Financial Statements, Schedule of Expenditures of Federal Awards, and Report of Independent Certified Public Accountants

Transcription

1 Financial Statements, Schedule of Expenditures of Federal Awards, and Report of Independent Certified Public Accountants June 30, 2017

2 Contents Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 FINANCIAL STATEMENTS: STATEMENT OF FINANCIAL POSITION 6 STATEMENT OF ACTIVITIES 7 STATEMENT OF CASH FLOWS 8 10 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS REQUIRED BY GOVERNMENT AUDITING STANDARDS 31 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 33 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 36 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 38 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 39 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 40

3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Grant Thornton LLP 211 N Robinson, Suite 1200 Oklahoma City, OK Board of Directors T F Report on the financial statements We have audited the accompanying financial statements of (a nonprofit organization) (the Foundation ), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Foundation 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 Foundation 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 3

4 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 as of June 30, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other matters Supplementary information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, on pages 36 and 37 is presented for purposes of additional analysis and are not a required part of the financial statements. The consolidating information by unrestricted fund (Operating and Plant) for the year ended June 30, 2017, is presented for purposes of additional analysis, rather than to present the result of operations of the individual funds, 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. Report on 2016 summarized comparative information We have previously audited the Foundation s 2016 financial statements (not presented herein), and we expressed an unmodified audit opinion on those audited financial statements in our report dated December 19, In our opinion, the accompanying summarized comparative information as of and for the year ended June 30, 2016 is consistent, in all material respects, with the audited financial statements from which it has been derived. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 4

5 Other reporting required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report, dated November 22, 2017, on our consideration of the Foundation 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 effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Foundation s internal control over financial reporting and compliance. Oklahoma City, Oklahoma November 22, 2017 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 5

6 STATEMENT OF FINANCIAL POSITION June 30, 2017 (with comparative totals for 2016) ASSETS: Cash and cash equivalents $ 9,532,759 $ 11,557,838 Receivables - net 15,177,734 13,063,081 Prepaid expenses and other assets 4,072,342 2,733,298 Assets restricted for investment in plant and equipment 6,512,642 15,577,101 Investments 119,058, ,765,305 Plant and equipment - net 104,152, ,749,101 Total assets administered by the Foundation 258,506, ,445,724 Funds held in trust by others 131,697, ,881,870 $ 390,204,230 $ 379,327,594 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable and accrued expenses $ 5,061,948 $ 4,878,065 Accrued vacation and sick pay 2,395,122 2,262,249 Split interest agreements and other liabilities 1,249, ,280 Postretirement benefits and deferred compensation 6,053,829 5,191,529 Accrued interest payable 478,295 1,239,803 Bonds payable 40,355,000 48,960,000 Less unamortized bond discount - (176,904) Bonds payable - net 40,355,000 48,783,096 Total liabilities 55,594,045 63,023,022 NET ASSETS: Unrestricted net assets 106,534, ,600,945 Temporarily restricted net assets 40,977,643 32,525,207 Permanently restricted net assets 187,097, ,178,420 Total net assets 334,610, ,304,572 $ 390,204,230 $ 379,327,594 The accompanying notes are an integral part of these statements. 6

