OKLAHOMA STATE UNIVERSITY. June 30, 2011

Transcription

1 OKLAHOMA STATE UNIVERSITY June 30, 2011

2 OKLAHOMA STATE UNIVERSITY June 30, 2011 AUDITED FINANCIAL STATEMENTS Independent Auditors Report... 1 Management s Discussion and Analysis... 3 Statements of Net Assets Statements of Revenues, Expenses and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements Required Supplementary Information Schedule of Funding Progress for Supplemental Retirement Plan and Other Post Employment Benefits Discretely Presented Component Units Oklahoma State University Foundation... Exhibit I Cowboy Athletics, Inc.... Exhibit II OSU-University Multispectral Laboratories, L.L.C.... Exhibit III SUPPLEMENTAL FINANCIAL INFORMATION Independent Auditors Report on Supplemental Financial Information Revenue Bond System Outstanding-Schedule of Revenues, Expenses and Changes in Net Assets Combining Statements of Net Assets by Campus Combining Statements of Revenues, Expenses and Changes in Net Assets by Campus... 63

3 REPORT REQUIRED BY GOVERNMENT AUDITING STANDARDS Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards REPORTS REQUIRED BY OMB CIRCULAR A-133 Independent Auditors Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 and the Schedule of Expenditures of Federal Awards Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings OKLAHOMA STATE UNIVERSITY DETAILED SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS General University... Appendix A Center for Innovation and Economic Development, Inc.... Appendix B Schedule of Agency Acronyms... Appendix C

4 Independent Auditors Report Board of Regents Oklahoma Agricultural and Mechanical Colleges We have audited the accompanying statements of net assets of Oklahoma State University (the University ), a component unit of the State of Oklahoma, as of June 30, 2011 and 2010, and the related statements of revenues, expenses and changes in net assets, and cash flows for the years then ended. These financial statements are the responsibility of the University s management. Our responsibility is to express an opinion on these financial statements based on our audits. We have also audited the financial statements of the separately presented component units, consisting of the Oklahoma State University Foundation ( OSU Foundation ), and OSU University Multispectral Laboratories, L.L.C. ( OSU-UML ) as of and for the years ended June 30, 2011 and 2010; and Cowboy Athletics, Inc. ( CAI ) as of and for the years ended December 31, 2010 and 2009, which collectively comprises the University s basic financial statements. The separately presented component units are referred to as the Component Units. The financial statements of the University referred to above do not include the financial information of the Component Units. Rather, complete sets of financial statements of the Component Units are presented separately. 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 financial statements are free of material misstatement. The financial statements of the OSU Foundation, and CAI were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in all material respects, the respective financial position of the University and the separately presented Component Units as of June 30, 2011 and 2010, and the respective changes in its net assets and, where applicable, cash flows thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. 1

5 In accordance with Government Auditing Standards, we have also issued our report dated October 14, 2011, on our consideration of the University s internal control over financial reporting and 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. Management s Discussion and Analysis and the Schedule of Funding Progress for the Supplemental Retirement Plan and Other Post-Employment Benefits are not a required part of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Oklahoma City, Oklahoma October 14,

6 Oklahoma State University Management s Discussion and Analysis (Unaudited) Overview of Financial Statements and Financial Analysis Oklahoma State University proudly presents its financial statements for fiscal year 2011, with comparative data presented for fiscal year The emphasis of discussions concerning these statements will be for the current year. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and, the Statement of Cash Flows. All dollar amounts in this discussion are presented in thousands of dollars. This discussion and analysis of the University s financial statements provides an overview of its financial activities for the year. Statement of Net Assets The Statement of Net Assets presents the assets (current and non-current), liabilities (current and non-current), and net assets (assets minus liabilities) as of the end of the fiscal year. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of Oklahoma State University. The difference between current and non-current assets is discussed in the footnotes to the financial statements. From the data presented, readers of the Statement of Net Assets are able to determine the assets available to continue the operations of the institution. They are also able to determine how much the institution owes vendors, investors and lending institutions. Finally, the Statement of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the institution. Net assets are divided into three major categories. The first category, invested in capital assets, net of debt, provides the institution s equity in property, plant and equipment owned by the institution. The next category, restricted net assets is divided into two categories, nonexpendable and expendable. The non-expendable restricted resources are only available for investment purposes. Expendable restricted net assets are available for expenditure by the institution, but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted net assets. Unrestricted assets are available to the institution for any lawful purpose of the institution. The following chart is a summary of the Statement of Net Assets over the last five years. All dollar amounts are in thousands. 3

