Financial Statements and Report of Independent Certified Public Accountants. Clark Atlanta University. June 30, 2014 and 2013

Transcription

1 Financial Statements and Report of Independent Certified Public Accountants Clark Atlanta University June 30, 2014 and 2013

2 Clark Atlanta University Table of contents Report of Independent Certified Public Accountants 1 Financial statements: Statements of financial position 3 Statements of activities 4 Statements of cash flows 6 Notes to Financial Statements 7 Supplemental Schedules 27

3 Audit Tax Advisory Report of Independent Certified Public Accountants Grant Thornton LLP 1100 Peachtree St., NE, Suite 1200 Atlanta, GA T F To the Board of Trustees of Clark Atlanta University: Report on the financial statements We have audited the accompanying financial statements of Clark Atlanta University (the 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. 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 University 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 University 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. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd

4 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Clark Atlanta 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. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplemental schedules on pages 27 through 30 and the schedule of expenditures of federal awards for the year ended June 30, 2014, is presented for purposes of additional analysis and is not a required part of the financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. Atlanta, Georgia December 23, 2014 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd

5 Clark Atlanta University 3 Statements of financial position June Assets Current assets: Cash and cash equivalents $ 8,914,996 $ 14,001,280 Accounts receivable, net (note 2) 4,759,286 5,517,359 Pledges receivable, net 850, ,000 Current portion of deposits held with bond trustees 4,056,003 3,115,767 Prepaids and other assets 444, ,303 Total current assets 19,024,688 23,619,709 Property, plant, and equipment, net (note 5) 111,888, ,271,886 Investments (note 3,15) 72,282,167 59,043,478 Beneficial interest in perpetual trust 367, ,903 Perkins loans receivable, net (note 4) 6,760,512 6,374,632 Deposits held with bond trustees 1,953,262 1,870,847 Restricted cash 2,615,338 3,000,558 Asset held and not used, net (note 1) 1,030,000 1,125,000 Capitalized bond issuance costs 928,681 1,201,043 Total assets $ 216,850,110 $ 210,837,056 Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ 8,371,715 $ 9,533,665 Current portion of bonds payable (note 8) 5,335,249 4,127,513 Advances from granting agencies 629, ,008 Current portion of capital lease obligations (note 6) - 118,778 Current portion of other liabilities 1,797,052 1,821,614 Current portion of mortgages payable (note 7) 263, ,653 Deferred revenues 566, ,276 Current portion of refundable advances 40,764 40,764 Total current liabilities 17,003,541 17,036,271 Bonds payable - net of bond discount (note 8) 26,509,572 31,845,001 Agency liabilities 7,884,212 7,826,149 Mortgages payable (note 7) 2,472,986 2,736,123 Refundable advances 159, ,419 Other liabilities 676, ,606 Total liabilities 54,706,142 60,279,569 Commitments and contingencies (Note 12) Net assets: Unrestricted 80,658,177 79,736,464 Temporarily restricted (note 10) 60,360,534 49,778,481 Permanently restricted (note 10) 21,125,257 21,042,542 Total net assets 162,143, ,557,487 Total $ 216,850,110 $ 210,837,056 The accompanying notes are an integral part of these financial statements.

6 Clark Atlanta University 4 Statements of activities Temporarily Permanently For the year ended June 30, 2014 Unrestricted Restricted Restricted Total Revenues and other support: Tuition and fees, net $ 51,891,530 $ - $ - $ 51,891,530 Government grants 1,711,873 14,644,545-16,356,418 Private gifts and grants 1,378,712 4,341,114 82,715 5,802,541 Net investment income 70, , ,916 Auxiliary enterprises 8,508, ,508,255 Net realized and unrealized gain on investments 385,445 10,042,293-10,427,738 Other 2,571, ,673-3,109,914 Net assets released from restrictions: Satisfaction of program restrictions 15,575,157 (15,575,157) - - Satisfaction of equipment acquisition restrictions 1,056,389 (1,056,389) - - Satisfaction of construction restrictions 3,063,576 (3,063,576) - - Total revenues and other support 86,212,544 10,582,053 82,715 96,877,312 Expenses: Educational and general: Instruction 25,988, ,988,630 Research 7,710, ,710,202 Public service 1,801, ,801,096 Academic support 8,630, ,630,252 Student services 8,495, ,495,707 Auxiliary enterprises 11,651, ,651,621 Institutional support 21,013, ,013,323 Total educational and general 85,290, ,290,831 Change in net assets 921,713 10,582,053 82,715 11,586,481 Net assets beginning of year 79,736,464 49,778,481 21,042, ,557,487 Net assets end of year $ 80,658,177 $ 60,360,534 $ 21,125,257 $ 162,143,968

