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CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod CONSOLIDATED FINANCIAL STATEMENTS Including Independent Auditors' Report June 30, 2005 and 2004

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod TABLE OF CONTENTS

Independent Auditors' Report Consolidated Statements of Financial Position Consolidated Statements of Activities Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements

1 2 3­4 5 6 ­ 18

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE An Educational Institution of The Lutheran Church - Missouri Synod

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, 2005 and 2004

ASSETS 2005 Cash and cash equivalents Funds on deposit with Concordia University System Student accounts receivable, net of allowance for doubtful accounts of $366,328 in 2005 and $563,783 in 2004 Interest receivable Federal and state grants receivable Inventories Prepaid expenses and other assets Contributions receivable Long-term investments Cash value of life insurance Beneficial interest in funds held by LCMS Foundation Funds on deposit with bond trustee Unamortized bond issuance costs Land, buildings and equipment - net TOTAL ASSETS LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and other liabilities Funds advanced by Concordia University System Deferred revenues Deposits payable Agency funds held in custody for others Loans payable Bonds payable Total Liabilities NET ASSETS Undesignated Net investment in land, buildings and equipment Board designated Total unrestricted Temporarily restricted Permanently restricted Total Net Assets TOTAL LIABILITIES AND NET ASSETS $ $ 1,914,607 1,208,743 1,462,095 51,217 593,830 140,545 259,508 2,181,204 36,949,027 346,283 554,689 473,204 128,717 35,785,240 $ 82,048,909 $ $ 2004 827,685 2,090,535 138,042 492,086 235,056 34,498 1,897,778 35,059,412 374,897 569,520 474,119 138,619 31,326,816 73,659,063

$

1,505,776 1,918,002 215,200 798,509 1,146,309 4,492,966 10,076,762

$

2,036,595 245,471 1,549,700 216,000 673,911 4,712,040 9,433,717

5,019,419 30,145,965 19,868,484 55,033,868 2,801,994 14,136,285 71,972,147 82,048,909 $

2,353,642 26,614,776 17,025,697 45,994,115 3,379,921 14,851,310 64,225,346 73,659,063

See accompanying notes to financial statements. Page 2

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE An Educational Institution of The Lutheran Church - Missouri Synod

CONSOLIDATED STATEMENT OF ACTIVITIES Year Ended June 30, 2005 (With Comparative Totals for 2004)

Unrestricted SUPPORT, REVENUES, GAINS AND OTHER ADDITIONS Support Concordia University System Federal State Contributions and other Revenues Tuition and fees Less: Scholarships allowances Net tuition and fees Income on cash and cash equivalents Income on long-term investments Auxiliary enterprises Other Change in value of split interest agreements Change in value of beneficial interest in funds held by LCMS Foundation Gain on sale of property Net realized gains (losses) on investments Net unrealized gains (losses) on investments Net assets released from restrictions Total Support, Revenues, Gains and Other Additions EXPENSES Educational and general Academic programs Instruction - divisional Other instructional programs Support programs Academic support Student services Institutional support Fund-raising Auxiliary enterprises Total Expenses Reclassification Change in Net Assets Net Assets - Beginning of Year NET ASSETS - END OF YEAR $

Temporarily Restricted

2005 Permanently Restricted

Total

2004 Total

$

186,500 329,747 41,749,612 (11,627,246) 30,122,366 81,240 469,363 6,681,280 59,322 8,365 (1,698,458) 2,694,695 4,806,681 43,741,101

$

375,851 38,714 3,446,886 322,742 (2,668) 48,384 (1,155) (4,806,681) (577,927)

$

868,225 86,925 49,364 (14,831) 5,434 (128) 994,989

$

186,500 375,851 38,714 4,644,858 41,749,612 (11,627,246) 30,122,366 81,240 879,030 6,681,280 59,322 46,696 (14,831) 8,365 (1,644,640) 2,693,412 44,158,163

$

93,312 372,216 37,674 3,177,536 37,902,913 (11,205,425) 26,697,488 22,144 624,242 8,145,489 112,282 (69,600) 17,319 (270,541) 3,539,842 42,499,403

18,984,384 144,511 3,992,305 2,880,757 5,279,603 1,128,062 32,409,622 4,001,740 36,411,362 1,710,014 9,039,753 45,994,115 55,033,868 $

(577,927) 3,379,921 2,801,994 $

(1,710,014) (715,025) 14,851,310 14,136,285 $

18,984,384 144,511 3,992,305 2,880,757 5,279,603 1,128,062 32,409,622 4,001,740 36,411,362 7,746,801 64,225,346 71,972,147 $

18,011,842 128,454 3,960,987 2,886,907 5,674,282 1,432,007 32,094,479 6,137,645 38,232,124 4,267,279 59,958,067 64,225,346

See accompanying notes to financial statements.

