FINANCIAL REPORT AND SUPPLEMENTARY INFORMATION For the Years Ended June 30, 2008 and 2007
FINANCIAL REPORT AND SUPPLEMENTARY INFORMATION For the Years Ended June 30, 2008 and 2007
TABLE OF CONTENTS Page Independent Auditors Report 1-2 Management's Discussion and Analysis 3-13 Basic Financial Statements Balance Sheets 14 Statements of Revenue, Expenses, and Changes in Net Assets 15 Statements of Cash Flows 16 Notes to Financial Statements 17-29 Supplemental Information Combining Balance Sheet 30 Combining Statement of Revenue, Expenses, and Changes in Net Assets 31
To the Board of Trustees Oakland Community College INDEPENDENT AUDITORS REPORT October 8, 2008 We have audited the accompanying basic financial statements of Oakland Community College (the College ) and its discretely presented component unit as of and for the year ended June 30, 2008, as listed in the table of contents. These financial statements are the responsibility of the College s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Oakland Community College as of June 30, 2007, were audited by other auditors whose report dated September 12, 2007 expressed an unqualified opinion on those statements. 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. 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 provides a reasonable basis for our opinion. In our opinion, the 2008 basic financial statements referred to above present fairly, in all material respects, the financial position of Oakland Community College and its discretely presented component unit as of June 30, 2008 and the changes in its financial position and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued under separate cover our report dated October 8, 2008 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. 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. 5750 New King Street Suite 200 Troy, MI 48098 248.952.5000 Fax 248.952.5750 www.rehmann.com
The management's discussion and analysis presented on pages 3 though 13 is not a required part of the basic financial statements but is supplemental 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 supplemental information. However, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming an opinion on the basic financial statements of the College taken as a whole. The other supplemental information identified in the accompanying table of contents is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. - 2 -
MANAGEMENT S DISCUSSION AND ANALYSIS The discussion and analysis of Oakland Community College's (the "College") financial statements provides an overview of the College's financial position at June 30, 2008 and 2007 and its financial activities for the three years ended June 30, 2008. Management has prepared the financial statements and related footnote disclosures in conjunction with the discussion and analysis. Responsibility for the completeness and fairness of this information rests with the College's management. Use of this Report This annual financial report includes the report of independent auditors, this management's discussion and analysis, the basic financial statements, which consist of the balance sheet, the statement of revenue, expenses, and changes in net assets, the statement of cash flows, and notes to the financial statements. Following the basic financial statements and footnotes are two supplemental schedules: the combining balance sheet and the combining statement of revenue, expenses, and changes in net assets as of and for the year ended June 30, 2008. Financial Highlights The financial statements report information on the College as a whole. These statements report the College's financial position as of June 30, 2008 and 2007 and changes in net assets for the two years ended June 30, 2008. The College's financial position remained strong at June 30, 2008 and 2007, with assets of $353.6 million and $329.3 million, respectively, and liabilities of $28.1 million and $30.6 million, respectively. The College's revenue and other support exceeded expenses by $26.9 million and $23.1 million during the years ended June 30, 2008 and 2007, respectively. Net assets, which represent the residual interest in the College's assets after liabilities are deducted, totaled $325.5 million and $298.7 million, respectively, during these years. - 3 -
MANAGEMENT S DISCUSSION AND ANALYSIS The Balance Sheet and the Statement of Revenue, Expenses, and Changes in Net Assets The following is a comparative analysis of key components of the balance sheet as of June 30: ASSETS 2008 2007 2006 Current assets $ 53,505,574 $ 38,353,249 $ 36,378,502 Long-term investments 137,183,351 135,692,981 120,944,270 Bond issuance costs 104,003 114,403 124,803 Capital assets 162,804,470 155,117,151 145,294,372 Total assets $ 353,597,398 $ 329,277,784 $ 302,741,947 LIABILITIES AND NET ASSETS Liabilities Current liabilities $ 19,061,434 $ 20,547,715 $ 16,163,152 Long-term debt obligations 7,200,000 8,340,000 9,505,000 Compensated absences net of current portion 1,797,134 1,702,593 1,535,938 Total liabilities 28,058,568 30,590,308 27,204,090 Net assets Invested in capital assets net of related debt 154,464,470 145,612,151 134,324,372 Restricted: Expendable scholarships and grants 715,171 585,830 704,848 Loans 37,927 36,482 34,862 Unrestricted 170,321,262 152,453,013 140,473,775 Total net assets 325,538,830 298,687,476 275,537,857 Total liabilities and net assets $ 353,597,398 $ 329,277,784 $ 302,741,947 Although unrestricted net assets are not subject to externally imposed restrictions, virtually all of the College's unrestricted net assets are designated for the purposes to fulfill its mission including designations for capital projects. At June 30, 2008, uncommitted, unrestricted net assets totaled $32.0 million compared to $30.5 in the prior year. - 4 -