7 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Net Assets (Continued) Statement of Net Assets (Thousands of Dollars) Assets: Current assets $ 224,297 $ 244,406 $ 243,275 $ 287,196 $ 334,453 Capital assets, net of accm. depr. 580, , ,526 1,217,641 1,290,619 Other assets 218, , , , ,876 Total Assets 1,023,079 1,116,250 1,157,339 1,674,945 1,739,948 Liabilities Current Liabilities 64,956 70,266 83,994 92, ,875 Noncurrent Liabilities 333, , , , ,229 Total Liabilities 398, , , , ,104 Net Assets Invested in capital assets, net of debt 425, , , , ,598 Restricted - expendable 59,883 45,816 51,430 37,088 40,083 Restricted - nonexpendable Unrestricted 138, , , , ,540 Total Net Assets $ 624,344 $ 689,033 $ 729,033 $ 942,560 $ 996,844 In fiscal year 2011, total assets of the institution increased by $65,003 or 3.88% over fiscal year A review of the Statement of Net Assets will reveal that there are many offsetting variances, but the increase was primarily due to an increase in cash and cash equivalents of $55,520, an increase in investments of $8,602, an increase in capital assets, net of depreciation of $72,978, and a decrease in accounts receivables of $(75,807). In fiscal year 2010, total assets of the institution increased by $517,606 or 44.72% over fiscal year A review of the Statement of Net Assets will reveal that there are many offsetting variances, but the increase was primarily due to an increase in accounts receivables of $9,737 an increase of accounts receivables from state agencies of $7,767, an increase in investments of $8,655, an increase in cash and cash equivalents of $28,317, and an increase in capital assets, net of depreciation of $463,115. In fiscal year 2011 total liabilities for the year increased by $10,719 or 1.46% over fiscal year The most significant changes were an increase in revenue bonds payable of $138,331, an increase in accounts payable of $7,138, an increase in the ODFA master lease program of $2,710, an increase in the OCIA capital lease obligation of $2,872 and an increase in accrued liabilities of $4,961. These were offset by a decrease in notes payable of $(145,970). The combination of the increase in total assets and the increase in total liabilities nets to an increase in total net assets of $54,284 or 5.76%. All dollar amounts are in thousands. 4

8 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Net Assets (Continued) In fiscal year 2010 total liabilities for the year increased by $304,079 or 71.00% over fiscal year The most significant changes were an increase in notes payable of $142,250, an increase in revenue bonds payable of $96,995, an increase in the ODFA master lease program of $75,277, and an increase in accrued liabilities of $4,177. These were offset by decreases in other bond obligations of $(5,006), and a decrease in payables to state agencies of $(8,382). The combination of the increase in total assets and the increase in total liabilities nets to an increase in total net assets of $213,527 or 29.29%. While the comparisons are important indicators of activity during the year under audit, it is important to look at some of the operating and non-operating categories over time. One of the important measures of an institution s fiscal stability is how operating revenues compare to operating expenses. Public institutions will normally not have an excess of operating revenues over operating expenses because state appropriations and federal and some state student grants are considered non-operating revenues under generally accepted accounting principles in the United States of America. Statement of Revenues, Expenses, and Changes in Net Assets-(SRECNA) The following table summarizes the revenues, expenses, and changes in net assets for Oklahoma State University over the last five years: Statements of Revenues, Expenses, and Changes in Net Assets (Thousands of Dollars) Operating revenues $ 513,751 $ 514,351 $ 556,246 $ 600,665 $ 619,686 Operating expenses 768, , , , ,916 Operating loss (255,171) (311,091) (334,107) (301,473) (317,230) Nonoperating revenues(expenses) 269, , , , ,988 Income (loss) before other revenues, expenses, gains and losses 14,262 11,715 (10,170) 22,163 15,758 Other revenues, expenses, gains and losses 72,721 52,974 50, ,364 38,526 Net increase in net assets $ 86,983 $ 64,689 $ 40,000 $ 213,527 $ 54,284 Operating revenues of $619,686 in 2011 increased $19,021 or 3.17% when compared to the 2010 prior year. The increases came primarily from increases in tuition and fees of $11,417, increases in grants and contracts and federal appropriations of $10,139, and increases in auxiliary enterprises of $3,301. There were also decreases in other operating revenues of $(5,836). Operating revenues of $600,665 in 2010 increased $44,419 or 7.99% when compared to the 2009 prior year. The increases came primarily from increases in tuition and fees of $6,520, increases in federal grants and contracts and federal appropriations of $10,697, increases in sales and services of educational units of $5,362 and auxiliary units of $39,309. All dollar amounts are in thousands. 5

