Arkadelphia, Arkansas Basic Financial Statements and Other Reports LEGISLATIVE JOINT AUDITING COMMITTEE
HENDERSON STATE UNIVERSITY TABLE OF CONTENTS JUNE 30, 2011 Independent Auditor's Report Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Management Letter Management s Discussion and Analysis BASIC FINANCIAL STATEMENTS Comparative Statement of Net Assets A Henderson State University Foundation, Inc. - Statements of Financial Position A-1 Comparative Statement of Revenues, Expenses and Changes in Net Assets B Henderson State University Foundation, Inc. - Statements of Activities B-1 Comparative Statement of Cash Flows C Notes to Financial Statements Postemployment Benefits Other Than Pensions REQUIRED SUPPLEMENTARY INFORMATION SUPPLEMENTARY INFORMATION Schedule of Selected Information for the Last Five Years (Unaudited) 1 Exhibit Schedule
Sen. Bill Pritchard Senate Chair Rep. Tim Summers House Chair Sen. David Wyatt Senate Vice Chair Rep. Toni Bradford House Vice Chair INDEPENDENT AUDITOR'S REPORT Henderson State University Legislative Joint Auditing Committee We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Henderson State University (University), an institution of higher education of the State of Arkansas, as of and for the year ended, which collectively comprise the University s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University s management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial comparative information has been derived from the University s 2010 financial statements and, in our report dated November 8, 2010, we expressed unqualified opinions on the respective financial statements of the business-type activities and the discretely presented component unit. We did not audit the financial statements, including the prior year partial comparative information, of the Henderson State University Foundation, Inc., which represent 100% of the assets, net assets, and revenues of the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for Henderson State University Foundation, Inc., is based on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Henderson State University Foundation, Inc. were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of Henderson State University as of, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The financial statements include partial prior year comparative information. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the University s financial statements for the year ended June 30, 2010, from which such partial information was derived. As discussed in Notes 19, 20, and 21 to the financial statements, the University restated certain prior year (2010) amounts on the Comparative Statement of Net Assets, the Comparative Statement of Revenues, Expenses, and Changes in Net Assets, and the Comparative Statement of Cash Flows for presentation purposes. In accordance with Government Auditing Standards, we have also issued our report dated July 9, 2012 on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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. 172 STATE CAPITOL LITTLE ROCK, ARKANSAS 72201-1099 PHONE (501) 683-8600 FAX (501) 683-8605 www.arklegaudit.gov
The Management s Discussion and Analysis and certain information pertaining to postemployment benefits other than pensions are not a required part of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the University s basic financial statements. The Schedule of Selected Information for the Last Five Years (Schedule 1) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Selected Information for the Last Five Years (Schedule 1) has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas July 9, 2012 EDHE10011 Roger A. Norman, JD, CPA, CFE Legislative Auditor - 2 -
Sen. Bill Pritchard Senate Chair Rep. Tim Summers House Chair Sen. David Wyatt Senate Vice Chair Rep. Toni Bradford House Vice Chair REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Henderson State University Legislative Joint Auditing Committee We have audited the financial statements of the business-type activities and the discretely presented component unit of Henderson State University (University), an institution of higher education of the State of Arkansas, as of and for the year ended, which collectively comprise the University s basic financial statements and have issued our report thereon dated July 9, 2012. Our report includes a reference to other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Other auditors audited the financial statements of the Henderson State University Foundation, Inc., as described in our report on the University s financial statements. The financial statements of the Henderson State University Foundation, Inc. were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting Management of the University is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the University s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the University s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the University s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of the state constitution, state laws and regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the University in a separate letter dated July 9, 2012. 172 STATE CAPITOL LITTLE ROCK, ARKANSAS 72201-1099 PHONE (501) 683-8600 FAX (501) 683-8605 www.arklegaudit.gov