7 Clark Atlanta University 5 Statements of activities (cont d) Temporarily Permanently For the year ended June 30, 2013 Unrestricted Restricted Restricted Total Revenues and other support: Tuition and fees, net $ 51,111,386 $ - $ - $ 51,111,386 Government grants 1,726,830 16,809,674-18,536,504 Private gifts and grants 1,609,108 3,227,529 80,902 4,917,539 Net investment income 96, , ,879 Auxiliary enterprises 7,962, ,962,964 Net realized and unrealized gain on investments 265,707 6,703,495-6,969,202 Other 2,694, ,719-3,079,100 Net assets released from restrictions: Satisfaction of program restrictions 16,760,740 (16,760,740) - - Satisfaction of equipment acquisition restrictions 2,508,051 (2,508,051) - - Satisfaction of construction restrictions 2,537,495 (2,537,495) - - Total revenues and other support 87,273,133 6,181,539 80,902 93,535,574 Expenses: Educational and general: Instruction 25,933, ,933,747 Research 7,578, ,578,203 Public service 1,734, ,734,127 Academic support 8,830, ,830,693 Student services 7,732, ,732,395 Auxiliary enterprises 12,132, ,132,089 Institutional support 22,050, ,050,556 Total educational and general 85,991, ,991,810 Change in net assets 1,281,323 6,181,539 80,902 7,543,764 Net assets beginning of year 78,455,141 43,596,942 20,961, ,013,723 Net assets end of year $ 79,736,464 $ 49,778,481 $ 21,042,542 $ 150,557,487 The accompanying notes are an integral part of these financial statements.

8 Clark Atlanta University 6 Statements of cash flows For the years ending June Cash flows from operating activities: Change in net assets $ 11,586,481 $ 7,543,764 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 7,080,513 7,204,570 Amortization of bond discount and deferred financing costs 272, ,531 Accretion of asset retirement obligation 40,572 38,274 Provision for bad debt 889, ,052 Receipt of agency funds (Federal Direct Student Loans and Federal Pell Grants) 63,853,025 61,996,469 Disbursement of agency funds (63,853,025) (61,996,469) Contributions, grants and income restricted for long-term investment and acquisitions of property, plant, and equipment (4,119,965) (5,045,546) Amortization of deferred gain - (1,417,731) Net loss on disposition of property 278, ,695 Benefit for debt guarantee obligation (24,563) - Net realized and unrealized (gain) on investments (10,385,367) (6,936,012) Beneficial interest in perpetual trust funds held by others (42,371) (33,190) Changes in operating assets and liabilities: Accounts receivable, net (89,620) (245,072) Pledges receivable (550,000) (26,000) Prepaids and other assets 240, ,374 Accounts payable and accrued expenses (2,341,807) 539,348 Refundable advances (40,764) (40,762) Advances from granting agencies (132,626) 323,050 Deferred revenues 186,966 (388,168) Net cash provided by operating activities 2,848,460 3,614,177 Cash flows from investing activities: Proceeds from the sale of investments 34,877,391 25,472,017 Purchases of investments (37,725,859) (24,168,662) Loans made to students (1,273,319) (703,130) Payments received on student loans 846,011 1,115,168 Purchases of fixed assets (3,700,441) (5,234,957) Net cash used in investing activities (6,976,217) (3,519,564) Cash flows from financing activities: Contributions and income restricted for long-term investment and acquisitions of property, plant, and equipment 4,119,965 5,045,546 Principal payments under capital lease obligations (118,778) (199,793) Principal payments on long-term debt (4,380,346) (19,713,446) Proceeds from borrowings - 13,733,594 Payments of bond issuance costs - (359,751) Increase to agency liabilities, net 58, ,512 (Increase)decrease in restricted cash 385,220 (815,701) (Increase)decrease in deposits held with bond trustees (1,022,651) 5,503,110 Net cash provided/(used) by financing activities (958,527) 3,310,071 Net increase/(decrease) in cash and cash equivalents (5,086,284) 3,404,684 Cash and cash equivalents beginning of year 14,001,280 10,596,596 Cash and cash equivalents end of year $ 8,914,996 $ 14,001,280 Supplemental disclosure of cash flow information - Cash paid for interest $ 1,108,187 $ 1,998,075 Supplemental disclosures of noncash investing and financing activities - Accounts payable related to the purchase of property, plant, and equipment $ 1,179,856 $ 914,627 The accompanying notes are an integral part of these financial statements.