9 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Revenues, Expenses, and Changes in Net Assets-(SRECNA) (Continued) There were also decreases in state and local grants and contracts of $(7,165) and nongovernmental grants and contracts of $(10,304). The following table summarizes the operating revenues of Oklahoma State University for the last five years: Operating Revenues (Thousands of Dollars) Tuition/Fees, net of scholarship allow. $ 144,556 $ 162,151 $ 189,118 $ 195,638 $ 207,055 Grants and Contracts 155, , , , ,108 Sales/Services of educational depts. 25,866 30,779 23,238 28,600 27,755 Auxiliary enterprises 169, , , , ,272 Other operating revenues 18,645 18,793 20,627 18,487 13,496 Total Operating Revenues $ 513,751 $ 514,351 $ 556,246 $ 600,665 $ 619,686 Operating expenses of $936,916 in 2011 increased $34,778 or 3.86% when compared to the 2010 prior year. The increases came primarily from increases in compensation and employee benefits of $8,353, contractual services of $6,640, utilities of $2,301, scholarships and fellowships of $6,561, depreciation expenses of $3,063, and other operating expenses of $8,892. These were offset by decreases in supplies and materials of $(920) and communications of $(112). Operating expenses of $902,138 in 2010 increased $11,785 when compared to the 2009 prior year. The largest components of this are increases in scholarships and fellowships of $15,395, depreciation expense of $12,340, utilities of $3,183, and contractual services of $958. There were also decreases in compensation and employee benefits of $(1,026), supplies and materials of $(1,251), communications of $(407), and other operating expenses of $(17407). The following table summarizes the operating expenses of Oklahoma State University for the last five years: Operating Expenses (Thousands of Dollars) Compensation and employee benefits $ 418,782 $ 452,286 $ 483,544 $ 482,518 $ 490,871 Contractual services 113, , , , ,989 Supplies and materials 44,937 47,563 45,460 44,209 43,289 Utilities 26,574 23,854 24,376 27,559 29,860 Communication 6,961 6,696 6,223 5,816 5,704 Other operating expenses 63,819 80,146 79,652 62,245 71,137 Scholarships and fellowships 57,954 64,370 82,089 97, ,045 Depreciation expense 36,082 35,129 37,618 49,958 53,021 Total Operating Expenses $ 768,922 $ 825,442 $ 890,353 $ 902,138 $ 936,916 All dollar amounts are in thousands. 6

10 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Revenues, Expenses, and Changes in Net Assets-(SRECNA) (Continued) It is important to understand the relationship of revenues to expenses over time. Since 2007, operating revenues have been increasing at a faster pace (21.13% between 2007 and 2010) than operating expenses (16.14% between 2007 and 2010), until this year. In 2011, revenues increased 3.16% while expenses increased by 3.86%. We believe this is because of past deferred expenditures. To narrow the gap between operating revenues and operating expenses, tuition and fees, grants and contracts, and auxiliary enterprise revenues must increase in amounts greater than increases in operating expenses. Of particular interest is the relationship of state appropriations when compared to tuition and fees over the past five years. State appropriations and tuition and fees are essential components of the revenue projections of the University. In fiscal year 2007, tuition and fees were 55.83% of state appropriations. In fiscal year 2011, the ratio was 75.35%, inclusive of state appropriations provided through the American Recovery and Reinvestment Act. While state appropriations have increased 6.13% in that time period, tuition and fees revenues have increased 43.24%. The following chart emphasizes the changes we have seen in both tuition and fees and state appropriations over the last five years. $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 Tuition and Fees and State Appropriations ($ in Thousands) $ Tuition and Fees State Appropriations Other important contributors to revenues are Grants and Contracts. Over the past five years grants and contracts have increased by approximately $51,050. (See chart on next page.) All dollar amounts are in thousands. 7

11 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Revenues, Expenses, and Changes in Net Assets-(SRECNA) (Continued) Grants and Contracts ($ in Thousands) $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $ Auxiliary Enterprises (Residential Life, Student Union, Bookstore, Health, Physical Education and Recreation, Athletics, University Health Services, Fire Protection Publications, etc.) also have contributed positively to the Operating Revenues over time. Since FY 2007, auxiliaries have experienced revenue increases of approximately $58,871 and expenses have increased $36,520. Since 2007, auxiliaries have shown accumulated net operating increases of $50 million. $250,000 Auxiliary Enterprises ($ in Thousands) $200,000 $150,000 $100,000 $50,000 $ Revenues Expenses All dollar amounts are in thousands. 8