MANAGEMENT S DISCUSSION AND ANALYSIS The following is a comparative analysis of key components of the revenue, expenses, and change in net assets for the years ended June 30: 2008 2007 2006 Operating revenues Tuition and fees, net $ 30,393,301 $ 30,022,481 $ 29,622,323 Federal grants and contracts 2,790,226 2,412,789 2,811,403 State grants and contracts 4,086,135 4,830,313 5,160,216 Nongovernmental grants 373,423 359,804 474,060 Auxiliary activities 12,632,396 11,171,066 10,856,765 Miscellaneous 953,340 1,051,705 1,190,274 Total operating revenues 51,228,821 49,848,158 50,115,041 Less operating expenses 167,846,938 158,179,329 154,843,432 Operating loss (116,618,117) (108,331,171) (104,728,391) Nonoperating revenues (expenses) Pell grant revenue 12,860,165 9,927,860 9,125,467 State appropriations 21,469,602 15,841,000 19,063,100 Property taxes 98,852,768 96,075,189 89,673,237 Investment income 9,335,397 8,469,117 5,987,791 Unrealized gain (loss) on investments 951,539 1,167,624 (1,805,036) Total nonoperating revenues 143,469,471 131,480,790 122,044,559 Increase in net assets 26,851,354 23,149,619 17,316,168 Net assets - beginning of year 298,687,476 275,537,857 258,221,689 Net assets - end of year $ 325,538,830 $ 298,687,476 $ 275,537,857-5 -
MANAGEMENT S DISCUSSION AND ANALYSIS Operating Revenues Operating revenues include all transactions that result in sales and/or receipts from goods and services, such as tuition and fees, and bookstore operations. In addition, certain federal, state, and private grants are considered operating if they are not for capital purposes and are considered a contract for services. Operating revenues consisted of the following during the years ended June 30: 2008 2007 2006 Tuition and fees -net of scholarship allowance of $8,904,838, $7,488,000 and $6,784,000 in 2008, 2007, and 2006, respectively $ 30,393,301 $ 30,022,481 $ 29,622,323 Federal grants and contracts 2,790,226 2,412,789 2,811,403 State grants and contracts 4,086,135 4,830,313 5,160,216 Nongovernmental contracts 373,423 359,804 474,060 Auxiliary activities 12,632,396 11,171,066 10,856,765 Miscellaneous 953,340 1,051,705 1,190,274 Total operating revenues $ 51,228,821 $ 49,848,158 $ 50,115,041 The following is a graphic illustration of operating revenues for fiscal year 2008: Student tuition and fee revenue increased by approximately $371,000 during the year ended June 30, 2008. Tuition rate increases were limited to the rate of inflation during this period, continuing the College's desire to assure affordable education for its students. Federal financial assistance awards to students increased by approximately $377,000 due to economic conditions in southeastern Michigan. - 6 -
MANAGEMENT S DISCUSSION AND ANALYSIS Auxiliary services revenue increased by approximately $1,500,000 during the year ended June 30, 2008, due to the increased cost of textbooks. Student tuition and fee revenue increased by approximately $400,000 during the year ended June 30, 2007. The increase is principally due to a 2 percent increase in enrollment during this period. Tuition rates were limited to the rate of inflation during this period, continuing the College s desire to assure affordable education for its students. Overall, when combining nonoperating and operating revenues, of all loans, total federal grants and total contracts, federal financial assistance awards increased, due to the declining economic conditions in southeastern Michigan during the three years ended June 30, 2008. Auxiliary services revenue was relatively flat during the two years ended June 30, 2007. Operating Expenses Operating expenses are the costs necessary for the College to conduct the programs necessary to carry out the primary purposes of the College. The operating expenses for the years ended June 30, 2008, 2007, and 2006 consisted of the following: 2008 2007 2006 Instruction $ 55,408,483 $ 53,394,519 $ 54,009,371 Information technology 9,572,805 8,961,962 8,699,003 Instructional support 25,302,979 20,887,044 20,774,017 Student services 34,920,767 31,130,187 30,036,760 Institutional administration 14,616,646 14,794,325 13,583,132 Operation and maintenance of plant 15,627,929 17,684,444 16,826,846 Depreciation expense 12,028,020 10,836,125 10,208,442 Public services 369,309 438,080 635,703 Other expenses - 52,643 70,158 Total operating expenses $ 167,846,938 $ 158,179,329 $154,843,432-7 -
MANAGEMENT S DISCUSSION AND ANALYSIS The following is a graphic illustration of operating expenses for the year ended June 30, 2008: The primary operating expenses of the College are salaries, payroll taxes, and related fringes. The College incurred approximately $108 million, $102.7 million and $100.1 million of payrollrelated expenses during the three years ended June 30, 2008. This represents 60 percent, 62 percent and 63 percent of the College's operating expenses during those years, respectively. The increase in payroll-related expenses during this period primarily resulted from the following factors: Cost of living increases for all faculty and administration covered under union contracts. An increase in the MPSERS retirement contribution rate from 14.87 percent to 16.34 percent in 2006 and 17.74 percent in 2007, net of a $1,872,000 credit issued by MPSERS in 2007. Rising health care costs experienced across the College s various health and dental plans. Depreciation is another primary factor of the increase in operating expenses during 2008 and 2007. As the College continues to invest in new capital assets, the depreciation expense associated with the assets continues to rise. In 2008, depreciation expense increased by approximately $1.2 million from 2007. In 2007, depreciation expense increased by approximately $600,000 from 2006. - 8 -
