North Central Michigan College Years Ended June 30, 2017 and 2016 Financial Statements and Supplementary Information
TABLE OF CONTENTS PAGE Board of Trustees 1 Management s Discussion and Analysis 2-11 Independent Auditors Report 12-13 Financial Statements for the Years Ended June 30, 2017 and 2016 Statements of Net Position 14 Statements of Revenues, Expenses and Changes in Net Position 15 Statements of Cash Flows 16-17 Notes to Financial Statements 18-40 Required Supplementary Information MPSERS Cost-Sharing Multiple-Employer Plan: Schedule of the College s Proportionate Share of the Net Pension Liability 41 Schedule of College Contributions 42 Supplementary Information for the Year Ended June 30, 2017 (Unaudited) Combining Statement of Net Position 43 Combining Statement of Revenues, Expenses, Transfers and Changes in Net Position 44
BOARD OF TRUSTEES Executive Officer Cameron Brunet-Koch President Board of Trustees Phil Millard Chairperson Dave Kring Vice Chairperson Irma Noël Secretary John Fought Treasurer Melissa Keiswetter Trustee Marion Kuebler Trustee James Shirilla, M.D Trustee 1
MANAGEMENT S DISCUSSION AND ANALYSIS
MANAGEMENT S DISCUSSION AND ANALYSIS Introduction The North Central Michigan College (the College ) financial report consists of three basic financial statements: the Statement of Net Position which presents the assets, deferred outflows, liabilities, deferred inflows and net position of the College as of the end of the fiscal year; the Statement of Revenues, Expenses and Changes in Net Position, which reflects revenues and expenses recognized during the fiscal year; and the Statement of Cash Flows, which provides information on all of the cash inflows and outflows for the College by major category during the fiscal year. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) pronouncements. In compliance with GASB Statement No. 61, The Financial Reporting Entity: Omnibus, the North Central Michigan College Foundation (the Foundation ) is reported as a component unit of the College. Separately issued financial statements for the Foundation are also available by contacting the Foundation office. The following discussion and analysis provides an overview of the financial position and activities of North Central Michigan College for the year ended June 30, 2017. Management has prepared this discussion along with the financial statements, related note disclosures and the required supplemental pension schedules. Following the basic financial statements, notes, and the required supplemental pension schedules, are two supplementary information statements: the Combining Statement of Net Position and the Combining Statement of Revenues, Expenses, Transfers and Changes in Net Position. Though GASB does not require this supplementary information be present for a fair and complete presentation, the statements do provide additional information regarding the various funds and activities of the College that is not detailed in the basic statements. Financial Highlights The College s financial position remained strong at June 30, 2017, with assets of $53.5 million and liabilities of $19.3 million. Of the liabilities, $2.1 million are due within one year and $17.2 million are due beyond one year. Of the amount due beyond one year, $12.9 million relates to GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which requires the College to record its share of the unfunded Michigan Public School Employees Retirement System ( MPSERS ) obligation/liability for employees. As required by GASB, this pronouncement was implemented for the first time during the year ended June 30, 2015. Net position, which represents the residual interest in the College s assets and deferred outflows after liabilities and deferred inflows are deducted, increased $2.0 million. The College continues to face challenges posed by the uncertainty of state appropriations, decreasing student enrollments, and rising health care costs. These financial statements reflect College-wide departmental savings in an effort to balance the budget with the anticipation of further budget reductions. The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position These two statements will help the reader answer the question, Is North Central Michigan College as a whole, better or worse off as a result of the year s activities? The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position report information on the College as a whole and on its activities in a way that helps answer this question. When revenues and other support exceed expenses, the result is an increase in net position. When the reverse occurs, the result is a decrease in net position. The relationship between revenues and expenses may be thought of as North Central Michigan College s operating results. 2
