540 363,188 50,120 555,848 Investment income Interest and dividends 9,941 28-9,969 Realized and unrealized losses 38,201 (171,186) - (132,985) Total investment income 48,142 (171,158) - (123,016) Released from restrictions 380,324 (380,324) - - Total revenues, gains and other support 571,006 (188,294) 50,120 432,832 Program expenses Contributions to Kentucky Community and Technical College System for Scholarships 115,373 - - 115,373 Academic programs 124,062 - - 124,062 President s gala 130,265 - - 130,265 Other 20,631 - - 20,631 Total program expenses 390,331 - - 390,331 Fundraising 990 - - 990 General and administrative 145,038 - - 145,038 Total expenses 536,359 - - 536,359 Change in net assets 34,647 (188,294) 50,120 (103,527) Net assets, beginning of year 96,636 1,034,020 813,020 1,943,676 Net assets, end of year $ 131,283 $ 845,726 $ 863,140 $ 1,840,149 3.
STATEMENT OF ACTIVITIES Year ended June 30, 2008 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support Contributions (other than in-kind) $ 15,220 $ 284,531 $ 202,671 $ 502,422 Contributions (in-kind) 143,421 - - 143,421 Total contribution revenue 158,641 284,531 202,671 645,843 Investment income Interest and dividends 9,678 158-9,836 Realized and unrealized losses - (30,289) - (30,289) Total investment income 9,678 (30,131) - (20,453) Released from restrictions 349,731 (349,731) - - Total revenues, gains and other support 518,050 (95,331) 202,671 625,390 Program expenses Contributions to Kentucky Community and Technical College System for Scholarships 107,680 - - 107,680 Academic programs 35,507 - - 35,507 President s gala 115,910 - - 115,910 Other 78,082 - - 78,082 Total program expenses 337,179 - - 337,179 Fundraising 2,727 - - 2,727 General and administrative 184,013 - - 184,013 Total expenses 523,919 - - 523,919 Change in net assets (5,869) (95,331) 202,671 101,471 Net assets, beginning of year 102,505 1,129,351 610,349 1,842,205 Net assets, end of year $ 96,636 $ 1,034,020 $ 813,020 $ 1,943,676 See accompanying notes. 4.
STATEMENTS OF CASH FLOWS Years ended 2009 2008 Cash flows from operating activities Change in net assets $ (103,527) $ 101,471 Adjustments to reconcile change in net assets to net cash from operating activities Contributions permanently restricted for endowment (50,120) (202,671) Net realized and unrealized losses on investments 132,985 30,289 Depreciation expense 4,666 2,670 Change in value of split interest agreements 5,210 5,903 Change in assets and liabilities Contributions receivable 7,738 164,391 Prepaid expenses and other assets (168) (1,617) Accounts payable 362 (2,190) Net cash from operating activities (2,854) 98,246 Cash flows from investing activities Purchase of equipment - (13,784) Purchases of investments (78,154) (347,333) Proceeds from sales of investments 42,409 99,291 Net cash from investing activities (35,745) (261,826) Cash flows from financing activities Contributions permanently restricted for endowment 50,120 202,671 Payments on annuities (6,640) (6,640) Net cash from financing activities 43,480 196,031 Net increase in cash 4,881 32,451 Cash at beginning of year 977,991 945,540 Cash at end of year $ 982,872 $ 977,991 See accompanying notes. 5.
NOTE 1 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business: Kentucky Community and Technical College System Foundation, Inc. (the Foundation ) is a Kentucky not-for-profit corporation formed to receive, invest and expend funds for the enhancement and improvement of Kentucky Community and Technical College System (the System ). The Foundation s general purpose is to conduct and carry on its work, exclusively for charitable, scientific, literary and educational purposes on behalf of the System. The Foundation has a Board of Directors separate from that of the System. The President of the System is also a board member of the Foundation. Basis of Presentation: The Foundation s financial statements are presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for- Profit Organizations, which establishes external financial reporting for not-for-profit organizations, including three basic financial statements and the classification of resources into three separate classes of net assets, as follows: Unrestricted Net assets which are free of donor-imposed restrictions. Temporarily Restricted Net assets whose use by the Foundation is limited by donorimposed stipulations that either expire by passage of time or that can be fulfilled or removed by actions of the Foundation pursuant to those stipulations. Assets released from restrictions during 2009 and 2008 primarily related to scholarships and donor recognition at the President s Gala and Benefactor's Award Dinner. The majority of temporarily restricted funds residing in the academic program area include the North American Racing Academy, KMSS-Lean Thinking, the Center for Automotive Excellence and the Kentucky Coal Academy. Permanently Restricted Net assets whose use by the Foundation is limited by donorimposed stipulations that neither expire by passage of time or that can be fulfilled or removed by actions of the Foundation pursuant to those stipulations. Contributions: All unconditional promises to give (contributions) are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as additions to temporarily restricted net assets. However, if a restriction is fulfilled in the same time period in which the contribution is received, the Foundation reports the support as unrestricted. Amounts received that are designated by the donor for endowment are reported as permanently restricted net assets. 6.