Page 3

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE An Educational Institution of The Lutheran Church - Missouri Synod

CONSOLIDATED STATEMENT OF ACTIVITIES Year Ended June 30, 2004

Unrestricted SUPPORT, REVENUES, GAINS AND OTHER ADDITIONS Support Concordia University System Federal State Contributions and other Revenues Tuition and fees Less: Scholarships allowances Net tuition and fees Income on cash and cash equivalents Income on long-term investments Auxiliary enterprises Other Change in value of split interest agreements Change in value of beneficial interest in funds held by LCMS Foundation Net realized gains (losses) on investments Net unrealized gains on investments Net assets released from restrictions Total Support, Revenues, Gains and Other Additions

Temporarily Restricted

Permanently Restricted

Total

$

93,312 995,421 37,902,913 (11,205,425) 26,697,488 22,144 369,823 8,145,489 112,282 (271,586) 3,534,880 1,769,158 41,468,411

$

372,216 37,674 1,703,622 221,930 (17,856) 1,045 4,466 (1,769,158) 553,939

$

478,493 32,489 (51,744) 17,319 496 477,053

$

93,312 372,216 37,674 3,177,536 37,902,913 (11,205,425) 26,697,488 22,144 624,242 8,145,489 112,282 (69,600) 17,319 (270,541) 3,539,842 42,499,403

EXPENSES Educational and general Academic programs Instruction - divisional Other instructional programs Support programs Academic support Student services Institutional support Fund-raising Auxiliary enterprises Total Expenses Change in Net Assets Net Assets - Beginning of Year NET ASSETS - END OF YEAR $

18,011,842 128,454 3,960,987 2,886,907 5,674,282 1,432,007 32,094,479 6,137,645 38,232,124 3,236,287 42,757,828 45,994,115 $

553,939 2,825,982 3,379,921 $

477,053 14,374,257 14,851,310 $

18,011,842 128,454 3,960,987 2,886,907 5,674,282 1,432,007 32,094,479 6,137,645 38,232,124 4,267,279 59,958,067 64,225,346

See accompanying notes to financial statements.

Page 4

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE An Educational Institution of The Lutheran Church - Missouri Synod

CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 2005 and 2004 2005 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities Bad debt expense Depreciation expense Change in value of split-interest agreements Change in value of beneficial interest in funds held by LCMS Foundation Loss (gain) on property disposals Net realized and unrealized (gain) on investments Amortization of bond discount Amortization of bond issuance costs (Increase) decrease in assets Student accounts receivables Interest receivable Federal and state grants receivable Inventories Prepaid expense and other assets Contributions receivable Cash value of life insurance Funds held by third-party trustee Increase (decrease) in liabilities Accounts payable and other liabilities Deferred revenues Deposits payable Agency funds held in custody for others Contributions restricted for plant and long-term investment Interest and dividends restricted for long-term investment Net Cash Flows From Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Increase in funds on deposit with CUS Proceeds from sale of fixed assets Decrease in funds on deposit with bond trustee Purchases of land, buildings and equipment Proceeds from sale of investments Purchases of investments Net Cash Flows From Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Contributions restricted for Investment in permanent endowments Investment in land, buildings and equipment Interest and dividends restricted for reinvestment (Decrease) in funds advanced by CUS Loans payable advances Loans payable repayments Wisconsin Health and Educational Facilities Authority Revenue Bonds Retirement of matured bonds Net Cash Flows From Financing Activities Net Change in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS - Beginning of Year CASH AND CASH EQUIVALENTS - END OF YEAR Supplemental disclosures of cash flow information Interest paid Property and equipment through accounts payable $ $ 7,746,801 $ 2004 4,267,279

(197,455) 1,930,118 (46,696) 14,831 (8,365) (1,048,771) 5,926 9,902 825,895 86,825 (101,744) 94,511 (225,010) (32,425) 28,614 (530,819) 368,302 (800) 124,598 (4,084,188) (86,925) 4,873,125