MANAGEMENT S DISCUSSION AND ANALYSIS These two statements report the College s net position and net position changes. One can think of net position the difference between assets, deferred outflows/inflows of resources, and liabilities as one way to measure the College s financial health, or financial position. Over time, increases or decreases in the net position are one indicator of whether the College s financial health is improving or deteriorating. Many other non-financial factors, such as the trend in student applications, student retention, condition of the buildings, and strength of the faculty also need to be considered to assess the overall health of the College. These statements include all assets, deferred outflows/inflows of resources, and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector institutions. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. Net Position Total net position at June 30, 2017, 2016, and 2015 was $35.6 million, $33.6 million, and $32.9 million, respectively. Following is a comparison of the major components of the net position of the College and operating results for years ended June 30, 2017, 2016, and 2015: Net Position as of June 30 (in millions) 2017 2016 2015 Current assets $7.3 $6.2 $5.8 Noncurrent assets: Capital assets, net of depreciation 27.2 26.1 26.7 Other 19.0 18.9 18.3 Total Assets 53.5 51.2 50.8 Deferred outflows of resources 1.8 1.5 1.3 Current liabilities 2.1 1.7 1.7 Noncurrent liabilities 17.2 17.0 16.3 Total Liabilities 19.3 18.7 18.0 Deferred inflows of resources 0.4 0.4 1.2 Net position: Net investment in capital assets 26.2 26.0 26.0 Restricted-Nonexpendable 4.5 4.1 4.1 Restricted-Expendable 3.8 2.8 2.6 Unrestricted 1.1 0.7 0.2 Total net position $35.6 $33.6 $32.9 3
MANAGEMENT S DISCUSSION AND ANALYSIS Operating Results for the Year Ended June 30 (in millions) 2017 2016 2015 Operating Revenues Tuition and fees, net $ 4.3 $ 4.2 $ 4.0 Federal grants and contracts 0.2 0.2 0.4 State and local grants & contracts 0.1 0.1 0.1 Nongovernmental grants 0.4 0.5 0.4 Auxiliary activities, net 1.0 1.7 1.7 Other 0.4 0.7 0.6 Total Operating Revenues 6.4 7.4 7.2 Total Operating Expenses 18.8 19.9 20.8 Operating Loss (12.4) (12.5) (13.6) Nonoperating Revenues (Expenses) State appropriations 3.5 3.4 3.5 Property tax levy 6.5 6.4 6.2 Pell grants 2.7 3.0 3.4 Investment Income 0.4 0.1 0.1 Interest on capital related debt (0.2) (0.2) (0.2) Donations & special events, Foundation 1.1 0.2 0.4 Net Nonoperating Revenues 14.0 12.9 13.4 Other Revenues Additions to permanent endowments 0.4 0.3 0.3 Change in net position 2.0 0.7 0.1 Net Position-Beginning of Year 33.6 32.9 43.7 Implementation of GASB 68 - - (10.9) Net Position-End of Year $ 35.6 $ 33.6 $ 32.9 Operating Revenues Operating revenues include charges for all exchange transactions such as tuition and fees, the commissions from the sales of books and supplies, rental revenue of the residence halls and revenue from the cafeteria & conference center. In addition, certain federal, state, and private grants are considered operating revenues, if they are not for capital purposes, and are considered a contract for services. 4
MANAGEMENT S DISCUSSION AND ANALYSIS The following is a graphic illustration of operating revenues by source for the year ended June 30, 2017: Auxiliary Activities, 15% Tuition and Fees, 67% Other Sources, 7% Nongovernmental Grants, 7% Federal Grants and Contracts, 3% State and Local Grants and Contracts, 1% Operating revenue changes for fiscal year 2017 were the result of the following factors: Tuition and fees totaled $4,311,272, a $121,629 increase in revenues from last year primarily due to an increase in tuition rates. Auxiliary activities totaled $965,331, a $683,438 decrease in revenues from last year primarily due to the College s bookstore being contracted out to Follett Higher Education Group, Inc. ( FHEG ) beginning February, 2016. A corresponding decrease in operating expenses also occurred, as detailed in the operating expenses section below. The commissions from FHEG helped the bookstore provide approximately $100,000 of net operating income to the College s Auxiliary Activities Fund. Operating revenue changes for fiscal year 2016 were the result of the following factors: Tuition and fees totaled $4,189,643, a $146,542 increase in revenues from last year primarily due to an increase in tuition rates, which helped offset enrollment declines. Other sources includes $300,787 received per an agreement with a local manufacturing company for the costs of a mobile digital fabrication lab. The lab was purchased by the College during the fiscal year ended June 30, 2014. The College receives substantial nonoperating support from state appropriations, property tax revenue and Pell grants. These nonoperating revenue sources mitigate the normal operating losses as tuition and fees alone are not adequate to cover operating expenses. Nonoperating revenues and expenses are an integral component in determining the increase or decrease in net position. Operating Expenses Operating expenses are all the costs necessary to provide services and conduct the programs of the College. 5
MANAGEMENT S DISCUSSION AND ANALYSIS The following is a graphic illustration of operating expenses by function for the year ended June 30, 2017: Operation and maintenance of plant, 9% Depreciation, 7% Instruction, 37% Institutional Administration, 12% Public Service, 2% Student Services, 20% Instructional Support, 13% Operating expenses decreased by 5.5% from last year. Operating expense changes for fiscal year 2017 were the result of the following factors: Salaries and fringes increased by approximately $450,000 this fiscal year primarily because of a rate increase of 3% for all eligible employees, along with a 2.5% increase in the State s hard cap amount for health insurance. Salaries and fringes totaled approximately $11.7 million this fiscal year, representing 62.0% of total operating expenses. Pell grants awarded decreased approximately $261,000 compared to the prior year primarily due to declines in enrollment. The College s bookstore was contracted out to Follett Higher Education Group, Inc. beginning February, 2016. This resulted in a decrease of bookstore expenses of approximately $850,000 compared to the prior year. Operating expense changes for fiscal year 2016 were the result of the following factors: Salaries and fringes decreased by approximately $400,000 this fiscal year primarily because of several employee retirements that occurred during the fiscal year ended June 30, 2015. Salaries and fringes totaled approximately $11.2 million this fiscal year, representing 56.4% of total operating expenses. Pell grants awarded decreased by approximately $475,000 compared to the prior year primarily due to declines in enrollment. With a milder winter in 2016 being a primary factor, power and heat expenses decreased by approximately $90,000 compared to the prior year. 6