MANAGEMENT S DISCUSSION AND ANALYSIS Nonoperating Revenues Nonoperating revenues are all revenue sources that are not a result of College operations. They consist primarily of Pell grant revenue, state appropriations, property tax revenue, investment income (including realized and unrealized gains and losses. Nonoperating revenues for the years ended June 30, 2008, 2007, and 2006 consisted of the following: 2008 2007 2006 Pell grant revenue $ 12,860,165 $ 9,927,860 $ 9,125,467 State appropriations 21,469,602 15,841,000 19,063,100 Property taxes 98,852,768 96,075,189 89,673,237 Investment income 9,335,397 8,469,117 5,987,791 Unrealized gain (loss) on investments 951,539 1,167,624 (1,805,036) Total nonoperating revenue $ 143,469,471 $ 131,480,790 $ 122,044,559 The following is a graphic illustration of nonoperating revenues by source for fiscal year 2008: - 9 -
MANAGEMENT S DISCUSSION AND ANALYSIS The increase in state appropriations is due primarily to $1,771,400 of state aid payments from fiscal 2007 that were delayed until October 2007 and recognized as revenue in 2008. The increase in enrollment and the declining economic conditions in southeastern Michigan during the three years ended June 30, 2008 resulted in increased federal financial assistance to students in the form of Pell grants. Property tax values increased approximately 4.2 percent from 2006/2007 to 2007/2008. There was no increase from 2007/2008 to 2008/2009. The net result was an increase to property tax revenue of $6.4 million and $2.8 million for the years ended June 30, 2007 and 2008, respectively. The millage rate for years 2006, 2007, and 2008 was 1.5844. Investment income increased from 2006 to 2007 and 2007 to 2008 due to rising interest rates on money market, certificate of deposit investments, and external investment pools. The weighted average investment rate was 3.61 percent for fiscal year ended June 30, 2006, and 4.68 percent for the year ended June 30, 2007, and 4.84 percent for the year ended June 30, 2008. During 2007, market conditions of U.S. agency investments improved resulting in an approximate $3 million increase in unrealized/realized investment income. Statement of Cash Flows Another method to assess the financial health of the College is to look at the statement of cash flows. Its primary purpose is to provide relevant information about the cash receipts and cash payments of an entity during a period. The statement of cash flows also helps assess: An entity's ability to generate net cash flows from operations Its ability to meet its obligations as they come due, and Its needs for external financing Following is a comparative analysis of the cash flows of the College for the three years ended June 30: 2008 2007 2006 Cash provided by (used in): Operating activities $(105,812,830) $ (91,519,704) $ (94,038,369) Noncapital financing activities 130,384,133 124,964,345 117,495,979 Capital and related financing activities (21,096,995) (22,523,052) (20,740,206) Investing activities 1,574,814 (705,454) 3,397,440 Net increase in cash and cash equivalents 5,049,122 10,216,135 6,114,844 Cash and cash equivalents Beginning of year 18,621,138 8,405,003 2,290,159 Cash and cash equivalents end of year $ 23,670,260 $ 18,621,138 $ 8,405,003-10 -
MANAGEMENT S DISCUSSION AND ANALYSIS Net cash used in operating activities totaled $105.8 million for 2008. This was financed by $130.4 million of net cash flows from noncapital financing activities such as Pell grant revenue, property taxes and state appropriations. Net cash used in capital and related financing activities totaled $21.1 million during 2008. This includes $19.5 million of capital additions and $1.6 million of debt principal and interest payments. Net cash provided by investing activities totaled $1.6 million. This includes $206.6 million of proceeds from the sale and maturities of investments, purchases of investments of $214.6 million, and an offset by interest received during 2008 of $9.5 million. The net result of all cash flows is an increase in cash and cash equivalents of $5.0 million from 2007. Net cash used in operating activities totaled $91.5 million for 2007. This was financed by $125.0 million of net cash flows from noncapital financing activities such as property taxes and state appropriations. Net cash used in capital and related financing activities totaled $22.5 million during 2007. This includes $20.6 million of capital additions and $1.9 million of debt principal and interest payments. Net cash used in investing activities totaled $0.7 million. This includes $126.2 million of proceeds from the sale and maturities of investments, purchases of investments of $134.9 million, and an offset by interest received of $8.0 million. The net result of all cash flows is an increase in cash and cash equivalents of $10.2 million from 2006. Capital Asset and Debt Administration Capital Assets The College had $162.8 million and $ 155.1 million invested in capital assets, net of accumulated depreciation of $124.8 million and $113.2 million at June 30, 2008 and 2007, respectively. Depreciation charges approximated $12.0 million and $10.8 million, respectively, for the years then ended. 2008 2007 2006 Property and equipment: Land and improvements $ 13,225,431 $ 13,155,703 $ 13,664,016 Infrastructure 18,566,553 15,761,399 15,787,886 Buildings and improvements 201,868,866 185,403,757 170,586,265 Furniture, fixtures, and equipment 28,955,659 28,206,757 24,830,934 Library materials 9,383,463 9,386,626 9,114,970 Construction in progress 15,633,085 16,429,941 15,084,108 Allowance for depreciation (124,828,587) (113,227,032) (103,773,807) Total capital assets $ 162,804,470 $ 155,117,151 $ 145,294,372 Additions to capital assets during 2008 and 2007 included costs for both internal and external maintenance and renovation projects at various campus sites. Capital expenditures during 2008 were $19.9 million and $21.0 million during 2007. - 11 -