7 STATEMENT OF ACTIVITIES June 30, 2017 (with comparative totals for 2016) Unrestricted Total Temporarily Permanently 2016 Operating Plant Unrestricted Restricted Restricted Total Total REVENUE: Competitive research grants: National Institutes of Health $ 28,911,625 $ - $ 28,911,625 $ - $ - $ 28,911,625 $ 26,385,990 Other 9,504,511-9,504, ,504,511 10,241,592 Total grants 38,416,136-38,416, ,416,136 36,627,582 Private contributions: Income and gifts from trusts 7,538,361-7,538,361 3,933,751-11,472,112 11,268,332 Gifts and bequests 1,789,311-1,789,311 2,960,152 15,413 4,764,876 4,475,743 Contributions 2,131,621-2,131, ,613 55,660 3,030,894 2,476,151 Memorials 689, ,736 17, , ,958 Total private contributions 12,149,029-12,149,029 7,755,462 71,322 19,975,813 18,821,184 Special event revenue: Ticket sales and sponsorships 584, , ,996 - Less: direct costs of event (130,915) - (130,915) - - (130,915) - Net revenues from special events 454, , ,081 - Other revenue: Clinical revenue, net of provisions for contractual and other adjustments of $18,602,536 and $16,110,615 for 2017 and 2016, respectively 9,992,552-9,992, ,992,552 9,728,825 Interest, dividends and net realized gains on investments designated for operations 837, ,182 3,391,737-4,228,919 3,917,395 Mineral income 1,538,463-1,538,463-32,423 1,570,886 1,352,070 Rent 382, , , ,084 Royalties and licensing income 1,277,966-1,277, ,277, ,033 Gain (loss) on disposal of assets 289, , , ,412 (88,120) (Loss) from uncollected receivables (213,119) - (213,119) (1,170,697) Other 2,238,155-2,238, ,238,155 1,802,292 Total other revenue 16,556, ,471 16,738,120 3,178,618 32,423 19,949,161 16,923,882 Total revenue 67,575, ,471 67,757,366 10,934, ,745 78,795,191 72,372,648 Net assets released from restrictions 6,263,206 3,356,347 9,619,553 (9,619,553) Total operating revenue 73,839,101 3,537,818 77,376,919 1,314, ,745 78,795,191 72,372,648 EXPENSES: Program services - Research 48,147,998 7,171,335 55,319, ,319,333 53,970,197 Program services - Clinic operations 13,139, ,089 13,441, ,441,326 12,658,773 Supporting services - General and Administrative 5,058,758 1,293,920 6,352, ,352,678 6,514,253 Total expenses 66,345,993 8,767,344 75,113, ,113,337 73,143,223 Change in net assets from operations 7,493,108 (5,229,526) 2,263,582 1,314, ,745 3,681,854 (770,575) Other gains, transfers and nonrecurring items: Increase (decrease) in fair value of funds held in trust by others ,815,601 8,815,601 (8,771,692) Net investment gains (losses) in excess of (losses) designated for operations 2,317,377-2,317,377 7,137,909-9,455,286 (5,311,983) Early extinguishment of debt for defeased bond (Note F) - (3,880,051) (3,880,051) - - (3,880,051) - Transfer to plant (2,651,407) 2,651, Pension related changes other than net periodic pension cost 232, , ,923 (536,397) Net increase (decrease) in net assets for the year $ 7,392,001 $ (6,458,170) 933,831 8,452,436 8,919,346 18,305,613 (15,390,647) NET ASSETS Beginning of year 105,600,945 32,525, ,178, ,304, ,695,219 NET ASSETS End of year $ 106,534,776 $ 40,977,643 $ 187,097,766 $ 334,610,185 $ 316,304,572 The accompanying notes are an integral part of these statements. 7

8 STATEMENT OF CASH FLOWS June 30, 2017 (with comparative totals for 2016) CASH FLOWS FROM OPERATING ACTIVITIES: Increase (decrease) in net assets $ 18,305,613 $ (15,390,647) Adjustments to reconcile change in net assets to cash provided by (used in) operating activities: Depreciation 7,749,116 7,926,109 Amortization of debt issuance costs 176,904 9,827 Loss on early extinguishment of debt for defeased bond (Note F) 3,880,051 - Write-off of discount on bonds payable (176,904) - Change in value of split interest agreements (34,938) (26,119) Loss on sale of assets held for sale 215,240 - Loss on disposal of plant and equipment 336,491 83,256 Loss (gain) from uncollectible receivables 2,565,279 (406,780) (Gain) loss on investments (915) 1,312 Contributed non-cash assets (418,792) (481,919) Contributions received for long-term investment, reserved for future periods and investment in plant and equipment (4,540,403) (4,202,484) Net realized and unrealized (gain) loss on investments (12,182,410) 2,931,386 (Increase) decrease in fair value of funds held in trust by others (8,815,601) 8,771,692 Changes in operating assets and liabilities: (Increase) decrease in receivables (4,681,562) 1,565,826 (Increase) decrease in prepaid expenses and other assets (477,364) 118,911 Increase in accounts payable and accrued expenses 183,883 1,907,069 Increase (decrease) in accrued vacation and sick pay 132,873 (80,817) Increase in other liabilities 616, ,563 Increase in postretirement benefits and deferred compensation 862,300 1,174,551 Decrease in accrued interest payable (761,508) (26,516) Net cash provided by operating activities 2,933,862 4,248,220 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities/sales of investments 34,314,688 54,378,334 Purchases of investments (36,233,471) (54,153,575) Purchase of life insurance investment (849,211) (491,872) Proceeds from life insurance investment - 151,171 Purchases of plant and equipment (3,507,749) (2,102,840) Proceeds from sales of plant and equipment 18, ,531 Decrease (increase) in assets restricted for investment in plant and equipment 9,064,459 (162,765) Net cash provided by (used in) investing activities 2,807,173 (2,134,016) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on bonds payable (8,605,000) (1,110,000) Refinancing costs paid (3,703,147) - Contributions received reserved for future periods 4,469,081 4,012,404 Contributions received for purchase of endowed investments 71, ,080 Payments received on miscellaneous notes 1, ,323 Net cash (used in) provided by financing activities (7,766,114) 3,192,807 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (2,025,079) $ 5,307,011 CASH AND CASH EQUIVALENTS - Beginning of year 11,557,838 6,250,827 CASH AND CASH EQUIVALENTS - End of year $ 9,532,759 $ 11,557,838 The accompanying notes are an integral part of these statements. 8