This report is intended solely for the information and use of the Legislative Joint Auditing Committee, the governing board, University management, state executive and oversight management, and other parties as required by Arkansas Code, and is not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Ark. Code Ann. 10-4-417, all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas July 9, 2012 Larry W. Hunter, CPA, CFE Deputy Legislative Auditor - 4 -
Sen. Bill Pritchard Senate Chair Rep. Tim Summers House Chair Sen. David Wyatt Senate Vice Chair Rep. Toni Bradford House Vice Chair MANAGEMENT LETTER Henderson State University Legislative Joint Auditing Committee STUDENT ENROLLMENT DATA - In accordance with Ark. Code Ann. 6-60-209, we performed tests of the student enrollment data for the year ended, as reported to the State Department of Higher Education, to provide reasonable assurance that the data was properly reported. The enrollment data reported was as follows: Summer II Term Fall Term Spring Term Summer I Term 2010 2010 2011 2011 Student Headcount 1,071 3,713 3,462 948 Student Semester Credit Hours 5,997 49,005 45,998 4,230 During our review, nothing came to our attention that would cause us to believe that the student enrollment data was not substantially correct. This letter is intended solely for the information and use of the Legislative Joint Auditing Committee, the governing board, University management, state executive and oversight management, and other parties as required by Arkansas Code, and is not intended to be and should not be used by anyone other than these specified parties. However, pursuant to Ark. Code Ann. 10-4-417, all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas July 9, 2012 Larry W. Hunter, CPA, CFE Deputy Legislative Auditor 172 STATE CAPITOL LITTLE ROCK, ARKANSAS 72201-1099 PHONE (501) 683-8600 FAX (501) 683-8605 www.arklegaudit.gov
Management s Discussion and Analysis Overview of the Financial Statements and Financial Analysis Henderson State University proudly presents its financial statements for fiscal year 2011 with comparative data presented for fiscal year 2010. The emphasis of discussion concerning these statements will be for the current year data. There are three financial statements presented: The Statements of Net Assets; the Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. The discussion and analysis of the University s financial statements provides an overview of its financial activities for the year. Statement of Net Assets The Statement of Net Assets presents the Assets (current and noncurrent), Liabilities (current and noncurrent) and Net Assets (assets minus liabilities) as of the end of the fiscal year. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Henderson State University. The difference between current and non-current assets is discussed in the footnotes to the financial statements. Readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution and how much the institution owes vendors, lending institutions, and investors in the bonds of the University. The Statement of Net Assets provides a picture of the Net Assets (Assets minus Liabilities) and their availability for expenditure by the institution. Net Assets are divided into three major categories. Invested in Capital Assets, Net of Debt, provides information on the institution s equity in property, plant and equipment owned by the institution. Restricted Net Assets are divided into two categories: Nonexpendable and Expendable. The corpus of the nonexpendable restricted resources is only available for investment purposes. Expendable restricted assets are available for expenditure by the institution but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. Unrestricted Net Assets are available to the institution for any lawful purpose of the institution. 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Invested in Capital Assets Total Net Assets = $41,167,566 Restricted Net Assets Unrestricted Net Assets 2011 2010-6-
Statement of Net Assets (Continued) Henderson State University Statement of Net Assets 2011 2010 Assets: Current Assets $ 12,877,930 $ 9,584,371 Capital Assets, net 63,815,865 62,030,658 Other Assets 3,454,596 3,481,203 Total Assets 80,148,391 75,096,232 Liabilities: Current Liabilities 4,434,682 3,237,591 Non-Current Liabilities 34,546,143 35,835,282 Total Liabilities 38,980,825 39,072,873 Net Assets: Invested in Capital Assets, Net of Debt 32,632,248 27,968,302 Restricted-Expendable 2,112,363 3,434,526 Restricted-Nonexpendable 188,292 175,378 Unrestricted 6,234,663 4,445,153 Total Net Assets $ 41,167,566 $ 36,023,359 Total Assets of the institution increased by $5,052,159. A review of the Statement of Net Assets will reveal that there are many offsetting variances, but the increase was primarily due to an increase in Cash and Cash Equivalents of $2,099,824 and an increase in Capital Assets Net of Accumulated Depreciation of $1,785,207. Other increases to Other Receivables, Deposits with Trustee and Prepaid Expenses of $497,966, $326,977 and $192,476 also contributed to the overall increase. Total liabilities for the year decreased by $92,048. This net decrease was primarily due to the decrease in Early Retirement of $212,818, a decrease in Long Term Debt of $997,331 as well as an increase in Accounts Payable of $928,855 and an increase in Other Postemployment Benefits of $235,813. Statement of Revenues, Expenses and Changes in Net Assets The changes in total net assets, as presented on the Statement of Net Assets, are based on the activity presented in the Statement of Revenues, Expenses and Changes in Net Assets. The purpose of the statement is to present the revenues received and the expenses paid by the institution, both operating and non-operating, and any other revenues, expenses, gains or losses received or spent by the institution. Operating revenues are received for providing goods and services to the various customers and constituencies of the institution. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the institution. Non-operating revenues are revenues received for which good or services are not provided. For example, the Governmental Accounting Standards Board (GASB) considers state appropriations as non-operating revenues because the revenue is provided by the Legislature to the institution without the Legislature directly receiving commensurate goods and services. -7-
Statement of Revenues, Expenses and Changes in Net Assets (Continued) Comparative Statement of Revenues, Expenses and Changes in Net Assets For the Fiscal Year Ended 2011 2010 Operating Revenues $ 19,717,034 $ 19,784,856 Operating Expenses 52,814,878 47,606,120 Operating Loss (33,097,844) (27,821,264) Non-Operating Revenues less Expenses 36,575,249 28,923,897 Income (Loss) Before Other Rev., Exp., Gains or Losses 3,477,405 1,102,633 Other Revenues, Expenses, Gains or Losses 1,666,802 288,328 Increases (Decreases) in Net Assets 5,144,207 1,390,961 Net Assets at Beginning of Year 36,023,359 32,765,932 Adjustment to Prior Year Deferred Revenue - 1,866,466 Net Assets at Beginning of Year, as Restated 36,023,359 34,632,398 Net Assets at End of Year $ 41,167,566 $ 36,023,359 The Statement of Revenues, Expenses and Changes in Net Assets reflect an increase in net assets at the end of the year of $5,144,207. Highlights of the information presented on the statement are as follows: Student tuition and fees, net of scholarship allowances, decreased by $715,881. This decrease is primarily attributable to an increase in scholarship allowance of $3,108,326 due to the implementation of the Arkansas Academic Challenge Scholarship funded by the Arkansas lottery along with an increase in freshman enrollment. Auxiliary Enterprises realized a net increase of $331,118 due to increased enrollment which impacted revenue in housing and food service as well as athletic tuition. Federal, state and non-governmental grants, non-operating revenue increased by $6,162,712. This increase was primarily due to the increase in maximum Pell awards as well as the Arkansas Academic Challenge scholarships funded by the Arkansas Lottery. State of Arkansas non-operating appropriations increased by $559,799 due to an increase in nonformula appropriations as well as a slight increase in general revenue. Personal services expenses increased by $1,035,365. This increase primarily reflects an increase given to state employees when the state lifted the salary freeze in December of 2010 along with associated fringe benefits. Supplies and other services increased by $1,379,592. This increase is due primarily to the rising cost of normal operations and the cost associated with campus repair and replacements. Scholarship expenses increased by $2,720,607 due to Arkansas Academic Challenge scholarships as well as an increase in minimum Pell grant amounts. American Reinvestment & Recovery Act (GSF) increased by $1,884,216 as the renovations of Womack Hall and Foster Hall continued throughout the year. -8-
Statement of Revenues, Expenses and Changes in Net Assets (Continued) Operating Revenue Student Tuition & Fees Housing & Food Service Federal, State, Local & Non-Gov. Grants & Cont Athletics 2011 2010 Other Auxiliary Sales & Serv Of Educ. Depts 0 2 4 6 8 10 12 Millions Operating Expenses Depreciation Scholarships and Fellowships Supplies and Other Services 2011 2010 Personal Services 0 5 10 15 20 25 30 Millions Statement of Cash Flows The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into the following five sections: Operating Cash Flows provides detail of the operating cash flows and the net cash used by operating activities for the institution. Non-Capital Financing activities reflect cash received and spent for non-operating financing activities. Cash flows from investing activities indicate the purchases, proceeds and interest received from investing activities. -9-
Statement of Cash Flows (Continued) Henderson State University Capital and related financing activities provide specific information on the cash used for the acquisition and construction of capital and related items. The last section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues and Expenses and Changes in Net Assets Comparative Statement of Cash Flow For the Fiscal Year Ended 2011 2010 Cash Provided (used) by: Operating Activities $ (29,493,902) $ (25,224,232) Non-capital Financing Activities 36,087,708 29,027,115 Investing Activities 440,502 (256,541) Capital and Related Financing Activities (4,934,484) (3,979,804) Net Change in Cash 2,099,824 (433,462) Cash, Beginning of Year 4,943,147 5,376,609 Cash, End of year $ 7,042,971 $ 4,943,147 Capital Assets and Debt Administration The University made an investment in the following additions or improvements in fiscal year 2011. Amount Land $ 4,120 Construction in Progress 1,961,701 Improvements 1,027,924 Infrastructure 595,948 Equipment 461,270 Library Holdings 497,013 Buildings 739,954 Total $ 5,287,930 The University s long term debt (current and noncurrent) decreased from $34,243,937 to $33,246,606, a $997,331 net decrease. -10-
