Alaska Pacific University (AP) Risk Assessment

Transcription

1 Financial Statements Years Ended June 30, 2014 and 2013 (With Independent Auditor s Report Thereon) This report was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Financial Statements Years Ended June 30, 2014 and 2013 (With Independent Auditor s Report Thereon)

3 Contents Independent Auditor s Report 1-2 Page Financial Statements Statements of Financial Position 4 Statements of Activities 5 Statements of Cash Flows

4 Tel: Fax: C Street, Suite 600 Anchorage, AK Independent Auditors Report Board of Trustees Alaska Pacific University Report on the Financial Statements We have audited the accompanying financial statements of Alaska Pacific University, which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 1

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alaska Pacific University as of June 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 23, 2014 on our consideration of Alaska Pacific 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 in considering Alaska Pacific University s internal control over financial reporting and compliance. Anchorage, Alaska December 23,

6 Financial Statements 3

7 Statements of Financial Position June 30, Assets Current Assets Cash and cash equivalents $ 426,490 $ 257,269 Accounts and pledges receivable, net 1,649,958 1,408,845 Prepaid expenses and inventories 2,234,124 2,078,583 Property held for sale 15,491,167 - Investments 13,748 9,754 Total Current Assets 19,815,487 3,754,451 Other Assets Pledge receivable 355, ,000 Prepaid expenses 1,034, ,831 Deferred loan costs, net 197, ,138 Plant facilities, net 18,380,067 19,664,894 Real property held for investment 69,817,755 85,308,922 Investments in beneficial interests 18,370,762 17,256,348 Total Other Assets 108,155, ,908,133 Total Assets $ 127,970,545 $ 127,662,584 Liabilities and Net Assets Current Liabilities Accounts payable $ 954,049 $ 600,847 Accrued expenses 566, ,080 Deferred revenue 301, ,285 Interest payable 199, ,207 Line of credit 500,000 - Current portion of notes payable 772,100 1,101,830 Current portion of bonds payable 125, ,000 Current portion of other long-term obligation 154, ,199 Total Current Liabilities 3,573,868 2,918,448 Other Liabilities Deposits 44,378 45,523 Notes payable, less current portion 33,143,653 33,838,922 Bonds payable, less current portion 355, ,000 Other long-term obligation, less current portion 432, ,064 Total Liabilities 37,549,270 37,929,957 Net Assets Unrestricted 66,389,131 67,721,851 Temporarily restricted 8,910,751 6,906,678 Permanently restricted 15,121,393 15,104,098 Total Net Assets 90,421,275 89,732,627 Total Liabilities and Net Assets $ 127,970,545 $ 127,662,584 See accompanying notes to financial statements. 4

8 Statements of Activities Temporarily Permanently Temporarily Permanently Years ended June 30, Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Tuition and fees, net $ 6,610,958 $ - $ - $ 6,610,958 $ 7,242,949 $ - $ - $ 7,242,949 Net rental income 2,921, ,921,075 2,949, ,949,187 Investment income (loss), net 2, ,789 (15) - - (15) Private gifts, grants and bequests 1,736,323 2,183,969 3,522 3,923,814 2,522,028 1,022,774 3,114 3,547,916 Government contracts and grants 684, , , ,065 Change in investments in beneficial interests - 1,100,641 13,773 1,114, , , ,579 Auxiliary enterprises 1,197, ,197,069 1,399, ,399,665 Other sources 721,597 81, , ,859 79, ,779 Net assets released from restrictions 1,362,255 (1,362,255) - - 1,136,921 (1,136,921) - - Total Revenues, Gains and Other Support 15,236,531 2,004,073 17,295 17,257,899 16,344, , ,893 16,886,125 Expenses Instruction 5,563, ,563,128 5,720, ,720,652 Research 1,052, ,052, , ,617 Public service 133, , , ,323 Academic support 669, , , ,110 Student services 3,475, ,475,240 3,279, ,279,388 Institutional support 3,440, ,440,867 3,792, ,792,085 Auxiliary enterprises 2,063, ,063,431 2,173, ,173,871 Total Expenses 16,397, ,397,628 16,604, ,604,046 Increase (Decrease) from Operating Activity (1,161,097) 2,004,073 17, ,271 (259,387) 429, , ,079 Non-Operating Activity Loss on sale of property and equipment (5,313) - - (5,313) Real property held for investment valuation adjustment ,297, ,297,236 Interest expense and other financing costs (171,623) - - (171,623) (178,468) - - (178,468) (171,623) - - (171,623) 44,113, ,113,455 Change in Net Assets (1,332,720) 2,004,073 17, ,648 43,854, , ,893 44,395,534 Net Assets, beginning of year 67,721,851 6,906,678 15,104,098 89,732,627 23,867,783 6,477,105 14,992,205 45,337,093 Net Assets, end of the year $ 66,389,131 $ 8,910,751 $ 15,121,393 $ 90,421,275 $ 67,721,851 $ 6,906,678 $ 15,104,098 $ 89,732,627 See accompanying notes to financial statements. 5

