Financial Statements (With Independent Auditors Report Thereon)
Financial Statements Table of Contents Page(s) Management s Discussion and Analysis (Unaudited) 1 9 Independent Auditors Report 10 11 Statements of Net Position 12 Statements of Revenues, Expenses, and Changes in Net Position 13 Statements of Cash Flows 14 Notes to Financial Statements 15 31 Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 32-33
Required Supplementary Information Management s Discussion and Analysis (Unaudited) The following discussion and analysis provides management s view of the financial position of Middlesex Community College (the College or MCC) as of, and the changes in its financial position for the years ended. This analysis should be read in conjunction with the College s financial statements and notes thereon, which are also presented in this document. The College is an entrepreneurial learning community committed to providing educational programs and services that support personal growth and economic opportunity for our diverse student populations. A public institution of higher education in the Commonwealth of Massachusetts, MCC maintains campuses in Bedford and Lowell. The College offers 85 programs leading to degrees or certificates, as well as many noncredit career and professional development programs and hundreds of noncredit courses serving approximately 12,353 credit and 12,799 noncredit students. In addition, the College has more than 30 partnerships with schools and colleges throughout the Merrimack Valley. The Middlesex Community College Foundation (the Foundation) is a legally separate tax-exempt component unit of Middlesex Community College. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the College in support of its programs. Although the College does not control the timing or the amount of receipts from the Foundation, the majority of resources received or held by the Foundation are restricted to the activities of the College by the donors. Because these resources held by the Foundation can only be used for the benefit of the College, the Foundation is considered a component unit of the College and is discretely presented in the College s financial statements. Management s Discussion and Analysis focuses on the College, not its component unit. Financial Highlights For FY15, the Department of Higher Education, in collaboration with a subcommittee of Community College Presidents and Chief Financial Officers, continued its support of the community college funding formula. This funding approach is based on an allocation methodology predicated on 50% enrollment and 50% performance to distribute the state budget appropriation. As a result, the College s state appropriation increased 8% over the prior year with a maintenance appropriation of $20.7 million, and $1.4 million from the Funding Formula for a total appropriation of $22.3 million, including $168,292 in tuition retention. For FY 15, the mandatory per credit cost of education was $181 per credit. This is an increase of $5 per credit up from $176 per credit. The Safety Net Scholarship program was increased to $1,000,000, a 10% or $100,000 increase over FY14. In FY2014, 89.02% of all eligible students received financial aid sufficient to cover the direct cost of education in accordance with the federal financial aid guidelines. For FY2015 the number of students having the direct cost of their education costs met was 93.3%. As of the close of the fiscal year, June 30, 2015, the College s financial position remained strong. The College s final state maintenance appropriation for FY2015 and FY2014 was $22.3 million and $20.5 million, respectively. Despite the increase in nonoperating revenue from the state appropriation, the College s FY2015 operating revenue saw an overall decrease of $496,364 or 1 % due to lower enrollments and reduced federal financial aid funding and reduced grant funding. 1 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) The College s FY2015 total operating expenses from restricted and unrestricted funds totaled $77.4 million, and $73.6 million in FY2014. This increase is attributable to increased instructional and student support expenses, facilities projects, and collective bargaining obligations of the College. The approved budget for FY2015 for unrestricted funds from both state and local sources was $56.1 million. Of that amount, $ 55.6 million was expended or 99%. There were no material deviations from the approved budget and final expenditures and all records were in order and maintained in accordance with trust fund guidelines. Full Time Equivalent credit enrollment for FY2015 was 5,786; less than a 3.5% decrease over FY2014 enrollment of 6,002. The headcount in FY2015 was 12,353 credit students, and 12,999 credit students in FY2014 less than 5% change from FY2014. Total credits generated in FY2015 were 173,750, a decrease of 3.5% over FY2014 total of 180,073. Consistent with the College s strategic plan, investment continued in technology and physical plant. Technology investment projects totaled $630,520 including in life cycle management for computer replacement, software updates, and service desk improvements. In addition wireless access was expanded across both campuses. Physical plant renovations including improvements and adaptation & renewal projects totaled $4.7 million and include life safety improvements, and re-lamping of both campuses and various