308,783 1,899,575 69,600 (17,319) 13,196 (3,269,301) 5,926 9,902 943,929 (2,107) 359,191 571,112 (7,548) (324,417) (374,897) (24,790) 115,990 (200,563) (30,230) 31,464 (1,448,572) (32,489) 2,863,714

(1,208,743) 8,365 915 (6,388,542) 26,285,645 (27,126,489) (8,428,849)

4,798 (2,449,540) 179,940 (706,470) (2,971,272)

868,225 3,011,658 3,879,883 86,925 (245,471) 1,286,000 (139,691) (225,000) 4,642,646 1,086,922 827,685 1,914,607 $

478,493 970,079 1,448,572 32,489 (756,045) (215,000) 510,016 402,458 425,227 827,685

$

246,500 181,302

$

265,100 504,013

See accompanying notes to financial statements.

Page 5

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 1 ­ S UMMARY

OF

S IGNIFICANT A CCOUNTING P OLICIES

Concordia University Wisconsin (the University), a not-for-profit corporation, is a private, Lutheran liberal arts educational institution owned and operated under the auspices of The Lutheran Church - Missouri Synod (the Synod), which establishes broad operating and financial policies through its Board for Higher Education (BHE)/Concordia University System (CUS). The University's Board of Regents, elected by the Synod, is responsible for the management of the University. The Concordia University Wisconsin Foundation, Inc. (the Foundation) is a Wisconsin not-forprofit organization formed to promote the University through solicitation of funds to encourage various activities of the University and to administer gifts and bequests given to it by donors for purposes of supporting the educational and religious objectives of the University. The Foundation is administered by a Board of Directors, the majority of which are elected by the Board of Regents of the University. The consolidated financial statements of the University include the financial statements of Concordia University Wisconsin Foundation, Inc. (the Foundation) in accordance with the American Institute of Certified Public Accountants' Statement of Position 94-3, Reporting of Related Entities by Not-for-Profit Organizations, which requires consolidation when an entity both controls and has an economic interest in the consolidated organization. All significant balances and transactions between these organizations have been eliminated in consolidation. General - CUS contributes to the University's support ($186,500 in 2005 and $93,312 in 2004) in the form of specific grants. During 2004-05, CUS also provided a $1,500,000 line of credit to the University which was available to support current operations. As disclosed in Note 6, the University's line of credit was extended for the 2005-06 fiscal year. Revenues are derived principally from the University's educational programs in the form of tuition and fees. The majority of the University's students rely on funds received from federal financial aid programs under Title IV of the Higher Education Act of 1965, as amended, to pay for a substantial portion of their tuition. These programs are subject to periodic review by the United States Department of Education (DOE). Disbursements under each program are subject to disallowance by the DOE and repayment by the University. In addition, as an educational institution, the University is subject to licensure from various accrediting and state authorities and other regulatory requirements of the DOE. Auxiliary enterprise revenue includes income primarily from student housing, food services, bookstore operations, transportation services, conventions and conferences, athletics, student performance groups and publications. Accordingly, the auxiliary enterprise expenses include all costs incurred in providing those services. Athletic and student performance revenues consist only of ticket sales, while the expenses include all costs related to the administration and operation of the University's athletic and student performance group programs.

Page 6

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 1 ­ S UMMARY

OF

S IGNIFICANT A CCOUNTING P OLICIES (cont.)

The University reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets as follows: Permanently Restricted Net Assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on related investments for general or specific purposes. Temporarily Restricted Net Assets - Net assets subject to donor-imposed stipulations that will be met by action of the University and/or the passage of time. Unrestricted Net stipulations. Assets Net assets not subject to donor-imposed

Income Taxes - The University is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and has received a determination letter from the Internal Revenue Service stating that it is exempt from federal income tax on its related exempt activities under Code 501(a). However, any unrelated business income may be subject to taxation. Contributions - All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Contributions received with donor imposed restrictions met in the same year are recorded as temporarily restricted revenue and included in releases from restrictions. The University reports gifts of assets other than cash as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.

Page 7

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 1 ­ S UMMARY

OF

S IGNIFICANT A CCOUNTING P OLICIES (cont.)