9 Clark Atlanta University 7 Notes to Financial Statements 1 Summary of Significant Accounting Policies Clark Atlanta University (CAU or the University), formed in 1988 as a result of the consolidation of two independent historically black institutions - Atlanta University (established 1865) and Clark University (established 1869), is a United Methodist Church-related, private, coeducational, residential, and comprehensive urban research University located in Atlanta, Georgia. The University offers undergraduate, graduate, doctoral, and professional degrees, as well as non-degree certificate programs. The University is classified by Carnegie as a Doctoral Research University and is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools. The University is primarily supported by tuition and fees from students. Basis of Accounting The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America. Basis of Presentation The net assets, revenues, expenses, gains, and losses of the University are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the University and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that will be met either by actions of the University and/or the passage of time. Permanently restricted net assets Net assets subject to permanent donor-imposed stipulations. 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. 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. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications from temporarily restricted to unrestricted net assets. Net assets restricted for acquisition of long-lived assets are released from restriction at the time such long-lived assets are placed into service. Cash and Cash Equivalents Cash and cash equivalents consist primarily of demand deposits at financial institutions. Short-term investments with original maturities of three months or less are classified as cash equivalents, except for any such investment purchased with funds on deposit with bond trustees or with funds held by external endowment investment managers, which are classified as deposits held with bond trustees and investments, respectively. The credit risk is the amount of deposit in excess of federally insured limits. Restricted cash consists of cash on hand that is restricted for a specific purpose. Restricted cash consists of mortgages payable escrow deposits and Perkins loan repayments. The accompanying notes are an integral part of these financial statements.

10 Clark Atlanta University 8 Accounts Receivable The University s receivables primarily consist of amounts due from students for tuition and other fees, receivables from federal and state agencies, and agency receivables. Receivables are stated at amounts due net of an allowance for doubtful accounts. The University determines its allowance for doubtful accounts by considering the University s previous loss history and specific account circumstances. Past due status is based on contractual terms of the receivable. Receivables are written off once the University determines that the receivable is no longer collectible. Bond Issuance Costs Bond issuance costs related to the issuance of bonds are being amortized over the term of the bonds. Works of Art The collections, which were acquired through purchases and contributions since the University's inception, are not recognized as assets on the statements of financial position. Purchases of collection items are recorded as Artwork in unrestricted net assets in the year in which the items are acquired or as temporarily or permanently restricted net assets if the assets used to purchase the items are restricted by donors. Deposits Held With Bond Trustees Deposits consist of debt service funds. These funds are restricted for the payment of debt service on certain outstanding bonds payable. Deposits are stated at fair value. Funds expected to be utilized within one year are classified as current assets. Investments The University accounts for its investments at fair value. Realized gains and losses on sales of securities represent the difference between net proceeds received and the cost of the investments. Realized and unrealized gains and losses are included in the statements of activities and gains and/or losses are allocated to net asset classes, dependent upon donor specifications. Investments in limited partnerships often do not have readily determinable fair values, and are valued using the most current information provided by the general partner and/or the investment manager. The change in net assets related to partnership interests is presented as realized and unrealized gains and losses based upon the estimated fair value of each partnership interest. Privately held companies are typically valued at cost as adjusted based on recent arms length transactions. Public companies are valued using quoted market prices and exchange rates, if applicable. Real estate funds are valued based on appraisals of properties held and conducted by thirdparty appraisers retained by the general partner or investment manager. Investments in commingled funds are reported at NAV (net asset value) provided by the fund manager. Private equity investments are generally valued at amounts determined by management based upon information provided by fund managers or general partners, unless there is an active secondary trading market in the securities. Hedge fund investments are valued at amounts determined by management based upon information provided by fund managers or general partners, unless a significant investment event occurs that mandates a revaluation of the investment. Valuations for alternative investments provided by the general partners and/or investment managers are evaluated by management, and management believes such values approximate fair value. The University s investments include various types of investment securities and investment vehicles. Investment securities are exposed to several risks, such as interest rate, currency, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the University s financial statements.