12 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Revenues, Expenses, and Changes in Net Assets-(SRECNA) (Continued) Nonoperating revenues (expenses) of $332,988 in 2011 increased $9,352 or 2.89% when compared to 2010 the prior year. Nonoperating revenues (expenses) of $323,636 in 2010 decreased $(301) or.09% when compared to the 2009 prior year. The following table summarizes the nonoperating revenues and expenses for Oklahoma State University for the last five years: Nonoperating Revenue/(Expenses) (Thousands of Dollars) State appropriations $ 258,926 $ 275,344 $ 277,965 $ 256,721 $ 257,919 State appropriations - ARRA ,411 16,873 Federal and state student financial aid - 35,402 39,533 52,582 63,225 Gifts 11,969 13,297 13,061 7,752 16,165 Investment income 10,597 11,559 6,976 9,212 3,586 Interest expense (12,059) (12,796) (13,598) (22,042) (24,780) Net Nonoperating Rev/(Exp) $ 269,433 $ 322,806 $ 323,937 $ 323,636 $ 332,988 Other revenues, expenses, gains and losses of $38,526 in 2011 decreased $152,838 or 79.87% when compared to the 2010 prior year. Other operating revenues, expenses, gains and losses of $191,364 in 2010 increased 141,194 or % when compared to the 2009 prior year. The following table summarizes the other revenues, expenses, gains and losses of Oklahoma State University for the last five years: Other Revenues, Expenses, Gains and Losses (Thousands of Dollars) Capital from grants, gifts and affiliates $ 40,427 $ 35,197 $ 26,324 $ 166,545 $ 19,929 State appr. restricted for capital 28,684 14,607 19,376 16,086 15,519 Additions to permanent endowments Gain/(loss) on disposal of capital assets (110) (794) (496) 3,531 (3,079) Other additions, net 3,712 3,963 4,953 5,198 6,150 Total Other Revenues, Expenses Gains and Losses $ 72,721 $ 52,974 $ 50,170 $ 191,364 $ 38,526 All dollar amounts are in thousands. 9

13 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Statement of Cash Flows The final statement presented by Oklahoma State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the institution during the year. The statement is divided into five sections. The first section deals with operating cash flows and shows the net cash used by the operating activities of the institution. The second section reflects cash flows from non-capital financing activities. This section reflects the cash received and spent for non-operating, non-investing, and non-capital financing purposes. The third section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The fourth section deals with cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fifth section reconciles the net cash used to the operating income or loss reflected on the Statement of Revenues, Expenses, and Changes in Net Assets. Cash Flows (Thousands of Dollars) Cash provided (used) by: Operating activities $ (228,922) $ (250,876) $ (278,789) $ (242,459) $ (234,703) Noncapital financing activities 285, , , , ,132 Investing activities 6,551 10,171 4, (5,044) Capital and related financing activities (36,516) (45,131) (39,564) (52,962) (44,865) Net Change in Cash 26,230 11,397 5,128 28,317 55,520 Cash, beginning of year 70,652 96, , , ,724 Cash, end of year $ 96,882 $ 108,279 $ 113,407 $ 141,724 $ 197,244 In fiscal year 2011 the Cash, End of Year increased by $55,520 or 39.17% which represents a difference in Net (Decrease) Increase in Cash and Cash Equivalents from 2010 to 2011 of $27,203. The net increase was generated by an increase in Net Cash Used by Operating Activities of $7,756, an increase in Net Cash Provided by Noncapital Financing Activities of $17,129, a decrease in Net Cash Used by Investing Activities of $(5,779), and a increase in Net Cash Used by Capital and Related Financing Activities of $8,097. In fiscal year 2010 the Cash, End of Year increased by $28,317 or 24.97% which represents a difference in Net (Decrease) Increase in Cash and Cash Equivalents from 2009 to 2010 of $23,189. The net increase was generated by an increase in Net Cash Used by Operating Activities of $36,330, an increase in Net Cash Provided by Noncapital Financing Activities of $3,918, a decrease in Net Cash Used by Investing Activities of $3,661, and a decrease in Net Cash Used by Capital and Related Financing Activities of $13,398. All dollar amounts are in thousands. 10