9 Statements of Cash Flows Years ended June 30, Cash Flows from Operating Activities Change in net assets $ 688,648 $ 44,395,534 Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation 1,584,277 1,486,543 Depreciation of real property held for investment - 43,080 Real property held for investment valuation adjustment - (44,297,236) Loss on disposal of property and equipment - 5,313 Net realized and unrealized gain on investments (4,059) (1,192) Net decrease (increase) in investment in beneficial interests (1,114,414) (572,579) Changes in assets and liabilities that provided (used) cash: Accounts receivable (241,113) (786,667) Prepaid expenses and inventories (218,078) (445,400) Pledge receivable 150, ,000 Deferred loan costs 4,032 (7,717) Accounts payable 353, ,937 Accrued expenses (47,728) 78,669 Deferred revenue 147,439 (68,716) Interest payable 29,642 (1,555) Deposits (1,145) (4,960) Net cash from operating activities 1,330, ,054 Cash Flows from Investing Activities Purchases of investments - (55) Sales of investments Purchase or construction of property and equipment (299,450) (317,126) Net cash for investing activities (299,385) (317,086) Cash Flows from Financing Activities Principal payments on notes payable (1,105,463) (1,012,553) Borrowings on notes payable 80,464 Principal payments on other long term obligations (182,098) (170,410) Borrowings on line of credit, net 500,000 - Principal payments on bonds payable (155,000) (135,000) Net cash for financing activities (862,097) (1,317,963) Net Increase (Decrease) in Cash and Cash Equivalents 169,221 (1,184,995) Cash and Cash Equivalents, beginning of year 257,269 1,442,264 Cash and Cash Equivalents, end of year $ 426,490 $ 257,269 Supplemental Disclosures of Cash Flow Information Interest paid $ 1,602,015 $ 1,271,239 Conversion of current payables to long term debt - 20,000 Purchase of property and equipment with long term debt - 1,600,000 Receivable reduction in lieu of long term debt payment - 176,261 Real property held for investment valuation adjustment - 44,297,236 See accompanying notes to financial statements. 6

10 June 30, 2014 and Summary of Accounting Policies Organization Alaska Pacific University (the University) is an accredited private university which conducts postsecondary education with a liberal arts and professional employment emphasis. The significant accounting policies followed by the University are described below. Basis of Presentation The University prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ( US GAAP ) and with standards established by the Financial Accounting Standards Board ( FASB ) for external financial reporting by not-for-profit organizations. Accordingly, the University s resources are classified and reported based upon the existence or absence of donor-imposed restrictions, as follows: Unrestricted net assets: Net assets that are not subject to donor-imposed restriction, that are general in nature, or are for operating purposes. Unrestricted net assets may be designated for specific purposes by the University s Board of Trustees. Temporarily restricted net assets: Net assets that are subject to donor-imposed time or use restrictions that have not been met. Permanently restricted net assets: Net assets that are subject to donor-imposed restrictions that the principal be invested in perpetuity and only the income or a portion thereof is made available for program operations, scholarships, or other purposes in accordance with donor restrictions. Fair Value Measurements Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820) defines fair value, requires expanded disclosures about fair value measurements, and establishes a three-level hierarchy for fair value measurements based on the observable inputs to the valuation of an asset or liability at the measurement date. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 prioritizes the inputs to the valuation techniques used to measure fair value by giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). 7