deferred maintenance project. MCC partnered with DCAMM, spending $2.7 million on 2 HVAC projects including energy management updates to the Talbot & Derby buildings and 5 buildings on the Bedford campus. In FY2015, the College continued to work in furtherance of the next phase of approval for the Academic Arts Classroom building project that will be housed in the historic Boston & Maine Railroad building in downtown Lowell. The building was acquired from the federal government in 2008 and will be used to provide critically needed music, dance and performing arts classroom space. The study, funded by the college, was completed a year ago. In September 2013, the state included funds in its budget for the project s design and construction. The design work was completed in FY 15 with construction commencing in the Fall of 2015. Overview of the Financial Statements The College s financial statements comprise two primary components: (1) the financial statements and (2) the notes to the financial statements. Additionally, the financial statements focus on the College as a whole, rather than upon individual funds or activities. The Financial Statements The financial statements are designed to provide readers with a broad overview of the College s finances and are comprised of three basic statements. The statement of net position presents information on all of the College s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the College is improving or deteriorating. 2 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) The statement of revenues, expenses, and changes in net position presents information showing how the College s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., the payment for accrued for compensated absences, or the receipt of amounts due from students and other for services rendered). The statement of cash flows is reported on the direct method. The direct method of cash flow reporting presents net cash flows from operations as major classes of operating receipts (e.g., tuition and fees) and disbursements (e.g., cash paid to employees for services). Generally accepted accounting principles (GAAP) require this method to be used. The Foundation is not required by GAAP to present its statement of cash flows. The financial statements can be found on pages 12-14 of this report. The College reports its activity as a business type activity using the economic resources measurement focus and full accrual basis of accounting. The College is part of the Commonwealth of Massachusetts. Therefore, the results of the College s operations, its net position and cash flows are included in the Commonwealth s Comprehensive Annual Financial Report. The Commonwealth of Massachusetts follows Government Auditing Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions. The employees of the College are employees of the Commonwealth and the Commonwealth is legally responsible to provide these benefits to the College s employees. Therefore, the liability associated with this benefit is being reported in the Commonwealth s financial statements, and not in these financial statements of the College. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes provide information regarding both the accounting policies and procedures the College has adopted as well as additional detail of certain amounts contained in the financial statements. The notes to the financial statements can be found on pages 15-31 of this report. Financial Analysis Net position may serve over time as a useful indicator of the College s financial position. For FY2015 and FY2014, MCC s assets and deferred outflows exceeded liabilities and deferred inflows by $29.2 million and $38.7 million, respectively. By far the largest portion of the College s net position reflects its investment in capital assets (e.g., land, building, machinery, and equipment), less any related debt financing used to acquire those assets that is still outstanding. The College uses these capital assets to provide services to students, faculty and administration; consequently, these assets are not available for future spending. Although the College s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot 3 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) be used to liquidate these liabilities. Also, in addition to the debt noted above, which is reflected in the College s financial statements, the Commonwealth of Massachusetts regularly provides financing for certain capital projects through the issuance of general obligation bonds. These borrowings by the Commonwealth are not reflected in these financial statements. Following is a condensed summary of net position: 2015 2014 2013 Current assets $ 16,029,102 17,295,915 15,512,142 Capital assets 30,997,231 25,639,574 24,695,583 Noncurrent assets 9,561,532 11,941,449 14,180,233 Total assets 56,587,865 54,876,938 54,387,958 Deferred outflow of resources 1,285,064 Total assets and deferred outflows $ 57,872,929 54,876,938 54,387,958 Current liabilities 9,934,981 10,200,839 10,000,010 Noncurrent liabilities 16,279,797 5,942,529 7,465,242 Total liabilities 26,214,778 16,143,368 17,465,252 Deferred inflow of resources 2,440,920 Total liabilities and deferred inflows 28,655,698 16,143,368 17,465,252 Net position: Net investment in capital assets 27,661,211 21,902,258 19,410,584 Restricted, expendable 1,555,096 1,820,801 2,240,166 Unrestricted 924 15,010,511 15,271,956 Total net position $ 29,217,231 38,733,570 36,922,706 Assets and deferred outflows of $57.8 million exceeded liabilities and deferred inflows of $28.6 million by $29.2 million in FY2015. Operating expenses from all sources incurred during FY2015 totaled $77.4 million and during FY2014 totaled $73.6 million. Revenues from tuition and fees, state capital support and state appropriations, and other sources totaled $80.7 million. 