In accordance with SFAS No. 116, Accounting for Contributions Received and Contributions Made, unconditional promises to give that are expected to be collected within one year are recognized as support and recorded as a receivable at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows, discounted at an appropriate interest rate. Conditional promises to give are not included as support until the conditions are substantially met. Income and net gains on investments of endowment and similar funds are reported as follows: · · · as increases in permanently restricted net assets if the terms of the gift require that they be added to the principal of a permanent endowment fund; as increases in temporarily restricted net assets if the terms of the gift impose restrictions on the use of the income; as increases in unrestricted net assets in all other cases.

Contributed Services - In addition, contributed services are reported in the financial statements at fair value for voluntary donations of services when those services (1) create or enhance nonfinancial assets or (2) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Cash Equivalents -The University considers cash and cash equivalents to include currency, demand deposits, and liquid investments with a maturity, at time of purchase, of three months or less. Cash and cash equivalents do not include investments the University has both the ability and intent to hold long-term. Receivables - An allowance for doubtful accounts is recorded based on past collection experience and an aging analysis of the outstanding balances. Bad debts are expensed when deemed uncollectible. Receivables are generally unsecured. Inventories - Inventories are stated at cost (first-in, first-out method) and consist mostly of textbooks at the satellite adult education branches. Split-interest Agreements - Split-interest agreements consist primarily of irrevocable charitable remainder trust and charitable gift annuities. The assets associated with such agreements are held by The Lutheran Church - Missouri Synod Foundation (LCMS Foundation). Contributions are recognized at the dates the agreements are established and are recorded at the present value of the estimated future benefits to be received when the assets are distributed to the University. The valuations of the agreements are calculated by the LCMS Foundation. The agreements are revalued annually, and any resulting actuarial gain or loss is reflected in the statements of activities as a change in value of split-interest agreements. Page 8

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 1 ­ S UMMARY

OF

S IGNIFICANT A CCOUNTING P OLICIES (cont.)

Investments - Investments in marketable equity and debt securities are carried at fair value based on quoted market prices. Realized and unrealized gains and losses, reflected in the statement of activities, are determined by comparison of the investment cost to proceeds at the time of disposal or to market values at the financial statement date, respectively. Other investments are carried at cost, except those items received as gifts, which are valued at fair value at the date of the gift. Endowment - The Board of Regents has interpreted state law as requiring the original value of an endowment gift to be maintained as the permanent endowment corpus. Realized gains as well as the net appreciation of permanent endowment funds may be expended for the same purpose as the endowment was established, unless explicit donor restrictions specify other treatment. Funds on Deposit with Bond Trustee - Cash, short-term investments and fixed income securities held by the trustee include amounts restricted for debt service as required by the trust indentures. Unamortized Bond Issuance Costs - Costs of bond issuance are deferred and amortized on a straight-line basis over the term of the related indebtedness. Land, Buildings, and Equipment - Land, buildings, improvements and equipment are recorded at cost, except for property received by gift, which is recorded at fair value on the date of receipt. Title to land and buildings is principally in the name of the Synod. The University capitalizes physical plant and equipment in excess of $1,000. Buildings, improvements, and equipment are depreciated using the straight-line method over the following estimated useful lives: Buildings Building and Other Improvements Equipment 40 years 20 years 3 to 10 years

Advertising Expenses - Advertising expenses totaled $1,362,335 and $1,115,351 for the years ended June 30, 2005 and 2004, respectively. The University expenses advertising costs at the time incurred. Functional Allocation of Expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain expenses have been allocated among the programs and supporting services benefited. Grants to Specified Students - During 2005 and 2004, the University disbursed $1,748,581 and $1,676,376, respectively, to students under the Federal Pell Grant Program. This activity is not included in the accompanying consolidated financial statements.

Page 9

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 1 ­ S UMMARY

OF

S IGNIFICANT A CCOUNTING P OLICIES (cont.)

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain prior year amounts have been reclassified to conform with the June 30, 2005 financial statement presentation. These reclassifications had no effect on total net assets or change in net assets.

NOTE 2 ­ C ONTRIBUTIONS R ECEIVABLE Contributions receivable include the following unconditional promises to give at June 30, 2005 and 2004: June 30 2005 Unrestricted ­ operations Temporarily restricted ­ plant projects Temporarily restricted ­ operations Permanently restricted - endowment Less: Present value component Estimated uncollectible pledges Net Contributions Receivable Amounts Due: Within One Year One to Five Years After Five Years Total Amounts Due $ $ 5,315 2,212,419 370,200 691,889 3,279,823 (613,619) (485,000) 2,181,204 $ 2004 8,464 1,541,450 341,794 800,082 2,691,790 (639,830) (154,182) 1,897,778

$

$

1,125,307 1,379,142 775,374 3,279,823

$

517,980 1,127,453 1,046,357 2,691,790

$

$

Promises due were discounted at an interest rate of 5.875% and 6.0% at June 30, 2005 and 2004, respectively.