9 STATEMENT OF CASH FLOWS - CONTINUED June 30, 2017 (with comparative totals for 2016) SUPPLEMENTAL CASH FLOW INFORMATION: Contributions of assets held for sale $ 227,709 $ 161,176 Contributions of plant and equipment $ - $ 24,000 Contributions of investments $ 191,083 $ 296,743 Interest paid $ 1,779,736 $ 2,547,331 The accompanying notes are an integral part of these statements. 9

10 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - (the Foundation ) is incorporated under the laws of the State of Oklahoma as a nonprofit organization without capital stock, to promote scientific research and education in medicine. Recognition of Donor Restrictions - Contributions are reported as increases in the appropriate category of net assets. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or by law, except for changes in fair value for assets held in trust, which are recorded as changes in permanently restricted net assets. Expirations of temporary restrictions recognized on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restrictions. Temporary restrictions on gifts to acquire long-lived assets are considered met in the period in which the assets are acquired or placed in service. Restricted contributions received and whose restrictions are met in the same year are classified as unrestricted revenue in the statement of activities. Revenue Recognition - Grant revenue is recognized when the related costs are expended in accordance with the terms of the grant and eligibility requirements have been met. The Foundation considers receivables relating to research grants and contracts to be fully collectible; accordingly, no allowance is required. Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of gift, except that contributions of works of art, historical treasures and similar assets held as part of collections are not recognized or capitalized. Contributions to be received after one year are discounted at a rate commensurate with the risk involved. Amortization of the discount is recorded as additional contribution revenue and used in accordance with donor-imposed restrictions, if any, on the contributions. Allowance is made for uncollectible contributions based upon management s judgment and analysis of the creditworthiness of the donors, past collection experience, and other relevant factors. The Foundation 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 longlived assets are reported as restricted support. Absent explicit donor stipulations about how long those longlived assets must be maintained, the Foundation reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. For clinical revenue, the Foundation has entered into payment agreements with certain commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment under these agreements includes prospectively determined rates and discounts from established charges. 10

11 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Net Assets - The Foundation s net assets are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Foundation are classified and reported as follows: Permanently restricted - Net assets subject to donor-imposed stipulations that they be maintained permanently by the Foundation. The donors of these assets permit the Foundation to use all or part of the income earned on related investments for general or specific purposes. Temporarily restricted - Net assets subject to donor-imposed stipulations that can be met either by actions of the Foundation and/or the passage of time. Unrestricted - Net assets for which the donor has not imposed a restriction that the assets be used for a specific purpose or held for a certain period of time. 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 judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues, gains, other support and expenses recognized during the reporting period. Actual results could differ from those estimates. Unrestricted Operating and Plant Columns - The amounts in the Plant column represent depreciation, interest expense, revenues designated to purchase plant and equipment, and losses on disposals of plant and equipment. The Operating column includes all other unrestricted revenues and expenses and other changes in unrestricted net assets. Measure of Operations - The change in net assets from operations reflected in the accompanying statement of activities includes substantially all of the activities related to changes in net assets. Amounts not included in this measure of operations consist of net investment gains in excess of losses designated for operations, gains or losses on funds held in trust by others and unusual or nonrecurring items. Taxes - The Foundation is a public foundation exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code except for amounts relating to unrelated business income. There were no unrelated business income taxes incurred in 2017, and accordingly, no provision for income taxes has been made in these financial statements. Management has reviewed the Foundation s tax positions and concluded that there are no uncertain tax positions that require accrual in the financial statements or disclosure in the footnotes to be in compliance with authoritative literature. Generally, the Foundation is no longer subject to income tax examination by federal, state or local tax authorities for years prior to Cash Equivalents - The Foundation maintains its cash and cash equivalents in bank deposit accounts, money market funds and short-term certificates of deposit, some of which may not be federally insured. Bank deposit balances are transferred daily into interest-bearing accounts secured by short-term, high quality fixed income securities issued by banks, corporations and the U.S. Government. The Foundation has not experienced any losses in cash equivalents and believes it is not exposed to significant credit risk on cash equivalents. 11