MANAGEMENT S DISCUSSION AND ANALYSIS At June 30, 2008, the College had approximately $8.3 million in long-term bonds outstanding and made debt repayments of $1.2 million during the year. More detailed information about the College's long-term liabilities is presented in the notes to the financial statements. Supplemental Combining Schedules The College completed the fiscal year ended June 30, 2008 with an increase in General Fund net assets of $1.5 million. The General Fund is the chief operating fund of the College. At June 30, 2008 the General Fund's net assets were $32.0 million. The increase to the General Fund net assets primarily resulted from increased property tax revenue, which was offset by an increase in general operating expenses, and transfers principally for planned future capital expenditures. The Designated Fund, Auxiliary Activities Fund, Restricted Fund, Student Loan Fund, Endowment and Similar Funds, and Plant Funds comprise the remaining net assets. The Designated Fund's net assets are designated for various instructional programs, including workforce development, future retirement costs, and rising health care costs. The Auxiliary Fund's net assets are designated for various improvements and future operations at the College's bookstores. Plant Funds are unrestricted and are tentatively designated for various capital projects which include projects that are noted later in this analysis. Economic Factors that will Affect the Future The economic position of the College is closely tied to that of Oakland County and the State of Michigan. The board of trustees approved an increase of 3 percent in tuition rates effective with the fall 2007 term and 2.7 for the fall 2008 term. The board guaranteed that tuition rate adjustments would not exceed the rate of inflation or 3 percent, whichever is less. It is expected that Oakland County's property tax values will decline due to economic conditions. Payroll and related expenses represent approximately 60 percent of the total expenditures reported on the June 30, 2008 statement of revenue, expenses, and changes in net assets. The College anticipates that payroll costs will continue to grow in the future, along with general increases in employees' salaries and the MPSERS contribution. The College has planned capital expenditures for the next five years of approximately $100 million to include both renovations and ongoing maintenance. These capital expenditures in part will be financed with designated plant fund assets. - 12 -
MANAGEMENT S DISCUSSION AND ANALYSIS The table below outlines the future construction and major maintenance to be financed by designated plant funds: Campus Description Amount Auburn Hills Capital Outlay Match Requirement $ 16.2 Southfield Capital Outlay Match Requirement (Building Addition) 25.3 Orchard Ridge Capital Outlay Match Requirement (J Building) 12.2 Royal Oak Capital Outlay Match Requirement (D Building) 5.2 Total Capital Outlay Match Requirement 58.9 Auburn Hills Student Service Building 3.0 Auburn Hills Deferred Maintenance 9.3 Highland Lakes Deferred Maintenance 2.4 Orchard Lake Deferred Maintenance 4.0 Royal Oak Deferred Maintenance 1.4 Southfield Deferred Maintenance 1.6 District Office Deferred Maintenance 0.1 Cost of Service: Various 80.7 Cost Related to Maintenance 12.0 Unscheduled Repairs 5.0 Various Campus Renovations 4.7 Capital Projects $ 102.4-13 -
BALANCE SHEETS June 30, 2008 and 2007 College Component Unit - Foundation ASSETS 2008 2007 2008 2007 Current assets Cash and cash equivalents $ 23,670,260 $ 18,621,138 $ 32,509 $ 106,354 Accrued interest 1,212,739 1,387,149 - - Short-term investments 18,648,851 11,258,216 1,416,501 1,536,760 Property taxes receivable - net of allowance 301,979 250,043 - - State appropriations receivable 3,581,492 835,026 - - Federal and state grants receivable 1,276,196 1,153,486 - - Accounts receivable - net of allowance 1,506,901 1,410,972 37,085 52,150 Inventories 2,268,231 2,051,021 - - Prepaid expenses and other assets 1,038,925 1,386,198 - - Total current assets 53,505,574 38,353,249 1,486,095 1,695,264 Long-term investments 137,183,351 135,692,981 1,341,647 1,209,357 Bond issuance costs 104,003 114,403 - - Capital assets - nondepreciable 18,639,677 19,436,533 - - Capital assets - depreciable 144,164,793 135,680,618 - - Total assets $ 353,597,398 $ 329,277,784 $ 2,827,742 $ 2,904,621 LIABILITIES AND NET ASSETS Current liabilities Current portion of long-term debt obligations $ 1,140,000 $ 1,165,000 $ - $ - Accounts payable 6,540,552 10,139,877 - - Accrued interest payable 54,765 60,296 - - Accrued payroll and other compensation 7,963,167 6,428,208 - - Unearned revenue 2,925,963 2,530,648 - - Deposits held for others 436,987 223,686 - - Total current liabilities 19,061,434 20,547,715 - - Long-term debt obligations - net of current portion 7,200,000 8,340,000 - - Compensated absences - net of current portion 1,797,134 1,702,593 - - Total liabilities 28,058,568 30,590,308 - - Net assets Invested in capital assets - net of related debt 154,464,470 145,612,151 - - Restricted: Nonexpendable endowments - - 1,341,647 1,209,357 Expendable scholarships and grants 715,171 585,830 612,205 808,453 Loans 37,927 36,482 - - Unrestricted 170,321,262 152,453,013 873,890 886,811 Total net assets 325,538,830 298,687,476 2,827,742 2,904,621 Total liabilities and net assets $ 353,597,398 $ 329,277,784 $ 2,827,742 $ 2,904,621 The accompanying notes are an integral part of these financial statements. - 14 -
