CONTENTS
Independent Auditors’ Report... 1 Consolidated Statements of Financial Position ... 2 Consolidated Statements of Activities ...3-4 Consolidated Statements of Cash Flows... 5 Notes to the Consolidated Financial Statements ... 6-19
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Landmark Square 111 West Ocean Boulevard Twenty-Second Floor Long Beach, CA 90802
Tel: (562) 435-1191 Fax: (562) 495-1665
www.windes.com
Other Offices: Irvine Torrance Established 1926
INDEPENDENT AUDITORS’ REPORT To the Board of Trustees of
Southern California College of Optometry
We have audited the accompanying consolidated statements of financial position of Southern California College of Optometry as of June 30, 2007 and 2006, and the related consolidated statements of activities, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the College’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 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 consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated 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 Southern California College of Optometry at June 30, 2007 and 2006, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated August 28, 2007, on our consideration of Southern California College of Optometry’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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards
and should be read in conjunction with this report in considering the results of our audits.
Long Beach, California August 28, 2007
The accompanying notes are an integral part of these consolidated statements. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
June 30,
2007 2006
CURRENT ASSETS
Cash and cash equivalents $ 5,114,421 $ 9,932,354 Investments at market value 20,052,104 13,932,371
Student accounts receivable 21,565 73,274
Other receivables 423,427 307,181
Inventories 147,130 144,978
Prepaid expenses 52,088 50,091
Total Current Assets 25,810,735 24,440,249
LONG-TERM ASSETS
Student loans receivable 9,682,018 8,404,384
Partnership investment 573,949 573,949
Total Long-Term Assets 10,255,967 8,978,333 Land held for investment
Fullerton leased land 1,904,300 1,904,300
Total Land Held for Investment 1,904,300 1,904,300
PROPERTY, PLANT, AND EQUIPMENT
Fullerton Campus 35,725,245 34,855,076
Optometric Center of Los Angeles 1,224,625 1,146,261
Student Housing 5,236,948 5,194,239
Veterans Administration 112,676 112,676
Mission Community Hospital 24,913 24,913
Library Collection 1,380,670 1,310,404
Property, Plant, and Equipment at Cost 43,705,077 42,643,569 Accumulated depreciation ( 14,787,082) ( 13,778,348) Net Property, Plant, and Equipment 28,917,995 28,865,221
OTHER ASSETS
Deposits 1,704,167 1,941,382
Other assets 1,181,747 1,055,110
Total Other Assets 2,885,914 2,996,492
LIABILITIES AND NET ASSETS
June 30,
2007 2006
CURRENT LIABILITIES
Accounts payable $ 343,876 $ 370,504
Accrued liabilities 427,491 442,434
Accrued vacation and paid time off 713,911 703,255
Tuition and other deposits 427,397 302,319
Long-term debt, current portion 926,382 800,730
Other current liabilities 400,743 387,903
Total Current Liabilities 3,239,800 3,007,145
LONG-TERM LIABILITIES
Deferred compensation liability 3,700 8,700 Long-term debt, net of current portion 21,898,685 23,135,000 Federal advances for student loans 7,198,719 7,130,658
Annuities payable 1,478,685 820,265
Total Long-Term Liabilities 30,579,789 31,094,623
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
NET ASSETS
Unrestricted:
Available for current operations 486,099 100,430
Quasi endowments 13,493,099 13,020,195
Reserve for annual bond debt service 1,697,061 1,883,555
Net investment in plant 8,978,841 7,919,742
Total Unrestricted Net Assets 24,655,100 22,923,922 Temporarily restricted:
Unexpended restricted funds 778,917 863,958
Permanently restricted:
Student loan funds 3,776,688 3,530,249
Life income and annuity funds 700,572 421,537
Endowment funds 6,044,045 5,343,161
Total Permanently Restricted Net Assets 10,521,305 9,294,947
Total Net Assets 35,955,322 33,082,827
The accompanying notes are an integral part of these consolidated statements. CONSOLIDATED STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2007 OPERATING
Temporarily Permanently
