MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS J UNE 30, 2009 15 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity . The University is a separate public instrumentality that is part of the State university system of public universities, which is under the general direction and control of the Florida Board of Governors. The University is directly governed by a Board of Trustees (Trustees) consisting of 13 members. The Governor appoints six citizen members and the Board of Governors appoints five citizen members. These members are confirmed by the Florida Senate and serve staggered terms of five years. The chair of the faculty senate and the president of the student body of the University are also members. The Board of Governors establishes the powers and duties of the Trustees. The Trustees are responsible for setting policies for the University, which provide governance in accordance with State law and Board of Governors’ Regulations. The Trustees select the University President. The University President serves as the executive officer and the corporate secretary of the Trustees, and is responsible for administering the policies prescribed by the Trustees. Criteria for defining the reporting entity are identified and described in the Governmental Accounting Standards Board’s Codification of Governmental Accounting and Financial Reporting Standards, Sections 2100 and 2600. These criteria were used to evaluate potential component units for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the primary government’s financial statements to be misleading or incomplete. Based on the application of these criteria, the University is a component unit of the State of Florida, and its financial balances and activity are reported in the State’s Comprehensive Annual Financial Report by discrete presentation. Discretely Presented Component Units . Based on the application of the criteria for determining component units, the following direct-support organizations (as provided for in Section 1004.28, Florida Statutes, and Board of Governors Regulation 9.011) are included within the University reporting entity as discretely presented component units. These legally separate, not-for-profit, corporations are organized and operated exclusively to assist the University to achieve excellence by providing supplemental resources from private gifts and bequests, and valuable education support services. The Statute authorizes these organizations to receive, hold, invest, and administer property and to make expenditures to or for the benefit of the University. These organizations and their purposes are explained as follows: ¾ Florida Atlantic University Foundation, Inc. (Foundation), is a separate corporation operating independently from the University, and as such, it receives and administers most private support for the University. Any person or organization contributing money, stock, or any other item to be used in This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 16 support of the general or specific support the University usually does so through the offices of the Foundation. ¾ Florida Atlantic University Research Corporation, Inc. (Corporation), was established by Florida Atlantic University in 1990. It has been organized to promote and encourage, and to provide assistance to, the research activities of the University’s faculty, staff, and students. The Corporation has been granted rights and responsibilities for the development, protection, and commercial application of defined and selected intellectual property. In consideration of its efforts, the Corporation is entitled to a portion of the royalties, license fees, or other revenue for the benefit of the University. The Corporation also accepts and administers contracts and grants from private industry, foundations, and other agencies whenever it is required by the granting agency, or when it is in the best interest of the University. ¾ Harbor Branch Oceanographic Institution Foundation, Inc. (HBOI Foundation), a separate corporation operating independently from the University, became a provider of funding and support for the research and education in marine sciences and ocean engineering to the Harbor Branch Oceanographic Institute, a research institute within the University. Effective July 1, 2008, HBOI Foundation became a component unit and direct-support organization of the University. The Foundation receives and administers most private support to the institute as it increases the understanding of oceans and coastal areas through exploration and scientific investigation. An annual audit of each organization’s financial statements is conducted by independent certified public accountants. The annual report is submitted to the Auditor General and the University Board of Trustees. Additional information on the University’s discretely presented component units, including copies of audit reports, is available by contacting the University Controller’s office. Condensed financial statements for the University’s discretely presented component units are shown in a subsequent note. Basis of Presentation . The University’s accounting policies conform with accounting principles generally accepted in the United States of America applicable to public colleges and universities as prescribed by the Governmental Accounting Standards Board (GASB). The National Association of College and University Business Officers (NACUBO) also provides the University with recommendations prescribed in accordance with generally accepted accounting principles promulgated by GASB and the Financial Accounting Standards Board (FASB). GASB allows public universities various reporting options. The University has elected to report as an entity engaged in only business-type activities. This election requires the adoption of the accrual basis of accounting and entitywide reporting including the following components: ¾ Management’s Discussion and Analysis ¾ Basic Financial Statements: • Statement of Net Assets • Statement of Revenues, Expenses, and Changes in Net Assets • Statement of Cash Flows This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 17 • Notes to Financial Statements ¾ Other Required Supplementary Information Basis of Accounting . Basis of accounting refers to when revenues, expenses, and related assets and liabilities are recognized in the accounts and reported in the financial statements. Specifically, it relates to the timing of the measurements made, regardless of the measurement focus applied. The University’s financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange activities are generally recognized when all applicable eligibility requirements, including time requirements, are met. The University’s discretely presented component units use the accrual basis of accounting whereby revenues are earned and expenses are recognized when incurred, and follow FASB standards of accounting and financial reporting for not-for-profit organizations except for the Florida Atlantic University Research Corporation, Inc., which follows GASB standards of accounting and financial reporting. The University follows FASB statements and interpretations issued after November 30, 1989, unless those pronouncements conflict with GASB pronouncements. Interdepartmental sales between auxiliary service departments and other institutional departments have been accounted for as reductions of expenses and not revenues of those departments. The University’s principal operating activities consist of instruction, research, and public service. Operating revenues and expenses generally include all fiscal transactions directly related to these activities as well as administration, operation and maintenance of capital assets, and depreciation on capital assets. Nonoperating revenues include State appropriations, Federal and State student financial aid, investment income (net of unrealized gains or losses on investments), and revenues for capital construction projects. Interest on capital asset-related debt is a nonoperating expense. The statement of net assets is presented in a classified format to distinguish between current and noncurrent assets and liabilities. When both restricted and unrestricted resources are available to fund certain programs, it is the University’s policy to first apply the restricted resources to such programs, followed by the use of the unrestricted resources. The statement of revenues, expenses, and changes in net assets is presented by major sources and is reported net of tuition scholarship allowances. Tuition scholarship discounts and allowances are the differences This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 18 between the stated charge for goods and services provided by the University and the amount that is actually paid by a student or a third party making payment on behalf of the student. The University applied “The Alternate Method” as prescribed in NACUBO Advisory Report 2000-05 to determine the reported net tuition scholarship discounts and allowances. Under this method, the University computes these amounts by allocating the cash payments to students, excluding payments for services, on a ratio of total aid to the aid not considered to be third-party aid. The statement of cash flows is presented using the direct method in compliance with GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. Cash and Cash Equivalents . Cash and cash equivalents consist of cash on hand and cash in demand accounts. University cash deposits are held in banks qualified as public depositories under Florida law. All such deposits are insured by Federal depository insurance, up to specified limits, or collateralized with securities held in Florida’s multiple financial institution collateral pool required by Chapter 280, Florida Statutes. Cash and cash equivalents that are externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other restricted assets, are classified as restricted. Capital Assets . University capital assets consist of land, construction in progress, buildings, infrastructure and other improvements, furniture and equipment, property under capital lease, library resources, computer software, works of art and historical treasures, and other capital assets. These assets are capitalized and recorded at cost at the date of acquisition or at estimated fair value at the date received in the case of gifts and purchases of State surplus property. Additions, improvements, and other outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. The University has a capitalization threshold of $1,000 for tangible personal property, new buildings, and building improvements. Depreciation is computed on the straight-line basis over the following estimated useful lives: ¾ Buildings – 20 to 50 years ¾ Infrastructure and Other Improvements – 12 to 50 years ¾ Furniture and Equipment – 