NOTE 1 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Contributions that are expected to be collected within one year are recorded at their net realizable value. Contributions that are expected to be collected in future years are recorded at the present value of estimated future cash flows. The discounts on those amounts are computed using a risk-free interest rate applicable to the year in which the promise is received. Amortization of the discount is included in contribution revenue. Contributions receivable are reviewed annually to determine if an allowance for uncollectible contributions receivable is needed. Based upon management s judgment, considering such factors as prior collection history, type of contribution and nature of fund-raising activity, no allowance for uncollectible contributions receivable has been provided in either 2009 or 2008. Conditional promises to give are not included as contributions until such time as the conditions are substantially met. Investments: Investments in equity funds, bond funds and money market investments are stated at fair value based on closing market quotations for such securities or similar securities. Annuities Payable: The carrying amount of annuities payable is the present value of the income distributions or other payments to the donor or other designated beneficiaries during the term of the agreement. Income Taxes: Pursuant to determination by the Internal Revenue Service, the Foundation is exempt from federal income tax under Section 501(c) 3 of the Internal Revenue Code. FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), issued July 2006, was effective as of January 1, 2007. The Foundation has elected to defer adoption of FIN 48, in accordance with the provisions of FASB Staff Position No. FIN 48-3, which permits certain nonpublic enterprises to delay adoption until fiscal years beginning after December 15, 2008. Currently, the Foundation accounts for contingencies associated with uncertain tax positions in accordance with SFAS No. 5, Accounting for Contingencies, which provides the recording of a contingency based on the probability of certain events to transpire that range from probable to remote as opposed to applying a more likely than not recognition threshold. Concentrations of Credit Risk: At various times throughout the fiscal year, the Foundation had in excess of $250,000 on deposit with a financial institution whose deposits are federally insured up to $250,000. 7.
NOTE 1 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates: Financial statements prepared in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. The fair value of investments estimate is particularly subject to change. Adoption of New Accounting Standards: In 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, provides enhanced guidance for using fair value to measure assets and liabilities under current U.S. GAAP standards and expands the disclosure of the methods used and the effect of fair value measurements on earnings. This Standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. Accordingly, the Foundation adopted applicable portions of this standard for the year ended June 30, 2009. In addition, the KCTCS Foundation, Inc adopted FASB Staff Position (FSP) 117-1, Endowments for Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and Enhanced Disclosure for All Endowment Funds. FSP 117-1 provides guidance on the net asset classification of donor restricted endowment funds for organizations subject to an enacted version of UPMIFA if enacted by its state. Kentucky has not yet adopted UPMIFA. The guidance also requires additional disclosures for both donor restricted endowments and board restricted endowments. Additional disclosure is provided in Note 7. Subsequent Events: Management has performed an analysis of the activities and transactions subsequent to June 30, 2009 to determine the need for any adjustments to and /or disclosures within the audited financial statements for the year ended June 30, 2009. Management has performed their analysis through August 20, 2009. Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. 8.
NOTE 2 CONTRIBUTIONS RECEIVABLE Contributions receivable, representing payments due from the Fulfilling the Promise Campaign, at are due as follows: 2009 2008 Amounts due in Less than one year $ 19,374 $ 98,742 One to five years 172,335 99,502 191,709 198,244 Less unamortized discount (8,644) (7,441) Total $ 183,065 $ 190,803 NOTE 3 INVESTMENTS Investments at are summarized as follows: 2009 2008 Money market investments $ 1,589 $ 7,655 Bond funds 283,691 296,329 Equity funds 433,078 511,614 Total investments at fair value $ 718,358 $ 815,598 9.