MANAGEMENT S DISCUSSION AND ANALYSIS Net Nonoperating Revenues Net nonoperating revenues represent all revenue sources that are primarily non-exchange in nature less interest on capital asset-related debt. They consist primarily of state appropriations, property tax revenue, Pell grants and investment income (including realized and unrealized gains and losses). The following is a graphic illustration of net nonoperating revenues by source for the year ended June 30, 2017: Donations, 7% Other, 1% Pell Grants, 20% State Appropriations, 25% Property Tax Levy, 47% Net nonoperating revenue changes for fiscal year 2017 were the result of the following factors: State appropriations increased by $142,156 as compared to the prior year, primarily due to budgeted amounts provided by the State. Pell grants received decreased by $260,879 due mainly to declines in enrollment from last year. Donations received by the Foundation increased by $809,256 compared to the prior year, primarily due to a large bequest and pledge made by donors. Net nonoperating revenue changes for fiscal year 2016 were the result of the following factors: State appropriations decreased by $177,188 as compared to the prior year. This is because State appropriations includes an amount for Michigan Public School Employees Retirement System (MPSERS) unfunded actuarial accrued liability (UAAL) rate stabilization payments, which are used to offset MPSERS retirement expenses. For GASB Statement No. 68 purposes, the State in the current year indicated a portion of these UAAL payments should be recorded in the Pension Fund as an offset to State appropriations revenue. This amount was $360,521. Property tax levy revenues increased by $140,185, or 2.2% as compared to the prior year. This increase represents an encouraging trend of climbing real property values in Emmet County. Pell grants decreased by $474,152 due mainly to declines in enrollment from last year. 7
MANAGEMENT S DISCUSSION AND ANALYSIS Other Revenues Other revenues consist of items that are typically nonrecurring, extraordinary, or unusual to the College. Other revenues of $476,791 resulted from additions to permanent endowments for the promotion of the College s educational and cultural activities. This amount is from the Foundation s receipt of these types of contributions from donors and investment earnings thereon in the current year. Statement of Cash Flows The primary purpose of this statement is to provide relevant information about the cash receipts and cash payments of an entity during a period. The Statement of Cash Flows also may help users assess: An entity s ability to generate future net cash flows Its ability to meet its obligations as they come due Its needs for external financing Cash Flows for the Year Ended June 30 (in millions) 2017 2016 2015 Cash Provided by (used for): Operating activities $ (10.1) $ (10.1) $ (12.6) Noncapital financing activities 12.7 12.0 13.0 Capital and related financing activities (2.6) (0.6) (0.6) Investing activities (0.3) 0.3 (1.6) Net Increase (Decrease) in Cash (0.3) 1.6 (1.8) Cash-Beginning of Year 12.5 10.9 12.7 Cash-End of Year $ 12.2 $ 12.5 $ 10.9 Net cash used for operating activities totaled $10.1 million for the fiscal year ending June 30, 2017. This was financed by $12.7 million of net cash flows from non-capital financing activities such as property taxes and state appropriations. Net cash used in capital and related financing activities totaled $2.6 million. This includes $2.5 million of capital asset purchases, and $0.8 million of debt principal and interest payments net of $0.7 million in capital property tax revenue. Net cash used in investing activities totaled $0.3 million. This includes interest received of $0.1 million, the sale and maturities of investments totaling $5.6 million, and the purchase of investments of $5.9 million. The net result of all cash flows produced a decrease in the College s cash of $0.3 million from last year. Capital Assets At June 30, 2017, the College had approximately $27.2 million invested in capital assets, net of accumulated depreciation of $19.6 million. Depreciation charges totaled approximately $1.3 million for the current fiscal year. 8