Unrestricted Restricted Restricted Total
REVENUES
Tuition and fees $ 9,524,021 $ 9,524,021
Continuing education 260,205 260,205
Federal and state grants,
contracts and advances 470,947 $ 145,136 616,083 Private gifts, grants and contracts 265,162 606,369 $ 352,208 1,223,739 Contributed services 5,337,382 5,337,382
Endowment income 409,845 409,845
Interest, investment and rental income 1,238,590 ( 34,017) 37,481 1,242,054 Eye Care Centers income (net of
expenses of $2,036,625) 2,481,041 2,481,041 Auxiliary income (net of expenses
of $542,837) 605,374 605,374
Other sources 52,056 158 52,214
Total Revenues 20,644,623 717,488 389,847 21,751,958
OTHER INCREASES IN NET ASSETS
Federal loan required match ( 407) 407
Actuarial adjustment to annuity 16,429 ( 13,520) 2,909 Net assets released from restrictions 852,975 ( 852,975)
Total Revenues and Other
Increases in Net Assets 21,497,191 ( 119,058) 376,734 21,754,867
EXPENSES
Instructional 11,247,997 11,247,997
Research 831,177 831,177
Academic support 613,167 613,167
Student services 572,347 572,347
Institutional support 3,101,712 3,101,712 Operations and maintenance - plant 1,470,311 1,470,311 Scholarships and fellowships 402,861 402,861
Auxiliary operations 226,420 226,420
Interest 852,427 852,427
Depreciation 1,597,851 1,597,851
Total Expenses 20,916,270 20,916,270
CHANGE IN NET ASSETS FROM
OPERATING ACTIVITIES 580,921 ( 119,058) 376,734 838,597
NON-OPERATING
Loss on disposal of equipment ( 41,353) ( 41,353) Gain on investment assets 1,191,610 34,017 849,624 2,075,251
CHANGE IN NET ASSETS FROM
NON-OPERATING ACTIVITIES 1,150,257 34,017 849,624 2,033,898
CHANGE IN NET ASSETS 1,731,178 ( 85,041) 1,226,358 2,872,495
BEGINNING NET ASSETS 22,923,922 863,958 9,294,947 33,082,827
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY
The accompanying notes are an integral part of these consolidated statements. 4
CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2006 OPERATING
Temporarily Permanently
Unrestricted Restricted Restricted Total
REVENUES
Tuition and fees $ 9,021,466 $ 9,021,466
Continuing education 293,155 293,155
Federal and state grants,
contracts and advances 532,334 $ 162,223 694,557 Private gifts, grants and contracts 180,797 860,018 $ 75,258 1,116,073
Contributed services 4,800,000 4,800,000
Endowment income 372,723 372,723
Interest and investment income 1,130,317 5,160 49,823 1,185,300 Eye Care Centers income (net of
expenses of $1,656,761) 2,196,907 2,196,907 Auxiliary income (net of expenses
of $614,289) 593,701 593,701
Other sources 51,685 83 51,768
Total Revenues 19,173,085 1,027,401 125,164 20,325,650
OTHER INCREASES IN NET ASSETS
Actuarial adjustment to annuity 1,691 ( 81,020) ( 79,329) Net assets released from restrictions 894,918 ( 894,918)
Total Revenues and Other
Increases in Net Assets 20,068,003 134,174 44,144 20,246,321
EXPENSES
Instructional 10,091,694 10,091,694
Research 996,562 996,562
Academic support 496,965 496,965
Student services 490,706 490,706
Institutional support 2,907,456 2,907,456 Operations and maintenance - plant 1,335,346 1,335,346 Scholarships and fellowships 474,771 474,771
Auxiliary operations 216,174 216,174
Interest 839,628 839,628
Depreciation 1,531,229 1,531,229
Total Expenses 19,380,531 19,380,531
CHANGE IN NET ASSETS FROM
OPERATING ACTIVITIES 687,472 134,174 44,144 865,790
NON-OPERATING
Loss on disposal of equipment ( 28,766) ( 28,766)
Gain (loss) on investment assets 914,047 ( 5,160) 467,058 1,375,945
CHANGE IN NET ASSETS FROM
NON-OPERATING ACTIVITIES 885,281 ( 5,160) 467,058 1,347,179
CHANGE IN NET ASSETS 1,572,753 129,014 511,202 2,212,969
BEGINNING NET ASSETS 21,351,169 734,944 8,783,745 30,869,858
The accompanying notes are an integral part of these consolidated statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
June 30,
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Change in net assets $ 2,872,495 $ 2,212,969
Adjustments to reconcile change in net assets to net cash from operating activities:
Depreciation and amortization 1,597,851 1,531,229 Loss on disposal of property and equipment 41,353 28,766 Amortization of bond costs 118,451 146,168 Accretion on premium from bond ( 318,061) ( 385,524) Realized gain on investments ( 152,969) ( 402,908) Unrealized gain on investments ( 1,922,282) ( 973,037) Contributions for long-term investment ( 352,208) ( 75,258) Reserve and write-off of notes and