12 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Management considers highly liquid debt instruments readily convertible into cash to be cash equivalents other than cash equivalents held as part of its investment portfolio and cash equivalents held as a part of assets restricted for investment in plant and equipment. Investments - Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value in the statement of financial position with gains and losses included in the statement of activities. The fair values of these investments are generally determined based on quoted market prices or estimates of fair value provided by external investment managers. Certain bond funds are carried at the net asset value (NAV) of the fund as determined as of the end of each month by the Trustee. Admissions to and withdrawals from the fund are based on the net asset value per unit determined at the end of each month. The amounts the Foundation will ultimately realize could differ materially from the reported amounts, and significant fluctuations in fair values could occur from year to year. Investments for which there are no readily determinable fair values are reported at cost. Investments received in connection with technology transfer agreements are not valued until such time as there is a readily determinable fair value for such investments. Plant and Equipment - Plant and equipment are recorded at cost or fair value at date of donation. Depreciation is based on the estimated useful lives, ranging from 3 to 40 years, using the straight-line method. Plant and equipment with a cost of less than $5,000 is expensed when purchased. Costs incurred during construction of long-lived assets are recognized as construction in progress and are not depreciated until placed in service. Net interest costs incurred in the construction of plant and equipment are capitalized. In 2017 and 2016, total interest incurred was $1,018,228 and $2,530,642, respectively. No interest was capitalized in 2017 or Long-Lived Assets - Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held or used are recognized based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Split Interest Agreements - The Foundation s split interest agreements with donors consist primarily of charitable gift annuities. Assets received under these agreements are recorded at fair value on the gift date. During the term of these agreements, changes in the value of the split interest agreements are recognized in the statement of activities. Contribution revenues are recognized at the date the annuities are established after recording liabilities for the present value of the estimated future payments to be made to the donors and/or other beneficiaries. Present values are calculated using a risk-free discount rate, determined at the time the annuities are established and actuarial tables and guidelines used for calculating the available deduction for income tax purposes. The liabilities are adjusted for accretion of the discount and other changes in the estimates of future benefits. Funds Held in Trust by Others - Funds held in trust by others represent amounts held under irrevocable perpetual trust agreements between donors and third-party trustees. The Foundation s interests in the trusts are recorded at their proportionate share of the fair value of the net asset value of the trusts. The net increase or decrease in the fair value of funds held in trust by others is reported as a change in permanently restricted net assets. The amounts the Foundation will ultimately realize could differ materially from these recorded amounts, and significant fluctuations in fair values could occur from year to year. 12

13 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Assets Restricted for Investment in Plant and Equipment Assets restricted for investment in plant and equipment consist of cash and cash equivalents which are primarily restricted by donors or the board of directors for plant and equipment. Supporting Services - Supporting services represent general and administrative expenses that are not allocable to the various Foundation departments as an element of research activities. Of the total, $1,995,352 and $1,993,044, represents development or fundraising costs in 2017 and 2016, respectively. Prior Year Information - The financial statements include certain prior year summarized comparative totals. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Foundation s financial statements for the year ended June 30, 2016, from which the summarized totals were derived. NOTE B - RECEIVABLES Receivables are comprised of the following at June 30: Pledges - net of discount for 2017 and 2016, of $373,815 and $398,359, respectively and an allowance of $2,026,852 and $1,825,734 for 2017 and 2016, respectively $ 1,198,213 $ 3,602,446 Wills and bequests - net of discount for 2017 and 2016 of $816,749 and $914,504, respectively 4,661,889 2,773,122 Recoverable expenditures under research grants and contracts 4,401,110 3,812,548 Clinic operations net of contractual adjustments and allowance of $3,352,891 and $1,087,101 for 2017 and 2016, respectively 2,892,615 1,884,800 Other 1,644, ,560 Notes - net of allowance for 2017 and 2016 of $45,225 and $46,855, respectively 292, ,000 Accrued interest 87, ,605 $ 15,177,734 $ 13,063,081 13

14 NOTE B - RECEIVABLES - CONTINUED The pledges receivable at June 30, 2017, are recoverable as follows: Less than One Year One to - Five Years More than Five Years Total Pledges receivable $ 1,205,929 $ 2,082,951 $ 310,000 $ 3,598,880 Less unamortized discount - (282,353) (91,462) (373,815) Less allowance (370,682) (1,656,170) - (2,026,852) Net pledges receivable $ 835,247 $ 144,428 $ 218,538 $ 1,198,213 Wills and bequests at June 30, 2017, are estimated to be recoverable as follows: Less than One Year One to - Five Years More than Five Years Total Wills and bequests $ 3,077,153 $ 1,452,485 $ 949,000 $ 5,478,638 Less unamortized discount (18,473) (193,417) (604,859) (816,749) Net wills and bequests receivable $ 3,058,680 $ 1,259,068 $ 344,141 $ 4,661,889 Recoverable expenditures under research grants and contracts are as follows at June 30: Balance of grants and contracts awarded but not collected $ 23,317,092 $ 18,415,320 Less portion not yet expended (18,915,982) (14,602,772) Recoverable expenditures under research grants and contracts $ 4,401,110 $ 3,812,548 NOTE C - INVESTMENTS The fair values of investments, classified by investment type, are as follows at June 30: Equity investments $ 62,639,146 $ 56,518,688 Equity investments - other 1,782,914 1,743,591 U.S. government obligations 9,109,632 8,060,046 Bond funds 19,216,902 13,808,474 Corporate bonds 1,210,295 1,360,321 Common collective trusts 9,447,440 - Debt securities 1,122,000 1,122,000 Private equity funds 4,903,398 12,818,377 Real estate fund 3,262,677 3,310,447 Hedge funds 1,548,699 1,348,635 Cash equivalents 4,815,393 4,674,726 $ 119,058,496 $ 104,765,305 14