MANAGEMENT S DISCUSSION AND ANALYSIS Capital assets consist of the following as of June 30: 2017 2016 2015 Land $ 13,306 $ 13,306 $ 13,306 Construction in progress 1,763,256 77,831 30,013 Sculptures 522,609 522,609 522,609 Capital assets not being depreciated or amortized 2,299,171 613,746 565,928 Buildings and improvements 35,090,275 34,862,616 34,639,322 Infrastructure 2,957,105 2,957,105 2,957,105 Furniture, fixtures, and equipment 5,009,343 4,498,391 4,316,564 Library Materials 727,760 875,842 859,194 Software 787,695 787,695 745,607 Capital assets being depreciated Total capital assets 44,572,178 46,871,349 43,981,649 44,595,395 43,517,792 44,083,720 Less accumulated depreciation 19,648,461 18,531,511 17,361,690 Total capital assets, net $ 27,222,888 $ 26,063,884 $ 26,722,030 The approximate cost of major capital additions this year consist of the following: Emergency notification system $ 247,000 Cafeteria roof replacement 155,000 Campus-wide access control system 130,000 Closed circuit television video management upgrade 44,000 Construction in progress of $1,763,256 consists mainly of the following, at approximate costs incurred by June 30, 2017: Library renovation $ 1,379,000 Master plan projects (parking lots, ring road, construction management services) 274,000 Replacing educational learning management software 62,000 More detailed information about the College s capital assets is presented in the notes to the financial statements. Debt The College had $4,410,000 in bond debt outstanding at June 30, 2017. Debt principal repayments of $645,000 were made on this debt during the year. More detailed information about the College s long-term liabilities is presented in the notes to the financial statements. Economic Factors That Will Affect The Future The economic position of the College is significantly impacted by the actions of the State of Michigan. Over the years, the College has had to adjust to sharply lower State funding while still maintaining a balanced budget. Currently, State of Michigan appropriations are 23% of the total general fund revenue for the College. The current 2017-2018 State Appropriations Bill, which includes a performance funding amount, increased annual funding to the College by 1.9%. Though the College works diligently to control expenses, the end result of flat funding from the State shifts more of the burden for supporting the College operations to the district taxpayers and students we serve. 9
MANAGEMENT S DISCUSSION AND ANALYSIS Property tax revenue represents approximately 34% of general fund revenues and, for the third year in a row, taxable property values in Emmet County have increased (2.85% in 2017, 1.5% in 2016 and 2.05% in 2015). Local and state economies have rebounded significantly in the last few years fueling the increases in real property values. At the October 24, 2017 Board of Trustees meeting the Board approved a resolution to refund the Series 2010 bonds (Limited Tax General Obligation), dated August 12, 2010, which are callable on May 1, 2020, and are due and payable May 1, 2018 through May 1, 2030. The College s refunding bonds, Series 2017 (Limited Tax General Obligation Bonds) will be issued for the purposes of refunding a portion of the College s outstanding maturities of the Series 2010 (Limited Tax General Obligation) bonds. At the January 9, 2017 meeting, the Board of Trustees approved an increase of 5% in the tuition rates beginning with the summer semester of 2017 to offset a forecasted decline in enrollment. While the Board of Trustees has the ability to increase tuition rates to help offset rising costs, the Board of Trustees is ever mindful of the impact that tuition increases have on our students and strives to keep the increases at manageable levels. At the October 2014 Board of Trustees meeting, the Board approved a new master plan for the College. The College s Architect spent several months working with College representatives and community stakeholders to produce a plan that is in line with the College s vision, mission, philosophy and core values. The result is a collection of ideas and initiatives that will provide a blueprint for long-term College planning, both physical and academic, in a flexible, coordinated manner. The proposed plan identifies 12 priorities for the College that will be pursued in the next five years. On July 24, 2017 the Governor of Michigan enacted Public Act 107 of 2017, a fiscal year 2017 appropriations act, that authorized the College to begin planning for the administration/classroom (AD/CL) building renovation project. The project was approved through the state capital outlay process. As part of the program the State of Michigan will fund, if approved for construction, $3.4 million of the $6.8 million project. The projected is expected to start Construction no earlier than September of 2018. Michigan Public Act 152 of 2011 imposes a cap on the annual per-employee health benefit costs paid by governmental agencies in Michigan and limits the College s incremental exposure to the rate of medical inflation. The full financial impact of the Affordable Care Act has not yet been realized. The numerous reporting requirements and new taxes will continue to impact both the College and its employees individually. The College utilizes an internal Health Care Committee to help sort through the requirements and to determine the health insurance options for the College. One of the townships in the Colleges taxing district is involved in litigation relating to real property tax values with a taxpayer. The hearing is scheduled for December 2017. If the taxable value is lowered, the township would have to reimburse the taxpayer for mills collected during the period under protest and future tax dollars would be reduced. In the event the township is required to reimburse the taxpayer, they would seek reimbursement from the College for their portion of any back taxes and there would additionally be a reduction of future tax dollars received. Due to the uncertain outcome of this