nc state university partnership corporation and affiliates consolidated · pdf...

NC STATE UNIVERSITY PARTNERSHIP CORPORATION

AND AFFILIATES

CONSOLIDATED FINANCIAL REPORT

JUNE 30, 2010 and 2009

NC State University Partnership Corporation and Affiliates June 30, 2010 and 2009

CONTENTS

INDEPENDENT AUDITOR’S REPORT ON THE

FINANCIAL STATEMENTS

1

FINANCIAL STATEMENTS

Consolidated statements of financial position 2

Consolidated statements of activities 3

Consolidated statements of cash flows 4

Notes to consolidated financial statements 5-9

OTHER INFORMATION

Independent Auditor’s Communication with the Board of Directors 10-11

SUPPLEMENTARY FINANCIAL INFORMATION Consolidating statement of financial position Consolidating statement of activities

12-13

14-15

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors NC State University Partnership Corporation and Affiliates Raleigh, North Carolina

We have audited the accompanying consolidated statements of financial position of NC State University Partnership Corporation (a nonprofit organization) and Affiliates as of June 30, 2010 and 2009 and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Organization’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 that our audits provide 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 of NC State University Partnership Corporation and Affiliates as of June 30, 2010 and 2009, and the changes in its members' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on pages 15 through 18 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Raleigh, North Carolina August 16, 2010

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NC State University Partnership Corporation and Affiliates

Consolidated Statements of Financial Position

June 30, 2010 and 2009

2010 2009

ASSETS

Current assets:

Cash (Note 2) 426,197$ 151,306$

T rade receivable - golf course 143,890 38,353

Sales tax receivable - golf course 32,708 58,882

Sales tax receivable - residence 3,319 -

Due from other foundation (Note 3) 428,434 -

Inventories - golf course (Notes 1 and 4) 47,721 29,187

Total current assets 1,082,269 277,728

Real estate (Note 6) 2,737,554 -

Property and equipment:

Golf course property and equipment, net of depreciation

and amortization (Notes 1 and 5) 11,276,978 11,223,370

Construction in process - golf course (Note 7) 80,651 -

Construction in process - residence (Note 7) 939,929 571,478

Total property and equipment 12,297,558 11,794,848

Total assets 16,117,381$ 12,072,576$

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:

Current installments of capital lease obligations (Note 9) 143,903$ 151,959$

Accounts payable (Note 10) 245,238 381,415

Deferred revenue (Note 11) 83,580 140,400

Due to others 798 1,419

Due to the university (Note 12) 18,162 -

Total current liabilities 491,681 675,193

Long-term liabilities:

Capital lease obligations, less current installments 224,687 344,910

Funds held for others (Note 13) 2,810,556 -

Notes payable - golf course (Note 14) 3,950,000 4,994,095

Total long-term liabilities 6,985,243 5,339,005

Total liabilities 7,476,924 6,014,198

Members' equity 8,640,457 6,058,378

Total liabilities and members' equity 16,117,381$ 12,072,576$

See Notes to Consolidated Financial Statements.

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Consolidated Statements of Activities

For the Years Ended June 30, 2010 and 2009

2010 2009

Revenue and net operating support:

Contributions - residence (Note 1) 775,334$ 143,840$

Contributions - golf course (Note 1) 1,260,623 1,421,456

Contributed materials and services - golf course (Note 1) 77,083 65,601

Total contributions 2,113,040 1,630,897

Net operating loss - golf course (64,152) (139,860)

Total revenue and net operating support 2,048,888 1,491,037

Other expenses 13,719 8,467

T ransfers from NC State University Endowment Fund 546,910 -

Total transfers 546,910 -

Change in member's equity 2,582,079 1,482,570

Member's equity:

Beginning 6,058,378 4,575,808

Ending 8,640,457$ 6,058,378$


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Consolidated Statements of Cash Flows

For the Years Ended June 30, 2010 and 2009

2010 2009

Cash flows from operating activities:

Change in member's equity 2,582,079$ 1,482,570$

Adjustments to reconcile change in member's equity

to net cash provided by operating activities:

Depreciation and amortization - golf course 174,867 45,015

(Increase) in accounts receivable (82,682) (97,235)

(Increase) decrease in due from other Foundations (428,434) 35

(Increase) in inventories - golf course (18,534) (29,186)

(Decrease) increase in accounts payable (155,643) 123,951

(Decrease) increase in deferred revenue - golf course (56,820) 181,701

(Decrease) in due to others (621) (3,500)