accounts receivable 22,037 6,764
Actuarial adjustment of annuities payable ( 2,909) 79,329 Changes in operating assets and liabilities:
Receivables ( 75,614) ( 11,056)
Inventories and prepaid expenses ( 4,149) 32,609
Other assets ( 7,873) 6,715
Accounts payable 36,043 94,222
Other current liabilities 133,631 241,170 Deferred compensation liability ( 5,000) ( 5,000)
Annuities payable 661,329 ( 53,970)
Net Cash Provided By Operating Activities 2,642,125 2,473,188
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of contributed property 7,569 750 Purchase of property, plant, and equipment ( 1,762,216) ( 975,584) Collections on student loans receivable 982,536 2,356,076 Issuance of student loans receivable ( 2,271,130) ( 2,198,929) Purchase of investments ( 4,771,477) ( 2,033,179) Proceeds from sales of investments 651,993 1,875,107 Partnership investment distribution 75,000 165,000 Net Cash Used In Investing Activities ( 7,087,725) ( 810,759)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ( 792,602) ( 40,144) Federal loan fund contributions 3,665
Net earnings on federal loan funds 64,396 68,019 Contributions for long-term investment 352,208 75,258 Net Cash (Used In) Provided By
Financing Activities ( 372,333) 103,133
NET CHANGE IN CASH AND CASH EQUIVALENTS ( 4,817,933) 1,765,562
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,932,354 8,166,792
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
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NOTE 1 – Summary of Significant Accounting Policies Nature of Operations
The Southern California College of Optometry (the College) is a private nonprofit educational institution established under Section 501(c)(3) of the Internal Revenue Code. The College was established to provide optometric education through teaching, patient care, and public service. The main campus is located in Fullerton, California and services approximately 400 full-time students. The College also operates two clinics in Southern California and over 80 off-campus clinical outreach programs across the country.
Principles of Consolidation
The consolidated financial statements of the College include SCCO College Properties, Inc., its wholly owned subsidiary, and the Foundation for the Preservation of Sight (the Foundation), which has a common board of trustees with the College as required under the bylaws of the Foundation. All significant intercompany transactions have been eliminated in consolidation. SCCO College Properties, Inc. was formed as an Internal Revenue Code Section 501(c)(2) nonprofit corporation organized for general charitable and eleemosynary purposes as prescribed by the California Corporation Code.
The Foundation, a nonprofit organization, was established to increase awareness for the preservation of sight and to raise funds to support eye care for needy individuals. Recognition of Donor Restrictions
Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently donor-restricted net assets depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are released to unrestricted net assets.
Use of Estimates and Assumptions
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 1 – Summary of Significant Accounting Policies (Continued) Financial Statement Presentation
The College reports information regarding its financial position and activities according to three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) based upon the existence and/or nature of donor-imposed restrictions.
Contributions
Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. Upon expiration of the restriction, the contributions are released to unrestricted net assets.
The College also records the value of contributed services that would otherwise be purchased or paid for in the normal course of business.
Private Grants and Contracts
The College accepts grants and performs on contracts related to various research projects. Receipts are recorded in temporarily restricted net assets until such time as expenditures are made. The restrictions expire when the expenses are incurred and the temporarily restricted net assets are released to unrestricted net assets.