litigation, a liability has not been estimated or recorded. The Governmental Accounting Standards Board issued GASB No. 68, Accounting and Financial Reporting for Pensions, which requires the College to record its share of the unfunded MPSERS obligation/liability for employees. This was implemented for the first time during the year ended June 30, 2015. The net pension liability for the year ended June 30, 2017 was $12,855,123. The Governmental Accounting Standards Board issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, which requires governments that provide postemployment benefits other than pensions (OPEB) to recognize their share of the net OPEB liability related to participation in the MPSERS plan. The College expects this statement to have a significant impact on the financial statements and note disclosures during the year of implementation and is currently evaluating its impact. The provisions of this statement are effective for the College s financial statements for the year ending June 30, 2018. 10
MANAGEMENT S DISCUSSION AND ANALYSIS Contacting the College s Financial Management The financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the College s finances and to demonstrate the College s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the business office, North Central Michigan College, 1515 Howard Street, Petoskey, Michigan 49770. 11
INDEPENDENT AUDITORS REPORT
Rehmann Robson INDEPENDENT AUDITORS REPORT 107 S. Cass St. Suite A Traverse City, MI 49684 Ph: 231.946.3230 Fx: 231.946.3955 rehmann.com October 19, 2017 Board of Trustees North Central Michigan College Petoskey, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the blended component unit of North Central Michigan College (the College ) as of and for the years ended June 30, 2017 and 2016, 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 accounting principles generally accepted in the United States of America; 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. Independent Auditors Responsibility 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the North Central Michigan College Foundation blended component unit. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the North Central Michigan College Foundation, is based solely on the report of the other auditors. The financial statements of the North Central Michigan College Foundation were not audited in accordance with Government Auditing Standards. 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 opinion. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 12
Opinion In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of North Central Michigan College as of June 30, 2017 and 2016, and the results of its operations and cash flows, for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the schedules for the pension plan, as listed in the table of contents, 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 Information Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the College's basic financial statements. The supplementary combining information identified in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in our audits of the financial statements and accordingly we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued, under separate cover, our report dated October 19, 2017 on our consideration of North Central Michigan 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 North Central Michigan College s internal control over financial reporting and compliance. 13
FINANCIAL STATEMENTS
STATEMENTS OF NET POSITION June 30 2017 2016 Assets Current assets Cash and cash equivalents $ 5,615,576 $ 5,043,795 Receivables, net 264,484 271,449 Federal and state grants receivable, net 776,100 802,811 Bequest receivable 279,713 - Pledges receivable 50,000 - Inventories 7,153 7,933 Prepaid expenses and other current assets 301,004 128,704 Total current assets 7,294,030 6,254,692 Noncurrent assets Restricted cash 6,652,078 7,488,410 Investments 12,188,534 11,405,723 Pledges receivable, net of current portion 180,430 - Capital assets not being depreciated 2,299,171 613,746 Capital assets being depreciated, net 24,923,717 25,450,138 Total noncurrent assets 46,243,930 44,958,017 Total assets 53,537,960 51,212,709 Deferred outflows of resources Deferred pension amounts 1,756,679 1,526,938 Liabilities Current liabilities Accounts payable 977,547 240,413 Accrued payroll and related liabilities 481,232 472,308 Unearned revenue 255,307 253,266 Due to depositors 52,826 47,398 Interest payable 30,631 34,259 Current portion of long-term obligations 269,000 660,000 Total current liabilities 2,066,543 1,707,644 Noncurrent liabilities Net pension liability 12,855,123 12,487,412 Long-term obligations, net of current portion 4,317,468 4,579,469 Total noncurrent liabilities 17,172,591 17,066,881 Total liabilities 19,239,134 18,774,525 Deferred inflows of resources Deferred pension amounts 441,543 403,989 Net position Net investment in capital assets 26,194,130 25,989,928 Restricted for: Nonexpendable endowments 4,424,150 4,138,274 Expendable scholarships and grants 1,458,801 658,782 Expendable construction and debt service 2,362,360 2,125,007 Unrestricted 1,174,521 649,142 Total net position $ 35,613,962 $ 33,561,133 The accompanying notes are an integral part of these financial statements. 14