4 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) Capital Assets and Liabilities of the College Capital Assets The College s investment in capital assets as of amounts to $30.99 million and $25.6 million, respectively, net of accumulated depreciation. This investment in capital assets includes land, building (including improvements), and furnishings and equipment (including the cost of capital leases). Capital assets increased during the year by 20.9% or $5.3 million due in part to an investment in capital assets of $8.7 million which was offset by depreciation expense of $3.4 million. Liabilities and Debt In addition to accruals for the net pension liability, compensated absences, workers compensation, and capital lease obligations, the College carries long term debt for revenue bonds issued. The accrual for the net pension liability and compensated absences consists of the long term portion of those liabilities relating to employees on the College s payroll. As of the College had debt with principal amounts of $3.3 million and $3.7 million, respectively. This reduction is due to scheduled principal payments. GASB 68, Pension Reporting Implementation In June 2012, GASB (Government Accounting Standards Board) issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No.27, which was effective in FY 2015. The College implemented GASB 68 in its fiscal 2015 financial statements by restating the beginning of the year net position a reduction of $12,409,369. The College transmits pension contributions to the State Employees Retirement System SERS - (through a fringe benefit charge) for benefited employees paid from nonappropriated funds and those contributions are recorded as an expense in the financial statements of the College. Pension contributions for employees paid from appropriated funds (the State Appropriation) are paid by the Commonwealth not the College. The Commonwealth still has the obligation to administer and fund pensions of all state retirees including those of the College. GASB 68 presents to the reader of the financial statements the portion of the Commonwealth s overall net pension liability that is attributed to employees of the College paid for with nonappropriated funds. The 2015 financial statements now include an amount for net pension liability which represents the long-term obligation to provide pension benefits in excess of the fair value of the assets available in the plan to pay those benefits. Additional footnotes have been incorporated into the notes to the financial statements to disclose the details related to the pension plan (note 14). This change does not affect cash or the College s budgeting process. Rather the recognition of the Net Pension Liability is required for financial reporting in accordance with the standards established by the Governmental Accounting Standards Board. The recognition of the net pension liability will decrease the unrestricted net position on the College s financial statements. 5 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) Middlesex Community College s Revenues, Expenses, and Changes in Net Position FY2015 Expenses Depreciation and Amortization - 4% Institutional Support - 11% Operation and Maintenance of Plant - 12% Instruction -38% Public Service - 6% Scholarships and Fellowships - 5% Student Services - 14% Academic Support - 10% Instruction -38% Academic Support - 10% Student Services - 14% Scholarships and Fellowships - 5% Public Service - 6% Operation and Maintenance of Plant - 12% Depreciation and Amortization - 4% Institutional Support - 11% 6 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) FY2014 Expenses Depreciation and Amortization - 4% Institutional Support - 11% Operation and Maintenance of Plant - 11% Public Service - 7% Scholarships and Fellowships - 5% Student Services - 14% Instruction -38% Academic Support - 10% Instruction -38% Academic Support - 10% Student Services - 14% Scholarships and Fellowships - 5% Public Service - 7% Operation and Maintenance of Plant - 11% Depreciation and Amortization - 4% Institutional Support - 11% Highlights of revenue activity for the FY2015 include: Total Operating Revenue decreased slightly to $47.4 million, due to a decrease in net student fees as a result of declining enrollment. Total net nonoperating revenue increased $975,986 due to an increase in State funding. Grants and contracts, exclusive of state and federal financial aid awards (e.g., Pell, SEOG, Mass Grants) received by the College for FY2015 total approximately $8.4 million and $8.8 million in FY2014. Major grants and contracts for the year include the following: The Career Place and the Career Source grants from the Metro North Regional Employment Board and other sources in the amount of $4.0 million for career and related job services. The Stem Starter Academy from the Department of Higher Education expanded program for students in the STEM fields including research internships and summer bridge programming and support for students totaling $150,000. 