Page 10

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 3 ­ L ONG -T ERM I NVESTMENTS Investments with maturities greater than or equal to three months at time of purchase are classified as long-term. In addition, investments with maturities of less than three months at time of purchase, which the University has both the ability and intent to hold long-term, are also classified as long-term investments. Details of long-term investments held by the University at June 30, 2005 and 2004 follow: 2005 Cash and money market funds Stocks Mutual funds Equity funds Fixed income funds Hedge funds Certificates of deposit Real estate Totals $ 2,569,919 255,568 17,523,314 7,797,670 7,280,823 391,018 1,130,715 36,949,027 $ 2004 2,687,268 1,472 241,682 19,851,191 11,886,781 391,018 35,059,412

$

$

Included in the above investment listings are hedge funds. The fair value of the hedge funds at June 30, 2005 totaled $7,280,823. These investments were entered into to diversify the University's portfolio, to provide predictability in overall earnings and to provide market neutral holdings. The University's management, the Board of Regents and the University's external investment consultants review reports provided by the hedge fund managers and the University's external investment consultants attend meetings of the hedge fund managers in order to evaluate the risk associated with these investments. In addition, the University monitors its portfolio mix to ensure it is in accordance with Board policy. Gains on these investments are included with investment income and gains in the statement of activities. Income on long-term investments reflected in the consolidated statements of activities is shown net of related investment management fees. For the years ended June 30, 2005 and 2004, these fees totaled $98,813 and $145,865, respectively. Endowment investments were at $14,136,285 and $14,851,310, at June 30, 2005 and 2004, respectively.

Page 11

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 4 ­ B ENEFICIAL I NTEREST in F UNDS H ELD BY LCMS F OUNDATION Funds held by third-party trustee consist of irrevocable trusts from which the University is to receive the income in perpetuity. The principal is held in trust by the LCMS Foundation and will never revert to the University. The perpetual stream of income is viewed by the University as promises to give by the individuals who established the trusts and has been recorded at the fair value of the trusts at June 30, 2005 and 2004, which closely approximates the net present value of the perpetual income stream. Given the nature of the promises, the University recorded these contributions as permanently restricted net assets. Income received is recorded as either unrestricted or temporarily restricted activity based on the presence or absence of donor restrictions. Increases or decreases in the fair value of the trust assets are recorded on the statements of activities as changes in permanently restricted net assets.

NOTE 5 ­ L AND , B UILDINGS

AND

E QUIPMENT

Land, buildings and equipment and the related accumulated depreciation amounts are as follows: June 30, 2005 Accumulated Depreciation $ (11,268,443) (1,462,396) (6,958,726) $

Cost Land Construction in progress Buildings Building and other improvements Equipment Totals $ 4,817,844 896,270 36,855,838 3,079,404 9,825,449

Net Book Value 4,817,844 896,270 25,587,395 1,617,008 2,866,723 35,785,240

$ 55,474,805

$ (19,689,565) June 30, 2004 Accumulated Depreciation $ (10,311,943) (1,337,040) (6,183,585)

$

Cost Land Construction in progress Buildings Building and other improvements Equipment Totals $ 1,515,758 726,415 35,161,360 2,732,418 9,023,433

Net Book Value $ 1,515,758 726,415 24,849,417 1,395,378 2,839,848 31,326,816

$ 49,159,384

$ (17,832,568)

$

Included in the above schedule, at June 30, 2005, $896,270 had been expended for restoration of the Lake Michigan shoreline on-campus property with an estimated cost to complete of $9,000,000 and an estimated completion date of October 2006. The project will be financed through contributions and debt. Page 12

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 5 ­ L AND , B UILDINGS

AND

E QUIPMENT (cont.)