11 In addition, the fair value option allows entities to choose, at specified election dates, to measure eligible financial assets and financial liabilities at fair value that are not otherwise required to be measured at fair value. If an entity elects the fair value option for an eligible item, changes in that item s fair value in subsequent reporting periods must be recognized in current earnings. The University elected the fair value option for measurement of its real property held for investment effective July 1, The carrying amounts of cash and cash equivalents, student, research and contributions receivable, prepaid expenses and other assets, and accounts payable and accrued expenses approximate fair value due to the short maturity of these financial instruments. The carrying value of receivables has been reduced by an appropriate allowance for uncollectible accounts, based on historical collection experience and therefore approximates net realizable value Revenue and Expenses Recognition Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Appreciation or depreciation in the fair value of investments and gains and losses on other assets or liabilities are reported as increases or decreases in unrestricted net assets unless otherwise restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets are reported as net assets released from restrictions. Contributions, including unconditional promises to give, are recognized as revenues in the period received. Unconditional promises to give are recorded at their net realizable value if they are expected to be collected within one year or at fair value, which is measured using the present value of future cash flows, if they are expected to be collected over periods longer than one year. The University has been notified of certain intentions to give under various wills and trusts, the realizable amounts of which are not presently determinable. The University s share of such bequests is recorded when the University has an irrevocable right to the bequest and the proceeds are measurable. Contributions of assets other than cash are recorded at their estimated fair value at date of donation. Contributions to be received after one year are discounted using a riskadjusted rate of return. Amortization of discounts is recorded as additional contribution revenue reflecting donor-imposed restrictions, if any. An allowance for uncollectible contributions receivable is provided based upon management s judgment after considering prior collection history, type of contribution and nature of fundraising activity. Unrestricted net assets resulting from certain large contributions may be designated by the University s Board of Trustees for capital or long-term investment. Contributions of property, plant and equipment without donor stipulations restricting the use of such long-lived assets are reported as unrestricted support. Contributions of cash or other assets to be used to acquire land, buildings and equipment are reported as increases of temporarily restricted net assets. Restrictions are considered to be satisfied at the time of acquisition or completion of construction of such long-lived assets. 8

12 Auxiliary Enterprises Auxiliary enterprises include revenues and expenses related primarily to student housing and dining facilities, the campus store and conferencing services. An auxiliary enterprise exists to furnish goods or services to students, faculty, staff, or incidentally to the general public, and charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. The distinguishing characteristic of an auxiliary enterprise is that it is managed as an essentially self-supporting activity. The auxiliary enterprise category includes all expenses, including internal charges, relating to the operation of auxiliary enterprises, including expenses for operation and maintenance of plant and institutional support. Also included are other direct and indirect costs, whether charged directly as expenses or allocated as a proportionate share of costs to other departments or units. Cash and Cash Equivalents The University considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Student Accounts Receivable Student accounts receivable represent credit extended to students with no underlying collateral. Such balances are due at the census date and are stated net of an allowance for doubtful accounts. The University determines its allowance based on the anticipated net realizable value of expected collections. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market and include items for sale in the campus store. Deferred Loan Costs Deferred loan costs are amortized using the straight-line method over the life of the loan. Plant Facilities Plant facilities, consisting of land, buildings and equipment, are stated at cost at the date of purchase or at fair value at the date of donation. Depreciation on buildings and equipment has been calculated on each class of depreciable property using the straight-line method. Real Property Held for Investment Real property held for investment is reported at fair value. These investments may not be readily marketable and are reported at fair value utilizing the most current information provided by external advisors, subject to assessments that the information is representative of fair value and in consideration of any additional factors deemed pertinent to the fair value measurement. 9