15 NOTE D - FUNDS HELD IN TRUST BY OTHERS The fair values of funds held in trust by others for the Foundation s benefit consist of the following at June 30: J.A. and Leta M. Chapman Charitable Trust $ 101,312,294 $ 94,480,466 J.A. and Leta M. Chapman 1949 Trust 27,246,726 25,539,282 McElmurry Trust 1,459,735 1,285,555 Clyde Evans Trust 1,165,052 1,091,293 Various trusts at Oklahoma City Community Foundation 390, ,186 Other trusts 123, ,088 $ 131,697,471 $ 122,881,870 These resources are neither in the possession of nor under the control of the Foundation. The trusts are classified as permanently restricted. The trusts are held and administered by external fiscal trust agents, with the income distributed to the Foundation according to the terms of the gift instruments. Total income and gifts from these trusts totaled $11,472,112 and $11,268,332 in 2017 and 2016, respectively. The increase (decrease) in fair value of the trust net assets during 2017 and 2016 was $8,815,601 and ($8,771,692), respectively. The Foundation participates in endowment funds through the Oklahoma City Community Foundation (OCCF). OCCF is a not-for-profit entity that provides for endowed contributions to be pooled to maximize return on investments for the benefit of area not-for-profit organizations. Contributions into the endowment funds are permitted by the not-for-profit entities, as well as individual donors in the community who designate the beneficiary of their contributions. Earnings on these endowed funds are paid annually to the beneficiary organization for unrestricted use. The endowed funds contributed by the Foundation and the earnings thereon, net of distributions received, are noted above for June 30, 2017 and 2016, respectively. The endowed funds contributed by third-party donors held by OCCF designated for the benefit of the Foundation were approximately $630,000 and $600,000 at June 30, 2017 and 2016, respectively, and are not reflected in the Foundation s statements of financial position. NOTE E - PLANT AND EQUIPMENT Investment in plant and equipment is comprised of the following at June 30: Land and improvements $ 3,944,520 $ 3,944,520 Buildings and improvements 180,638, ,316,326 Research and other equipment 43,240,450 41,634,366 Construction in progress 184,067 25, ,007, ,920,808 Less accumulated depreciation (123,855,046) (117,171,707) Investment in plant and equipment, net $ 104,152,786 $ 108,749,101 15

16 NOTE F - BONDS PAYABLE In July 2016, the Foundation entered into advanced refinancing of the Series 2008 bonds. The Foundation issued $43,955,000 of OIA Series 2008 Revenue Bonds (the Series 2008 Bonds ) dated July 1, 2008; the proceeds from this bond were used to construct and equip a new research facility. The Series 2008 Bonds were defeased when the Foundation issued $29,535,000 of OIA Series 2016 Revenue Bonds (the Series 2016 Bonds ) dated July 13, The Series 2016 Bonds mature on July 1, 2026 and bear interest at the stated rate of 1.81% per annum. Payments of principal and interest began January 1, 2017 and are due January 1 st and July 1 st of each year. The Series 2016 Bond agreements also require maintenance of a reserve fund which is included in investments in the accompanying statement of financial position. This amount was $2,953,500 as of June 30, In May 2010, the Foundation issued $12,185,000 of Oklahoma Industrial Authorities ( OIA ) Series 2010 Revenue Bonds (the Series 2010 Bonds ) dated May 1, The proceeds from the Series 2010 Bonds were used to retire the OIA 2001 Series Bonds on February 1, The Series 2010 Bonds mature February 1, 2021 and bear interest at the stated rate of 4.375% per annum. Interest payments began July 1, 2010 and are due on August 1 st and February 1 st of each year through 2021, at which time the principal will be due in its entirety. The Series 2010 bonds were issued with no premium or discount. The Series 2010 Bond agreements also require maintenance of a reserve fund which is included in investments in the accompanying statement of financial position. This amount was approximately $1,218,300 as of June 30, 2017 and The bond agreements contain various restrictive covenants for the Foundation, including a requirement to maintain specified levels of liquidity and a requirement to maintain its 501(c)(3) tax status. The Foundation was in compliance with the covenants during fiscal 2017 and as of June 30, Maturities of bonds payable are as follows at June 30, 2017: 2018 $ 2,750, ,795, ,845, ,080, ,950, and thereafter 13,935,000 NOTE G - EMPLOYEE BENEFIT PROGRAMS $ 40,355,000 The Foundation provides a defined contribution pension plan for all eligible employees. All eligible employees participate on the same basis, and the Foundation contributes amounts equal to 8.0% of the individual s salary up to the Social Security wage base and 13.7% of the amounts in excess of the wage base. Employees become fully vested after five years of service. Total contributions to the plan for the years ended June 30, 2017 and 2016 were $2,054,607 and $2,136,352, respectively. 16