NOTE 4 NET ASSETS Temporarily restricted net assets are available at for the following purposes: 2009 2008 Academic programs $ 619,110 $ 668,558 Scholarships 60,212 94,968 Funds restricted for other specific purposes 166,404 270,494 $ 845,726 $ 1,034,020 Permanently restricted net assets from which the income can be used at consist of endowment funds restricted for scholarships, workforce development, and new economy initiatives. NOTE 5 TRANSACTIONS WITH KENTUCKY COMMUNITY AND TECHNICAL COLLEGE SYSTEM The Kentucky Community and Technical College System provides office space, personnel, computer and other administrative services to the Foundation. All compensation and benefits for the personnel are paid by the System. The estimated value of the services ($112,687 in 2009 and $143,421 in 2008), computed at an amount agreed to by management of the Foundation and the System, is included in revenues and in general and administrative expenses in the accompanying financial statements. NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 157, Fair Value Measurements, defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the KCTCS Foundation, Inc. principal or most advantageous market for the asset or liability in an orderly transaction between market participation on the measurement date. SFAS No. 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standards describe three levels within its hierarchy that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. 10.
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS Level 2: Significant other observable inputs other than the Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability. In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value of the hierarchy. Assets measured at fair value on a recurring basis are summarized below: Fair Value Measurements as June 30, 2009 Using Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Assets Money market investments $ 1,589 $ - $ - $ 1,589 Bond funds 283,691 - - 283,691 Equity funds 433,078 - - 433,078 Total assets $ 718,358 $ - $ - $ 718,358 11.
NOTE 7 ENDOWMENT COMPOSITION KCTCS Foundation, Inc. s endowment primarily consists of investments. includes only donor restricted endowment funds. Its endowment Endowment net asset composition by type of fund as of June 30, 2009: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted Endowment funds $ - $ - $ 863,140 $ 863,140 Total $ - $ - $ 863,140 $ 863,140 Endowment net asset composition by type of fund as of June 30, 2008: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted Endowment funds $ - $ - $ 813,020 $ 813,020 Total $ - $ - $ 813,020 $ 813,020 Changes in endowment net assets for the year ended June 30, 2009: Temporarily Permanently Unrestricted Restricted Restricted Total Assets: Net assets, beginning of year $ - $ - $ 813,020 $ 813,020 Contributions - - 50,120 50,120 Net assets, end of year $ - $ - $ 863,140 $ 863,140 12.
NOTE 7 ENDOWMENT COMPOSITION Changes in endowment net assets for the year ended June 30, 2008: Temporarily Permanently Unrestricted Restricted Restricted Total Assets: Net assets, beginning of year $ - $ - $ 610,349 $ 610,349 Contributions - - 202,671 202,671 Net assets, end of year $ - $ - $ 813,020 $ 813,020 Interpretation of UMIFA: The Board of Trustees of the Foundation has interpreted the Uniform Management of Institutional Funds Act (UMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. Funds with Deficiencies: From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level the donor requires the Kentucky Community and Technical College System Foundation, Inc. to retain as a fund of perpetual duration. Deficiencies of this nature that are reported in unrestricted net assets were $38,201 as of June 30, 2009. These deficiencies resulted from unfavorable market fluctuations. There were no such deficiencies as of June 30, 2008. Return Objectives and Risk Parameters: The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period(s) as well as Boarddesignated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 index while assuming a moderate level of investment risk. 13.
NOTE 7 ENDOWMENT COMPOSITION Strategies Employed for Achieving Objectives: The purpose of the Endowment Fund is to facilitate donors' desires to make substantial long-term gifts to the community and to develop a new and significant source of revenue for the Foundation. In so doing, the Endowment Fund will provide a secure, long-term source of funds to: (i) stabilize agency funding during periods of below normal annual campaigns; (ii) fund special grants; (iii) ensure long-term growth; (iv) enhance our ability to meet changing community needs in both the short and long-term; and, (v) support the administrative expenses of the Foundation as deemed appropriate. Spending Policy and How the Investment Objectives Relate to Spending Policy: The distribution of income from the Endowment supports spending to achieve the donor s intended purpose, with the objective of establishing equilibrium between the need for current earnings for expenditure and the need to grow earnings over time to offset the effects of inflation. The KCTCS Finance/Audit Committee will establish the spending policy rate for distributions of endowment for the upcoming fiscal year. Distributions of earnings from the Endowment to support expenditures are expected to equal to or less than actual real returns, therefore achieving the financial objective of preserving the value of the endowment assets and related revenue stream over time. Expenditures are supported first from current income (interest and dividends) and, as appropriate from capital gains. Within these parameters, the amount of the disbursement shall be determined annually by the Foundation Board of Trustees, who may also elect to take no distribution in any given year. 14.