13 Fair value measurements of real estate are based on a combination of information obtained from independent appraisals and/or one or more industry standard valuation techniques (e.g., income approach, market approach, or cost approach). The income approach is primarily based on the investment s anticipated future income using one of two principal methods: the discounted cash flow method or the capitalization method. Inputs and estimates developed and utilized in the income approach may be subjective and require judgment regarding significant matters such as estimating the amount and timing of future cash flows and the selection of discount and capitalization rates that appropriately reflect market and credit risks. The market approach derives investment value through comparison to recent and relevant market transactions with similar investment characteristics. The cost approach is utilized when the cost of the investment is determined to be the best representation of fair value. This method is typically used for newly purchased or undeveloped assets. These valuations are determined by management of the University and are intended to be long-term. Gains and losses (realized and unrealized) on investments are recognized in the Statements of Activities. Beneficial Interests The University has an interest in three entities. It adjusts its interest in the net assets of the entities held, similar to the equity method of accounting. Income Taxes The University qualifies for tax-exemption under Section 501(c)(3) of the Internal Revenue Code as an educational organization whereby only unrelated business income, as defined by the Code, is subject to federal income tax. The University applies the provisions of Topic 740 of the FASB Accounting Standards Codification relating to accounting for uncertainty in income taxes. The University annually reviews its tax positions taken in accordance with the recognition standards. The University believes that it has no uncertain tax provisions which would require disclosure or adjustment in these financial statements. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reporting period. Actual results could differ from the estimates that were assumed in preparing the financial statements. Reclassification Certain 2013 financial information has been reclassified to conform to the 2014 presentation. 10

14 2. Concentrations of Credit Risk Cash, cash equivalents, and investments are exposed to interest rate, market, and credit risks. The University maintains its cash and cash equivalents in various bank deposit accounts that, at times, may exceed federally insured limits. To minimize risk, the University s cash accounts are placed with high credit quality financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC). Bank balances of $200,080 and $23,932 were not insured by the FDIC at June 30, 2014 and 2013, respectively. 3. Accounts and Pledges Receivable Accounts receivable consist of the following at June 30: Pledge receivables, due in one year or less $ 1,020,767 $ 544,265 Student accounts 227, ,332 Rents 241, ,924 Grants and contracts 93,728 80,700 Other 107, ,113 1,690,447 1,449,334 Less allowance for doubtful student accounts receivable (40,489) (40,489) Net current accounts and pledges receivable 1,649,958 1,408,845 Pledge receivables, due in one to five years 355, ,000 $ 2,004,958 $1,913,845 As of June 30, 2014 and 2013, $480,000 and $635,000, respectively, of the total pledges receivable is associated with the Taxable Direct Obligation Bond (Note 10). The bondholder has pledged to collect the normally scheduled bond payments and then to remit these bond proceeds back to the University. The amounts that are due in more than one year are recorded at the present value of estimated future cash flows. 4. Prepaid Expenses and Inventories Inventories and prepaid expenses consist of the following at June 30: Prepaid interest $ 2,062,887 $ 1,803,991 Lease commissions 1,011, ,931 Insurance 53, ,082 Campus store inventory 17,285 41,904 Other 124, ,507 Total prepaid expenses and inventories 3,268,492 3,050,415 Less long-term lease commissions and other (1,034,368) (971,831) Current Prepaid Expenses and Inventories $ 2,234,124 $ 2,078,583

15 The University holds a swap rate agreement on its note payable with Alaska Housing Finance Corporation (AHFC). The interest is paid to AHFC based on a fixed rate (Note 9) but interest is charged based on a weekly adjustable tax-exempt rate, averaged on a six-month basis. The prepaid interest represents the cumulative account balance of interest calculated at the charge rate. Lease commissions are paid at the inception of new leases or are paid based on a payment plan (Note 18). The commission expense is amortized over the life of the related leases. 5. Plant Facilities Investment in plant facilities consists of the following at June 30: Buildings $ 36,910,658 $ 36,910,657 Furniture and equipment 3,774,094 3,616,831 Land improvements 1,487,499 1,477,392 42,172,251 42,004,880 Less accumulated depreciation (23,952,566) (22,368,287) Construction in progress 160,382 28,301 Plant Facilities, Net $ 18,380,067 $ 19,664,894 Depreciation expense for the years ended June 30, 2014 and 2013 was $1,584,277 and $1,486,543, respectively. Construction in progress consists of a number of campus renovation projects at June 30, 2014 and 2013, respectively. 6. Real Property Held for Investment Real property held for investment consists of the University s real estate holdings in developed, undeveloped and leased land and are classified as Level 3 as the inputs are not observable. To the extent available, the University s real property held for investment is recorded at fair value based on the best available information. Valuation usually requires a degree of judgment and can be determined considering a wide range of factors including market data, comparable transactions and discounted cash flow analysis. Selecting an appropriate valuation technique may be affected by the availability and reliability of relevant inputs. In some cases, one valuation technique may provide the best indication of fair value while in other circumstances, multiple valuation techniques may be appropriate. The University opted in 2013 to record the value of its real property held for investment at fair market and secured a property valuation of the entire campus. This reflects a change from the financial statement presentation of its invested real estate in preceding years. The decision was based in part on the strong economic influence the Municipality of Anchorage s recently updated University-Medical (U-Med) District land use plan has had on escalating land values. The U-Med District land use plan encompasses campus property. 12

