THE UNIVERSITY OF TENNESSEE FOUNDATION, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

June 30, 2002

 

and

 

INDEPENDENT AUDITOR'S REPORT

 

 

 

 

 

BROWN JAKE & McDANIEL, PC

CERTIFIED PUBLIC ACCOUNTANTS

1819 AILOR AVENUE, SUITE U5

KNOXVILLE, TENNESSEE  37921-5867

865/637-8600  •  fax 865/637-8601  •  e-mail: bjm@esper.com

 

JOE L. BROWN, CPA

MARILYN JAKE, CPA

FRANK D. McDANIEL, CPA

TERRY L. MOATS, CPA

JAMES E. BOOHER, CPA

 

MEMBERS

AMERICAN INSTITUTE OF

CERTIFIED PUBLIC ACCOUNTANTS

 

 

 

 

To the Board of Directors of

The University of Tennessee Foundation, Inc.

Knoxville, Tennessee

 

We have audited the accompanying consolidated statement of financial position of The University of Tennessee Foundation, Inc. (a non-profit organization) as of June 30, 2002, and the related statements of activities and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Foundation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position and The University of Tennessee Foundation, Inc. as of June 30, 2002, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

CERTIFIED PUBLIC ACCOUNTANTS 

 

September 17, 2002

 

The University of Tennessee Foundation, Inc.

Notes to Consolidated Financial Statements

June 30, 2002

 

 

 

1.                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Activities

The University of Tennessee Foundation, Inc. (the “Foundation”) is a not-for-profit organization exempt from federal income tax under Section 501 (c) (3) of the Internal Revenue Code.  The Foundation was formed to support The University of Tennessee.  The Foundation was established to provide flexibility for the University in carrying out its mission of teaching, research, and public research. The Foundation receives contributions from individuals, corporations, alumni, and other donors.

 

Financial Statement Presentation

The Foundation has adopted Statement of Financial Accounting Standards (SFAS) No. 117, “Financial Statements of Not-for-Profit Organizations.”  Under SFAS No. 117, the Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.  The Foundation has no permanently restricted net assets.

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Foundation and a single member LLC created by the Foundation.  The name of the LLC is Volunteer Student Housing, LLC (“LLC”).  The LLC was created to own a student housing facility adjacent to the University of Tennessee, Knoxville campus.  All significant intercompany balances and transactions have been eliminated in the consolidation.

 

Basis of Presentation

The financial statements have been prepared on the accrual basis of accounting, and accordingly, reflect all significant receivables, payables, and other liabilities.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

 

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposit accounts and money market funds with financial institutions.

 

Investments

Investments are recorded on the date of contribution and are stated at market value.  Market values are determined by national securities exchanges.  Unrealized gains and losses are determined by the difference between market values at the beginning and end of the year.  These amounts are included in the change in net assets in the accompanying statement of activities.

The Foundation’s policy regarding investment income and realized and unrealized gains and losses for temporarily and permanently restricted assets is to record such revenues as unrestricted support to the extent that restrictions are met in the same reporting period.

Contributions

Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. 

 

The Foundation reports gifts of cash, donated property, and all other assets as unrestricted support unless explicit donor stipulations limit the use of the donated assets.  When a donor restriction expires, that is, when the stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. 

 

Donated gifts are recorded at fair market value at the time of donation and are reported as restricted support if it is received with donor imposed restrictions.

2.                  INVESTMENTS

Investment securities held at June 30, 2002, were as follows:

 

 

 MARKET

 

 COST

 

 VALUE

 

 BASIS

 

 

 

 

Mutual funds

 $      167,050.00

 

 $      167,050.00

 

 

 

 

Stocks

            7,692.96

 

            7,416.60

 

 

 

 

 

 $      174,742.96

 

 $      174,466.60

 

3.                  OPERATING LEASES

The Foundation has entered into a five-year lease for farm land in Martin, Tennessee.  The lease terminates in April 2007.  Minimum lease payments are $30,000 per year over the term of the lease.  Total accrued lease expense was $5,000 for the year ended June 30, 2002.  Minimum lease payments for future years are as follows:

 

2003

 

 

$      30,000.00

2004

 

 

30,000.00

2005

 

 

30,000.00

2006

 

 

30,000.00

2007

 

 

25,000.00

 

 

 

 

 

 

 

$    145,000.00

The Foundation has subsequently subleased the farmland to The University of Tennessee.  The sublease is a five-year term and terminates in April 2007.  The Foundation will receive $2,800 per year as compensation for the lease.  Total accrued lease revenue at June 30, 2002, was $466.67.

4.                  TEMPORARILY RESTRICTED NET ASSETS

Temporarily restricted net assets consist of administrative funding provided by the University of Tennessee and contributions for the farm lease payment.  Total temporarily restricted net assets at June 30, 2002, were $370,330.62. Of this amount, $111,900.40 was used to pay for unrestricted disbursements at year-end. Unrestricted contributions were used to repay the amount due to temporarily restricted net assets during July 2002.

5.                  DR. SHUMAKER’S CONTRACT WITH THE FOUNDATION

Dr. John Shumaker, President of The University of Tennessee, entered into a contract with the Foundation in May 2002.  The Foundation will provide long term care insurance and life and disability insurance over and above the University’s plan.  The Foundation will reimburse Dr. Shumaker up to $10,000 per fiscal year for incurred attorney and financial planning fees.  The Foundation will also provide target bonuses as an incentive to accomplish specific goals for the benefit of the University.  The Foundation will purchase $75,000 of investments on each June 30 as an Executive Option.  The Foundation purchased $92,000 of additional executive option investments at June 30 since Dr. Shumaker gave up approximately this amount in options by leaving the University of Louisville.  Finally, the Foundation will pay a supplemental retirement benefit of $150,000 per year for 10 years when Dr. Shumaker ceases to be President.  Dr. Shumaker must remain as President until June 30, 2008, for the obligation to remain in effect except in the event of his death or permanent disability.  The Foundation has not funded this benefit as of June 30, 2002.

6.                  UT NATIONAL ALUMNI ASSOCIATION

The Foundation granted $748,593.71 to the UT National Alumni Association to provide funds for the Association’s budget.  The Association funds various scholarships, faculty awards, and other programs which benefit the University of Tennessee.  The funds provided came from unrestricted contributions.

7.                  SUBSEQUENT EVENT

On September 17, 2002, the LLC requested the Health, Educational and Housing Facility Board of the County of Knox, Tennessee to issue $60,090,000 variable rate, tax-exempt bonds to fund the acquisition, construction, and equipping of a student housing facility adjacent to the Knoxville campus.  The facility will be a 12-story complex with five levels for parking and seven levels for housing.  The facility is scheduled for completion in August 2004.  During the construction period, interest will be paid on the debt.  The first principal payment is due September 1, 2005.