Functional Allocation of Expenses
The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs based upon the relative benefit received.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the College considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of June 30, 2007 and at various times during the year, the College maintained cash balances in its bank in excess of federally insured limits.
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
8
NOTE 1 – Summary of Significant Accounting Policies (Continued) Investments
Investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their fair values in the consolidated statements of financial position. Other securities consists of a hedge fund and is shown at its fair value in the consolidated statements of financial position. Unrealized gains and losses are included in the change in net assets.
The partnership investment is recorded at the cost of the land that the College originally donated. (See Note 5.)
Realized gains and losses are computed as the difference between the beginning-of-year fair value, or cost for current year acquisitions, and sales proceeds. Unrealized gains and losses are the current year appreciation in investments held at year-end.
Other Receivables
Receivables are stated at their net realizable amounts. An allowance for doubtful accounts is provided against uncollectible accounts. Management provides for probable uncollectible amounts through a charge to earnings and a credit to an allowance account based on its
assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to bad debt expense.
Inventories
Inventories are stated at the lower of cost (primarily first-in, first-out) or market. Student Loans Receivable
Student Loans Receivable are stated at their realizable amounts. The College receives funds from various federal programs that are included in the federal advances for student loans which are disbursed to the students. These amounts are due to the College by the student and must be repaid within ten years of graduation with variable interest rates. Management believes that all accounts are collectible and, therefore, has not established a provision for uncollectible accounts.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 1 – Summary of Significant Accounting Policies (Continued) Land Held for Investment
The College has land held for investment, which was acquired through gift and purchase. This property is recorded at cost if purchased or at fair market value on the date of gift if donated. Costs incurred in the development of property prior to the properties producing income are capitalized. As the property starts producing income, costs are expensed as incurred. Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation of buildings and equipment is provided on a straight-line basis over the estimated useful lives of the respective assets. The estimated useful lives of all buildings and improvements range between fifteen and forty years. Major improvements and replacements of property are capitalized. Maintenance, repairs, and minor improvements and replacements are expensed. The estimated useful lives of equipment, furnishings, and computer software range from three to ten years. The library collection is not considered a wasting or exhaustible asset, therefore, the costs are not being depreciated.
Amortization of leasehold improvements is computed using straight-line and accelerated methods over the shorter of the terms of the leases or their estimated useful lives.
Student Financial Aid
The following federal student financial aid programs, specifically the loan funds, are classified as long-term liabilities:
Perkins Student Loan Program
Health Professions Student Loan Program Loans for Disadvantaged Students Program Income Taxes
The College and its consolidated entities, SCCO College Properties, Inc. and the Foundation, are exempt from federal and state income taxes. In addition, the College has been determined by the Internal Revenue Service and the Franchise Tax Board not to be a “private foundation.”
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
10 NOTE 2 – Restrictions on Net Assets
Substantially all of the restrictions on the temporarily restricted net assets relate to funds raised for scholarships, awards, and research and development.
The College reports gifts of land, buildings, 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 College reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.
Permanently restricted net assets consist of endowment fund investments to be held indefinitely, the income from which is expendable in accordance with the donor’s instructions.
NOTE 3 – Cash and Cash Equivalents
A summary of cash and cash equivalents is as follows:
June 30, 2007 2006 Permanently restricted $ 285,076 $ 812,950
Temporarily restricted 13,635 11,044
Unrestricted 4,815,710 9,108,360
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 4 – Other Receivables
Other receivables consists of interest receivable, clinic receivable, and other receivables as follows:
June 30, 2007 2006
Interest receivable $ 22,047 $ 25,240
Clinic receivable 285,027 216,490
Other receivables 141,353 90,451
448,427 332,181 Allowance for doubtful accounts ( 25,000) ( 25,000)
$ 423,427 $ 307,181
NOTE 5 – Investments
The following schedule summarizes investments:
Historical Cost Fair Value
June 30, June 30, 2007 2006 2007 2006 Debt securities $ 4,988,449 $ 3,488,449 $ 4,939,876 $ 3,433,630 Equity securities 9,748,013 7,561,246 13,179,834 9,476,664 Other securities 1,250,000 500,000 1,932,394 1,022,077 $ 15,986,462 $ 11,549,695 $ 20,052,104 $ 13,932,371 Unrealized gains in other securities was $166,163 and $134,963 for the years ended
June 30, 2007 and 2006, respectively.