7 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) The Vocational Education grant from Mass Department of Education in the amount of $263,190 provided for tutoring, disabled student services, and professional development for faculty. Vision Grants from the Department of Higher Education provided funds to support supplemental instruction, increase efforts to increase pathways to college completion and support assessment activities in partnership with UMASS Lowell totaling $332,490. Highlights of expense activity include: The fringe benefit rate for college employees changed from 27.68% to 28.86% resulting in $508,619 increase in the fringe payments made to the Commonwealth in FY2015 as compared to 2014. Overall operating expenses increased by $3.8 million in FY2015 over FY2014. The increase includes ongoing support for faculty and staff but is largely attributable to increases in payroll ($1.3 million) and supplies and services costs ($2.2 million) used in day to day operations. Nonoperating Revenues and Expenses As required by the Governmental Accounting Standards Board, appropriations from the state are considered nonoperating. However, the expenditures that result from nonoperating revenue are classified as operating expenses. As a result, public higher education institutions will usually incur a loss from operations. Nonoperating revenues from the Commonwealth, exclusive of fringe benefits, totaled $22.3 million in unrestricted appropriations in FY2015 and $20.5 million in FY2014. This amount includes $168,292 in retained tuition in addition to the state maintenance appropriation. In FY2015, Middlesex received an additional allocation of $50,000 in workforce development performance based funding. The fringe benefit rate increased from 27.68% in FY2014 to 28.86% in FY2015. The Commonwealth s fringe benefit amount for full time employees on the state payroll was $5.7 million in FY2015 and $5.2 million in FY2014. These funds are appropriated to the State Treasurer s office for the benefit of the college for employees funded by the state maintenance appropriation. The College must budget and expense the cost of fringe benefits for all College employees funded from local trust funds. For fiscal 2015 all amounts paid through the fringe rate other than the amount for pensions are recorded as expenses and are allocated among the functional expense classifications. The College pension expense for fiscal 2015 was determined in accordance with the requirements of GASB No. 68, rather than the amount paid through the fringe rate, and similarly allocated among the functional expense classifications. Investment income primarily from government-backed securities was $217,076 in FY2015 and $1,439,328 in FY2014. This decrease was due to the downturn in the market. The market value of the College s equity mutual funds was $7,629,088 in FY2015 and $7,597,582 in FY2014. 8 (Continued)
Required Supplementary Information Management s Discussion and Analysis (Unaudited) Additional Information In FY2015, the $1.4 million Formula Funding increase allowed the College to hire 5 new full time positions to implement a new advising model, hire 5 new full time positions from the expiring Department of Labor TAACCCT and DHE Vision grants, and hire 2 new faculty. The cost of education for FY15 was increased by $5 credit, or 2.8%, to $181 per credit. As projected, local revenue from tuition and fees was down as enrollment is down by approximately 3.5%. The Massachusetts Community College Council (MCCC) representing the Adjunct Faculty at the community colleges have a Division of Continuing Education agreement in place with Massachusetts community colleges for the period June 1, 2013 through May 31, 2016. There is holdover language in that agreement that maintains the contract language in place until a successor agreement is reached. The Massachusetts Community College Council (MCCC) representing the Full Time Faculty and Full-Time Unit Professionals at the community colleges have an agreement in place for the period July 1, 2013 through June 30, 2015. There is a new agreement that is being negotiated between the parties for the period July 1, 2015 through June 30, 2018, but it has not yet been finalized. The American Federation of State, County and Municipal Employees (AFSCME) representing the support staff of the state and community colleges has an agreement in place for the period July 1, 2014 through June 30, 2017. Requests for Information This financial report is designed to provide a general overview of the College s finances for all those with an interest in the College s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Chief Fiscal Officer, Middlesex Community College, 33 Kearney Square, Lowell, Massachusetts, 01852. 9
KPMG LLP Two Financial Center 60 South Street Boston, MA 02111 Independent Auditors Report The Board of Trustees Middlesex Community College: Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Middlesex Community College (the College) as of and for the years ended, and the related notes to the financial statements, which collectively comprise the College s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the financial statements of the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us and our opinions, insofar as they relate to the amounts included for the discretely presented component unit, are based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.