16 The unrealized gain is included in the Statements of Activities as a non-operating activity in There was no change in valuation of the property, no additions or transfers, and no gain or loss recognized on these investments for the year ended June 30, The following table summarizes the University s Level 3 real property investment activities and transfers as of June, 30: Beginning Balance June 30, 2013 Purchases/ Additions Tranfers In/(Out) Net Unrealized Gain (Loss) Ending Balance June 30, 2014 Real Property Held for Investment $ 85,308,922 $ - $ (15,491,167) $ - $ 69,817,755 Beginning Balance June 30, 2012 Purchases/ Additions Tranfers In/(Out) Net Unrealized Gain (Loss) Ending Balance June 30, 2013 Real Property Held for Investment $ 42,709,478 $ 67,677 $ (1,765,469) $ 44,297,236 $ 85,308,922 The following table presents the University s Level 3 investments, the valuation techniques used to measure the fair value of those investments, and the range of the significant unobservable inputs as of June 30, Level 3 investment fair value measurement may include both observable and unobservable inputs. The classification of an investment within Level 3 is based on the extent of the significance of unobservable inputs to the overall valuation. The observable inputs used in the valuation techniques, as presented below, are not included in the table. For each investment category and respective valuation technique, the range of the significant unobservable input is dependent on the nature and characteristics of the investment. The input range and weighted average values may vary at each balance sheet date. The remainder of this page left blank intentionally. 13

17 Impact to valuation Significant from an Valuation Unobservable Range increase in Investment Category Fair Value Technique Inputs Min Max input Improved Real Estate $ 34,714,107 Leased Land 5,028,527 Unimproved Land 18,450,784 11,624,337 Discounted cash flow Discount rate 7.9% 11.7% Decrease Capitalization rate 5.8% 9.0% Increase Market approach Comparable sales $ 294/sf $ 433/sf Increase Discounted cash flow Discount rate 7.9% 11.7% Decrease Capitalization rate 5.8% 9.0% Increase Market approach Comparable sales $ 3.51/sf $ 5.00/sf Increase Comparable sales $ 21.88/sf $ 26.19/sf Increase Real Property Held For Investment $ 69,817,755 Real property held for investment totaling $15,491,167 was transferred at fair market value to property held for sale as a result of Board of Trustee action taken subsequent to the financial statement date (Note 19). The fair market value of the property held for sale was determined based on Level 3 inputs described in the preceding paragraphs. 7. Investments in Beneficial Interests Alaska Pacific University Foundation, Inc. The Alaska Pacific University Foundation, Inc. (APUF) was established March 15, 1994, to solicit donations and to hold and manage assets for the benefit of the University. APUF reimbursed the University for the direct costs of administrative services in the amount of $41,003 and $47,403, and direct fund raising support costs in the amount of $39,965 and $38,307 for the years ended June 30, 2014 and 2013, respectively. For the years ending June 30, 2014 and 2013, APUF provided $619,464 and $611,559, respectively, in contributions to the University. Revenues and support include unrealized gains of $1,140,599 and $401,744 in 2014 and 2013, respectively. Cardinal Newman Professorship Foundation, Inc. The Cardinal Newman Professorship Foundation, Inc. (CNPF) was established October 8, 1993, to invest, manage, and administer the initial donation and all other assets donated to it to pay for the expenses of the chaired professorship of Catholic Theology at the University. For the years ending June 30, 2014 and 2013, CNPF provided $79,250 and $75,000, respectively, in contributions to the University. 14