Management believes the unrealized loss in debt securities of $48,573 is temporary in nature, and not material to the financial statements.
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
12 NOTE 5 – Investments (Continued)
The following tabulation summarizes the participation in the pools and ownership of investments at fair value:
June 30, 2007
Debt Equity Other
Securities Securities Securities Total Permanently restricted
net assets $ 2,740,768 $ 5,658,788 $ 1,035,422 $ 9,434,978 Temporarily restricted
net assets 479,956 194,789 20,049 694,794
Unrestricted net assets 1,719,152 7,326,258 876,922 9,922,332 $ 4,939,876 $13,179,835 $ 1,932,393 $ 20,052,104
June 30, 2006
Debt Equity Other
Securities Securities Securities Total Permanently restricted
net assets $ 2,992,011 $ 4,635,314 $ 824,417 $ 8,451,742 Unrestricted net assets 441,619 4,841,350 197,660 5,480,629 $ 3,433,630 $ 9,476,664 $ 1,022,077 $ 13,932,371 Fees, exclusive of transaction fees, attributed to the management of the investment accounts for the years ended June 30, 2007 and 2006 were $38,051 and $37,364, respectively.
The College has a 50% interest in a partnership to develop and lease commercial property located in Lancaster, California. Income and losses from the partnership are shared fifty-fifty between the College and the general partner. The income and distributions were $75,000 and $165,000 for the years ended June 30, 2007 and 2006, respectively. The investment in the partnership’s ending book value was $573,949 for both years ended June 30, 2007 and 2006.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 6 – Inventories
A summary of inventories is as follows: June 30,
2007 2006
Eye Care Centers
Ophthalmic materials $ 114,790 $ 113,846
Campus store
Books 8,091 5,927
Instruments, equipment, and supplies 26,249 27,205 Reserve for campus store inventory ( 2,000) ( 2,000)
32,340 31,132
$ 147,130 $ 144,978
NOTE 7 – Property, Plant, and Equipment
June 30, 2007
Accumulated Net Book Value
Depreciation/ June 30,
Cost Amortization 2007 2006 Fullerton Campus
Land $ 375,780 $ 375,780 $ 375,780
Buildings and improvements 27,328,908 $ 8,068,886 19,260,022 19,239,934 Equipment and furnishings 7,581,092 4,960,034 2,621,058 2,654,923 Computer software 439,465 355,643 83,822 72,367 35,725,245 13,384,563 22,340,682 22,343,004 Optometric Center of Los Angeles
Land 80,035 80,035 80,035
Building and improvements 521,075 419,718 101,357 118,530 Equipment and furnishings 623,515 387,667 235,848 183,260 1,224,625 807,385 417,240 381,825 Student Housing
Land 2,272,697 2,272,697 2,272,697
Building and improvements 2,926,219 440,396 2,485,823 2,516,263
Fixtures 38,032 22,685 15,347 18,883
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
14
NOTE 7 – Property, Plant, and Equipment (Continued) June 30, 2007
Accumulated Net Book Value
Depreciation/ June 30,
Cost Amortization 2007 2006 Veterans Administration
Equipment - Federal grant 112,559 112,559
Equipment - College 117 117
112,676 112,676 None None
Mission Community Hospital
Leasehold improvements 24,913 19,377 5,536 22,145 Library Collection 1,380,670 1,380,670 1,310,404 $ 43,705,077 $ 14,787,082 $ 28,917,995 $ 28,865,221 NOTE 8 – Long-Term Debt
Long-term debt consists of the following:
June 30,
2007 2006
Series 2004 Revenue Bond $ 23,640,000
Unaccreted bond premium 295,730
2007 Fixed Rate Conversion
of Series 2004 Revenue Bond $ 21,675,000
Unaccreted bond premium 1,150,067 __
$ 22,825,067 $ 23,935,730
Series 2004 Revenue Bond and 2007 Remarketing
In June 2004, the College issued $23,640,000 in new certificates of participation with the Redevelopment Agency of the City of Fullerton, at a premium of $1,102,570. This premium was amortized over a period of three years, which ended April 1, 2007. The proceeds from the 2004 Series were used to defease the entire principal balance of the CEFA Series B bond issued in 1997, and for additional capital acquisitions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 8 – Long-Term Debt (Continued)
Series 2004 Revenue Bond and 2007 Remarketing (Continued)
On April 2, 2007, the College completed the remarketing the 2004 Series Revenue Bonds which converted the $23,640,000 certificates issued at auction rate to Fixed Rate issues of $21,675,000. The new certificates were issued at a premium of $1,172,398. This premium is being amortized over the life of the bonds. Amortization of the Bond Premiums was $318,061 and $385,524 for the years ended June 30, 2007 and 2006, respectively. The College incurred additional bond costs of $248,341 for the 2007 remarketing which are being amortized over the life of the bond along with the bond costs incurred with the series 2004 bond issue. Amortization of the bond costs amounts to $118,451 and $146,168 for the years ended June 30, 2007 and 2006,