During fiscal year 2005, major library renovations of $723,838 and cafeteria renovations, furniture and equipment of $1,180,228 were completed and brought into service for the 20042005 school year. NOTE 6 ­ F UNDS H ELD BY /A DVANCED C ONCORDIA U NIVERSITY S YSTEM

BY

Operating funds held by CUS represent interest-bearing demand deposits which earn interest on the daily balance in the account at rates ranging from 1.625% to 2.50%. During the years ended June 30, 2005 and 2004, interest earned on these deposits totaled $38,625 and $12,959 respectively, which was included on the statements of activities with income earned on cash and cash equivalents. Operating funds advanced by CUS to the University represent short-term line of credit borrowings. In April 2004, CUS approved a $1,500,000 line of credit, available for the 2004-2005 fiscal year for short-term cash flow purposes. CUS has approved the line of credit for the past five years and approved the line of credit for the 2005-2006 fiscal year, as well. Interest rate expires and renews each year. Interest rates ranged from 6.0% to 6.25% during the year ended June 30, 2005. During the years ended June 30, 2005 and 2004, interest paid on these borrowings totaled $12,264 and $20,807, respectively, which was reported as an institutional support expense on the consolidated statements of activities. The balance due to CUS was zero and $245,471 at June 30, 2005 and 2004, respectively. NOTE 7 ­ L OANS P AYABLE At June 30, 2005, the University had $1,146,309 in unsecured debt to a food vendor. The debt was incurred in conjunction with a dining hall remodeling project competed in the summer of 2004 for a total of $1,268,809 and the outsourcing of the food service function to the vendor. The loan has a maximum repayment schedule of 5 years and accrues interest at an annual rate of 10%. During the first four years of the agreement, the principal will be paid in an amount equal to ten percent of the total investment with the remaining principal balance due in the fifth year. The debt is currently being repaid with $2,500 weekly remittances totaling $122,500 in 2005 with the ability to make lump sum paydowns without penalty dependent on cash availability. Interest expense totaled $100,827 for the year ended June 30, 2005 and is included in auxiliary expenses in the statement of activities.

Page 13

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 7 ­ L OANS P AYABLE (cont.) Repayments based upon the contract agreement are as follows: Year Ending June 30, 2006 2007 2008 2009 2010 Total Principal Payments $ Amount 114,630 114,630 114,630 114,630 687,789 1,146,309

$

NOTE 8 ­ B ONDS P AYABLE /F UNDS

ON

D EPOSIT WITH B OND T RUSTEE

During the year ended June 30, 1998, the University entered into an agreement with the Wisconsin Health and Educational Facilities Authority (WHEFA) to issue $5,790,000 in revenue bonds, Series 1998 (Concordia University Wisconsin, Inc. Project). The bond proceeds were used to finance the construction of a new residence hall, establish a debt service reserve fund, and pay certain costs of issuing the 1998 bonds. At June 30, 2005, the University's payable to WHEFA was $4,570,000 net of unamortized discount totaling $77,034. Under the terms of the bond indenture, interest is payable semiannually on April and October 1 of each year, beginning October 1, 1998. The interest rate on $2,810,000 of the 1998 bonds was initially 3.95% per annum and will increase over the bond term to 5.0% per annum. The principal portion is due annually on October 1, and is scheduled to mature on October 1, 2010. The remaining 1998 bonds of $2,980,000 have an interest rate of 5.125% per annum, and the principal portion is due annually through October 1, 2018. Future minimum principal payments, based on the indenture agreement with WHEFA, are as follows: Year Ending June 30 2006 2007 2008 2009 2010 Thereafter Total Principal Payments $ 235,000 245,000 260,000 270,000 285,000 3,275,000 4,570,000

$

Page 14

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 8 ­ B ONDS P AYABLE /F UNDS

ON

D EPOSIT WITH B OND T RUSTEE (cont.)

For the years ended June 30, 2005 and 2004, interest expense of $234,336 and $241,874, respectively, was reported as an institutional support expenditure on the consolidated statements of activities. Funds on deposit with bond trustee represent amounts set aside for future principal and interest payments. NOTE 9 ­ B OARD -D ESIGNATED N ET A SSETS For the years ended June 30, 2005 and 2004, the Board of Regents designated unrestricted net assets of $19,868,484 and $17,025,697, respectively, to be used for quasi-endowments for student financial aid purposes and campus master plan expenditures. NOTE 10 ­ T EMPORARILY R ESTRICTED N ET A SSETS Temporarily restricted net assets contain donor-imposed restrictions that expire upon the passage of time or once specific actions are undertaken by the University. At June 30, 2005 and 2004, temporarily restricted net assets are available for the following specific purposes, or time restrictions have been placed on the use of the funds as noted in the following schedule: 2005 Purpose Restrictions Academic programs Instruction - divisional Support programs Academic support Student services Institutional support Fund raising Auxiliary enterprises Scholarship allowances (Student Aid) Land, building, and equipment acquisitions Time Restrictions Totals $ 2004