Opinions In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of the College as of, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in conformity with U.S. generally accepted accounting principles. Emphasis of Matter The financial statements of the College are intended to present the financial position, the changes in financial position and cash flows that are attributable to the transactions of the College. They do not purport to, and do not, present fairly the financial position of the Commonwealth of Massachusetts as of June 30, 2015 and 2014, the changes in its financial position, or, where applicable, its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter. As described in notes 1 and 14 to the financial statements, in 2015, the College adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis on pages 1-9 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 12, 2015 on our consideration of the College 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control over financial reporting and compliance. November 12, 2015 11
Statements of Net Position (except for the Foundation, which is as of December 31, 2014 and 2013) 2014 2013 Middlesex Middlesex 2015 2014 Community Community Middlesex Middlesex College College Community Community Foundation, Foundation, Assets and Deferred Outflows College College Inc. Inc. Current assets: Cash and cash equivalents (note 2) $ 5,552,888 9,178,685 1,032,931 845,138 Cash held by State Treasurer (note 3) 436,258 453,244 Short-term investments (note 2) 6,969,340 4,187,486 Accounts and other receivables, net (note 4) 3,065,040 3,476,500 45,047 67,737 Prepaid expenses and deferred charges 5,576 Total current assets 16,029,102 17,295,915 1,077,978 912,875 Noncurrent assets: Long-term investments (note 2) 9,301,719 11,624,097 3,920,479 3,769,628 Loans receivable, net (notes 5 and 8) 259,813 317,352 Capital assets, net of accumulated depreciation (notes 6 and 7) 30,997,231 25,639,574 630,033 672,813 Total noncurrent assets 40,558,763 37,581,023 4,550,512 4,442,441 Total assets 56,587,865 54,876,938 5,628,490 5,355,316 Deferred Outflows of resources related to pensions (note 14) 1,285,064 Total assets and deferred outflows $ 57,872,929 54,876,938 5,628,490 5,355,316 Liabilities and Deferred Inflows Current liabilities: Accounts payable and accrued liabilities $ 1,988,534 2,175,122 7,500 42,000 Accrued payroll 1,809,709 1,704,732 Compensated absences and other liabilities (note 7) 3,842,062 4,068,910 Students deposits and unearned revenues 1,402,158 1,512,049 Funds held for others 479,638 339,052 Current portion of notes payable (note 7) 412,880 400,974 Due to related party 20,000 Total current liabilities 9,934,981 10,200,839 27,500 42,000 Noncurrent liabilities: Compensated absences and other liabilities (note 7) 2,445,432 2,510,522 Net pension liability (14) 10,845,528 Notes payable (note 7) 2,923,140 3,336,342 Grants refundable, net (note 8) 65,697 95,665 Total noncurrent liabilities 16,279,797 5,942,529 Total liabilities 26,214,778 16,143,368 27,500 42,000 Deferred inflows of resources related to pensions (14) 2,440,920 Total liabilities and deferred inflows $ 28,655,698 16,143,368 27,500 42,000 Net Position Net investment in capital assets $ 27,661,211 21,902,258 630,033 672,813 Restricted (note 9): Expendable 1,555,096 1,820,801 3,618,134 3,190,520 Unrestricted (note 10) 924 15,010,511 1,352,823 1,449,983 Commitments and contingencies (note 11) Total net position $ 29,217,231 38,733,570 5,600,990 5,313,316 See accompanying notes to financial statements. 12
Statements of Revenues, Expenses, and Changes in Net Position Years ended (except for the Foundation, which is for the years ended December 31, 2014 and 2013) 2014 2013 Middlesex Middlesex 2015 2014 Community Community Middlesex Middlesex College College Community Community Foundation, Foundation, College College Inc. Inc. Operating revenues: Tuition and fees $ 35,245,001 35,343,456 Less scholarship allowances (14,158,101) (13,849,398) Net student fees 21,086,900 21,494,058 Federal, state, local and private grants and contracts 24,004,649 24,249,659 License income base amount 50,213 84,000 Other auxiliary enterprises 377,056 392,954 Other sources 1,972,551 1,800,849 Total operating revenues 47,441,156 47,937,520 50,213 84,000 Operating expenses (note 12): Instruction 29,101,665 28,312,314 Academic support 8,003,581 7,571,620 Student services 10,622,313 9,930,742 Scholarships and fellowships 3,742,808 3,856,937 35,350 2,080 Public service 4,448,411 4,782,196 316,382 355,303 Operation and maintenance of plant 9,218,611 7,888,599 Institutional support 8,913,492 8,187,808 19,511 15,969 Depreciation and amortization 3,355,812 3,104,354 42,780 43,899 Total operating expenses 77,406,693 73,634,570 414,023 417,251 Operating loss (29,965,537) (25,697,050) (363,810) (333,251) Nonoperating revenues (expenses): State appropriations unrestricted (note 13) 28,391,147 26,222,411 Net investment income 217,076 1,439,328 152,423 273,796 Interest expense (note 7) (106,339) (203,347) Transfer to State (309,466) Other nonoperating (237,710) 5,710 Gifts and contributions 603,051 605,451 Payments between the College and the Foundation 109,700 105,450 (109,700) (105,450) Net nonoperating revenues 28,302,118 27,326,132 651,484 773,797 Change in net position before capital contributions (1,663,419) 1,629,082 287,674 440,546 State capital contributions (note 13) 4,556,449 181,782 Increase in net position 2,893,030 1,810,864 287,674 440,546 Net position, beginning of year, as previously reported 38,733,570 36,922,706 5,313,316 4,872,770 Restatement of net position (notes 1 and 14) (12,409,369) Net position, end of year $ 29,217,231 38,733,570 5,600,990 5,313,316 See accompanying notes to financial statements. 13