18 DeWolf Kellogg Trust The DeWolf Kellogg Trust (the Trust) was established October 30, 1974, to make real estate available for education, scientific and literacy purposes to private institutions. The University is currently using the land for a master s program in compliance with the land use agreement. Summarized financial data of the beneficial interests for the year ended June 30, 2014, is as follows: Alaska Pacific University Foundation, Inc. Cardinal Newman Professorship Foundation, Inc. DeWolf Kellogg Trust Total Summary of financial position: Cash, investments and other $ 15,526,074 $ 1,642,546 $ 54,336 $ 17,222,956 Land and building - - 1,151,600 1,151,600 Total Assets $ 15,526,074 $ 1,642,546 $ 1,205,936 $ 18,374,556 Net Assets $ 15,524,342 $ 1,642,546 $ 1,203,874 $ 18,370,762 Summary of activity: Revenues and support $ 1,718,703 $ 244,962 $ 16,890 $ 1,980,555 Expenses 769,989 79,250 16, ,141 Increase (Decrease) In Net Assets $ 948,714 $ 165,712 $ (12) $ 1,114,414 The remainder of this page left blank intentionally. 15

19 Summarized financial data of the beneficial interests for the year ended June 30, 2013, as restated, is as follows: Alaska Pacific University Foundation, Inc. Cardinal Newman Professorship Foundation, Inc. DeWolf Kellogg Trust Total Summary of financial position: Cash, investments and other $ 14,597,327 $ 1,476,834 $ 52,286 $ 16,126,447 Land and building - - 1,151,600 1,151,600 Total Assets $ 14,597,327 $ 1,476,834 $ 1,203,886 $ 17,278,047 Net Assets $ 14,575,628 $ 1,476,834 $ 1,203,886 $ 17,256,348 Summary of activity: Revenues and support $ 965,832 $ 439,246 $ 44,911 $ 1,449,989 Expenses (779,816) (75,000) (22,594) (877,410) Increase in net assets $ 186,016 $ 364,246 $ 22,317 $ 572, Line of Credit June 30, The University secured a $500,000 line of credit with a bank in May, 2014 with a variable interest rate based on the LIBOR index plus 2.5 percentage points, secured by deposit and investment accounts of the University, due in full on or before May 1, $ 500,000 $ - The remainder of this page left blank intentionally. 16

20 9. Long-Term Debt Notes payable consists of the following at June 30: Note payable to Washington Capital Joint Master Trust Mortgage Income Fund with a fixed interest rate of 5.75%, due in monthly principal and interest payments of $75,825 through August 1, 2024; collateralized by University Lake Medical Building and property, with a carrying value of $19,515,000. $ 6,992,517 $ 7,484,878 Note payable to Washington Capital Joint Master Trust Mortgage Income Fund with a fixed interest rate of 6.0%, due in monthly principal and interest payments of $43,168 through April 30, 2028; collateralized by Glenn Olds Hall Building and property with a carrying value of $17,431,000. 6,486,488 6,611,226 Note payable to Alaska Housing Finance Corporation with a fixed interest rate of 4.5% payable in semi-annual principal and interest payments on November 1 and May 1 of $232,106 through November 1, 2035; collateralized by all University assets except those securing other loans. (See Note 4 regarding a swap rate agreement on this Note.) 6,350,985 6,523,556 Note payable to Washington Capital Joint Master Trust Mortgage Income Fund with a fixed interest rate of 6.5%, due in monthly principal and interest payments of $37,136 through April 30, 2028; collateralized by the Glenn Olds Hall Building and property, with a carrying value of $17,431,000. 4,866,123 4,991,023 Note payable to Alaska Pacific University Foundation with an interest rate of.95% compounded annually. Due in full on July 1, 2016, unsecured. 3,427,078 3,427,078 Note payable to Rasmuson Foundation with an interest rate of 1.0%, payable in semi-annual payments on October 15 and April 15 of $80,500 through October 15, Interest rate changes to 2.0% effective with the April 16, 2016 payment, with semi-annual payments of $269,456 through April 15, 2022; collateralized by Tract A APU Endowment Subdivision, with a carrying value of $2,936,660, all buildings on the premises, and all lease agreements and property related to these buildings. 3,290,862 3,417,999 17