STATEMENTS OF REVENUE, EXPENSES AND CHANGES IN NET ASSETS Years Ended June 30, 2008 and 2007 Component Unit - College Foundation 2008 2007 2008 2007 Operating revenues Tuition and fees - net of scholarship allowance of $8,904,838 in 2008 and $7,488,000 in 2007 $ 30,393,301 $ 30,022,481 $ - $ - Federal grants and contracts 2,790,226 2,412,789 - - State and local grants and contracts 4,086,135 4,830,313 - - Nongovernmental grants and contracts 373,423 359,804 - - Auxiliary activities 12,632,396 11,171,066 - - Miscellaneous 953,340 1,051,705 - - Total operating revenues 51,228,821 49,848,158 - - Operating expenses Instruction 55,408,483 53,394,519 - - Information technology 9,572,805 8,961,962 - - Instructional support 25,302,979 20,887,044 - - Student services 34,920,767 31,130,187 - - Institutional administration 14,616,646 14,794,325 242,896 187,530 Physical plant operations 15,627,929 17,684,444 - - Depreciation expense 12,028,020 10,836,125 - - Public services 369,309 438,080 - - Other expenditures - 52,643 - - Total operating expenses 167,846,938 158,179,329 242,896 187,530 Operating loss (116,618,117) (108,331,171) (242,896) (187,530) Nonoperating revenues (expenses) Pell grant revenue 12,860,165 9,927,860 - - State appropriations 21,469,602 15,841,000 - - Property taxes 98,852,768 96,075,189 - - Gifts - - 289,603 309,069 Investment income 9,335,397 8,469,117 186,002 90,167 Unrealized (loss) gain on investments 951,539 1,167,624 (309,588) 355,338 Net nonoperating revenues 143,469,471 131,480,790 166,017 754,574 Increase (decrease) in net assets 26,851,354 23,149,619 (76,879) 567,044 Net assets - beginning of year 298,687,476 275,537,857 2,904,621 2,337,577 Net assets - end of year $ 325,538,830 $ 298,687,476 $ 2,827,742 $ 2,904,621 The accompanying notes are an integral part of these financial statements. - 15 -
STATEMENTS OF CASH FLOWS Years Ended June 30, 2008 and 2007 2008 2007 Cash flows from operating activities Tuition and fees $ 30,385,630 $ 29,545,535 Grants and contracts 7,127,074 8,221,377 Payments to suppliers (82,402,108) (65,738,521) Payments to employees (74,509,162) (75,770,866) Auxiliary enterprise charges 12,632,396 11,171,066 Other 953,340 1,051,705 Net cash used in operating activities (105,812,830) (91,519,704) Cash flows from noncapital financing activities Pell grant revenue 12,860,165 9,927,861 FFELP loan receipts 11,011,769 6,535,100 FFELP loan disbursements (11,011,769) (6,535,100) Property taxes 98,800,832 96,592,166 State appropriations 18,723,136 18,444,318 Net cash provided by noncapital financing activities 130,384,133 124,964,345 Cash flows from capital and related financing activities Purchase of capital assets (19,546,186) (20,616,845) Principal paid on capital debt (1,165,000) (1,465,000) Interest paid on capital debt (385,809) (441,207) Net cash used in capital and related financing activities (21,096,995) (22,523,052) Cash flows from investing activities Purchase of investments (214,569,192) (134,869,037) Interest on investments 9,509,809 8,008,681 Proceeds from sales and maturities of investments 206,634,197 126,154,902 Net cash provided by (used in) investing activities 1,574,814 (705,454) Net change in cash and cash equivalents 5,049,122 10,216,135 Cash and cash equivalents - beginning of year 18,621,138 8,405,003 Cash and cash equivalents - end of year $ 23,670,260 $ 18,621,138 The accompanying notes are an integral part of the financial statements. - 16 -
Reconciliation of Operating Loss to Net Cash Used in Operating Activities 2008 2007 Operating loss $ (116,618,117) $ (108,331,171) Adjustments to reconcile operating loss to net cash used in operating activities Depreciation 12,028,020 10,836,125 Loss on disposal of capital assets 216,655 389,202 Provision for uncollectible receivables 307,055 617,000 Amortization 10,400 10,400 Changes in operating assets and liabilities which (used) provided cash Accounts receivable (402,988) (687,328) Federal and state grants receivable (122,711) 618,472 Inventories (217,209) 201,416 Prepaid assets and other current assets 347,273 (34,983) Accounts payable (3,599,328) 4,664,381 Accrued payroll and other compensation 1,629,500 26,076 Deposits held for others 213,301 (39,675) Unearned revenue 395,319 210,381 Net cash used in operating activities $ (105,812,830) $ (91,519,704)
NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Reporting Entity Oakland Community College (the "College") is a Michigan Community College whose financial statements have been prepared in accordance with the accounting principles as prescribed by the Governmental Accounting Standards Board and as outlined in the State of Michigan Manual for Uniform Financial Reporting - Michigan Public Community Colleges, 2001. The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational or financial relationships with the College. Based on application of the criteria, the College has one component unit. A component unit is a separate legal entity that is included in the College's reporting entity because of the significance of its operational financial relationships with the College. The Oakland Community College Foundation (the "Foundation") is discretely reported as part of the College's reporting entity (although it is legally separate and governed by its own board of directors) because its sole purpose is to provide support to the College. Audited financial statements of the Foundation may be obtained by contacting Cheryl Kozell, Executive Director of Advancement, 2480 Opdyke Road, Bloomfield Hills, Michigan 48304-2266. Significant Accounting Policies Significant accounting policies followed by Oakland Community College are described below to enhance the usefulness of the financial statements to the reader: Basis of Accounting Oakland Community College The financial statements of the College have been prepared using an economic resources management focus and the accrual basis of accounting. This means that private sector standards of accounting issued prior to November 30, 1989 generally are followed to the extent that those standards do not conflict with guidance of the Governmental Accounting Standards Board. The College has elected not to follow private sector standards issued after that date. Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. - 17 -