$

492,815 10,955 393 61,348 96,960 413,184 1,469,873 2,545,528 256,466 2,801,994

$

461,045 117,687 393 1,364 1,013,718 1,521,213 3,115,420 264,501 3,379,921

$

Page 15

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 11 ­ P ERMANENTLY R ESTRICTED N ET A SSETS Permanently restricted net assets are subject to donor-imposed restrictions that the principal be invested in perpetuity. The income from these investments will be used to support: 2005 Academic programs Other instructional programs Support programs Academic support Student services Auxiliary enterprises Scholarship allowances (Student aid) Totals $ 3,961 277,478 286,534 179,008 13,389,304 $ 14,136,285 $ 2004 3,948 269,249 285,494 178,919 14,113,700 $ 14,851,310

NOTE 12 ­ N ET A SSETS R ELEASED F ROM R ESTRICTIONS Net assets were released from temporary donor restrictions during the years ended June 30, 2005 and 2004 by incurring expenses satisfying the restricted purposes or by occurrence of events specified by the donors as follows: 2005 Purpose restrictions accomplished Academic programs Instruction - divisional Support programs Academic support Student services Institutional support Fund-raising Auxiliary enterprises Scholarship allowances (Student aid) Land, building, and equipment acquired and placed in service Expiration of time restrictions Totals $ 2004

$

44,349 8,880 1,000 212,649 85,320 1,365,960 2,764,932 4,483,090 323,591 4,806,681

$

43,904 18,494 17,808 7,101 543,586 38,374 445,654 590,244 1,705,165 63,993

$

1,769,158

Page 16

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 13 ­ R ECLASSIFICATION

OF

N ET A SSETS

During the year ended June 30 2005, the University obtained written authorization from various donors to release the initial restrictions placed on permanently restricted net assets. As a result, the University reclassified $1,710,014 previously classified as permanently restricted net assets to board designated net assets.

NOTE 14 ­ D EFINED B ENEFIT P LANS The University participates in the worker benefit plans of the Synod. Substantially all full-time employees are covered by these retirement and survivor programs. The University contributes a fixed percentage of each participant's salary to the plans. The cost of these plans is paid currently and for the years ended June 30, 2005 and 2004, totaled $804,592 and $799,407, respectively.

NOTE 15 ­ O PERATING L EASES The University has operating leases for its non-traditional off-site learning centers. Rental expenses associated with these leases totaled $789,706 and $766,976 for the years ended June 30, 2005 and 2004, respectively. Future minimum lease payments are as follows: Year Ending June 30, 2006 2007 2008 2009 2010 Total $ Amount 789,706 789,706 662,838 471,930 130,908 2,845,088

$

NOTE 16 ­ A LLOCATION

OF

E XPENSES

The University allocated the following expenses to program and support functions: 2005 Buildings and grounds Campus safety Depreciation Totals $ 2,530,128 177,258 1,930,118 4,637,504 $ 2004 2,737,862 1,899,575 $ 4,637,437 Page 17

$

CONCORDIA UNIVERSITY WISCONSIN AND AFFILIATE

An Educational Institution of The Lutheran Church - Missouri Synod NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2005 and 2004

NOTE 17 ­ C ONCENTRATION

OF

C REDIT R ISK

Financial instruments that potentially subject the University to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, marketable securities and other investments, and accounts receivable. The University places substantially all of its cash and liquid investments with high-quality financial institutions and limits the amount of credit exposure to any one financial institution: however, cash balances periodically exceed federally insured limits. Marketable securities, consisting of both debt and equity instruments, are generally placed in a variety of managed funds administered by different investment managers in order to limit credit risk. Student receivables and other receivables are due from a variety of sources concentrated primarily in the Midwestern United States. In addition, the University's students receive a substantial amount of support from state and federal student financial assistance programs which are subject to audit by governmental agencies. A significant reduction in the level of this support, if this were to occur, could have an adverse effect on the University's programs and activities.

NOTE 18 ­ S UBSEQUENT E VENT Subsequent to year end, the University authorized the issuance of up to $12,000,000 in long-term debt to be used to fund the bluff project and related campus improvements.

Page 18

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