17 NOTE G - EMPLOYEE BENEFIT PROGRAMS - CONTINUED The Foundation provides health care benefits to retired employees on a basis substantially similar to those provided to active employees. The plan is currently unfunded. The following table sets forth the health care plan s status at June 30: Accumulated postretirement benefit obligation: Retirees $ 17,406 $ 106,372 Fully eligible active plan participants 442, ,959 Other active plan participants 3,205,164 2,955,652 $ 3,665,221 $ 3,503,983 The change in accrued postretirement benefit cost for the years ended June 30, is as follows: Liability for postretirement benefits - beginning of year $ 3,503,983 $ 2,697,362 Service cost 330, ,336 Interest cost 121, ,201 Actuarial (gain)/loss (275,865) 452,268 Benefits paid (14,126) (23,184) Liability for postretirement benefits - end of year $ 3,665,221 $ 3,503,983 Components of net periodic postretirement benefit cost for the years ended June 30, is as follows: Service cost $ 330,203 $ 265,336 Interest cost 121, ,201 Net gain amortization (42,942) (84,129) $ 408,287 $ 293,408 The change in net gain that has not been recognized in net periodic postretirement benefit cost is as follows for the years ended June 30: Unrecognized net gain beginning of year $ 979,325 $ 1,515,722 Net gain amortized to net periodic postretirement benefit cost (42,942) (84,129) Net actuarial gain/(loss) occurring during the year 275,865 (452,268) Unrecognized net gain end of year $ 1,212,248 $ 979,325 17

18 NOTE G - EMPLOYEE BENEFIT PROGRAMS - CONTINUED The change in unrecognized gain (loss) of $232,923 and ($536,397) for 2017 and 2016 has been recognized in the 2017 and 2016 statement of activities apart from expenses. The estimated net gain for the plan that will be amortized from changes in unrestricted net assets into net periodic benefit cost over the next fiscal year is $57,765. The following assumptions were used in accounting for the plan as of June 30, 2017: Weighted-average assumption used to determine benefit obligation Discount rate 3.75% Rate of compensation increase N/A Assumed health care cost trend rates Health care cost trend rate assumed for next year 7.50% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.00% Year that the rate reaches the ultimate trend rate 2022 Following are the estimated effects of a 1% change in health care cost trend rates at June 30: % increase Service cost $ 386,383 $ 314,200 Interest cost 136, ,145 Total $ 522,930 $ 440,345 Accumulated postretirement benefit obligation $ 4,147,305 $ 3,947,437 1% decrease Service cost $ 283,640 $ 225,124 Interest cost 107, ,247 Total $ 391,496 $ 325,371 Accumulated postretirement benefit obligation $ 3,256,467 $ 3,127,689 18

19 NOTE G - EMPLOYEE BENEFIT PROGRAMS CONTINUED The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows: 2018 $ 136, , , , , ,711,673 $ 2,576,681 The Foundation expects to contribute $136,139 to the plan for the next fiscal year. NOTE H - NET ASSETS Net assets are designated for specific purposes or uses as follows at June 30, 2017: Unrestricted net assets consist of the following: Board designated $ 6,634,221 Any activities of the foundation 26,868,938 Investment in plant 68,599,685 Research programs 4,431,932 Total 106,534,776 Temporarily restricted net assets are available for the following purposes or periods: Specific use pending donor designation for periods after June 30, ,246,183 Research programs 6,731,460 Total 40,977,643 Earnings from permanently restricted net assets are available for the following: Restricted for research programs 45,351,070 Investment in plant, net 6,012,071 Unrestricted use 135,734,625 Total 187,097,766 Total net assets at June 30, 2017 $ 334,610,185 19