14 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Determining Whether Certain Organizations Are Component Units The Governmental Accounting Standards Board (GASB) published GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, which became effective in fiscal year 2004 and requires universities to include in their financial statements component unit financial information. Oklahoma State University has determined that the Oklahoma State University Foundation, Cowboy Athletics, Inc., and OSU-University Multispectral Laboratories, LLC, meet the necessary criteria for inclusion. The inclusion of these statements should not be interpreted that Oklahoma State University has access to the resources contained therein. The financial statements include the accounts of the Oklahoma State University Center for Innovation and Economic Development, Inc. ( CIED ), collectively referred to as the University. CIED was formed in 1967 as a nonprofit corporation to engage in research, extension and academic contractual arrangements for the benefit and advancement of the General University. CIED receives and administers funds from Federal and state organizations and from private sources for the purpose of carrying out the educational and research programs of the General University. CIED is governed by a board of directors comprised primarily of management of the General University. In addition, General University employees and facilities are used for virtually all activities of CIED. Accordingly, CIED has been reported as a blended component unit in the financial statements. Separate financial statements of CIED can be requested from the University s controller. Economic Outlook In fiscal year 2011, our state appropriation decreased slightly by 1.77%. During fiscal year 2012, Oklahoma State University saw a 4.8% decrease in its state appropriations. While the State of Oklahoma continues to be challenged to achieve a balanced budget, the University s revenues have been increasing. The institution s strategy is to increase enrollment through targeted markets and to increase private dollars through the Branding Success campaign. These increased revenues have been used to supplant the lower state appropriations. While the institution remains at the bottom of the Big XII in tuition and mandatory fee costs, Oklahoma State University and its constituent agencies, Oklahoma State Regents for Higher Education, and the Oklahoma State Legislature are concerned about the large increases in tuition and mandatory fees that have been implemented in the past few years. As a percentage of per capita personal income, Oklahoma State University s tuition and fees are lower than all but two of the surrounding states. There was a 4.8% tuition and mandatory fee increase for academic year Should increased expenses in areas such as increased mandatory costs (medical, utilities, etc.), compensation and employee benefits not be funded through increases in state appropriations, tuition and fees will need to be increased further to meet these needs. All dollar amounts are in thousands. 11

15 Oklahoma State University Management s Discussion and Analysis (Unaudited) - CONTINUED Economic Outlook (Continued) State revenues are meeting, or exceeding estimates for the first few months of FY 2012 and state agencies are hopeful this trend will continue through the remainder of the year. For FY 2013, a flat budget would be the best case scenario. The University continues to develop scenarios to reduce costs while protecting the student experience. Reprogramming efforts will remain necessary to address critical funding issues required to support critical academic and research initiatives. Kathy Kamm Elliott, CPA Associate Vice President and Controller Joseph B. Weaver, Jr. Vice President for Administration and Finance All dollar amounts are in thousands. 12

16 Oklahoma State University STATEMENTS OF NET ASSETS June 30, ASSETS Current Assets ($ in thousands) Cash and cash equivalents $ 146,842 $ 101,526 Accounts receivable, net 54,604 61,757 Investments 114, ,760 Interest receivable Current portion of student loans receivable, net 1,833 1,810 Inventories 12,314 12,166 Prepaid expenses 3,531 3,284 Other assets Total current assets 334, ,196 Noncurrent Assets Cash and cash equivalents 50,402 40,198 Investments 1,301 1,427 Accounts receivable 5,141 5,071 Receivables from state agencies 35, ,638 Loans to students, net 16,495 16,293 Other assets 5,674 2,481 Capital assets, net of accumulated depreciation 1,290,619 1,217,641 Total noncurrent assets 1,405,495 1,387,749 TOTAL ASSETS 1,739,948 1,674,945 LIABILITIES Current Liabilities Accounts payable 27,209 22,474 Deferred revenue 35,971 33,070 Assets held in trust for other institutions 3,012 2,940 Student and other deposits 3,575 3,108 Accrued compensated absences 9,089 9,635 Accrued workers' compensation claims 3,317 3,238 Current portion of revenue bonds, notes payable, and lease obligations 19,702 18,271 Total current liabilities 101,875 92,736 Noncurrent Liabilities Accrued compensated absences 13,518 12,350 Landfill closure and postclosure costs 2,937 2,937 Accrued workers' compensation claims 3,454 3,440 Deferred revenue Student deposits Revenue bonds payable 320, ,545 Accounts payable for noncurrent assets 12,734 10,331 Payables to state agencies Accrued interest payable 6,238 4,907 Federal loan program contribution payable 17,486 17,486 Notes payable 8, ,525 OCIA capital lease obligations 103, ,427 ODFA master lease program 151, ,344 Obligations under other capital leases Total noncurrent liabilities 641, ,649 TOTAL LIABILITIES 743, ,385 NET ASSETS Invested in capital assets, net of debt 723, ,454 Restricted for: Nonexpendable Expendable Scholarships, research, instruction, and other 951 1,481 Loans 2,831 2,772 Capital projects 31,368 26,118 Debt service 4,933 6,717 Unrestricted 232, ,233 TOTAL NET ASSETS $ 996,844 $ 942,560 The accompanying notes are an integral part of these statements. 13