21 Note payable to Alaska Pacific University Foundation with an interest rate of 1.0%, payable in semi-annual payments on March 1 and September 1 of approximately $37,000 through March 1, Interest rate changes to 2.0% effective with the September 1, 2016 payment, with semi-annual principal and interest payments of approximately $158,000 through March 1, $ 2,425,000 $ 2,475,000 Other notes payable secured by equipment and vehicles, with interest rates between 4.6% and 7.9%, payable under various terms from monthly to quarterly maturing in 48 to 60 months. 76,700 9,992 Total notes payable 33,915,753 34,940,752 Less current maturities (772,100) (1,101,830) Notes Payable, Net of Current Portion $ 33,143,653 $ 33,838,922 Principal maturities of total notes payable for each of the five years subsequent to June 30, 2014, are as follows: Year Ending June 30, Amount 2015 $ 772, , ,834, ,458, ,514,387 Thereafter 24,512, Bonds Payable Bonds payable consists of the following at June 30: $ 33,915, Taxable Direct Obligation Bonds, with an interest rate of 6.0%, payable in various semi-annual principal and interest payments as outlined below through September 1, $ 480,000 $ 635,000 Less current maturities (125,000) (130,000) Bonds Payable, Net of Current Portion $ 355,000 $ 505,000 18

22 The following is a schedule of sinking fund requirements based on the modified terms of the Taxable Direct Obligation Bonds for the next three years. Year Ending June 30, Amount 2015 $ 125, , , Other Long-Term Obligation Other long-term obligation consists of the following at June 30: $ 480, Payable to the Municipality of Anchorage with a variable interest rate of prime plus 2.0% (5.25% at June 30, 2014), due in annual interest and principal payments as outlined below, through August 16, $ 587,165 $ 769,263 Less current maturities (154,794) (147,199) $ 432,371 $ 622,064 Principal maturities of the other long term obligations for each of the years subsequent to June 30, 2014, are as follows: Year Ending June 30, Amount 2015 $ 154, , ,488 $ 587,165 The payable to the Municipality of Anchorage is related to a settlement agreement entered into regarding property tax assessments for on certain campus property. In 2012, that campus property attained tax exemption status and is no longer subject to property tax. 19

23 12. Temporarily Restricted Net Assets Temporarily restricted net assets are as follows at June 30: Educational and general programs $ 8,047,244 $ 6,759,151 Plant activities 863, ,527 Total Temporarily Restricted Net Assets $ 8,910,751 $ 6,906,678 Temporarily restricted net assets were released from restrictions as follows: June 30, Educational and general programs $ 1,294,194 $ 1,115,340 Plant activities 68,061 21, Permanently Restricted Net Assets Permanently restricted net assets are as follows: $ 1,362,255 $ 1,136,921 Investment in perpetuity, the income from which is expendable to support educational and general programs as of June 30: Educational and General Programs $ 15,121,393 $ 15,104, Tuition and Fees Tuition and fees are recognized at established rates, net of financial aid and scholarships provided directly to students, in the period in which the sessions are primarily provided. Deposits and other advanced payments are reported as a liability. Tuition and fees consist of the following at June 30: Tuition $ 9,585,858 $ 10,072,240 Fees 271, ,545 Less scholarships and tuition discounts (3,161,878) (3,106,618) Less bad debts (84,116) (41,218) Tuition and Fees, Net $ 6,610,958 $ 7,242,949 20