Economic Outlook The University experienced a slight increase in state appropriations during the fiscal year 2011. In fiscal year 2012, the state revenue forecast is expected to remain relatively unchanged due to the current national and state economic climate. The University expects to see growth in undergraduate enrollment with flat graduate enrollment. The University has taken the stance of conservative budgeting for the fiscal year 2012 to allow for possible downturns in enrollment as well as possible decreases in state revenue. The University is not aware of any facts, decisions or conditions that are expected to have a significant effect on the financial position or results of operations during the fiscal year beyond those already discussed. The University s overall financial position remains sound and should remain sound in the future. The University has made and continues to make significant investments in physical plant facilities. The University has also received various academic accreditations which, coupled with recruitment should continue to produce additional revenue and allow the University to continue its role as Arkansas Public Liberal Arts University. The University will continue to monitor conditions related to internal and external issues and be prepared for opportunities that may become available. Ms. Lecia Franklin Interim Vice President for Finance and Administration -11-
HENDERSON STATE UNIVERSITY COMPARATIVE STATEMENT OF NET ASSETS JUNE 30, 2011 EXHIBIT A 2011 2010 ASSETS: Current Assets: Cash and Cash Equivalents $ 6,706,625 $ 4,607,065 Short Term Investments 625,584 803,866 Student Accounts Receivable 2,522,134 2,177,562 Accrued Interest Receivable 4,498 5,321 Inventories 183,231 165,620 Notes and Student Loans Receivable 201,240 205,804 Other Receivables 1,050,258 552,292 Deposits with Trustee 1,104,194 779,150 Prepaid Expenses 463,514 271,038 Bond Issuance Cost 16,652 16,653 Total Current Assets 12,877,930 9,584,371 Non-Current Assets: Cash and Cash Equivalents 336,346 336,082 Investments 397,461 323,618 Notes and Student Loans Receivable 1,162,126 1,248,121 Deposits with Trustee 1,463,699 1,461,766 Capital Assets, Net of Accumulated Depreciation ($53,354,181 and $49,970,494 respectively) 63,815,865 62,030,658 Bond Issuance Cost, Net of Accumulated Amortization Cost ($24,978 and $8,326 respectively) 94,964 111,616 Total Non-Current Assets 67,270,461 65,511,861 Total Assets 80,148,391 75,096,232 LIABILITIES: Current Liabilities: Accounts Payable and Accrued Liabilities 1,589,716 660,861 Deferred Revenues and Deposits 227,212 158,032 Funds Held in Trust for Others 496,091 520,443 Employee Retirement 57,075 64,440 Early Retirement 212,818 Compensated Absences Payable 71,503 122,379 Long-term Debt 2,016,738 1,522,264 Discount on Bonds (3,315) (3,309) Deferral of Debt Defeasance (20,338) (20,337) Total Current Liabilities 4,434,682 3,237,591-12-
HENDERSON STATE UNIVERSITY COMPARATIVE STATEMENT OF NET ASSETS JUNE 30, 2011 EXHIBIT A 2011 2010 Non-Current Liabilities: Refundable Advance $ 1,366,560 $ 1,427,200 Employee Retirement 192,470 231,442 Other Postemployment Benefits 844,618 608,805 Compensated Absences Payable 1,046,899 1,004,097 Long-term Debt 31,229,868 32,721,673 Discount on Bonds Net of Accumulated Amortization ($4,974 and $1,657 respectively) (19,056) (22,379) Deferral of Debt Defeasance, Net of Accumulated Amortization ($30,506 and $10,167 respectively) (115,216) (135,556) Total Non-Current Liabilities 34,546,143 35,835,282 Total Liabilities 38,980,825 39,072,873 NET ASSETS: Invested in Capital Assets, Net of Related Debt 32,632,248 27,968,302 Restricted for: Expendable: Scholarship and Fellowships 158,939 117,325 Grants and Contracts 1,164,518 1,336,723 Loans 48,906 48,914 Debt Service 740,000 1,823,519 Other 87,172 Deferred Compensation 20,873 Nonexpendable: Loans 188,292 175,378 Unrestricted: Net Assets 6,234,663 4,445,153 Total Net Assets $ 41,167,566 $ 36,023,359 The accompanying notes are an integral part of these financial statements. -13-
HENDERSON STATE UNIVERSITY FOUNDATION, INC. STATEMENTS OF FINANCIAL POSITION JUNE 30, 2011 AND 2010 EXHIBIT A-1 ASSETS: 2011 2010 CURRENT ASSETS: Cash and Cash Equivalents $ 1,366,065 $ 2,078,048 Investment Securities (FMV) 11,222,609 10,004,788 Accrued Interest Receivable 41,512 46,435 TOTAL CURRENT ASSETS 12,630,186 12,129,271 PROPERTY AND EQUIPMENT: Smith-Garner House 150,593 150,593 Janek Property, 1227 Wilson Street 67,000 Foundation Furnishings 7,264 7,264 157,857 224,857 Less Accumulated Depreciation (51,637) (47,776) TOTAL PROPERTY AND EQUIPMENT 106,220 177,081 OTHER ASSETS: Belvedere Resort Rights 7,500 7,500 TOTAL ASSETS $ 12,743,906 $ 12,313,852 LIABILITIES AND STOCKHOLDERS' EQUITY: 2011 2010 CURRENT LIABILITIES: Accounts Payable $ 0 $ 0 TOTAL LIABILITIES 0 0 NET ASSETS: Unrestricted Net Assets: General Operations 221 229 Investment Income - Unallocated 714,882 535,629 Net Appreciation (Depreciation) on Investments 47,895 (681,351) Total Unrestricted Net Assets 762,998 (145,493) Temporarily Restricted Net Assets: Restricted Net A Total Net Assets 1,698,551 2,226,546 Budgeted Project Net Assets 760,548 857,809 Property and Equipment Net Assets 113,720 184,581 Total Temporarily Restricted Net Assets 2,572,819 3,268,936 Permanently Restricted Net Assets 9,408,089 9,190,409 TOTAL NET ASSETS $ 12,743,906 $ 12,313,852-14-