17 Oklahoma State University STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the years ended June 30, ($ in thousands) Operating revenues Tuition and fees, net of scholarship allowances of $34,042 in 2011 and $19,784 in 2010 $ 207,055 $ 195,638 Federal appropriations 10,347 9,285 Federal grants and contracts 78,721 70,921 State and local grants and contracts 26,366 29,472 Nongovernmental grants and contracts 27,674 23,291 Sales and services of educational departments 27,755 28,600 Auxiliary enterprises charges Residential life, net of scholarship allowances of $1,031 in 2011 and $969 in ,173 32,879 Student union services, including bookstore sales; revenues totaling $35,889 in 2011 and $34,111 in 2010 are used as security for 2002 and 2004 Student Union Revenue Bonds, 2004 OKC Student Center Revenue Bonds, and 1995 Okmulgee Student Union Refunding Revenue Bonds 36,485 35,178 Recreation and wellness services 3,267 1,395 Athletics, net of scholarship allowance of $2,899 in 2011 and $2,733 in 2010; revenues totaling $40,359 in 2011 and $42,853 in 2010 are used as security for Series 2003 and 2004 Athletic Facilities Revenue Bonds 40,359 42,938 University health services 77,023 70,051 Fire protection publications 9,751 10,418 Other auxiliary revenue 26,214 32,112 Interest earned on loans to students Other operating revenues 13,088 18,135 Total operating revenues 619, ,665 Operating expenses Compensation and employee benefits 490, ,518 Contractual services 138, ,349 Supplies and materials 43,289 44,209 Utilities 29,860 27,559 Communication 5,704 5,816 Other operating expenses 71,137 62,245 Scholarships and fellowships 104,045 97,484 Depreciation expense 53,021 49,958 Total operating expenses 936, ,138 Operating loss (317,230) (301,473) Nonoperating revenues (expenses) State appropriations 257, ,721 State appropriations - ARRA 16,873 19,411 Federal and state student financial aid 63,225 52,582 Gifts, including $8,614 in 2011 and $2,533 in 2010 used as security on the 1998, 2003, and 2004 Athletic Facilities Revenue Bonds 16,165 7,752 Investment income 3,586 9,212 Interest expense (24,780) (22,042) Net nonoperating revenues 332, ,636 Income before other revenues, expenses, gains and losses 15,758 22,163 Capital from grants, gifts and affiliates 19, ,545 State appropriations restricted for capital purposes 15,519 16,086 Additions to permanent endowments 7 4 Gain/(Loss) on disposal of fixed assets (3,079) 3,531 Other additions, net 6,150 5,198 Net increase in net assets 54, ,527 Net assets Net assets - beginning of year 942, ,033 Net assets - end of year $ 996,844 $ 942,560 The accompanying notes are an integral part of these statements. 14

18 Oklahoma State University STATEMENTS OF CASH FLOWS For the years ended June 30, ($ in thousands) Cash flows from operating activities Tuition and fees $ 208,484 $ 195,084 Grants and contracts 147, ,847 Sales and services of educational activities 27,755 28,600 Auxiliary enterprise charges Residential life 34,807 32,341 Student union services 36,251 34,796 Recreation and wellness services 3,204 1,399 Athletics 46,037 37,967 Interest earned on loans to students Other operating receipts 125, ,026 Payments to employees for salaries and benefits (472,853) (468,750) Payments to suppliers (391,317) (363,746) Loans issued to students and employees (2,734) (2,483) Collection of loans to students and employees 2,094 2,108 Net cash used in operating activities (234,703) (242,459) Cash flows from noncapital financing activities State appropriations 260, ,496 Federal and state student financial aid 63,225 52,582 Gifts for other than capital purposes 15,749 7,694 Direct lending receipts 107,002 97,635 Direct lending payments (107,002) (97,635) Agency fund receipts 2,766 2,114 Agency fund payments (2,160) (4,192) Third party facility - receipts 2,204 3,607 Third party facility - payments (2,298) (2,298) Net cash provided by noncapital financing activities 340, ,003 Cash flows from investing activities Purchases of investments (17,108) (64,013) Proceeds from sales of investments 10,829 62,032 Interest received on investments 1,235 2,716 Net cash provided by (used in) investing activities (5,044) 735 Cash flows from capital and related financing activities Cash paid for capital assets (119,553) (361,997) Capital appropriations received 9,142 6,077 Capital from grants, gifts and affiliates received 12,998 14,441 Proceeds of capital debt 81, ,105 Proceeds from bond refunding 145,320 - Repayments of capital debt and leases (17,208) (28,069) Payments on bond refunding (144,720) - Interest paid on capital debt and leases (18,960) (13,717) Other sources 6,150 5,198 Net cash used in capital and related financing activities (44,865) (52,962) Net increase in cash and cash equivalents 55,520 28,317 Cash and cash equivalents, beginning of year 141, ,407 Cash and cash equivalents, end of year $ 197,244 $ 141,724 The accompanying notes are an integral part of these statements. 15