11 Clark Atlanta University 9 Certain investments of endowment and similar funds are pooled. Net investment gains/(losses) and net investment income are allocated to the pooled endowment funds based on the fair value of the endowment pooled asset funds at the beginning of the fiscal year. Investment income is recorded net of investment expenses. Investment expenses for the years ended June 30, 2014 and 2013 totaled $322,498 and $318,076, respectively, and are recorded in net investment income on the statements of activities. Endowment Policies The administration of the University s endowment follows the general provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Under the provisions of this state law, the board of trustees may appropriate expenditures of an underwater endowment fund as is deemed prudent for the uses and purposes for which an endowment fund is established. The University has applied accounting principles generally accepted in the United States of America when allocating investment gains to the net asset classes for financial statement purposes. The University s endowment consists of approximately 200 individual funds established for a variety of purposes. All funds within the endowment are donor-restricted. As required by accounting standards generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence of donor-imposed restrictions. The Trustees of CAU have established an Endowment Fund spending policy which attempts to balance the longterm objective of maintaining the purchasing power of the Endowment with the goal of providing funds to underwrite the educational needs of current and future generations of students and to enhance the financial wellbeing of CAU. The University has a policy of appropriating for distribution each year 5 percent of its endowment fund s weighted average fair value over the prior 12 quarters through the fiscal year ending one year prior to the fiscal year in which the distribution is planned. The University has interpreted UPMIFA as requiring the preservation of the historical value (corpus) of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (1) the original value of primary gifts donated to the permanent endowment, (2) the original value of subsequent gifts to the permanent endowment, and (3) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure. The University considers available endowment earnings as being appropriated for expenditure, when the actual qualified expenditure occurs. In accordance with UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund; (2) The purposes of the donor-restricted endowment fund; (3) General economic conditions; (4) Effect of inflation and deflation; (5) The expected total return from income and the appreciation of investments; (6) Other resources of the University; and (7) The investment policies of the University.

12 Clark Atlanta University 10 Property, Plant and Equipment Property, plant, and equipment are stated at cost at the date of acquisition or at estimated fair value at the date of donation if acquired as gifts, less accumulated depreciation and amortization. The University s capitalization policy requires all purchases of property, plant, and equipment greater than $5,000 to be capitalized. Depreciation of buildings and equipment and amortization of leasehold improvements are computed using the straight-line method over the estimated useful lives of the respective assets or the terms of the respective capital leases. Land is stated at cost within property, plant and equipment and is not depreciated. Expenditures for maintenance are expensed and expenditures for capital lease renewals and capital improvements are generally capitalized. A summary of depreciable lives follows: Years Buildings Improvements Furniture and equipment Vehicles and software Computers Capital leases - telecommunications equipment 40 years years 10 years 7 years 5 years 3 years Long-Lived Assets The University reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Measurement of any impairment loss is based on the fair value of the asset. Generally, fair value will be determined using valuation techniques such as the net present value of expected future cash flows. Asset Held and Not Used The University has a hotel/restaurant property with a net book value of $1,030,000 and $1,125,000 for the years ended June 30, 2014 and 2013 respectively. The hotel/restaurant property is located on the outskirts of the University s campus. In accordance with ASC 360, Property, Plant and Equipment, the property was classified as Asset held and not used in the statements of financial position as of June 30, 2014 and The carrying value is being depreciated over the remaining estimated economic life and is evaluated for impairment as required. The University recorded $95,000 of depreciation expense for the years ended June 30, 2014 and The depreciation expense was recorded in the institutional support line item of the statement of activities. Tuition and Fees Tuition and fees revenues are recorded in the fiscal year in which the semester to which they apply begins. Accordingly, tuition and fees and the associated teachers salaries for the summer semester are recognized in full in June of each year. The effect of not deferring summer tuition and related costs is not material. The University records tuition and fees received prior to the fiscal year-end for semesters beginning in the subsequent fiscal year as deferred revenue. Tuition and fees revenues are presented net of scholarships, fellowships and discounts of $13,800,442 and $12,412,523, for the years ended June 30, 2014 and 2013, respectively. Private Gifts and Grants Contributions, including unconditional promises to give, are recorded as made. Contributions are available for unrestricted use unless specifically restricted by the donor. The University reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. 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 statements of activities as net assets released from restriction.