HENDERSON STATE UNIVERSITY COMPARATIVE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011 EXHIBIT B 2011 2010 OPERATING REVENUE: Student Tuition and Fees (net of scholarship allowances of $15,921,047 and $12,812,721, respectively) $ 9,669,409 $ 10,385,290 Federal Grants and Contracts 1,832,292 1,726,264 State and Local Grants and Contracts 1,348,537 1,190,278 Non-Governmental Grants and Contracts 220,507 126,123 Sales and Services of Educational Departments 492,806 534,536 Athletics 1,418,348 1,314,285 Housing and Food Service (net of scholarship allowances of $2,891,121 and $2,341,057, respectively) 4,067,525 3,894,640 Bookstore 112,083 78,294 Garrison Center 11,533 9,178 Other Auxiliary Enterprises 543,994 525,968 TOTAL OPERATING REVENUES 19,717,034 19,784,856 OPERATING EXPENSES: Personal Services 29,825,114 28,789,749 Supplies and Other Services 14,098,950 12,719,358 Scholarships and Fellowships 5,403,830 2,683,223 Depreciation 3,486,984 3,413,790 TOTAL OPERATING EXPENSES 52,814,878 47,606,120 OPERATING INCOME (LOSS) (33,097,844) (27,821,264) NON-OPERATING REVENUES (EXPENSES) State Appropriations 20,991,048 20,431,249 Federal and State Grants and Contracts 14,496,099 8,333,387 American Reinvestment and Recovery Act (ESF) 227,552 268,461 Gifts 1,435,295 226,948 Investment Income 304,930 260,198 Interest and Fees on Long Term Debt (1,392,329) (1,241,257) Other 512,654 644,911 Net Non-operating Revenues 36,575,249 28,923,897-15-
HENDERSON STATE UNIVERSITY COMPARATIVE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2011 EXHIBIT B 2011 2010 Income Before Other Revenues, Expenses, Gains/Losses $ 3,477,405 $ 1,102,633 Bond Proceeds from Act 1282 of 2005 81,644 581,558 Payments of Mandatory Fees to Agency Funds (399,900) (379,380) American Reinvestment and Recovery Act (GSF) 1,961,701 77,485 Adjustments to Prior Year Revenues and Expenses 23,357 8,665 INCREASE (DECREASE) IN NET ASSETS 5,144,207 1,390,961 NET ASSETS- BEG. OF YEAR AS ORIGINALLY REPORTED 36,023,359 32,765,932 Adjustment for Prior Year Deferred Revenue 1,866,466 NET ASSETS- BEGINNING OF YEAR RE-STATED 36,023,359 34,632,398 NET ASSETS-END OF YEAR $ 41,167,566 $ 36,023,359 The accompanying notes are an integral part of these financial statements. -16-
HENDERSON STATE UNIVERSITY FOUNDATION, INC. STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2011 AND 2010 EXHIBIT B-1 TEMORARILY PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED 2011 2010 SUPPORT AND REVENUES: Contributions $ 903,537 $ 217,680 $ 1,121,217 $ 1,370,418 Interest and Dividend Income $ 298,242 298,242 294,066 Gain on Sale of Investment (65,446) (65,446) 13,160 Unrealized Loss on Investments 729,246 729,246 452,015 Net Assets Released from Restrictions 1,599,652 (1,599,652) TOTAL SUPPORT AND REVENUES 2,561,694 (696,115) 217,680 2,083,259 2,129,659 EXPENSES: Program Services: Scholarship awards 350,573 350,573 402,329 Awards and Gifts 951,876 951,876 537,781 Athletics 276,033 276,033 118,835 Cupp Chair 6,000 Total Program Services 1,578,482 1,578,482 1,064,945 Supporting Services: General Administration 74,723 74,723 73,737 TOTAL EXPENSES 1,653,205 1,653,205 1,138,682 CHANGE IN NET ASSETS 908,489 (696,115) 217,680 430,054 990,977 NET ASSETS AS OF BEGINNING OF YEAR (145,491) 3,268,934 9,190,409 12,313,852 11,322,875 NET ASSETS AS OF END OF YEAR $ 762,998 $ 2,572,819 $ 9,408,089 $ 12,743,906 $ 12,313,852-17-
HENDERSON STATE UNIVERSITY COMPARATIVE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2011 EXHIBIT C 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees (Net of Scholarships) $ 9,347,671 $ 9,923,960 Research Grants and Contracts 3,417,336 3,110,530 Collection of Loans and Interest to Students (includes Perkins and interest income) 193,498 228,435 Auxiliary Enterprises Athletics 1,418,348 1,314,285 Housing and Food Service 4,067,525 3,894,640 Bookstore 156,191 78,294 Student Union 11,533 9,178 Other Auxiliary Enterprises 537,260 525,968 Other Receipts 527,664 721,252 Payments to Suppliers (13,871,905) (13,258,031) Payments to Employees (23,161,689) (22,629,862) Payments of Employee Benefits (6,648,504) (6,314,994) Loans issued to Students (includes Perkins) (85,000) (144,664) Scholarships and Fellowships (5,403,830) (2,683,223) Net Cash Provided (Used) by Operating Activities (29,493,902) (25,224,232) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 20,991,048 20,431,249 Federal and State Grants and Contracts 14,496,099 8,333,387 Loans to Students-Direct Loans & Private (Inflows) 18,204,470 16,063,185 Agency Funds (Net of Outflows) (24,352) 24,288 Loans to Students-Direct Loans & Private (Outflows) (18,204,470) (16,063,185) American Reinvestment and Recovery Act-ESF 227,552 268,461 Payments of Mandatory Fees to Agency Funds (399,900) (379,380) Gifts and Grants 417,783 137,957 Camps 379,478 211,153 Net Cash Provided (Used) by Noncapital Financing Activities 36,087,708 29,027,115 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Bond Proceeds from Act 1282 of 2005 467,399 188,688 Acquisitions and Construction of Capital Assets (3,347,961) (1,257,633) American Reinvestment and Recovery Act-GSF 1,038,190 77,485 Distribution from Trustee 199,645 Principal Paid on Capital Leases (267,264) (284,128) Interest and Fees Paid on Capital Leases (36,778) (53,273) Payment to Trustee for Principal (1,575,000) (1,660,000) Payment to Trustee for Interest and Fees (1,236,427) (1,288,244) Capital Gift and Grants 88,991 Prior Period Adjustments 23,357 8,665 Net Cash Provided (Used) by Capital and Related Financing Activities (4,934,484) (3,979,804) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 334,400 375,667 Interest on Investments (net of fees) 305,753 207,540 Purchase of Investments (199,651) (839,748) Net Cash Provided (Used) by Investing Activities 440,502 (256,541) Net Increase (Decrease) in Cash 2,099,824 (433,462) Cash - Beginning of Year 4,943,147 5,376,609 Cash - Ending of Year $ 7,042,971 $ 4,943,147-18-