NOTES TO FINANCIAL STATEMENTS Basis of Accounting Component Unit The foundation is a nonprofit organization that reports under Financial Accounting Standards Board (FASB) standards, including FASB Statement No. 116, Accounting for Contributions Received and Contributions Made, and 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. With the exception of necessary presentation adjustments, no modifications have been made to the Foundation s financial information in the College s financial report for these differences. Cash and Cash Equivalents Cash and cash equivalents consist of all highly liquid investments with an initial maturity of three months or less. Investments Investments are stated at fair value based on quoted market prices. Inventories Inventories are stated at the lower of first-in, first-out cost, or market. Capital Assets Capital assets consist of property and equipment that are stated at cost, or, in the case of donated property, at estimated fair value on the date the gift was received. Depreciation is provided for property and equipment on a straight-line basis over the estimated useful lives of the assets. Expenditures for property and equipment greater than $5,000 are capitalized. Revenue All transactions that result in sales and/or receipts from goods and services, such as tuition are classified as operating revenue. All revenue sources that are primarily nonexchange in nature in which the College received value without directly giving equal value in return are classified as nonoperating revenue. - 18 -
NOTES TO FINANCIAL STATEMENTS Accounts Receivable Accounts receivable are recorded net of allowances for uncollectible accounts of $198,000 and $208,000 as of June 30, 2008 and 2007, respectively. The allowance for doubtful accounts is established using a general valuation allowance based on historical loss experience. All amounts deemed to be uncollectible are charged against the allowance in the period that determination is made. Expenses Operating expenses include the cost of services, administrative expenses, and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses. Revenue Recognition The College is a state-assisted institution of higher education that receives a subsidy from the State of Michigan. This subsidy is determined annually based upon a formula determined by the State of Michigan. State appropriations are recognized in the period to which they pertain. Property tax revenue is recognized on the accrual basis of accounting in the period for which the taxes are levied. Taxes have historically been assessed in the summer and are due by September 15. Taxes are collected substantially by the County of Oakland (among other taxing jurisdictions) and remitted to the College primarily from August to October. Delinquent real property taxes receivable are purchased by Oakland County's delinquent tax revolving fund in approximately March of each year. Revenue received prior to year end that is related to the next fiscal period is recorded as unearned revenue. This consists primarily of $2,510,000 of unearned tuition revenue for the 2008 summer semester, which began on May 5, 2008 and ended on August 19, 2008, and $2,397,000 of unearned tuition revenue for the 2007 summer semester, which began on May 7, 2007 and ended on August 22, 2007. Unrestricted Net Assets Unrestricted net assets represent net assets that are not subject to externally imposed restrictions. - 19 -
NOTES TO FINANCIAL STATEMENTS The College's unrestricted net assets are comprised of the following: 2008 2007 Designated for future capital outlay and major maintenance $ 102,402,049 $ 92,421,055 Quasi-endowment 17,904,051 19,482,384 Auxiliary activities (childcare supplement) 5,086,028 3,417,996 Instructional programs 3,200,000 1,613,117 Future retirement contributions 5,000,000 4,000,000 Future health care costs 2,000,000 1,500,000 Various designated programs 2,688,130 - Unrestricted and unallocated net assets 32,041,004 30,018,461 Reclassifications $ 170,321,262 $ 152,453,013 Certain amounts in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements. 2. CASH AND INVESTMENTS Cash and Cash Equivalents State law limits the College to invest in demand accounts, negotiable certificates of deposit, savings accounts, or other interest-earning deposit accounts of banks that are members of the Federal Deposit Insurance Corporation (FDIC) or savings and loan associations that are members of the Federal Savings and Loan Insurance Corporation. An estimated $2,022,522 and $2,000,000 of cash and certificates of deposit was covered by FDIC insurance and approximately $35,946,902 and $28,202,243 of cash and certificates of deposit was not covered by FDIC insurance at June 30, 2008 and 2007, respectively. Investments Investment policies as set forth by the board of trustees also authorize the College to invest in bonds, bills, or notes of the United States or of an agency of instrumentality of the United States or obligations of the State of Michigan. Funds may also be invested in - 20 -
NOTES TO FINANCIAL STATEMENTS commercial paper that is supported by an irrevocable letter of credit issued by a bank that is a member of the FDIC and commercial paper of corporations located in Michigan. Reports are submitted to the board of trustees on a monthly basis to provide a performance report of investments. The board of trustees has authorized the College's treasurer to make investment decisions in accordance with policies set forth by the board of trustees. Interest Rate Risk The College does not have formal investment guidelines that limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. As of June 30, 2008, the College had the following investments and maturities: Fair Market Less Than More Than Value One Year 1-5 Years 5-10 Years 10 Years Money markets $ 14,482,888 $ 14,482,888 $ - $ - $ - External investment pools 11,784,722 11,784,722 - - - Commercial Paper 8,004,192 8,004,192 - - - Certificates of deposit 11,394,335 11,394,335 - - - U.S. agencies* 136,282,970 545,721 26,300,352 33,737,093 75,699,804 Total investments $ 181,949,107 $ 46,211,858 $ 26,300,352 $ 33,737,093 $ 75,699,804 As of June 30, 2007, the College had the following investments and maturities: Fair Market Less Than More Than Value One Year 1-5 Years 5-10 Years 10 Years Money markets $ 11,158,395 $ 11,158,395 $ - $ - $ - External investment pools 8,709,805 8,709,805 - - - Certificates of deposit 10,084,018 9,003,614 1,080,404 - - U.S. agencies* 137,894,885 2,254,301 33,035,802 41,161,936 61,442,846 Total investments $ 167,847,103 $ 31,126,115 $ 34,116,206 $ 41,161,936 $ 61,442,846 * U.S. agency securities are subject to monthly, quarterly, or semiannual interest and or principal payments. The maturities are based on the stated date of the last principal and interest payment. These investments may be callable and have interest rates ranging from 2.7 percent to 6 percent. - 21 -