Statements of Cash Flows Years ended 2015 2014 Middlesex Middlesex Community Community College College Cash flows from operating activities: Tuition and fees $ 21,442,498 20,889,609 Grants and contracts 23,950,619 24,033,919 Payments to suppliers (10,932,356) (8,767,911) Payments to employees (54,411,115) (52,175,538) Payments to students (3,742,808) (3,856,937) Loans issued to students (4,500) (21,250) Collection of loans to students 62,038 46,957 Income from contract services 329,910 392,954 Other cash receipts 1,989,729 1,768,601 Net cash used in operating activities (21,315,985) (17,689,596) Cash flows from noncapital financing activities: State appropriations 22,639,434 20,979,317 Payments from Foundation 109,700 105,450 Funds held for others 140,586 211,850 Net cash provided by noncapital financing activities 22,889,720 21,296,617 Cash flows from capital and related financing activities: Capital appropriations 4,556,449 181,782 Purchases of capital assets (8,713,469) (4,048,345) Principal paid on debt (710,762) (1,643,100) Interest paid on debt (106,339) (203,347) Net cash used in capital financing activities (4,974,121) (5,713,010) Cash flows from investing activities: Proceeds from sales and maturities of investments 4,148,913 5,483,083 Cost of purchases of investments (4,451,373) (4,669,592) Interest on investments 60,063 50,220 Net cash provided by (used in) investing activities (242,397) 863,711 Net change in cash and cash equivalents (3,642,783) (1,242,278) Cash and cash equivalents (including cash held by State Treasurer), beginning of year 9,631,929 10,874,207 Cash and cash equivalents (including cash held by State Treasurer), end of year $ 5,989,146 9,631,929 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (29,965,537) (25,697,050) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization 3,355,812 3,104,354 Fringe benefits provided by the State 5,751,713 5,243,094 Changes in assets and liabilities: Accounts receivable, net 411,460 (320,012) Prepaid and other assets (5,576) Pension obligations (407,985) Loans receivable, net 57,539 25,706 Accounts payable and accrued liabilities (216,556) (234,387) Accrued payroll and compensated absences (186,961) 688,877 Students deposits and unearned revenues (109,894) (500,178) Net cash used in operating activities $ (21,315,985) (17,689,596) Noncash transactions: Fringe benefits provided by the State $ 5,751,713 5,243,094 Capital assets contributed by the State 4,556,449 181,782 See accompanying notes to financial statements. 14
Notes to Financial Statements (1) Summary of Significant Accounting Policies (a) Organization Middlesex Community College (the College) is one of the largest community colleges in the Commonwealth of Massachusetts (the Commonwealth) and serves the largest county in the Commonwealth with campuses in urban Lowell and suburban Bedford. The College s mission is to provide educational, occupational and cultural opportunities for an academically, economically, and culturally diverse population. The College offers 85 associate degree and certificate programs to almost 12,353 credit and 12,799 noncredit students. The College is involved in numerous community partnership programs and more than 30 different partnerships with schools and colleges throughout the Merrimack Valley. The College also provides comprehensive, customized training, consulting, and technical assistance programs to area businesses. (b) Basis of Presentation The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with U.S. generally accepted accounting principles, as prescribed by the Governmental Accounting Standards Board (GASB). Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. The College s policy for defining operating activities in the statement of revenues, expenses and changes in net assets are those that generally result from exchange transactions such as the payment received for services and payment made for the purchase of goods and services and certain grants and contracts. Certain other transactions are reported as nonoperating activities. These nonoperating activities include the College s operating and capital appropriations from the Commonwealth, net investment income, gifts and interest expense. In fiscal 2014, the College adopted GASB Statement No. 65, Items Previously Reported as Assets and Liabilities (GASB 65), which amends or supersedes the accounting and financial reporting guidance for certain items previously required to be reported as assets or liabilities. The implementation of GASB 65 resulted in no material changes to the accompanying financial statements. In fiscal 2015, the College adopted GASB Statement No. 68 Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27 (GASB 68). For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Massachusetts State Employees Retirement System (SERS) and additions to/deductions from SERS s fiduciary net position have been determined on the same basis as they are reported by SERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investment of assets in the SERS is the responsibility of the Pension Reserves Investment Trust (PRIT) Fund, which is managed by the Pension Reserves Investment Management (PRIM) Board. The PRIM Board seeks to maximize the total return on investments within acceptable levels of risk for a public pension fund. Investments are reported at fair value as described in the Comprehensive Annual Financial Report (CAFR) of the Commonwealth of 15 (Continued)