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year Ended June 30 2017 2016 Operating revenues Tuition and fees $ 7,527,493 $ 7,217,037 Scholarship allowance (3,216,221) (3,027,394) Net tuition and fees 4,311,272 4,189,643 Federal grants and contracts 202,986 234,976 State and local grants and contracts 74,601 70,586 Nongovernmental grants 432,502 514,096 Auxiliary activities, net of scholarship allowance of $72,323 ($66,369 for 2016) 965,331 1,648,769 Other operating revenues 436,597 779,953 Total operating revenues 6,423,289 7,438,023 Operating expenses Instruction 6,829,080 6,670,275 Public service 424,248 525,687 Instructional support 2,461,970 2,315,333 Student services 3,781,118 4,918,167 Institutional administration 2,306,854 2,387,713 Operation and maintenance of plant 1,680,515 1,825,615 Depreciation 1,297,814 1,250,562 Total operating expenses 18,781,599 19,893,352 Operating loss (12,358,310) (12,455,329) Nonoperating revenues (expenses) State appropriations 3,538,444 3,396,288 Property tax levy 6,473,407 6,409,760 Pell grants 2,703,408 2,964,287 Investment income, net 164,197 159,824 Net realized and unrealized gain (loss) on investments 183,284 (91,542) Net (loss) gain on disposal of capital assets (1,421) 3,662 Interest on capital asset-related debt (201,922) (221,175) Donations 1,030,488 221,232 Special events 44,463 41,046 Net nonoperating revenues 13,934,348 12,883,382 Other revenues Contributions to permanent endowments 476,791 240,493 Increase in net position 2,052,829 668,546 Net position, beginning of year 33,561,133 32,892,587 Net position, end of year $ 35,613,962 $ 33,561,133 The accompanying notes are an integral part of these financial statements. 15
STATEMENTS OF CASH FLOWS Year Ended June 30 2017 2016 Cash flows from operating activities Tuition and fees $ 4,249,174 $ 4,447,178 Grants and other contracts 826,340 969,687 Auxiliary enterprise receipts 965,331 1,648,769 Payments to employees (7,135,313) (6,762,465) Payments to suppliers (9,516,210) (11,401,070) Other 436,597 972,068 Net cash used in operating activities (10,174,081) (10,125,833) Cash flows from noncapital financing activities State appropriations 3,523,336 3,362,962 Local property taxes 5,745,504 5,688,234 Pell grants 2,703,408 2,964,287 Federal direct lending receipts 1,597,771 1,710,153 Federal direct lending disbursements (1,597,771) (1,710,153) Additions (reductions) to permanent endowments 131,173 (213,040) Donations and special events 566,908 264,428 Other (8,001) (15,410) Net cash provided by noncapital financing activities 12,662,328 12,051,461 Cash flows from capital and related financing activities Purchase of capital assets (2,458,239) (477,227) Principal paid on long-term debt (645,000) (625,000) Capital property taxes 727,903 721,526 Proceeds from sales of capital assets - 8,127 Interest paid on capital asset-related debt (210,856) (212,778) Net cash used in capital and related financing activities (2,586,192) (585,352) Cash flows provided by investing activities Proceeds from sales and maturities of investments 5,594,861 1,632,585 Interest on investments 164,197 159,824 Purchase of investments (5,925,664) (1,556,455) Net cash (used in) provided by investing activities (166,606) 235,954 Net (decrease) increase in cash and cash equivalents (264,551) 1,576,230 Cash and cash equivalents, beginning of year 12,532,205 10,955,975 Cash and cash equivalents, end of year $ 12,267,654 $ 12,532,205 Reconciliation to Statements of Net Position Cash and cash equivalents $ 5,615,576 $ 5,043,795 Restricted cash 6,652,078 7,488,410 Cash and cash equivalents, end of year $ 12,267,654 $ 12,532,205 Significant Noncash Transactions continued In fiscal 2016, the College received donated instructional equipment from Little Traverse Bay Bands of Odawa Indians valued at $109,654 and an ambulance from Allied EMS Systems, Inc. valued at $10,000. The accompanying notes are an integral part of these financial statements. 16
STATEMENTS OF CASH FLOWS (CONCLUDED) Year Ended June 30 2017 2016 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (12,358,310) $ (12,455,329) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 1,297,814 1,250,562 Provision for uncollectible accounts 82,200 65,505 Change in operating assets and liabilities which provided (used) cash: Receivables 4,865 425,044 Federal and state grants receivable 41,819 2,973 Scholarships receivable - Foundation - 192,115 Inventories 780 71,725 Prepaid expenses and other current assets (172,300) (94,138) Accounts payable 737,134 (115,263) Accrued payroll and related liabilities 8,924 137,166 Unearned revenue 2,041 (35,644) Due to depositors 5,428 17,341 Change in net pension liability and deferred amounts 175,524 412,110 Net cash used in operating activities $ (10,174,081) $ (10,125,833) concluded The accompanying notes are an integral part of these financial statements. 17
NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity North Central Michigan College (the "College") is a community college offering courses at its Petoskey, Michigan campus and other locations in northwest lower Michigan. The College is governed by a seven-member Board of Trustees elected at large by Emmet County voters. The accompanying financial statements have been prepared in accordance with criteria established by the GASB 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 determined that North Central Michigan College Foundation (the Foundation ) meets the criteria of a component unit. The Foundation is a legally separate, tax-exempt not-for-profit organization that was formed for the purpose of receiving funds for the sole benefit of the College. The Foundation is blended into the College s financial statements because the Foundation provides services exclusively to and for the benefit of the College, and the College s Board of Trustees controls membership of the Foundation s Board. Separately issued financial statements for the Foundation are available by contacting the Foundation at 1515 Howard Street Petoskey, Michigan 49770. The condensed financial information for the Foundation as of and for the years ended June 30, 2017 and 2016, is as follows: 2017 2016 Condensed statements of net position Total assets $ 8,513,921 $ 7,148,655 Total liabilities - - Total net position $ 8,513,921 $ 7,148,655 2017 2016 Condensed statements of revenues, expenses and changes in net position Operating expenses Institutional administration $ 415,643 $ 496,930 Nonoperating revenues Donations 1,114,378 310,767 Special events 44,463 41,046 Contributions to permanent endowments 476,791 240,493 Investment income 89,212 79,701 Net realized and unrealized gain (loss) on investments 256,980 (113,358) Distributions to College (200,915) (198,829) Increase (decrease) in net position 1,365,266 (137,110) Net position beginning of year 7,148,655 7,285,765 Net position end of year $ 8,513,921 $ 7,148,655 18
NOTES TO FINANCIAL STATEMENTS 2017 2016 Condensed statements of cash flow Net cash provided by (used in) Operating activities $ 437,078 $ (296,306) Noncapital financing activities 10,000 20,000 Investing activities (205,387) (27,053) Beginning cash and cash equivalents 115,483 418,842 Ending cash and cash equivalents $ 357,174 $ 115,483 Basis of Presentation The College's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the GASB, including Statement No. 35, Basic Financial Statements and Management's Discussion and Analysis for Public Colleges and Universities and the State of Michigan Manual for Uniform Financial Reporting - Michigan Public Community Colleges, 2001. The College follows all applicable GASB pronouncements and the "business-type activities" reporting requirements of GASB Statement No. 35, which provides a comprehensive one-line look at the College's financial activities. Significant Accounting Policies Significant accounting policies followed by the College and Foundation are described below to enhance the usefulness of the financial statements to the reader: Accrual Basis The financial statements of the College have been presented using the economic resources measurement focus on the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when the related liabilities are incurred and certain measurement and matching criteria are met. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Significant estimates include but are not limited to the accounts receivable allowance for bad debts, the assumptions used to estimate accrued employee benefits payable, and the assumptions based on historical trends and industry standards used in the actuarial valuations of the MPSERS pension plan. Cash and Cash Equivalents Cash and cash equivalents include amounts in demand deposits, cash on hand, money market accounts, and all highly liquid investments with an initial maturity of three months or less. Restricted Cash Restricted cash for capital improvements consists of unspent capital property taxes, as well as internally designated cash for capital master plan projects. 19
NOTES TO FINANCIAL STATEMENTS Receivables Accounts receivable are stated at the amount management expects to collect from outstanding balances at year end. Management provides for probable uncollectible amounts through a provision for bad debt expense when necessary and an adjustment to an allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to expense. Investments The College and Foundation carry their investments at fair value, which is determined generally by using quoted market prices. Realized and unrealized gains and losses are reflected in the statements of revenues, expenses and changes in net position. Fair Value Measurements Fair value refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that gives the highest priority to quoted prices in active markets (level 1) and the lowest priority to unobservable data (level 3). A description of each category in the fair value hierarchy is as follows: Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all-significant assumptions are observable in the market. Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the estimates of assumptions that market participants would use in pricing the asset or liability. For a further discussion of fair value measurement, refer to Note 3 to the financial statements. Gifts and Pledges Contributions, including unconditional promises to give, are recorded when received. Non-cash gifts are recorded at estimated fair value when received. Unconditional pledges due within one year are recorded at amount pledged and unconditional pledges due after one year are recorded at their net present value when it is determined that the collection of the gift is probable. The pledges receivable consists of an unconditional promise to give of $250,000 over a 5-year period. It is expected that annual payments of $50,000 will be received beginning with the fiscal year ending June 30, 2018. The receivable for amounts expected after June 30, 2018 are discounted at 4.25%. The unamortized discount on this promise to give is $19,570 at June 30, 2017. The bequest receivable of $279,714 is expected to be collected currently, within one year. There were no pledges or bequests receivable as of June 30, 2016. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Inventories consists of food service supplies. 20