NOTES TO FINANCIAL STATEMENTS Total investments are classified in the accompanying balance sheets as: 2008 2007 Cash and cash equivalents, net of unpaid checks $ 23,670,260 $ 18,621,138 Unpaid checks 2,446,645 2,274,858 Total cash and cash equivalents 26,116,905 20,895,996 Short-term investments 18,648,851 11,258,216 Long-term investments 137,183,351 135,692,891 Total investments $ 181,949,107 $ 167,847,103 Credit Risk State law limits investments in commercial paper to corporations rated prime by at least one of the standard rating services. The College uses Standard & Poor's and Moody's Investors Service to monitor ratings and the College portfolio is invested in accordance with these guidelines. The College fixed income investments by credit rating at June 30, 2008 and 2007 were as follows: Credit Rating AAA A1/P1 A2/P2 Not Rated Total Money markets $ 1,570,570 $ - $ - $ 12,912,318 $ 14,482,888 External investment pools 13,802 - - 11,770,920 11,784,722 Certificates of deposit 1,064,935 - - 10,329,400 11,394,335 Commercial paper - 5,002,432 3,001,760-8,004,192 U.S. agencies* 136,282,970 - - - 136,282,970 Total investments $ 138,932,277 $ 5,002,432 $ 3,001,760 $ 35,012,638 $ 181,949,107 Credit Rating AAA A1/P1 A2/P2 Not Rated Total Money markets $ 5,038,873 $ - $ - $ 6,119,522 $ 11,158,395 External investment pools - - - 8,709,805 8,709,805 Certificates of deposit 1,000,000 - - 9,084,018 10,084,018 U.S. agencies* 137,894,885 - - - 137,894,885 Total investments $ 143,933,758 $ - $ - $ 23,913,345 $ 167,847,103-22 -
NOTES TO FINANCIAL STATEMENTS Concentration of Credit Risk More than 5 percent of the College's investments at June 30, 2008 and 2007 were invested as follows: Percent Issuer 2008 2007 Federal Home Loan Bank 5 24 Federal Home Loan Mortgage Corporation 38 31 Federal National Mortgage Association 29 19 Custodial Credit Risk All of the College's investments are in the name of the College or, as applicable, the investments are held in trust accounts with each financial institution from which they were purchased. 3. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2008 was as follows: Balance Disposals/ Balance Useful Life July 1, 2007 Additions Transfers July 1, 2008 Years Capital assets - nondepreciable Land $ 3,006,592 $ - $ - $ 3,006,592 Construction in progress 16,429,941 16,714,174 (17,511,030) 15,633,085 Total capital assets - nondepreciable $ 19,436,533 16,714,174 (17,511,030) $ 18,639,677 Capital assets - depreciable Land improvements $ 10,149,111 5,240 64,488 $ 10,218,839 5-25 Buildings and improvements 185,403,757 16,329 16,448,780 201,868,866 5-40 Furniture, fixtures and equipment 28,206,757 2,921,439 (2,172,537) 28,955,659 5-20 Library materials 9,386,626 274,811 (277,974) 9,383,463 15 Infrastructure 15,761,399-2,805,154 18,566,553 10-25 Total capital assets - depreciable 248,907,650 3,217,819 16,867,911 268,993,380 Less accumulated depreciation Land improvements 6,707,124 313,220-7,020,344 Buildings and improvements 68,992,223 8,442,588-77,434,811 Furniture, fixtures and equipment 18,525,758 2,408,955 (426,462) 20,508,251 Library materials 7,894,829 103,848-7,998,677 Infrastructure 11,107,098 759,406-11,866,504 Total accumulated depreciation 113,227,032 12,028,017 (426,462) 124,828,587 Total capital assets - depreciable, net $ 135,680,618 $ 144,164,793 Net capital assets $ 155,117,151 $ 162,804,470-23 -
NOTES TO FINANCIAL STATEMENTS Capital asset activity for the year ended June 30, 2007 was as follows: Balance Disposals/ Balance Useful Life July 1, 2006 Additions Transfers July 1, 2007 Years Capital assets - nondepreciable Land $ 3,006,592 $ - $ - $ 3,006,592 Construction in progress 15,084,108 18,550,466 (17,204,633) 16,429,941 Total capital assets - nondepreciable $ 18,090,700 18,550,466 (17,204,633) $ 19,436,533 Capital assets - depreciable Land improvements $ 10,657,424 - (508,313) $ 10,149,111 5-25 Buildings and improvements 170,586,265 64,905 14,752,587 185,403,757 5-40 Furniture, fixtures and equipment 24,830,934 2,161,079 1,214,744 28,206,757 5-20 Library materials 9,114,970 271,656-9,386,626 15 Infrastructure 15,787,886 - (26,487) 15,761,399 10-25 Total capital assets - depreciable 230,977,479 2,497,640 15,432,531 248,907,650 Less accumulated depreciation Land improvements 6,860,072 428,665 (581,613) 6,707,124 Buildings and improvements 61,649,856 7,603,720 (261,353) 68,992,223 Furniture, fixtures and equipment 17,084,629 1,954,575 (513,446) 18,525,758 Library materials 7,753,269 141,560-7,894,829 Infrastructure 10,425,981 707,605 (26,488) 11,107,098 Total accumulated depreciation 103,773,807 10,836,125 (1,382,900) 113,227,032 Total capital assets - depreciable, net $ 127,203,672 $ 135,680,618 Net capital assets $ 145,294,372 $ 155,117,151 The College capitalized interest costs of approximately $385,000 and $431,000 for the years ended June 30, 2008 and 2007, respectively. 4. RETIREMENT PLANS Defined Benefit Pension Plan Plan Description The College participates in the Michigan Public School Employees' Retirement System (MPSERS), a statewide, cost-sharing, multiple employer defined benefit public employee retirement system governed by the State of Michigan that covers most employees of the College. The MPSERS provides retirement, survivor, and disability benefits to plan members and their beneficiaries. The Michigan Public School Employees' Retirement System issues a publicly available financial report that includes financial statements and - 24 -