3 to 20 years ¾ Library Resources – 10 years ¾ Property under Capital Lease – 5 to 20 years or the term of the lease, whichever is greater ¾ Leasehold Improvements – 40 years This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 19 ¾ Works of Art and Historical Treasures – 50 years ¾ Computer Software – 3 to 7 years Noncurrent Liabilities . Noncurrent liabilities include principal amounts of bonds payable, capital leases payable, compensated absences payable, and postemployment healthcare benefits payable that are not scheduled to be paid within the next fiscal year. Noncurrent liabilities also consist of amounts due to the Federal government for the Federal Perkins Loan Program - Federal Capital Contributions. Bonds payable are reported net of unamortized premium or discount and deferred losses on refundings. The University amortizes bond premiums and discounts over the life of the bonds using the straight-line method. Deferred losses on refundings are amortized over the life of the old debt or new debt (whichever is shorter) using the straight-line method. Issuance costs paid from the debt proceeds are reported as deferred charges, and are amortized over the life of the bonds using the straight-line method. 2. PRIOR PERIOD ADJUSTMENTS Adjustments to beginning net assets are reported in accordance with FASB Statement No. 154. An adjustment to beginning net assets reported in the statement of revenues, expenses, and changes in net assets for $37,791,545 was made to record the beginning net assets of the HBOI Foundation, which became a component unit of the University on July 1, 2008. 3. INVESTMENTS Section 1011.42(5), Florida Statutes, authorizes universities to invest funds with the State Treasury and State Board of Administration, and requires that universities comply with the statutory requirements governing investment of public funds by local governments. Accordingly, universities are subject to the requirements of Chapter 218, Part IV, Florida Statutes. Pursuant to Section 218.415(16), Florida Statutes, the University is authorized to invest in the Local Government Surplus Funds Trust Fund investment pool administered by the State Board of Administration; interest-bearing time deposits and savings accounts in qualified public depositories, as defined in Section 280.02, Florida Statutes; direct obligations of the United States Treasury; obligations of Federal agencies and instrumentalities; securities of, or interests in, certain open-end or closed-end management type investment companies; Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency; and other investments approved by the University’s Board of Trustees as authorized by law. Investments set aside to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital assets are classified as restricted. This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 20 External Investment Pools The University reported investments at fair value totaling $145,558,735 at June 30, 2009, in the State Treasury Special Purpose Investment Account (SPIA) investment pool, representing ownership of a share of the pool, not the underlying securities. The SPIA carried a credit rating of A+f by Standard & Poor’s and had an effective duration of 1.84 years at June 30, 2009. The University relies on policies developed by the State Treasury for managing interest rate risk or credit risk for this investment pool. Disclosures for the State Treasury investment pool are in included in the notes to financial statements of the State’s Comprehensive Annual Financial Report. Component Units Investments Investments reported by the University’s component units at June 30, 2009, are those held by Florida Atlantic University Foundation, Inc., and the Harbor Branch Oceanographic Institution Foundation, Inc., and are reported at fair market value as follows: Investment Type Amount United States Stocks 52,854,523$ International Stocks 34,026,141 Fixed Income Securities 49,304,280 Other Investments 38,358,062 Subtotal 174,543,006 Funds Held in Trust by Others 2,505,121 Total Investments 177,048,127$ 4. RECEIVABLES Accounts Receivable . Accounts receivable represent amounts for student tuition and fees, contract and grant reimbursements due from third parties, various sales and services provided to students and third parties, and interest accrued on investments and loans receivable. As of June 30, 2009, the University reported the following amounts as net accounts receivable: Description Amount Contracts and Grants 7,419,166$ Student Tuition and Fees 10,846,692 Other 502,768 Total Accounts Receivable, Net 18,768,626$ This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 21 Loans and Notes Receivable . Loans and notes receivable represent all amounts owed on promissory notes from debtors, including student loans made under the Federal Perkins Loan Program and other loan programs. Allowance for Uncollectible Receivables . Allowances for uncollectible accounts, and loans and notes receivable, are reported based on management’s best estimate as of fiscal year-end considering type, age, collection history, and other factors considered appropriate. Accounts receivable, and loans and notes receivable, are reported net of allowances of $5,669,148 and $426,379, respectively, at June 30, 2009. No allowance has been accrued for contracts and grants receivable. University management considers these to be fully collectible. 