13 Clark Atlanta University 11 The University reports gifts of property, plant, and equipment 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. Other Revenue Auxiliary enterprise revenue sources include resident halls, food services, parking services, health services and special events. Auxiliary enterprise revenues are recorded when earned in the fiscal year. Various other nonroutine miscellaneous income is also classified as other revenue. Functional Expenses Expenses are reported in the statements of activities in categories recommended by the National Association of Colleges and University Business Officers. The University s primary program services are instruction, research, and public service. Expenses reported as academic support, student aid, student services, institutional support and auxiliary enterprises are incurred in support of these primary program services. Institutional support includes fund-raising expenses of $1,883,945 and $1,731,389, for the years ended June 30, 2014 and 2013, respectively. Interest and finance expenses for the years ended June 30, 2014 and 2013 were $1,096,014 and $1,578,627 respectively and were allocated to auxiliary enterprises, academic support and institutional support based on the purpose of the debt instrument. Advertising expenses for the years ended June 30, 2014 and 2013 were $196,887 and $674,255, respectively. Atlanta University Center Consortium, Inc. and Robert W. Woodruff Library, Inc. Atlanta University Center Consortium, Inc. and Robert W. Woodruff Library, Inc. are affiliated organizations that allocate a portion of their expenses to the Atlanta University Center institutions that receive benefits from the organizations. The expenses recorded by the University primarily relate to the cost of operating the Robert W. Woodruff Library, which is utilized by the University and the other Atlanta University Center institutions. Expenses allocated to the University during the years ended June 30, 2014 and 2013, from these organizations totaled $4,673,448 and $4,633,579, respectively, and are recorded in the academic support line item of the statements of activities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and accompanying disclosures. Although these estimates are based on management s best knowledge of current events and actions that the University may undertake in the future, actual results may be different from the estimates. Significant items subject to such estimates and assumptions include but are not limited to, certain accrued liabilities, asset held and not used, debt guarantee obligation, incurred but not reported (IBNR) health benefit liability, fair value of investments, carrying amount of property and equipment, allowances for receivable balances and asset retirement obligations. Actual results could differ from those estimates. Loss Contingencies The University accounts for loss contingencies in accordance with ASC 450, Contingencies. Accordingly, when management determines that it is probable that an asset has been impaired or a liability has been incurred, the University accrues its best estimate of the loss if it can be reasonably estimated. The University s legal costs related to litigation are expensed as incurred.

14 Clark Atlanta University 12 Income Taxes The University is recognized by the Internal Revenue Service as an organization exempt from federal income tax under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3), except for taxes on income from activities unrelated to its exempt purpose. The University evaluates its uncertain tax positions using the provisions of ASC 740 Income Taxes. The University follows the criterion that an individual tax position has to meet some or all of the benefits of that position to be recognized in the University s financial statements. The University determines whether the relevant tax authority would more likely than not sustain that tax position following an audit by a tax authority. The University has applied this criterion to all tax positions for which the statute of limitations remains open. Tax years open to examination by tax authorities under the statute of limitations include fiscal years 2011 through 2014 for the U.S. Federal and state of Georgia jurisdictions. The University has determined that its tax positions satisfy the more likely than not criterion and that no provision for income taxes is required at June 30, 2014 and The University has a policy to record interest and penalties (if any) related to income tax matters in income tax expense. Fair Value Measurements The University s financial instruments include cash and cash equivalents, investments, beneficial interests in perpetual trusts, accounts receivable, accounts payable, and accrued expenses. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. There is a three-tier fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the University s assumptions (unobservable inputs). Fair value measurements are classified under the following hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Pricing inputs other than Level 1 which are either directly or indirectly observable. Level 3: Unobservable pricing inputs developed using the University s estimates and assumptions, which reflect those that market participants would use in pricing an asset or liability. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by the University. The University considers observable data to be the market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The University evaluates its hierarchy disclosures each reporting period and based on various factors it is possible that an asset or liability may be classified differently from period to period. However, the University expects that changes in classifications between different levels will be rare. Reclassifications Certain previously reported amounts in the fiscal 2013 financial statements have been reclassified to conform to the fiscal 2014 presentation. There is no impact on the fiscal 2013 change in net assets.

15 Clark Atlanta University 13 Subsequent events In accordance with ASC , Subsequent Events, the University evaluated all events or transactions that occurred after June 30, 2014 through December 23, 2014, the date these financial statements were available to be issued. 2 Accounts Receivable Accounts receivable consisted of the following: June Accounts receivable $ 4,327,113 $ 3,671,070 Grants receivable 2,673,462 3,233,359 Agency receivable 1,545,226 1,953,905 Other receivable 631, ,905 Total 9,177,663 9,201,239 Less - Allowance for doubtful accounts (4,418,377) (3,683,880) Receivables, net $ 4,759,286 $ 5,517,359 Adjustments to the allowance for doubtful accounts are classified within institutional support in the statements of activities.