Increase in due to the university 18,162 -

Net cash provided by operating activities 2,032,374 1,703,351

Cash flows from investing activities:

(Increase) in investment in real estate (2,737,554) (11,268,385)

(Increase) in fixed assets - golf course (277,226) 5,037,038

(Increase) in net construction in process (368,451) -

(Increase) in capital leases (31,900) -

(Decrease) increase in lease liabilities - golf course (108,813) 496,868

Increase in funds held for others 2,810,556 -

Net cash used in investing activities (713,388) (5,734,479)

Cash flows from financing activities:

(Decrease) increase in notes payable - golf course (1,044,095) 4,089,095

Net cash (used in) provided by financing activities (1,044,095) 4,089,095

Net increase in cash and cash equivalents 274,891 57,967

Cash and cash equivalents

Beginning 151,306 93,339

Ending 426,197$ 151,306$

Supplemental disclosures of nonoperating activities

Donated materials and services - golf course 77,083$ 65,601$


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NC State University Partnership Corporation and Affiliates Notes to Consolidated Financial Statements For the years ended June 30, 2010 and 2009

Note 1. Nature of Activities

Nature of activities: The NC State University Partnership Corporation (the “Corporation”) was organized on December 17, 1984 to support and for the benefit of North Carolina State University with the aims of creating new knowledge and improving the lives of the people of North Carolina. It is organized and operated exclusively for charitable, educational, and scientific objectives. The Corporation shall carry on only those activities permitted to be carried on by an organization or entity which is exempt from taxation under the provision of paragraph 501(c)(3) of the Internal Revenue Code.

Note 2. Significant Accounting Policies

Basis of accounting: The consolidated financial statements of the Corporation have been prepared on the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred. Principles of Consolidation: The consolidated financial statements include the accounts of the Corporation and six single member limited liability companies (affiliates) created by the Corporation. The names of the limited liability companies are NC State Residence, LLC; NC State University Centennial Development, LLC; NC State Upfit, LLC; Bell Tower Holdings, LLC; NC State CC Holdings I, LLC; and NC State CBC Land I, LLC. The NC State Residence, LLC was created to construct a chancellor’s residence located on the North Carolina State University campus. NC State University Centennial Development, LLC was created to construct, own and operate a golf course located on the North Carolina State University campus. NC State Upfit, LLC was formed to develop, construct, own and otherwise upfit facilities located on the Centennial Campus at North Carolina State University. NC State American Home, LLC’s name was changed to Bell Tower Holdings, LLC during fiscal year 2010. Bell Tower Holdings, LLC was established to acquire, develop, own, lease, hold, manage, sell and otherwise exercise all rights of ownership of real property. NC State CC Holdings I, LLC will acquire, develop, own, lease, hold, manage, sell and otherwise exercise all rights of ownership of land and facilities located on the North Carolina State University Centennial Campus in Raleigh, North Carolina. The NC State CBC Land I, LLC will acquire, develop, own, lease, hold, manage, sell and otherwise exercise all rights of ownership of land and flex lab facilities located on The Centennial Biomedical Campus in Raleigh, North Carolina. All significant intercompany balances and transactions have been eliminated in the consolidation. The Lonnie Poole Golf Course of the NC State University Centennial Development, LLC was fully operational and open to the public on July 1, 2009. During fiscal year 2010, the majority of financial activity was attributable to the operation of the golf course. The Supplementary Financial Information section of this report contains additional details regarding NC State University Centennial Development, LLC’s financial activities. The Supplementary Financial Information section of this report also contains additional details regarding the activities of NC State Residence; LLC, Bell Tower Holdings, LLC; NC State Upfit, LLC; NC State CC Holdings I, LLC; and NC State CBC Land I, LLC. Cash: Cash consists of accounts with RBC Centura Bank, Capital Bank, and SunTrust Bank. At times, the Corporation may place deposits with RBC Centura, Capital Bank, and SunTrust that may be in excess of federal insurance limits. Contributions: All contributions are received from other University affiliated entities.