Notes to Financial Statements Massachusetts. The adoption of GASB No. 68 resulted in a restatement of beginning net position - a decrease of $12,409,369 - for the year ended June 30, 2015. The restatement of net position as of July 1, 2013 was not practical. Middlesex Community College Foundation, Inc. (the Foundation) was established in August 1987, and is a legally separate tax-exempt component unit of the College. The Foundation was established to promote and support the furtherance of the educational and cultural mission of the College. The Foundation is located at the College s Bedford, Massachusetts campus. The Foundation is considered a component unit of the College because of the nature and significance of its relationship with the College and is discretely presented in the College s financial statements. During the years ended, the Foundation distributed $109,700 and $105,450, respectively, to the College for both restricted and unrestricted purposes. During each of these years the College paid a license fee in the amount of $50,213 and $84,000 respectively, to the Foundation for use of the Nesmith House in Lowell, Massachusetts. Complete financial statements for the Foundation can be obtained from Middlesex Community College Foundation, Inc., P.O. Box 716, Springs Road, Bedford, MA 01730. (c) Net Position Resources are classified for accounting purposes into the following three net position categories: Net investment in capital assets: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, repair or improvement of those assets. Restricted expendable: Net position whose use is subject to externally imposed conditions that can be fulfilled by the actions of the College or by the passage of time. Unrestricted: All other categories of net position. Unrestricted net position may be designated by actions of the College s board of trustees. The College has adopted a policy of generally utilizing restricted expendable funds, when available, prior to unrestricted funds. (d) (e) (f) Cash Equivalents For purposes of the cash flow statement, the College considers all highly liquid instruments purchased with an original maturity date of three months or less to be cash equivalents. Investments Investments in marketable securities are stated at fair value. Capital Assets Real estate assets, including improvements, are generally stated at cost. Furnishings, equipment and collection items are stated at cost at date of acquisition or, in the case of gifts, at fair value at date of 16 (Continued)
Notes to Financial Statements donation. In accordance with the Commonwealth s capitalization policy, only those items with a unit cost of more than $50,000 are capitalized. In addition, the College capitalizes assets acquired under certain grants that have a unit cost of $1,000 or more. Interest costs on debt related to capital assets are capitalized during the construction period. College capital assets, with the exception of land and construction in progress, are depreciated on a straight-line basis over their estimated useful lives, which range from 5 to 40 years. The College does not hold collections of historical treasures, works of art or other items not requiring capitalization or depreciation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are expensed. (g) (h) (i) (j) (k) (l) Fringe Benefits The College participates in the Commonwealth s Fringe Benefit programs, including health insurance, unemployment, pension, workers compensation and certain post-retirement benefits. Health insurance, unemployment and pension costs are billed through a fringe benefit rate charged to the College. Compensated Absences Employees earn the right to be compensated during absences for vacation leave and sick leave. Accrued vacation is the amount earned by all eligible employees through. The accrued sick leave balance represents 20% of amounts earned by those employees with or expected to have ten or more years of Commonwealth service at. Upon retirement, these employees are entitled to receive payment for this accrued balance. Workers Compensation The Commonwealth provides workers compensation coverage to its employers on a self-insured basis. The College records its portion of the workers compensation in its records. Worker s compensation costs are actuarially determined based on the College s actual experience. Students Deposits and Unearned Revenue Deposits and advance payments received for tuition and fees related to certain summer programs and tuition received for the following academic year are recorded as unearned revenue until earned. Student Fees Student tuition and fees are presented net of scholarships and fellowships applied to students accounts. Certain other scholarship amounts are paid directly to, or refunded to, the student and are generally reflected as expenses. Tax Status The College is a governmental component unit of the Commonwealth and is therefore exempt from income taxes under Section 115 of the Internal Revenue Code. 17 (Continued)