16 Clark Atlanta University 14 3 Investments Investments consisted of the following: June Endowment pooled funds: Cash, money market and short-term funds $ 2,598,405 $ 1,500,948 Common stocks 32,378,594 26,968,138 Mutual Funds Equity funds 1,419,123 1,263,539 Bonds funds 7,566,124 7,693,085 Commodities funds 127, ,901 Real estate funds 1,529,242 1,074,715 Alternative Funds International Equity Fund 9,079,307 6,928,359 Hedge funds 5,047,115 4,589,732 Private equity funds 490, ,336 Other investment funds: Cash, money market and short-term funds 5,086,513 1,080,973 Certificates of deposit 82,100 81,945 Common stocks 2,104,263 3,676,967 Government securities 241, ,989 Mutual Funds Equity funds 3,290,029 1,555,033 Bonds funds 347, ,688 Commodities funds 344, ,058 Real estate funds 328, ,796 Alternative Funds International Equity Fund 221, ,276 Total Investments $ 72,282,167 $ 59,043,478 June Restricted $ 64,971,559 $ 54,945,523 Unrestricted 7,310,608 4,097,955 Total Investments $ 72,282,167 $ 59,043,478 The endowment pooled funds consist of permanently restricted endowment corpus, temporarily restricted term endowment funds, and gains thereon. Other investment funds consist of endowment non-pooled funds and non-endowment funds primarily consisting of money market funds, bond funds, and equity securities. Net realized and unrealized gains consist of the following: For the years ended June Net realized gains $ 4,952,257 $ 2,452,281 Net unrealized gains 5,475,481 4,516,921 Total $ 10,427,738 $ 6,969,202

17 Clark Atlanta University 15 4 Perkins Loan Program The University provides uncollateralized loans to students based on financial need under the U.S. Government National Direct Student Loan Program ( Perkins Program ). The U.S. government provides grants to the University for a portion of the funds loaned to students. These loans are guaranteed against default by the U.S. government and thus no loan loss reserve has been recorded by the University at June 30, 2014 and The University is responsible for disbursements and subsequent collection of these loans. The availability of funds for ongoing loans under the program is dependent on reimbursements to the pool from repayments on outstanding loans. Advances from the federal government under the Perkins Program are refundable to the U.S. government upon liquidation of the Perkins Program. For the years ending June 30, 2014 and 2013, $7,726,572 and $7,590,352 of refundable advances payable to the federal government are reflected within agency liabilities in the statements of financial position, respectively. Outstanding loans cancelled under the program result in a reduction of the funds available for loan and a decrease in the liability to the government. As of June 30, 2014 and 2013, the University had outstanding loan receivables under the Perkins Loan Program as follows: June Outstanding loans - $ 9,975,455 $ 9,481,627 Adjustments: Defaulted loans submitted to the government (3,065,873) (3,065,873) Other - net (149,070) (41,122) Total $ 6,760,512 $ 6,374,632 At June 30, student loans consisted of the following: June Federal government programs $ 6,760,512 $ 6,371,646 Institutional programs - 2,986 Perkins loans receivable, net $ 6,760,512 $ 6,374,632 At June 30, 2014 and 2013, the following amounts were past due under student loan programs: June 30, 1-60 days past due days past due 91+ days past due Total past due 2014 $531,787 13,414 2,182,350 $2,727, $22,188 1,131 3,107,334 $3,130,653 5 Property, Plant, and Equipment Property, plant, and equipment consisted of the following: June Buildings and improvements $ 184,664,183 $ 181,579,044 Furniture, computers, equipment, capital leases and vehicles 30,062,804 34,756,240 Land and improvements 12,482,322 12,482,322 Construction in progress 2,040,627 1,934,238 Artwork 291, ,671 Total Assets 229,541, ,043,515 Less accumulated depreciation (117,653,565) (116,771,629) Net Book Value $ 111,888,042 $ 114,271,886