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Contributed materials and services: Donated materials and services are recorded at fair value at the date of donation and are held or used in accordance with donor restrictions. As of June 30, 2010 and June 30, 2009 donated materials totaled $57,683 and $65,601, respectively. The University also provided financial oversight for the Golf Course, and Campus Enterprises division was formed in fiscal year 2010 to assist with the operational oversight. Additional time spent by Foundations Accounting and Investments staff and Campus Enterprises staff for the financial oversight of the course for the University equaled $19,400 in 2010. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income taxes: The Corporation is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. Inventory: Inventory is accounted for using the average cost method and made up of merchandise for the golf shop. Property and equipment: Property and equipment are stated at cost. Depreciation is computed using the straight-line method, half-year convention. Estimated useful lives of property, plant, and equipment range from 3-5 years for leased equipment to 15 years for the modern greens. It is the Corporation's policy to capitalize all assets costing greater than $5,000. Note 3. Due from other Foundations On June 30, 2010, the NC State Residence, LLC requested a transfer of gift funds from the NC State University Foundation to cover construction expenses incurred. This amount totaled $428,434 and was received by the NC State Residence, LLC in July 2010. Note 4. Inventory On April 12, 2010, University Dining assumed operations of the food and beverage service at the golf course. Merchandise, food, and beverage inventory was accounted for using the average cost method and consisted of the following:

2010 2009

Merchandise 47,721$ 28,693$

Food and beverage - 494

Total inventory 47,721$ 29,187$

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Note 5. Property and Equipment For the fiscal years ended June 30, 2010 and 2009, the Corporation owned the following property:

Included in the cost of the property for fiscal years 2010 and 2009 is $1,191,937 and $1,114,854, respectively, of donated materials and services. Total depreciation and amortization expense for the years ended June 30, 2010 and June 30, 2009 was $174,867 and $45,015, respectively. Note 6. Real Estate During the fiscal year ended June 30, 2009, the NC State Investment Fund, Inc. received a contribution of $1,797,280 from a participant, the Endowment Fund of NC State University, to purchase, on its behalf, property along Hillsborough Street. As of June 30, 2009, the property was appraised at $1,796,460. During fiscal year 2010, this property was transferred from the NC State Investment Fund, Inc. to Bell Tower Holdings, LLC, to be held on behalf of the Endowment Fund of NC State University. In addition, another tract of land related to the project was purchased for $941,094, increasing the real estate holdings to $2,737,554 as of June 30, 2010. Note 7. Construction in Process Construction in process for the golf course for the year ended June 30, 2010 consisted of design services for the golf course clubhouse totaling $80,651. Construction in process for the chancellor’s residence for the years ended June 30, 2010 and June 30, 2009 consisted of design and construction services in the amount of $939,929 and $571,478, respectively.

2010 2009

Modern Greens 512,319$ 512,319$

Less: accumulated depreciation (51,231) (17,077)

Golf course 10,419,208 10,222,633

Leased equipment 565,333 533,433

Less: accumulated depreciation

and amortization (168,651) (27,938)

Total golf course property and equipment 11,276,978 11,223,370

Construction in process - golf course 80,651 -

Construction in process - residence 939,929 571,478

Total property and equipment 12,297,558$ 11,794,848$

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Note 8. Operating Leases During fiscal years 2010 and 2009, NC State University Centennial Development, LLC entered into operating leases for golf carts, ice machines, and maintenance equipment. Future minimum lease payments under the noncancelable operating leases are as follows:

Year ending June 30:

2011 90,908$

2012 64,228

2013 61,199

2014 34,765

251,100$

Note 9. Capital Leases NC State University Centennial Development, LLC has entered into capital leases of certain equipment. The gross amount of assets recorded under capitalized leases totaled $565,333 for the year ended June 30, 2010 and $533,433 for the year ended June 30, 2009, and are included in property and equipment. The assets are amortized over the lower of their related lease terms or their estimated useful lives. The accumulated amortization on these leased assets was $168,651 as of June 30, 2010 and $27,938 as of June 30, 2009. Future minimum lease payments, gross of taxes, under capital leases at June 30, 2010 are as follows:

Year ending June 30:

2011 143,903$

2012 118,064

2013 79,518

2014 36,596

2015 3,215

381,296

Less: imputed interest (12,706)

Present value of net minimum lease payments 368,590$

Note 10. Accounts Payable For the years ended June 30, 2010 and June 30, 2009, accounts payable totaled $245,238 and $381,415, respectively, and were comprised primarily of outstanding invoices for the golf course and residence.