Notes to Financial Statements (m) (n) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassifications Certain items in the 2014 statements have been reclassified to conform to the current year presentation. (2) Cash and Investments (a) Investment Policy In accordance with Chapter 15A of the Massachusetts General Laws, the Board of Trustees has adopted an investment policy that applies to locally held funds that are not appropriated by the Commonwealth legislature or derived from federal allocations. The principal objectives of the investment policy are: (1) safety of principal, (2) liquidity for operating needs, (3) return on investment, and (4) diversification of risk. The Board of Trustees supports the investments of trust funds in a variety of vehicles, including bank instruments, equities, bonds, government and commercial paper of high quality and mutual funds holding any or all of the above. The Board will, from time to time, establish investment fund ceilings and broad asset allocation guidelines, and authorizes the Chief Financial Officer to invest, or instruct the Comptroller to invest, the College s funds within the guidelines established by the investment policy. (b) Summary of Deposits and Investments Deposits and investments consist of the following at June 30: Deposits and investments 2015 2014 Cash deposits $ 2,430,099 5,637,187 Municipal notes 505,013 Certificates of deposit 3,717,481 3,682,593 Money market funds 3,374,647 3,528,841 Bond mutual funds 4,672,632 4,039,052 Equity mutual funds 7,629,088 7,597,582 Total deposits and investments $ 21,823,947 24,990,268 (c) Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of a bank failure, the College s deposits may not be recovered. Deposits, including certificates of deposit, are made in domestic banks that are federally insured and in some banks that are Massachusetts banks with supplemental insurance for those accounts exceeding the federally insured limits. The College s bank, including certificates of 18 (Continued)
Notes to Financial Statements deposit, as of were $6,117,673 and $9,319,780 respectively. Of these balances, $1,637,685 and $5,387,187, respectively, were exposed to custodial credit risk as uninsured and uncollateralized. To mitigate custodial credit risk for deposits, the College obtains ratings for all banks and credit unions which hold the College s investments. A star rating of 3+ stars from Bauer Financial is required before investing any College funds in an institution. (d) Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Maturities of investments exposed to interest rate risk at consist of: 2015 Investment maturities (in years) Investment type Fair value Less than 1 1 to 5 6 to 10 More than 10 Certificates of deposit $ 3,717,481 3,717,481 Money market funds 3,374,647 3,374,647 Bond mutual funds 4,672,632 4,672,632 $ 11,764,760 11,764,760 2014 Investment maturities (in years) Investment type Fair value Less than 1 1 to 5 6 to 10 More than 10 Municipal notes $ 505,013 505,013 Certificates of deposit 3,682,593 3,682,593 Money market funds 3,528,841 3,528,841 Bond mutual funds 4,039,052 4,039,052 $ 11,755,499 11,755,499 To mitigate interest rate risk, it is the policy of the College to generally not exceed one (1) year in its maturities of Operating Fund investments. 19 (Continued)
Notes to Financial Statements (e) Credit Risk of Debt Securities Credit risk for investments is the risk that an issuer or other counter party to a debt security will not fulfill its obligations. The following is a listing of credit quality ratings of the College s investments in debt securities as of June 30: 2015 Quality ratings Rated debt investments Fair value AAA AA A BBB BB B Unrated Certificates of deposit 3,717,481 3,717,481 Money market funds 3,374,647 3,374,647 Bond mutual funds 4,672,632 532,215 444,273 885,865 1,164,731 1,645,548 Total $ 11,764,760 7,092,128 532,215 444,273 885,865 1,164,731 1,645,548 2014 Quality ratings Rated debt investments Fair value AAA BB B Unrated Municipal notes $ 505,013 505,013 Certificates of deposit 3,682,593 3,682,593 Money market funds 3,528,841 3,105,887 422,954 Bond mutual funds 4,039,052 1,177,589 1,522,827 1,338,636 Total $ 11,755,499 6,788,480 1,177,589 1,522,827 2,266,603 The College manages credit risk by purchasing investment grade securities with a high concentration in securities rated AAA and above. (f) (g) Concentration of Credit Risk The College had no investments that exceeded 5% of its total investments at June 30, 2015 or 2014. Investments of the Foundation The Foundation s investments consist of the following at December 31 and are summarized as follows: Fair value 2015 2014 Fixed income securities $ 293,079 374,500 Equity securities 2,503,565 1,756,699 Bank certificates of deposit 1,123,835 1,638,429 $ 3,920,479 3,769,628 (3) Cash Held by State Treasurer Accounts payable and accrued salaries to be funded from state appropriated funds totaled $436,258 and $453,244 at, respectively. The College has recorded a comparable dollar amount of 20 (Continued)