20 NOTE I - COMMITMENTS AND CONTINGENCIES The Foundation has entered into various deferred compensation arrangements. The total liability related to these agreements was $2,388,608 and $1,687,546 at June 30, 2017 and 2016, respectively. The total asset related to these accounts was $2,817,455 and $1,721,483 at June 30, 2017 and 2016, respectively, is included in prepaid expenses and other assets in the Statement of Financial Position. As of June 30, 2017, no commitments remain under construction contracts; however, there is construction scheduled to be completed during the 2018 fiscal year. In June 2015, the Foundation entered into an operating lease for equipment with payments of $20,779 plus $6,061 for service due monthly commencing November 1, 2015 and ending October 1, Rent payments for fiscal year 2017 totaled $322,076. The following is a schedule of future minimum rental payments required under the operating lease that has a remaining lease term in excess of one year as of June 30, 2017: 2018 $ 322, ,518 Total minimum lease payments $ 402,594 The Foundation is a party to a $4 million line of credit agreement with outstanding amounts bearing interest at the 90-day LIBOR rate and maturing in May The line of credit is available for general corporate purposes. The lender has the right to offset outstanding balances against funds held in operating accounts with the lender. The line of credit was not used during the year. In June 2016, the Foundation received a ten-year funding commitment of $250,000 per year from the Presbyterian Health Foundation. The funds will be used to provide scholarships and stipends to Ph.D./MD students. As in prior funding commitments from Presbyterian Health Foundation, if the $250,000 annual funding provided under this commitment is not used in a given year, the unused portion will be available for carry forward to future years. Since the commitment is only funded by the Presbyterian Health Foundation on an as used basis for allowable expenditures, the Foundation records the revenue relating to this commitment when the scholarships and stipends are paid. In 2017, $98,471 in scholarships and stipends were paid and an equivalent amount of grant revenue was recorded. At June 30, 2017, the remaining funds available under this commitment, which will be recorded as revenue when expended, is $2,401,529. During 2004, the Department of Health and Human Services ( DHHS ) awarded a grant to the Foundation that provided funds for the renovation of a portion of one of the Foundation s research buildings. The grant included a clause that restricts the Foundation from mortgaging or selling the property without the prior written consent of the granting agency. The Foundation receives a significant portion of its public support from agencies of the U.S. Government. If the government effects significant budget cuts in the future, this source of funding could decrease. If this were to occur, it is management s opinion that the Foundation could continue most of its research activities on a more limited basis through other sources of funding. 20

21 NOTE I - COMMITMENTS AND CONTINGENCIES - CONTINUED In the normal course of operations, the Foundation receives grants and other forms of reimbursement from various government agencies. These activities are subject to audit by agents of the funding authority, the purpose of which is to ensure compliance with conditions precedent to providing such funds. Management believes that the liability, if any, for any reimbursement which may arise as the result of audits, would not be material to the financial statements. From time to time, the Foundation may be involved in certain lawsuits arising in the ordinary course of business. While the outcome of these lawsuits cannot be predicted with certainty, the Foundation does not expect these matters to have a material adverse effect on the Foundation s financial condition, liquidity or operations. The Foundation, whenever feasible, makes an effort, through licensing, royalty, stock ownership and other arrangements to position itself to share an interest in the commercial rewards attributable to its research programs. In certain situations, the Foundation may not attribute value to such arrangements based upon management s best estimates. As a result, at any point in time, the Foundation may hold revenue and ownership rights that are not reflected in its financial statements. In September 2007, the Foundation entered into a funding agreement with the State of Oklahoma. The State provided $15,000,000 as seed money for the construction of a new research facility for the Foundation. In September 2010, an addendum to funding agreement was signed by the Foundation and the State of Oklahoma, and in exchange for the funding, the Foundation agreed to create at least 150 new jobs by August The Foundation also agreed to issue a lien on the building that requires the Foundation to repay the State if the facility is sold. The Foundation believes that it will fulfill the obligations under the agreement within the timeframe specified. The Foundation holds a variety of investments, the underlying securities of which are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in the value of investment securities would occur in the near term and that such changes, could materially affect the amounts reported in the financial statements. NOTE J - SPECIAL EVENT During fiscal year 2016, the Foundation changed the fundraising event to be held after the fiscal year end. This event was held in October 2016 for the prior year, and September 2017 for the current year. Revenue pledged or received prior to June 30 for each event totaled $479,615 and $391,700, for 2017 and 2016, and was included in deferred revenue on the statement of financial position at June 30, 2017 and 2016, respectively. Expenses incurred prior to June 30 for each event were $881 and $46,320, for 2017 and 2016, and were included in prepaid expenses on the statement of financial position at June 30, 2017 and 2016, respectively. 21