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Note 11. Deferred Revenue During the fiscal years 2010 and 2009, the NC State University Centennial Development, LLC collected, in advance, dues and fees of $83,580 and $140,400, respectively. These amounts were paid by the Lonnie Poole Golf Course Charter Partners in exchange for certain benefits at the golf course, including discounts on cart fees, unlimited driving range balls, and the ability to make tee time reservations in advance of other players. Note 12. Due to the University At June 30, 2010, amounts due to the University totaled $18,162, which consisted of $15,962 of credit card monies collected by the golf course for the snack bar on behalf of University Dining and $2,500 from Residence, LLC. As described in Note 4, the golf course transitioned the food and beverage operations to University Dining during fiscal year 2010. Until the operations were fully transitioned, credit card sales were collected into the golf course bank accounts. As of July 1, 2010, the transition of the credit card transactions to University Dining was complete and the practice of the golf course collecting monies into their bank account on behalf of University Dining was discontinued. Note 13. Funds Held for Others As of June 30, 2010, Bell Tower Holdings, LLC had $2,810,556 in funds held for others, made up of the following:

These monies are held on behalf of the Endowment Fund of NC State University. See Note 6 above. Note 14. Long-term Liabilities At June 30, 2010 and June 30, 2009, long-term liabilities consisted of lease obligations due after one year of $224,687 and $344,910, respectively. The balance of the loan NC State University Centennial Development, LLC has with Sun Trust Bank equals $3,950,000 and $4,994,095 at June 30, 2010 and June 30, 2009, respectively. The interest rate on the loan is LIBOR plus .50% per annum, which was .85375% at June 30, 2010, and the maturity date is December 31, 2011. During the fiscal year ended June 30, 2008, The Endowment Fund Board of Trustees agreed to invest up to $5,000,000 in the NC State University Centennial Development, LLC for the Lonnie Poole Golf Course in the event the LLC could not meet its loan payback or should the LLC desire to pay off the loan prior to receipt of expected cash flow. As of June 30, 2010, there have been no investment requests. Note 15. Subsequent Events The Corporation has evaluated subsequent events through August 16, 2010, the date which the financial statements were available to be issued, and there were none to report.

Income 114,191$

Expenses (41,189)

Real estate 2,737,554

Total 2,810,556$

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August 16, 2010 To the Board of Directors NC State University Partnership Corporation and Affiliates Raleigh, North Carolina We have audited the financial statements of NC State University Partnership Corporation and Affiliates for the year ended June 30, 2010, and have issued our report thereon dated August 16, 2010. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated June 23, 2010. Professional standards also require that we communicate to you the following information related to our audit. Qualitative Aspects of Accounting Practices

Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by NC State University Partnership Corporation and Affiliates are described in Note 2 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year ended June 30, 2010. We noted no transactions entered into by the Corporation during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the financial statements was: The disclosure of significant accounting policies in Note 2 to the financial statements. Without the information in Note 2 of the financial statements, users may misinterpret the financial statements. Difficulties Encountered in Performing the Audit

We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatement

Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. No material misstatements were fund throughout the audit, and as such, no adjustments were necessary.

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Disagreements with Management

For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations

We have requested certain representations from management that are included in the management representation letter dated August 16, 2010. Management Consultations with Other Independent Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the Corporation’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues

We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Organization’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Information in Documents Containing Audited Financial Statements

This information is intended solely for the use of the Board of Directors and management of NC State University Partnership Corporation and Affiliates and is not intended to be and should not be used by anyone other than these specified parties.

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SUPPLEMENTARY FINANCIAL INFORMATION


Consolidating Statement of Financial Position

June 30, 2010

NC State University

NC State Centennial NC State

Residence, LLC Development, LLC Upfit, LLC

ASSETS

Current assets:

Cash (Note 2) 23,708$ 328,168$ 100$

Trade receivable - golf course - 141,939 -

Sales tax receivable - golf course - 32,708 -

Sales tax receivable - residence 3,319 - -

Due from other foundations (Note 3) 428,434 13,180 -

Inventories - golf course (Note 4) - 47,721 -

Total current assets 455,461 563,716 100

Real Estate (Note 6) - - -

Property and equipment:

Golf course property and equipment, net of depreciation

and amortization (Note 5) - 11,276,978 -

Construction in process - golf course (Note 7) - 80,651 -

Construction in process - residence (Note 7) 939,929 - -

Total property and equipment 939,929 11,357,629 -

Total assets 1,395,390$ 11,921,345$ 100$

LIABILITIES AND MEMBERS' EQUITY

Current liabilities:

Current installments of capital lease obligations (Note 9) -$ 143,903$ -$

Accounts payable (Note 10) 49,471 193,455 -

Deferred revenue (Note 11) - 83,580 -

Due to others (112) - 805

Due to the university (Note 12) 2,500 15,962 -

Total current liabilities 51,859 436,900 805

Long-term liabilities:

Capital lease obligations, less current installments - 224,687 -

Funds held for others (Note 13) - - -

Notes payable - golf course (Note 14) - 3,950,000 -

Total long-term liabilities - 4,174,687 -

Total liabilities 51,859 4,611,587 805

Members' equity 1,343,531 7,309,758 (705)

Total liabilities and members' equity 1,395,390$ 11,921,345$ 100$

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NC State University

Bell Tower NC State CBC NC State CC Partnership

Holdings, LLC Land I, LLC Holdings I, LLC Corporation Eliminations Consolidated

73,268$ 100$ 100$ 753$ -$ 426,197$

1,951 - - - - 143,890

- - - - - 32,708

- - - - - 3,319

- - - - (13,180) 428,434

- - - - - 47,721

75,219 100 100 753 (13,180) 1,082,269

2,737,554 - - - - 2,737,554

- - - - - 11,276,978

- - - - - 80,651

- - - - - 939,929

- - - - - 12,297,558

2,812,773$ 100$ 100$ 753$ (13,180)$ 16,117,381$

-$ -$ -$ -$ -$ 143,903$

2,312 - - - - 245,238

- - - - - 83,580

205 2,135 605 10,340 (13,180) 798

(300) - - - - 18,162

2,217 2,135 605 10,340 (13,180) 491,681

- - - - - 224,687

2,810,556 - - - - 2,810,556

- - - - - 3,950,000

2,810,556 - - - - 6,985,243

2,812,773 2,135 605 10,340 (13,180) 7,476,924

- (2,035) (505) (9,587) - 8,640,457

2,812,773$ 100$ 100$ 753$ (13,180)$ 16,117,381$

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Consolidating Statement of Activities

For the Year Ended June 30, 2010 NC State University

NC State Centennial NC State

Residence, LLC Development, LLC Upfit, LLC

Revenue, gains, and other support:

Contributions - residence 775,334$ -$ -$

Contributions - golf course - 1,260,623 -

Contributed materials and services - golf course - 77,083 -

Total contributions 775,334 1,337,706 -

Operating income:

Merchandise sales - 285,247 -

Greens fees income - 1,169,045 -

Golf cart income - 279,332 -

Food and beverage sales - 123,657 -

Total operating income - 1,857,281 -

Cost of Sales - 154,866 -

Total net operating income - 1,702,415 -

Operating expenses - golf course:

Marketing expense - 25,869 -

Payroll expense - 915,540 -

General and administrative expense 6,900 173,883 -

Clubhouse expense - 124,606 -

Repairs and maintenance expense - 191,100 -

Rental expense - 72,861 -

Office expense - 5,043 -

Depreciation expense - 34,155 -

Amortization expense - 140,713 -

Insurance expense - 14,944 -

Interest expense - 37,576 -

Other current services 205 30,277 205

Total expenses 7,105 1,766,567 205

Net operating loss - golf course - (64,152) -

Transfers from NC State University Endowment Fund - 546,910 -

Change in member's equity 768,229 1,820,464 (205)

Member's equity:

Beginning 575,302 5,489,294 (500)

Ending 1,343,531$ 7,309,758$ (705)$

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NC State University

Bell Tower NC State CBC NC State CC Partnership

Holdings, LLC Land I, LLC Holdings, LLC Corporation Eliminations Consolidated

-$ -$ -$ -$ -$ 775,334$

- - - - - 1,260,623

- - - - - 77,083

- - - - - 2,113,040

- - - - - 285,247

- - - - - 1,169,045

- - - - - 279,332

- - - - - 123,657

- - - - - 1,857,281

- - - - - 154,866

- - - - - 1,702,415

- - - - - 25,869

- - - - - 915,540

- - - 5,900 - 186,683

- - - - - 124,606

- - - - - 191,100

- - - - - 72,861

- - - - - 5,043

- - - - - 34,155

- - - - - 140,713

- - - - - 14,944

- - - - - 37,576

(300) 204 205 400 - 31,196

(300) 204 205 6,300 - 1,780,286

- - - - - (64,152)

- - - - - 546,910

300 (204) (205) (6,300) - 2,582,079

(300) (1,831) (300) (3,287) - 6,058,378

-$ (2,035)$ (505)$ (9,587)$ -$ 8,640,457$

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