18 Clark Atlanta University 16 Depreciation expense for the years ended June 30, 2014 and 2013 amounted to $7,080,513 and $7,204,570, respectively. 6 Capital and Operating Leases The University has entered into various leases which qualify as capital leases in accordance with accounting principles generally accepted in the United States of America. The leased equipment had a cost basis of $4,351,155 and accumulated amortization of $4,351,155 and $4,235,908 for the years ended June 30, 2014 and 2013, respectively, and is recorded within property, plant, and equipment in the statements of financial position. Amortization of assets recorded under these capital leases is included in depreciation expense. The University has several non-cancelable operating leases, primarily for equipment rental. Equipment rent expense under non-cancelable operating leases for the year ended June 30, 2014 and 2013 was $329,977 and $338,413, respectively. A summary of future non-cancelable minimum operating lease payments with initial or remaining lease terms in excess of one year is as follows: Operating Leases For the years ending June 30: 2015 $ 700, , , , ,600 Thereafter 66,010 Total $ 1,540,411 7 Mortgages Payable Mortgages payable consisted of the following: June Mortgage payable in semi-annual installments of principal and interest, bearing interest at the annual rate of 3% maturing in April 2021, collateralized by certain real property. $ 1,114,818 $ 1,255,944 Mortgage payable in semi-annual installments of principal and interest, bearing interest at the annual rate of 5.5% maturing August 2024, collateralized by certain real property. 1,621,305 1,732,832 Total 2,736,123 2,988,776 Less - current portion (263,137) (252,653) Long - term portion $ 2,472,986 $ 2,736,123

19 Clark Atlanta University 17 Maturities of these mortgages payable in periods subsequent to June 30, 2014, are as follows: Amount For the years ending June 30: 2015 $ 263, , , , ,067 Thereafter 1,305,731 Total $ 2,736,123 As a requirement of the mortgage agreements, the University is required to maintain a debt service reserve account and repair and replacement reserve account amounting to $1,033,128 with a bank that is a member of the FDIC until the applicable mortgage matures. This amount is reflected in restricted cash on the statements of financial position. 8 Bonds Payable Bonds payable consisted of the following: June 30 Interest Rate Maturity (Serially) Commerce Capital Access Corporation Future Advance Project Funding Bond, Series A (0.103% and 0.140% as of June 30, 2014 and 2013, respectively) Variable 2015 $ 2,821,385 $ 5,501,385 Commerce Capital Access Corporation Future Advance Project Funding Bond, Series A (4.13% as of June 30, 2014 and 2013, respectively) Fixed ,321,834 16,737,535 Rice Capital Access Program, LLC (formerly, Commerce Capital Access Corporation) Future Advance Project Funding Bond, Series A (0.757% as of June 30, 2014 and 2013, respectively) Fixed ,701,602 13,733,594 Total 31,844,821 35,972,514 Less - current portion (5,335,249) (4,127,513) Long - term portion $ 26,509,572 $ 31,845,001 On November, 25, 1997, the University sold its right to receive the future interest earnings on its Series 1995 debt service reserve fund and debt service deposit fund in exchange for a lump-sum cash payment of $2,668,000, net of transaction expenses. On August 9, 2012, the University terminated the Debt Service Deposit Agreement it entered into with Lehman Brothers Special Financing Inc. in November 25, 1997 wherein the University sold its rights to receive the future interest earnings on the Series 1995 debt service reserve and debt service deposit funds, for a settlement amount of $70,217. The Series 1995 debt was fully defeased on January 16, The defeasance resulted in the University recognizing the outstanding deferred future payments of $1,347,512 (net of the settlement payment) as revenue in the year ended June 30, 2013.