24 15. Rental Income under Tenant Leases Net rental income consists of following at June 30: Commercial property rental income $ 5,160,505 $ 5,073,505 Facility rental income 96,776 97,892 Less operation & maintenance expense (1,174,990) (1,065,441) Less interest expense (1,161,216) (1,113,689) Less depreciation expense - (43,080) Net Rental Income $ 2,921,075 $ 2,949,187 Minimum future rental income under non-cancelable leases with terms greater than one year is as follows: Year Ending June 30, Amount 2015 $ 5,276, ,359, ,461, ,537, ,520,366 Thereafter 52,816, Defined Contribution Retirement Plan 21 $ 79,971,671 Eligible employees with one year of service may contribute up to 100% of their wages or the maximum set by the Internal Revenue Service, whichever is less, to a defined contribution retirement plan. There is a 100% employer match of employee deferrals up to 6% of Plan compensation. University retirement match contribution expense totaled $213,427 and $215,502 for the years ended June 30, 2014 and 2013, respectively. 17. Related Party Transactions The University has notes payable with an investment management company of which a member of the board of trustees is a principal. The outstanding principal balance on the notes at June 30, 2014 and June 30, 2013 was $18,345,128 and $19,087,127, respectively. The University has two notes payable to the Alaska Pacific University Foundation as described in Note 8. The outstanding balance on the notes at June 30, 2014 and 2013 was $5,852,078 and $5,902,078, respectively. Included in private gifts, grants and bequests are donations from various board members of which individual gifts greater than $20,000 totaled approximately $195,000 during 2013.

25 18. Commitments and Contingencies Lease Commissions The University is obligated to pay lease commissions to a broker as payment for negotiating tenant leases on behalf of the University (Note 15). The payment schedule is as follows Year Ending June 30, Amount , , ,137 Memorandum of Agreement $ 243,479 The University has entered into a memorandum of agreement with the Municipality of Anchorage (the Municipality ). As part of the agreement, the University has agreed to provide local match funding of $566,214 to the Municipality for a road extension project. Of the $566,214, the University will deposit funds with the Municipality totaling $263,940 based on defined phases of the project. After the deposits are made, the Municipality is obligated to pay fair market value for the necessary right-of-way property owned by the University. The first $263,940 of the proceeds from the sale will be reimbursed to the University. The remainder of the proceeds in excess the of $566,214 funding obligation will be held by the Municipality until the Municipality has certified with the State of Alaska that the project is completed at which time the balance will be paid to the University. The University is obligated to pay the difference between the sales proceeds and $566,214 if the sale proceeds are insufficient to meet the $566,214 funding requirement. The University is also obligated to the Municipality, at their election, for certain costs not reimbursable to the Municipality by federal funds. For the years ended June 30, 2014 and 2013, $90,300 of funds was on deposit with the Municipality. Contingencies Expenditures made pursuant to grants, contracts, and other forms of financial aid are subject to audit by governmental agencies or their representatives. Management of the University believes that no significant liabilities will result from any such audits and, accordingly, no provision for liability is included in the accompanying financial statements. The University is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its operations. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the University. 22

26 19. Subsequent Events Grant Agreement Rasmuson Foundation and the University have entered into a grant agreement to award APU up to $500,000 over the next two years. The purpose is to develop strategies to build APU s sustainability by increasing enrollments, increasing targeted fundraising and consider opportunities for additional campus property development. Funds were received October 15, Cell Tower Lease Agreement Blackdot, a wireless site development company has advanced a Letter of Intent dated May 28, 2014 for an Option to Purchase a tower easement and the lease agreement of one of APU s wireless cell tower tenants. The sale was finalized on November 18, 2014 for a lump sum purchase price of $548,100. AIDEA Energy Savings Loan The University finalized a 2.5 million dollar participating loan with the Alaska Industrial Development and Export Authority and Northrim Bank to fund energy efficiency upgrades on the campus. Project upgrades include the replacement of mechanical systems in the Moseley Sports Center, installing HVAC controls and retrofitting lighting in its other buildings to reduce energy consumption. The construction phase loan is expected to commence during fiscal year During performance of the project, interest shall accrue on funds advanced from the date of each advance at a rate of 5.35%. Upon completion of the project, the principal amount advanced plus accrued but unpaid interest shall bear interest at 5.35% fixed rate, to be repaid in substantially equal monthly payments over 20 years. Security is a Deed of Trust with an assignment of rents in second lien position on all campus assets. Sale of Property Held for Investment In December 2014, the Board passed a motion authorizing the sale of one of its buildings held for investment. The building has been classified as held for sale on the Statement of Financial Position. 23