19 Oklahoma State University STATEMENTS OF CASH FLOWS - CONTINUED For the years ended June 30, RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES Operating loss (317,230) ($ in thousands) $ $ (301,473) Adjustments to reconcile operating loss to net cash used in operating activities Depreciation expense 53,021 49,958 On-behalf contributions to teachers' retirement system 14,146 12,636 Changes in assets and liabilities Accounts receivable 7,506 (9,675) Inventories (148) 755 Prepaid expenses (247) (148) Accounts payable and accrued expenses 4,828 5,124 Deferred revenue 2,915 (578) Student and other deposits Compensated absences Loans to students and employees (225) (81) Net cash used in operating activities $ (234,703) $ (242,459) NONCASH INVESTING, NONCAPITAL FINANCING, AND CAPITAL AND RELATED FINANCING TRANSACTIONS Capital assets acquired by incurring capital lease obligations $ 191 $ 80 Capital assets acquired by gifts from affiliates $ 6,473 $ 151,951 Change in accounts payable for capital assets $ 2,403 $ (4,639) Change in accounts receivable related to private gifts $ 423 $ 62 Change in receivable from state agency affecting proceeds of $ (68,775) $ 7,767 capital debt Change in payable to state agency affecting proceeds of $ - $ (8,382) capital debt Change in fair value of investments recognized as a component $ (2,323) $ (6,674) of interest income Change in interest receivable affecting interest received $ 28 $ (178) Bond issuance costs reducing proceeds of long-term debt $ 320 $ 1,032 Deferred costs associated with OCIA lease restructuring $ 4,494 $ - Change in accrued interest payable affecting interest paid $ 1,331 $ 2,784 Amortization of bond issuance costs reducing interest paid $ 312 $ 313 Amortization of deferred costs for OCIA lease restructuring $ 749 $ - Interest on capital debt paid by state agency on behalf of University $ 3,428 $ 5,228 Principal on capital debt paid by state agency on behalf of University $ 2,949 $ 4,781 Gift of capital assets reducing proceeds of capital grants and gifts $ 487 $ 153 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET ASSETS Cash and cash equivalents classified as current assets $ 146,842 $ 101,526 Cash and cash equivalents classified as noncurrent assets 50,402 40,198 $ 197,244 $ 141,724 The accompanying notes are an integral part of these statements. 16

20 Oklahoma State University NOTES TO FINANCIAL STATEMENTS ($ in thousands) June 30, 2011 and 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: Oklahoma State University (the University ) is a modern comprehensive land grant university that serves the state, national and international communities by providing its students with academic instruction, by conducting research and other activities that advance fundamental knowledge and by disseminating knowledge to the people of Oklahoma and throughout the world. Reporting Entity: The financial reporting entity, as defined by Governmental Accounting Standards Board ( GASB ) Statement No. 14, The Financial Reporting Entity and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, consists of the primary government, organizations for which the primary government is financially accountable and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion could cause the financial statements to be misleading or incomplete. Accordingly, the financial statements include the accounts of all agencies of Oklahoma State University (the General University ), as the primary government, and the accounts of the Oklahoma State University Center for Innovation and Economic Development, Inc. ( CIED ), collectively referred to as the University. Further, the financial statements of all component units of the University meeting the criteria established by GASB Statement No. 39 have been presented separately. The General University includes Oklahoma State University - Stillwater; Oklahoma State University Institute of Technology - Okmulgee; Oklahoma State University - Oklahoma City; the Center for Veterinary Health Sciences; the Agricultural Experiment Station; the Agricultural Extension Division; the Center for Health Sciences - Tulsa and Oklahoma State University - Tulsa. The General University is governed by the Board of Regents for the Oklahoma Agricultural and Mechanical Colleges ( Board of Regents ). The State of Oklahoma allocates and allots funds to each agency separately and requires that the funds be maintained accordingly. Because of this requirement, separate accounts are maintained for each agency. CIED was formed in 1967 as a nonprofit corporation to engage in research, extension and academic contractual arrangements for the benefit and advancement of the General University. CIED receives and administers funds from Federal and state organizations and from private sources for the purpose of carrying out the educational and research programs of the General University. CIED is governed by a board of directors comprised primarily of management of the General University. In addition, General University employees and facilities are used for virtually all activities of CIED. Accordingly, CIED has been reported as a blended component unit in the financial statements. Separate financial statements of CIED can be requested from the University s controller. In preparing the financial statements, all significant transactions and balances between agencies and between the General University and CIED are eliminated. The University is a component unit of the State of Oklahoma (the State ) and is included in the comprehensive annual financial report of the State of Oklahoma as part of the higher education component unit. 17