respectively.
The revenue bond matures in April 2034 and bears interest at 4.375% through April 1, 2011, with an interest rate of 5% thereafter. The effective yield is 4.38% over the life of the bonds. The bond is secured by a deed of trust with assignment of rents, security agreement, and fixtures as defined in the Deed of Trust. Principal payments are due annually, commencing April 2007. The College is subject to certain financial ratios and other restrictive covenants. The College was in compliance with all covenants during the years ended June 30, 2007 and 2006. The revenue bond requires the College to maintain a reserve to be held in trust for the payments of the bond when due. Deposits held with trustee included in deposits were $1,697,061 and $1,934,598 for the years ended June 30, 2007 and 2006, respectively.
Future maturities of the long-term debt at June 30, 2007 are as follows: Year Ending
June 30,
2008 $ 926,382
2009 938,322
2010 960,066
2011 972,571
2012 985,034
Thereafter 18,042,692
$ 22,825,067
Cash paid for interest was $852,427 and $839,628 for the years ended June 30, 2007 and 2006, respectively.
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
16 NOTE 9 – Life Income and Annuity Funds
The College has received gifts in the form of various charitable trusts, gift annuities, and pooled income fund. These trusts and annuities generally provide for income to be retained by the donor, while the College receives the ownership of the asset after a certain time period or the death of the donor. The College uses a discount rate equivalent to the earnings received with their debt securities. Actuarial assumptions are used based on age of the donor and are assessed annually. The College has accepted gifts of cash, common stock, notes receivable, and real estate. Such gifts, and the resulting liability for payments to the donors, are valued annually in the financial statements. The following is a summary of the trusts and annuities for the years ended:
June 30, 2007 Temporarily Permanently
Restricted Restricted Total Total trust and annuity assets $ 718,988 $ 1,782,347 $ 2,501,335 Total trust and annuity liabilities
(annuity payable) 396,910 1,081,775 1,478,685 Total trust and annuity net assets $ 322,078 $ 700,572 $ 1,022,650
June 30, 2006 Temporarily Permanently
Restricted Restricted Total Total trust and annuity assets $ 688,189 $ 859,262 $ 1,547,451 Total trust and annuity liabilities
(annuity payable) 382,540 437,725 820,265 Total trust and annuity net assets $ 305,649 $ 421,537 $ 727,186 NOTE 10 – Pension Plan
The College has a money purchase pension plan covering all employees who work at least 1,000 hours during the plan year. The plan is a defined contribution plan, which requires annual contributions of a percentage of the gross salaries of plan participants. The total contributions, net of forfeitures, to the pension plan for 2007 and 2006 were $420,676 and $316,211,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 11 – Federal Government Matching Grants
The federal government makes grants to the College to be utilized for loans under the Health Professions Student Loan Program, Loans for Disadvantaged Students Program, and the Perkins Student Loan Program. These programs are administered by the College and were established to enable the College to make long-term, low-interest loans to qualified students. The monies for these three programs were advanced at 75% - 90% by the federal government and 10% - 25% by the unrestricted net assets of the College. The 10% - 25% required match is considered a
transfer from unrestricted net assets to permanently restricted net assets. NOTE 12 – Donated Services
The College regularly receives donated services from adjunct faculty working at the numerous clinical outreach facilities involved in the College’s outreach program. These faculty members either donate their time directly to the College or are paid by another entity. The College would pay for these services in the normal course of business if they were not donated, and the
performance of both compensated and uncompensated faculty members is regularly and similarly evaluated by the College.