20 Clark Atlanta University 18 On November 24, 2003, the University entered into the Capital Project Loan Agreement (the Agreement) with Commerce Capital Access Program Corporation (the Lender) under the Historically Black Colleges and Universities (HBCU) Capital Financing Program. The purpose of the Agreement was to provide funds to refinance the University s then outstanding 1993 Revenue Bonds and to partially defease a portion of its 1995 Revenue Bonds (fully defeased in 2013). At the date of the refinancing, the outstanding balances for the 1993 Revenue Bonds and 1995 Revenue Bonds were $10,885,000 and $37,230,000, respectively. Under the Agreement, the University signed two promissory notes. The first promissory note was a $10,219,483 Commerce Capital Access Corporation Future Advance Project Funding Bond, Series A that matured on January 1, The proceeds less bond issuance costs were utilized to fully retire the 1993 Revenue Bonds. The second promissory note was a $13,681,385 Commerce Capital Access Corporation Future Advance Project Funding Bond, Series A Long-Term Floating Rate Bond that matures on January 1, The proceeds less bond issuance costs were utilized to place $12,723,689 in escrow with the 1995 Revenue Bond trustee to pay a portion of interest due from January 1, 2004 through January 1, 2006, and principal and bond redemption premium due on January 1, In accordance with the bond indenture, the funds set aside in the escrow account with the trustee qualified, in the opinion of bond counsel, for treatment as a legal defeasance. Therefore deposits held by the trustee and bonds payable were reduced by $11,500,000, which represents the principal portion of the 1995 Revenue Bonds that were defeased on November 24, On January 1, 2006, amounts deposited in the escrow account with the trustee to defease the bonds were liquidated to redeem all bonds due at that time. The Series Bonds are collateralized by property, pledged revenues and the debt service reserve fund. On May 20, 2007, the University signed an additional promissory note with Commerce Capital Access Program Corporation under the Historically Black Colleges and Universities (HBCU) Capital Financing Program in the amount of $20,000,000. The purpose of this issuance was to finance the renovation of several of the University s residence halls and the associated infrastructure. Additionally, the demolition of Brawley Hall was completed in fall 2007 using funds from this program. These projects were completed in fiscal year Total funds drawn down as required to complete these activities were $18,349,186. The Series 2007 Bonds are collateralized by property, pledged revenues and the debt service reserve fund. The full amount of principal outstanding for the Series Bonds of $16,321,834 and $16,737,535 at June 30, 2014 and 2013, respectively, is made up of eight bonds each carrying rates ranging from 3.627% to 5.223%. The interest rate noted in the table above of 4.13% is the weighted average interest rate based on the rate applicable and the amount outstanding for each individual bond at June 30, 2014 and 2013, respectively. On January 16, 2013, the University entered into a new Capital Project Loan Agreement with Rice Capital Access Program, LLC, under the HBCU Capital Financing program in the amount of $13,733,594 at an effective fixed annual rate of interest of 0.982%. The purpose of the Agreement was to provide funds to refinance and defease the outstanding Series 1995 Revenue Bond which at the date of refinancing had an outstanding balance of $12,620,000. As a result of the refinancing, the 1995 bond s debt reserve funds of $4,179,590 were released to the University. All of the above Agreements require the establishment of an escrow account, into which a deposit, amounting to 5% of each advance is required to be made. The University has assigned all rights and interest to the escrow account to the trustee for the Lender. The use of the escrow funds are governed, in part, by a trust indenture, which provides for claims against the escrow account for a share of defaulted loans of other borrowers participating in the HBCU Capital Financing Program (see Note 12). The Agreements also require the University to make certain deposits into a debt service account held by the trustee for the periodic payment of bond interest and retirement of bond principal and the creation of other specific reserve accounts. The balances held in these accounts are included in deposits held with bond trustees in the statements of financial position.

21 Clark Atlanta University 19 Annual maturities of the bonds in periods subsequent to June 30, 2014 are as follows: Future Advance Project Funding Series Future Advance Project Funding Series Future Advance Project Funding Series For the years ending June 30: 2015 $ 2,821,385 $ 436,663 $ 2,077,201 $ 5,335, ,652 2,092,558 2,551, ,142 2,108,848 2,580, ,563 2,124,908 2,618, ,100 2,140,913 2,655,013 Thereafter - 13,946,714 2,157,174 16,103,888 Total $ 2,821,385 $ 16,321,834 $ 12,701,602 $ 31,844,821 Total 9 Conditional Asset Retirement Obligations The University has identified asbestos and lead paint abatement as conditional asset retirement obligations in certain properties. Asbestos abatement was estimated using site-specific surveys where available and a per/square foot estimate where surveys were unavailable. Lead paint removal costs are based on estimates received from environmental consultants. During 2014 and 2013, the University recorded no additional asset retirement obligations. The following table presents the activity for the University s asset retirement obligations which are reflected in other liabilities on the statements of financial position: June Beginning of year obligation $ 676,175 $ 637,901 Accretion expense 40,572 38,274 Obligation as of end of year $ 716,747 $ 676,175 The obligation at June 30, 2014 and 2013 has been discounted utilizing a credit adjusted risk free rate of 6.2 percent. The undiscounted obligation totaled $1,283,584 at June 30, 2014 and Net Assets Temporarily restricted net assets consisted of the following: June Other $ 9,833,694 $ 9,171,199 Scholarships 26,608,401 20,836,920 Term endowment funds 7,649,767 6,607,817 Instruction 9,642,971 7,771,370 Time restricted - general operations 6,625,701 5,391,175 Total $ 60,360,534 $ 49,778,481