HENDERSON STATE UNIVERSITY COMPARATIVE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2011 EXHIBIT C 2011 2010 Reconciliation of Net Operating Loss to Net Cash Provided (Used) by Operating Activities Operating Income (Loss) $ (33,097,844) $ (27,821,264) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation Expense 3,486,984 3,413,790 Other Miscellaneous Operating Receipts 27,148 185,635 Change in Assets and Liabilities Receivables, Net (311,896) (460,249) Inventories (17,611) 15,119 Other Assets (192,476) (20,498) Loans Receivable 90,559 83,772 Accounts Payable 437,133 (533,294) Deferred Revenue 69,180 67,865 Compensated Absences (8,074) 55,591 Other Liabilities 22,995 (210,699) Net Cash Provided (Used) by Operating Activities $ (29,493,902) $ (25,224,232) NONCASH TRANSACTIONS Donated Capital Assets $ 1,017,513 $ 88,991 Proceeds of Refunding Bonds 8,770,000 Bond Proceeds to Refunding Bond Agent (8,107,797) Bond Issuance Cost Paid from Bond Proceeds (133,248) Bond Discounts on Bonds (27,345) Accrued Interest on Bonds 21,292 Bond Proceeds Deposited to Debt Service Reserve Funds (501,610) Debt Service Reserve Funds to Refunding Bond Agent (498,263) Capital Assets Acquired by Incurring Capital Lease Obligations 524,932 The accompanying notes are an integral part of these financial statements. -19-
NOTE 1: Reporting Entity Henderson State University (University) was founded in 1890 as a co-educational liberal arts college and was related to the Methodist church until 1929, when the Arkansas General Assembly enacted legislation (Act 46) to establish a standard teachers college at Arkadelphia and the Institution, known as Henderson-Brown College, was transferred to the State of Arkansas. The University is a four-year institution of higher education. The governing body is the Board of Trustees comprised of seven members appointed by the Governor of the State. Component Units In May 2002, GASB issued Statement no. 39, Determining Whether Certain Organizations are Component Units, which amends GASB no. 14 to provide additional guidance to determine whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with a primary government. Under the standard, which became effective with the fiscal year ended June 30, 2004, the financial activities of qualifying foundations are to be included in the financial statements of the primary government, through discrete presentations. There is one qualifying foundation for Henderson State University, the Henderson State University Foundation, Inc. Although the University does not control the timing or amount of receipts from this Foundation, the majority of resources, or income thereon, which the Foundation holds and invests is restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University s financial statements. During the year ended, the Foundation transferred property, equipment and funds of $1,294,524 to the University for proper accountability and academic support. The Henderson State University Foundation, Inc. is a separate nonprofit organization, which operates for charitable educational purposes, including administering and investing gifts and other amounts received directly or indirectly for the benefit of Henderson State University. The Board of Directors of the Foundation is made up of fifteen (15) members including two (2) members who are also members of Henderson State University Board of Trustees, and three (3) members who are also employees of the University. Complete financial statements for the Foundation can be obtained from the administrative office at 324 North 12th Street, Arkadelphia, AR 71923. NOTE 2: Summary of Significant Accounting Policies Financial Statement Presentation In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement no. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. GASB Statement no. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, followed this in November 1999. The financial statement presentation required by GASB no. 34 and no. 35 provides a comprehensive, entity-wide perspective of the University s assets, liabilities, net assets, revenues, expenses, changes in net assets, cash flows, and replaces the fundgroup perspective previously required. Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resources focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation is incurred. All significant intraagency transactions have been eliminated. -20-