22 NOTE K - EXPENSES Expenses were incurred for the years ended June 30, 2017 and 2016, as follows: Year ended 2017 Foundation Departments Program Services Clinic Operations Total Supporting Services General and Administrative Total Expenses Personnel $ 17,794,224 $ 2,346,179 $ 20,140,403 $ 7,049,412 $ 27,189,815 Fringe benefits 5,250, ,653 5,961,380 1,458,950 7,420,330 Change in benefit accruals , ,540 Trainee costs 891, , ,748 Professional expenses, awards, 108, , , ,009 other Professional services & dues 570, , ,479 1,789,406 2,480,885 Communications 72,882 13,287 86,169 42, ,294 Office supplies 63,231 17,771 81, , ,475 Laboratory supplies 5,506, ,841 5,799,935-5,799,935 Laboratory animal purchases & care 1,223,211-1,223,211-1,223,211 Computer supplies & services 363,636 10, , , ,829 Food service , ,594 Travel 376,329 49, , , ,562 Publication cost & books 181,824 3, ,421 14, ,649 Printing, postage, & binding 21,046 7,338 28, , ,771 Building & maintenance 101, , , ,302 Equipment repair & maintenance 789,283 4, ,006 29, ,638 Meetings/seminars/sabbatical 172, ,728 29, ,913 In-house expenses 671,108 42, , , ,897 Liability & casualty insurance , ,442 Utilities ,005,311 2,005,311 Subcontracts 6,241,633 8,807,602 15,049,235-15,049,235 Support services allocated 9,203, ,605 9,916,518 (9,916,521) - Less amounts recovered from (1,456,682) (1,266) (1,457,945) (473,444) (1,931,392) other departments Total expense before interest and depreciation 48,147,998 13,139,237 61,287,235 5,058,758 66,345,993 Interest expense 928,248 21, ,664 68,564 1,018,228 Depreciation 6,243, ,673 6,523,760 1,225,356 7,749,116 $ 55,319,333 $ 13,441,326 $ 68,760,659 $ 6,352,678 $ 75,113,337 22

23 NOTE K - EXPENSES CONTINUED Year ended 2016 Foundation Departments Program Services Clinic Operations Total Supporting Services General and Administrative Total Expenses Personnel $ 17,698,602 $ 2,229,107 $ 19,927,709 $ 6,878,037 $ 26,805,746 Fringe benefits 5,146, ,077 5,805,812 1,579,272 7,385,084 Change in benefit accruals , ,206 Trainee costs 1,091,245-1,091,245-1,091,245 Professional expenses, awards, 80,889 2,839 83, , ,840 other Professional services & dues 715, , ,390 1,783,067 2,601,457 Communications 83,327 15,408 98,735 35, ,657 Office supplies 93,085 19, , , ,592 Laboratory supplies 4,380, ,777 4,686,819-4,686,819 Laboratory animal purchases & care 1,293,609-1,293,609-1,293,609 Computer supplies & services 407,392 19, , , ,520 Food service , ,432 Travel 349,875 39, , , ,322 Publication cost & books 205, ,217 16, ,924 Printing, postage, & binding 36,498 7,659 44, , ,475 Building & maintenance 108, , , ,267 Equipment repair & maintenance 882,469 1, ,767 87, ,137 Meetings/seminars/sabbatical 40,972-40,972 8,892 49,864 In-house expenses 1,111,741 31,532 1,143, ,082 1,253,355 Liability & casualty insurance , ,669 Utilities ,098,961 2,098,961 Subcontracts 4,491,372 8,134,376 12,625,748-12,625,748 Support services allocated 9,142, ,977 9,858,076 (9,858,076) - Less amounts recovered from (1,976,927) - (1,976,927) (437,530) (2,414,457) other departments Total expense before interest and depreciation 45,382,322 12,285,979 57,668,301 5,018,171 62,686,472 Interest expense 2,181,138 82,918 2,264, ,586 2,530,642 Depreciation 6,406, ,876 6,696,613 1,229,496 7,926,109 $ 53,970,197 $ 12,658,773 $ 66,628,970 $ 6,514,253 $ 73,143,223 23

24 NOTE L - ENDOWMENTS Generally accepted accounting principles provide guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization and enhanced disclosure information to enable users of financial statements to understand the net asset classification, net asset composition, changes in net asset composition, spending policy, and related investment policy of its endowment funds. The Foundation s endowment consists of individual funds established to provide the Foundation with funding in perpetuity. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Directors ( Board ) to function as endowments. As required by US GAAP, net assets associated with endowment funds, including funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of the Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA), which was enacted by the State of Oklahoma effective November 1, 2007 (OK UPMIFA), as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) 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 donor-restricted 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 by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Foundation 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 Foundation and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the Foundation 7. The investment policies of the Foundation 24