5. DUE FROM STATE This amount consists of $132,084,702 of Public Education Capital Outlay, Capital Improvement Fee Trust Fund, and other allocations due from the State to the University for construction of University facilities. 6. DUE FROM AND TO COMPONENT UNITS/UNIVERSITY The $631,009 reported as due to component units consists of amounts owed by the University to the Foundation pursuant to an agreement to support the Foundation’s operations. The $2,837,824 due from component units primarily consists of amounts owed to the University by the Foundation for scholarships, student aid, and to support the activities of HBOI Foundation. The Foundation received funds from the HBOI Foundation, Inc., to support the activities of HBOI. The University and its component units’ financial statements are reported for the fiscal year ended June 30, 2009. 7. INVENTORIES Inventories have been categorized into the following two types: ¾ Departmental Inventories – Those inventories maintained by departments and not available for resale. Departmental inventories are comprised of such items as classroom and laboratory supplies, teaching materials, and office supply items, which are consumed in the teaching and work process. These inventories are normally expensed when purchased and therefore are not reported on the statement of net assets. ¾ Merchandise Inventory – Those inventories maintained which are available for resale to individuals and other University departments, and are not expensed at the time of purchase. These inventories are reported on the statement of net assets, and are valued at cost using either the moving average method or the first-in, first-out method. This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 22 8. CAPITAL ASSETS Capital assets activity for the fiscal year ended June 30, 2009, is shown below: Description Beginning Additions Reductions Ending Balance Balance Nondepreciable Capital Assets: Land 32,439,234$ $ $ 32,439,234$ Works of Art and Historical Treasures 51,550 127,415 33,585 145,380 Construction in Progress 32,810,914 2,812,623 35,623,537 Total Nondepreciable Capital Assets 65,301,698$ 2,940,038$ 33,585$ 68,208,151$ Depreciable Capital Assets: Buildings 590,867,782$ 18,659,375$ 4,259,395$ 605,267,762$ Infrastructure and Other Improvements 62,508,075 5,923,705 1,369,620 67,062,160 Furniture and Equipment 117,893,769 12,378,795 7,698,158 122,574,406 Library Resources 68,019,734 3,083,584 327,903 70,775,415 Property Under Capital Lease and Leasehold Improvements 15,414,080 15,030,527 1,344,510 29,100,097 Works of Art and Historical Treasures 633,333 137,980 40,000 731,313 Computer Software 4,137,445 220,496 157,569 4,200,372 Total Depreciable Capital Assets 859,474,218 55,434,462 15,197,155 899,711,525 Less, Accumulated Depreciation: Buildings 130,728,986 13,011,511 574,302 143,166,195 Infrastructure and Other Improvements 19,805,036 1,493,914 102,659 21,196,291 Furniture and Equipment 68,129,460 7,869,088 3,922,105 72,076,443 Library Resources 52,784,842 2,584,743 327,904 55,041,681 Property Under Capital Lease and Leasehold Improvements 4,906,653 579,127 1,315,714 4,170,066 Works of Art and Historical Treasures 47,544 15,836 63,380 Computer Software 2,385,481 776,367 129,507 3,032,341 Total Accumulated Depreciation 278,788,002 26,330,586 6,372,191 298,746,397 Total Depreciable Capital Assets, Net 580,686,216$ 29,103,876$ 8,824,964$ 600,965,128$ 9. DEFERRED REVENUE Deferred revenue includes Public Education Capital Outlay appropriations for which the University had not yet received approval from the Florida Department of Education, as of June 30, 2009, to spend the funds, and student tuition and fees received prior to fiscal year-end related to subsequent accounting periods. As of June 30, 2009, the University reported the following amounts as deferred revenue: This is trial version www.adultpdf.com MARCH 2010 REPORT NO. 2010-157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 23 Description Amount Capital Appropriations 90,075$ Student Tuition and Fees 7,048,007 Contracts and Grants 4,205,780 Athletic 593,001 Total Deferred Revenue 11,936,863$ 10. LONG-TERM LIABILITIES Long-term liabilities of the University at June 30, 2009, include bonds, capital leases, compensated absences, and postemployment healthcare benefits payable. Long-term liabilities activity for the fiscal year ended June 30, 2009, is shown below: Description Beginning Additions Reductions Ending Current Balance Balance Portion Bonds Payable 110,893,825$ 3,060,470$ 4,185,739$ 109,768,556$ 4,473,071$ Capital Leases Payable 10,867,693 465,570 10,402,123 349,359 Compensated Absences Payable 22,190,330 2,585,951 1,460,570 23,315,711 1,355,416 Postemployment Healthcare Benefits Payable 2,173,000 3,326,000 1,284,000 4,215,000 Other Noncurrent Liabilities 1,833,748 1,833,748 Total Long-Term Liabilities 146,124,848$ 10,806,169$ 7,395,879$ 149,535,138$ 6,177,846$ Revenue Bonds Payable . The University had the following bonds payable outstanding at June 30, 2009: This is trial version www.adultpdf.com . version www.adultpdf.com MARCH 2010 REPORT NO. 2010- 157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 17 • Notes to. version www.adultpdf.com MARCH 2010 REPORT NO. 2010- 157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS (C ONTINUED) J UNE 30, 2009 21 Loans and Notes. MARCH 2010 REPORT NO. 2010- 157 FLORIDA ATLANTIC UNIVERSITY A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS J UNE 30, 2009