NOTE 2: Summary of Significant Accounting Policies (Continued) Basis of Accounting (Continued) The University has elected not to apply Financial Accounting Standards Board (FASB) statements and interpretations issued since November 30, 1989, unless they are adopted by the GASB. Capital Assets and Depreciation Land, buildings, improvements and infrastructure, equipment, library holdings, and construction in progress are reported at cost or estimated historical cost if actual data is not available. Donated capital assets are reported at fair market value when received. The University s capitalization policy for equipment is to record, as assets, any items with a unit cost of more than $2,500 and an estimated useful life greater than one year. Improvements to buildings, infrastructure, and land that significantly increase the value or extend the useful life of the asset are capitalized. Routine repairs and maintenance are charged to operating expense when incurred. Capitalization thresholds for intangible assets are $1,000,000 for internally developed software and $100,000 for all other applicable categories Depreciation is computed using the straight-line method over the estimated lives of the assets, generally 15 to 30 years for buildings, 15 to 20 years for infrastructure and land improvements, 10-15 years for library books, and 3 to 7 years for equipment. Estimated lives for intangible assets will be determined at the time of capitalization. Operating and Nonoperating Revenues Revenues of the University are classified as either operating or nonoperating according to the following criteria: Operating Revenues: Operating revenues result from activities that have characteristics of exchange transactions: that is, the University receives payment in exchange for providing services or products to students or other constituencies. Student tuition and fees, net of scholarship discounts and allowances, sales and services of auxiliary operations, net of scholarship discounts and allowances, and federal, state, local and private grants are the main categories of operating revenues for the University. Nonoperating Revenues: Nonoperating revenues are those revenues that result from nonexchange transactions or from activities specifically defined as nonoperating by the GASB. Examples of nonoperating revenues include state appropriations, certain grants and contracts, and investment income. State appropriations from the state are considered nonoperating under the definitions set forth by the GASB because the University does not provide a direct and commensurate benefit to the legislature in exchange for them. Cash Equivalents For purposes of the statement of cash flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Accounts Receivable Accounts Receivable consists of tuition and fee charges to students and auxiliary enterprises provided to students, faculty and staff. Accounts Receivable also includes amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University s grants and contracts. Investments Investments are stated at fair value. Fair value is market value if a market price or quote is readily available. Carrying amounts of investments are adjusted for increases or decreases in value. Gains and losses on investment transactions are accounted for in the funds which owned such assets. -21-
NOTE 2: Summary of Significant Accounting Policies (Continued) Deposits with Trustees Deposits with trustees include principal, interest and paying agents fees made in advance of the due date and forwarded to the bond trustee. In addition, deposits with trustees include cash and investments held in debt service reserve accounts. Notes Receivable Student loans made through the Federal Perkins Loan Program (the Program) comprise substantially all of the notes receivable. The program provides for cancellation of a loan at rates 10 percent to 30 percent per year up to a maximum of 100 percent if the participant complies with certain provisions. The Federal government reimburses the University for amounts cancelled under these provisions. Inventories Inventories are valued at cost with cost being generally determined on a first in, first out basis. Noncurrent Cash and Investments Cash and investments that are externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other nonrecurring assets, are classified as noncurrent assets in the Statement of Net Assets. Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. Compensated Absences Payable Employees accrue and accumulate annual and sick leave in accordance with policies established by the Board of Trustees. Ten month faculty accrue sick leave at a rate of 240 hours per year. Non-classified and classified employees accrue annual leave at a variable rate (from 8 to 15 hours per month) depending upon the number of years employed in state government. Under the University s policy, an employee may carry accrued leave forward from one fiscal year to another, up to a maximum of 240 hours (30 working days). Employees who terminate their employment are entitled to payment for all accumulated annual leave, up to the maximum allowed. The University accrues the dollar value of annual leave benefits which are payable upon retirement, termination, or death of its employees. This liability has been projected to be $921,825 at. Classified employees with at least 50 days of accumulated sick leave are entitled to payment of accumulated leave. The University accrues the dollar value of sick leave benefits which are payable upon retirement or death of its classified employees. This liability is projected to be $145,495 at. On June 10, 2011, the Board of Trustees voted to not compensate non-classified employees and faculty for unpaid sick leave until further research