The amounts recognized as revenue and expense for the services contributed for the years ended June 30, 2007 and 2006 were $5,337,382 and $4,800,000, respectively. These amounts
represent 40% and 39% of the faculty salaries for the years ended June 30, 2007 and 2006, respectively.
NOTE 13 – Commitments and Contingencies General
Certain College programs are funded in whole or in part by grants from, or contracts with, governmental agencies. Expenditure of these funds is subject to audit by the granting and contracting agencies. The College administration believes that no material adjustment to its financial statements would result from audits of these grants or contracts.
SOUTHERN CALIFORNIA COLLEGE OF OPTOMETRY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007 AND 2006
18
NOTE 13 – Commitments and Contingencies (Continued) Leasing Activities as Lessor
SCCO College Properties, Inc.’s investment income is primarily rental income from a ground lease where the lessee constructed an apartment complex. The lease term is for 55 years and provides for annual base rent of approximately $607,000 through the year 2043. The lease includes an annual increase based upon the Consumer Price Index (CPI), plus contingent rent of 2-1/2% of gross rental income from the complex. The adjusted base rent for the years ended June 30, 2007 and 2006 was approximately $785,000 and $728,000, respectively. Contingent rental income amounted to approximately $131,702 and $120,502 for the years ended June 30, 2007 and 2006, respectively.
The College entered into a lease agreement with Laser Eye Care of California (TLC). TLC leases approximately 4,168 square feet at the Fullerton facility at a rate of $1.75 per square foot for a period of 60 months beginning December 1, 2005, including provisions for future rent increases, and must pay a portion of common operating costs. During the current fiscal year, the agreement was amended to reduce the rental space from 4,762 square feet to the current 4,168 square feet. TLC rental income, included in auxiliary income, was $90,271 and $58,335 for the years ended June 30, 2007 and 2006, respectively. The College or TLC can terminate the lease anytime after December 1, 2007 with a six-month notice.
The following is a schedule of future minimum rental receipts required under noncancelable rental agreements over one year, excluding future CPI adjustments, as of June 30, 2007: Year Ending
June 30,
2008 $ 785,000
2009 785,000
2010 785,000
2011 785,000
2012 785,000
Thereafter 24,335,000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2007 AND 2006
NOTE 13 – Commitments and Contingencies (Continued) Operating Lease
The College has entered into various lease agreements for certain facilities, office, and optometry equipment. The terms of the leases range from one to three years. The following is a schedule of future minimum rental payments required under the operating leases as of June 30, 2007: Year Ending
June 30,
2008 $ 99,432
2009 47,712
2010 39,760
$ 186,904
Equipment and facility rental expense for the years ended June 30, 2007 and 2006 is $126,513 and $91,867, respectively.
Employment Contract
The College has an employment contract with its president to serve as president through December 31, 2007 and as its president emeritus through April 30, 2009. The agreement provides for base compensation, healthcare benefits, reasonable travel, and auto
reimbursements.
NOTE 14 – Related-Party Transactions
The president of the College has leased his residence from the College on a month-to-month basis for $2,000 per month.
The president of the College also has a Charitable Remainder Unitrust Agreement with the College for $150,000. The asset and liability as of June 30, 2007 is $257,791 and $171,230, respectively.
NOTE 15 – Supplemental Schedule of Noncash Investing and Financing Activities Included in accounts payable as of June 30, 2007 and 2006 is $36,217 and $65,659, respectively, of property and equipment.