NOTES TO FINANCIAL STATEMENTS required supplementary information for the MPSERS. That report may be obtained by writing to the MPSERS at P.O. Box 30171, Lansing, Ml 48909-7671. Funding Policy Employer contributions to the MPSERS result from the effects of implementing the School Finance Reform Act. Under these procedures, the College is required to contribute the full actuarial funding contribution amount to fund pension benefits, plus an additional amount to fund retiree health care benefit amounts on a cash disbursement basis. The rate was 16.34 percent of the covered compensation to the plan for the period July 1, 2006 through September 30, 2006 and was 17.74 percent for the duration of the 2006/2007 fiscal year and July 1, 2007 to September 30, 2007 of the 2007/2008 fiscal year. From Oct 1, 2007 through June 30, 2008, the rate was 16.72 percent. On June 6, 2007, MPSERS issued a $1,872,000 credit to the College as a result of the change in certain actuarial assumptions used to determine the plan s funding levels. The credit was available to reduce the College's contributions to the plan during May through August 2007. The College recorded the credit as a reduction to retirement expense during 2007. The payroll for the College's employees covered by MPSERS was $64.6 million, $66.7 million, and $66.1 million for fiscal years ended June 30, 2008, 2007, and 2006, respectively. The MPSERS board of trustees sets the employer contribution rate based on the annual required contribution of the employers (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the plan over a period not to exceed thirty years. The College's contributions to the MPSERS plan were $10 million, $11.6 million, and $10 million for the years ended June 30, 2008, 2007, and 2006, respectively. Postemployment Benefits Under the MPSERS Act, all retirees participating in the MPSERS pension plan have the option of continuing health, dental, and vision coverages. Retirees that have this coverage contribute an amount equivalent to the monthly cost for Part B Medicare and 10 percent of the monthly premium amount for the health, dental, and vision coverages. Required contributions for postemployment health care benefits are included as part of the College's total contribution to the MPSERS plan discussed above. Defined Contribution Plan Existing professional MPSERS members and new professional employees of the College may elect to participate in an optional retirement program (ORP) in lieu of participating - 25 -
NOTES TO FINANCIAL STATEMENTS in the MPSERS plan. The ORP plan is a defined contribution plan affiliated with the Teachers Insurance and Annuity Association and the College Retirement Equities Fund (TIAA-CREF). Under the ORP, the percentage contributed by the College is 11 percent for the years ended June 30, 2008 and 2007. The payroll for the College's employees covered by the optional plan was $9.3 million and $8.7 million for fiscal years ended 2008 and 2007, respectively. College contributions were made in the amount required by the plan and totaled $1,028,000 and $958,000 for fiscal years 2008 and 2007, respectively. Under the member investment plan, employees may contribute 4 percent of gross wages in addition to the College's contribution. In addition to the MPSERS and ORP plans, the College also provides deferred compensation plans to all of its full-time employees under Sections 403(b) and 457(b) of the U.S. Internal Revenue Code. The College employees contribute varying amounts up to $15,500 in 2008 and $15,500 in 2007. Additional catch-up contributions for employees over age 50 were $5,000 in 2008 and $5,000 in 2007. The amounts are elective and allowable by current tax law. The employees contributed to their deferred compensation plan in the amounts of $3,609,834 and $3,519,643 for the years ended June 30, 2008 and 2007, respectively. The College did not make any contributions to these plans during 2008 and 2007. 5. LONG-TERM LIABILITIES Long-term liabilities consist of the following as of June 30, 2008: Interest Maturity Rate Date July 1, 2007 Additions Reductions June 30, 2008 Bonds Payable Oakland Community College 7.10% to Student Union Revenue 7.20% 2011 Bond of 1971 $ 510,000 $ - $ 135,000 $ 375,000 2003 Community College 2.00% to Refunding Bond dated 4.60% 2018 September 25, 2003 8,995,000-1,030,000 7,965,000 Other long-term obligations Compensated absences 2,270,124 126,055-2,396,179 Total $11,775,124 $ 126,055 $ 1,165,000 $10,736,179-26 -
NOTES TO FINANCIAL STATEMENTS Long-term liabilities consist of the following as of June 30, 2007: Interest Maturity Rate Date July 1, 2006 Additions Reductions June 30, 2007 Bonds Payable Oakland Community College 7.10% to Student Union Revenue 7.20% 2011 Bond of 1971 $ 640,000 $ - $ 130,000 $ 510,000 1999 Installment Purchase Agreement dated 5.30% 2007 December 22, 1999 280,000-280,000-2003 Community College 2.00% to Refunding Bond dated 4.60% 2018 September 25, 2003 10,050,000-1,055,000 8,995,000 Other long-term obligations 2,047,917 222,207-2,270,124 Total $13,017,917 $ 222,207 $ 1,465,000 $11,775,124 The current portion of compensated absences at June 30, 2008 and 2007 is $599,045 and $567,531, respectively. Total principal and interest maturities on bonds for years after June 30, 2008 are as follows: Years Ending June 30 Principal Interest Total 2009 $ 1,140,000 $ 342,090 $ 1,482,090 2010 1,120,000 301,010 1,421,010 2011 1,005,000 256,850 1,261,850 2012 640,000 217,040 857,040 2013 670,000 192,080 862,080 2014-2018 3,765,000 518,735 4,283,735 Total $ 8,340,000 $ 1,827,805 $ 10,167,805 6. RISK MANAGEMENT The College is exposed to various risks of loss related to property loss, torts, errors and omissions, and workers' compensation as well as medical benefits provided to employees. The College has purchased commercial insurance for medical benefits and workers' compensation claims and participates in the Michigan Community College Risk Management Authority risk pool for claims related to all other types of claims. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage in any of the past three fiscal years. - 27 -