has been conducted. This vote was in response to ACT 337 of the 88 th General Assembly Regular Session, 2011, amended Arkansas Code 21-4-505, to grant discretion to state-supported institutions of higher education on whether or not to compensate all employees for unpaid sick leave upon retirement. The University accrues compensatory time at time and one half of the hours worked over 8 hours per day for classified employees. The liability is projected to be $51,082 at. Employee Retirement Accrual was discontinued under Henderson State University s self managed retirement program as of June 30, 1979. Employees of record on or before April 5, 1973 are eligible for benefits. As a result of this action the University calculated what the financial obligation would be for the life of this plan. Annual adjustments are made to record termination of obligation. -22-
NOTE 2: Summary of Significant Accounting Policies (Continued) Noncurrent Liabilities Noncurrent liabilities include (1) principal amounts of revenue bonds payable, notes payable, and capital lease obligations with contractual maturities greater than one year; and (2) estimated amounts for accrued compensated absences and other liabilities that will not be paid within the next fiscal year. Refundable Advance For reporting purposes, the University has shown the federal portion of the Perkins Loan Program fund balance as a noncurrent liability on the Statement of Net Assets. In the event of the cessation of the program this amount is refundable to the Federal government. Net Assets The University s net assets are classified as follows: Invested in Capital Assets, Net of Related Debt: This classification represents the University s total investment in capital assets, net of outstanding debt obligations related to those assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included in this category. Restricted Net Assets: Within this classification there are two categories of net assets: Restricted, expendable: Restricted expendable net assets include resources for which the University is legally or contractually obligated to spend only in accordance with restrictions imposed by external parties. Restricted, nonexpendable: Nonexpendable restricted net assets consist of endowment and similar type funds for which donors or other external parties have stipulated that the principal or corpus is to be maintained inviolate and in perpetuity and invested only for the purpose of producing income which may either be expended in accordance with the donors or external parties stipulations or added to the principal. Unrestricted Net Assets: Unrestricted net assets represent resources of the University that are unrelated to capital items and not externally restricted. These resources may be expended at the discretion of the University s governing board in the educational and general operations of the University and in furtherance of its mission. Scholarship Discounts and Allowances Student tuition and fees, and certain other revenues received from students are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship discounts and allowances are the difference between the University s stated rates and changes and the amount actually paid by students and/or third parties making payments of behalf of the students. Under this approach, scholarships awarded by the University are considered as reductions in tuition and fee revenues rather than as expenses. Additionally, certain governmental grants, such as Pell grants, and payments from other federal, state or nongovernmental programs, are required to be recorded as either operating or nonoperating revenues in the University s financial statements. To the extent that revenues from such programs are applied to tuition, fees, and other student charges, the University has reported a corresponding scholarship discount or allowance. -23-
NOTE 2: Summary of Significant Accounting Policies (Continued) Restricted/Unrestricted Resources The University has no formal policy addressing which resources to use when both restricted and unrestricted net assets are available for the same purpose. University personnel decide which resources to use at the time expenses are incurred. NOTE 3: Public Fund Deposits and Investments Cash Deposits The University s cash deposits are carried at cost and year end balances are shown below: Cash Deposits: Carrying Amount Bank Balance Insured (FDIC) $ 2,824,039 $ 2,710,490 Insured (SIPC) 31,992 31,992 Collateralized: Collateral held by the pledging bank or pledging 5,423,212 5,632,068 bank's trust department in the University's name Uninsured/Uncollateralized 296 296 Total Deposits $ 8,279,539 $ 8,374,846 The above deposits do not include cash on deposit in state treasury or cash on hand in the amounts of $0 and $23,860 at, respectively. The above total deposits include certificates of deposit of $1,260,428 reported as investments and deposits with trustees and classified as nonparticipating contracts. Custodial Credit Risk Deposits Custodial credit risk is the risk that in the event of a bank failure, the University s deposits may not be returned to it. The University does not have a deposit policy for custodial credit risk. As of, $296 of the University s bank balance of $8,374,846 was exposed to custodial credit risk as follows: Custodial Credit Risk - Deposits Carrying Amount Bank Balance Uninsured/Uncollateralized $ 296 $ 296-24-