21 Oklahoma State University NOTES TO FINANCIAL STATEMENTS - CONTINUED ($ in thousands) June 30, 2011 and 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Financial Statement Presentation: As a component unit of the State, the University presents its financial statements in accordance with the requirements of GASB Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments and GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. The financial statement presentation required by GASB Statements No. 34 and 35 provides a comprehensive, entity-wide perspective of the University s assets, liabilities, net assets, revenues, expenses, changes in net assets and cash flows. Component Units: The Oklahoma State University Foundation (the OSU Foundation ), Cowboy Athletics, Inc. ( CAI ), and the Oklahoma State University University Multispectral Laboratories, L.L.C. ( UML ) are private nonprofit organizations that report under Financial Accounting Standards Board ( FASB ) standards, including FASB Statement No. 117, Financial Reporting for Not-For-Profit Organizations. As such certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. Further, CAI operates under a December 31 fiscal year-end. No modifications have been made to the OSU Foundation s, CAIs, or UML s financial information, which are separately presented, for these differences. Basis of Accounting: For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been eliminated. The University has the option to apply all FASB pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date. Cash Equivalents: The University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Funds invested through the State Treasurer s Cash Management Program are considered cash equivalents. Investments: The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statements of revenues, expenses and changes in net assets. Accounts Receivable: Accounts receivable consist of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State. Accounts receivable also include amounts due from the Federal government, state and local governments or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University s grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. The University determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the University s previous loss history, and the condition of the general economy and the industry as a whole. The University writes off specific accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. 18

22 Oklahoma State University NOTES TO FINANCIAL STATEMENTS - CONTINUED ($ in thousands) June 30, 2011 and 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Inventories: Inventories are carried at the lower of cost or market on either the first-in, first-out ( FIFO ) basis or the average cost basis. Noncurrent Cash and Investments: Cash and investments that are externally restricted to make debt service payments, maintain sinking or reserve funds or to purchase or construct capital or other noncurrent assets, are classified as noncurrent assets in the statements of net assets. Capital Assets: Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation in the case of gifts. Livestock for educational purposes is recorded at estimated fair value. For equipment, the University s capitalization policy includes all items with a unit cost of $5 or more, and an estimated useful life of greater than one year. Renovations to buildings, infrastructure and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Internally generated software has a capitalization threshold of $1,000. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 40 to 50 years for buildings, 20 to 25 years for infrastructure and land improvements, 10 years for library books, 5 to 7 years for equipment, 3 years for purchased software, and 5 years for internally generated software. Costs incurred during construction of long-lived assets are recorded as construction in progress and are not depreciated until placed in service. The University capitalizes interest as a component of capital assets constructed for its own use. In 2011 and 2010, total interest incurred was $24,780 and $22,042, none of which was capitalized. Deferred Revenues: Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. Compensated Absences: The liability and expense incurred for employee vacation pay are recorded as accrued compensated absences in the statements of net assets, and as a component of compensation and benefit expense in the statements of revenues, expenses and changes in net assets. Noncurrent Liabilities: Noncurrent liabilities include (1) principal amounts of revenue bonds payable, notes payable and capital lease obligations; (2) estimated amounts for accrued compensated absences and other liabilities that will not be paid within the next fiscal year; and (3) other liabilities that, although payable within one year, are to be paid from funds that are classified as noncurrent assets. Net Assets: The University s net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. 19

23 Oklahoma State University NOTES TO FINANCIAL STATEMENTS - CONTINUED ($ in thousands) June 30, 2011 and 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Net Assets--Continued: Restricted net assets - expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Restricted net assets - nonexpendable: Restricted nonexpendable net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. When an expense is incurred that can be paid using either restricted or unrestricted resources, the University s policy is to use prudent decision processes to determine which resources will be applied based on availability of funding, donor intent, and returns available from idle funds. Income Taxes: The General University, as a political subdivision of the State, is excluded from Federal income taxes under Section 115(a) of the Internal Revenue Code, as amended. CIED is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code for activities which relate to its exempt purpose. Classification of Revenues: The University has classified its revenues as either operating or nonoperating revenues according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, net of scholarship discounts and allowances, (3) certain federal, state and local grants and contracts and federal appropriations and (4) interest on institutional student loans. Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, student aid revenues, and other revenue sources that are defined as nonoperating revenues by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB Statement No. 34, such as state appropriations and investment income. 20