NOTES TO FINANCIAL STATEMENTS Capital Assets and Depreciation Capital assets are recorded at cost or, if acquired by gift, at the estimated acquisition cost as of the date of acquisition. Depreciation and amortization are provided for capital assets on a straight-line basis over the estimated useful life of the assets. The College s capitalization policy is to capitalize individual amounts of $5,000 or more. The following estimated useful lives are used to compute depreciation: Buildings/building improvements 40 years Library materials 10 years Land improvements and infrastructure 15-20 years Furniture, fixtures and equipment 3-20 years Software 3-10 years Accrued Compensated Absences Accrued compensated absences represents the accumulated liability to be paid under the College s current sick and personal day policy. Under the College s policy, employees earn sick and personal time based on years of service with the College. Accrued compensated absences are included in the long-term obligations amount on the statement of net position. Unearned Revenue Revenue received prior to year-end, which is related to the next fiscal period, is recorded as unearned revenue. Grants received prior to qualifying expenditures are also included in unearned revenue. Revenue Recognition Revenue from state appropriations are recognized in accordance with the accounting method described in the Manual for Uniform Financial Reporting - Michigan Public Community Colleges, 2001, which provides that state appropriations are recorded as revenue in the period for which such amounts are appropriated. Student tuition and related revenues and expenses of an academic semester are allocated to the fiscal year in which the program is conducted. Property tax revenue is recognized in the year in which taxes are received. Operating revenues of the College consist of tuition and fees, certain grants and contracts, and sales and services of educational activities. Transactions related to capital and financing activities, noncapital financing activities, investing activities, state appropriations, property taxes, and Federal Pell grants are components of nonoperating and other revenues. Generally, the College first applies restricted resources when an expense is incurred for which both restricted and unrestricted resources are available. Operating 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. Deferred Outflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to one or more future periods and so will not be recognized as an outflow of resources (expense) until then. The College reports deferred outflows of resources for certain pension-related amounts, such as change in expected and actual experience, changes in assumptions, and certain contributions made to the plan subsequent to the measurement date. More detailed information can be found in Note 8. 21
NOTES TO FINANCIAL STATEMENTS Deferred Inflows of Resources In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to one or more future periods and so will not be recognized as an inflow of resources (revenue) until that time. The College reports deferred inflows of resource for certain pension-related amounts, such as the difference between projected and actual earnings of the pension plan s investments. More detailed information can be found in Note 8. Pension 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 Plan and additions to/deductions from the plan fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Unemployment Insurance The College reimburses the State of Michigan Unemployment Agency (the Agency ) for the actual amount of unemployment benefits disbursed by the Agency on behalf of the College. Billings received for amounts paid by the Agency through June 30 are accrued. Internal Services Activities In the process of aggregating data for the Statements of Net Position and Statements of Revenues, Expenses and Changes in Net Position, some amounts reported as internal activity and balances have been eliminated on the Statements of Revenues, Expenses and Changes in Net Position. Income Taxes The Internal Revenue Service (IRS) has determined that the Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code; accordingly, no provision for income taxes has been recorded. The Foundation analyzes its filing positions in the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Foundation also treats interest and penalties attributable to income taxes, and reflects any charges for such, to the extent they arise, as a component of its operating expenses. The Foundation has evaluated its income tax position for the years 2013 through 2017, the years which remain subject to examination by major tax jurisdictions as of June 30, 2017. The Foundation concluded that there are no significant uncertain tax positions requiring recognition in these financial statements. The Foundation does not expect the total amount of unrecognized tax benefits ( UTB ) (e.g. tax deductions, exclusions, or credits claimed or expected to be claimed) to significantly change in the next twelve months. The Foundation does not have any amounts accrued for interest and penalties related to UTBs at June 30, 2017 or 2016, and it is not aware of any claims for such amounts by federal or state income tax authorities. Reclassification Certain amounts in the prior year financial information have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. 22