FINANCIAL REPORT. Arizona State University

Transcription

1 FINANCIAL REPORT Arizona State University 2001

2 FINANCIAL REPORT 2001 The mission of Arizona State University is to provide outstanding programs of undergraduate and graduate education, cutting edge research, and public service for the citizens of the State of Arizona with special emphasis on the Phoenix metropolitan area. In support of this mission, the faculty, staff, and administration of ASU are committed to: Providing a learner centered education accessible to a broad cross section of people from Arizona; Providing high quality undergraduate education with opportunities that challenge students of varying abilities - including some of Arizona s and the nation s finest - to achieve their goals; Providing graduate education of nationally and internationally recognized caliber: Enhancing research efforts commensurate with our role as a national research university with special emphasis on metropolitan issues and the promotion of economic growth and quality of life in the Phoenix metropolitan area; and Providing public service through community partnerships and reassertion of social stewardship and civic responsibility in all our endeavors.

3 ARIZONA BOARD OF REGENTS ARIZONA STATE UNIVERSITY ADMINISTRATION EX OFFICIO JANE DEE HULL, GOVERNOR OF ARIZONA JAIME A. MOLERA, SUPERINTENDENT OF PUBLIC INSTRUCTION APPOINTED GEORGE (HANK) AMOS III JUDY GIGNAC CHRIS HERSTAM JACK JEWETT KAY MCKAY MATTHEW MEAKER CHRISTINA PALACIOS MYRINA ROBINSON GARY STUART DON ULRICH LATTIE F. COOR, PRESIDENT MILTON D. GLICK, SENIOR VICE PRESIDENT AND PROVOST GARY S. KRAHENBUHL, SENIOR VICE PRESIDENT CHARLES E. BACKUS, VICE PRESIDENT AND PROVOST FOR ASU EAST ELAINE P. MAIMON, VICE PRESIDENT AND PROVOST FOR ASU WEST CHRISTINE K. WILKINSON, VICE PRESIDENT A. J. PFISTER, VICE PRESIDENT FOR INSTITUTIONAL ADVANCEMENT PAUL J. WARD, VICE PRESIDENT AND GENERAL COUNSEL MERNOY E. HARRISON, JR., VICE PROVOST FOR ADMINISTRATIVE SERVICES GERALD E. SNYDER, COMPTROLLER AND TREASURER

4 ARIZONA STATE UNIVERSITY FINANCIAL REPORT 2001 CONTENTS ARIZONA BOARD OF REGENTS AND ARIZONA STATE UNIVERSITY ADMINISTRATION FINANCIAL HIGHLIGHTS ENROLLMENT PERCENTAGE COMPOSITIONS COMBINED SOURCES AND USES OF FUNDS BALANCE SHEET STATEMENT OF CHANGES IN FUND BALANCES STATEMENT OF CURRENT OPERATING FUNDS REVENUES, EXPENDITURES, AND OTHER CHANGES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTES TO FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT Arizona State University 3

5 FINANCIAL HIGHLIGHTS ing Sources (Resources acquired during the year) ing Uses (Resources consumed during the year) ing Sources and Uses Fiscal Year (Dollars in Millions) Percentage Change State Appropriations $ $ % Tuition and Fees Gifts, Grants, and Contracts Auxiliary Enterprises Operations (1) Other Sources (2) Total ing Sources $ $ % Instruction and Academic Support $ $ % Research and Public Service Student Services and Institutional Support Operation and Maintenance of Plant Auxiliary Enterprises Operations Scholarships and Fellowships Facility Additions, Debt Service, and Other Uses (6) Total ing Uses $ $ % The above table is an overview of total University financial operations; current operating and non-operating funds are included. Total funding sources increased 5%, due to a 9% increase in the gifts, grants, and contracts category, an 8% increase in the tuition and fees category, and a 3% increase in the state appropriations category. The auxiliary enterprises operations and other sources categories decreased 1% and 2%, respectively. Gifts, grants, and contracts increased $16.6 million, including a $12.3 million increase in federal grants and a $6.0 million increase in private gifts. State grants decreased $1.3 million and local grants decreased $0.4 million. Federal government agencies with significant funding increases in fiscal 2001 included the Department of Education (DOE) and the National Science Foundation (NSF). Programs receiving DOE funding increases included Pell financial aid grants, Arizona Teacher Excellence Coalition: A Statewide Partnership, Fulfilling Our Sacred Trust: Native Teachers for Arizona s Heartland, and The E-Learning Network: Learning Anytime, Anywhere!. Increased NSF awards included programs researching pathogen biology, biological stoichiometry, musculoskeletal and neural adaptations, and urban ecology. The increase in private gifts included a $2.6 million increase in cash gifts from the ASU Foundation, as well as increased private funding of scholarships and fellowships. Programs benefiting from the increased private gifts included Intercollegiate Athletics, privately funded scholarships, the College of Law, and the plant fund project to refurbish the Old Main Building on Main Campus back to its period of construction, the 1890 s. Tuition and fees increased 8%, representing $15.5 million, primarily due to increases in the rates charged to in-state and out-of-state students, and increases in enrollment of both in-state and out-of-state students. The increase in tuition was used to address institutional needs not covered by the state general operating funds appropriations, including increased technology related expenditures. There was a $9.6 million increase in state appropriations with most of the increase occurring in the ASU general operating fund state appropriation and used to annualize fiscal 2000 salary adjustments and for legislated fiscal 2001 salary merit adjustments. The decrease in the other sources category was due to negative endowment income incurred by the University as the result of the overall decline in stock (equity) market values during this period. Total funding uses increased 6% between years with increases in all categories except facility additions, debt service and other uses. Instruction and academic support expenditures increased 8%, or $27.9 million, with $14.1 million of the increase relating to instruction expenditures primarily funded by increased state general operating fund appropriations and tuition and fees. Instruction programs within business, engineering, interdisciplinary instruction, and plant biology had significant increases between years. Academic support increased $13.8 million with increased expenditures occurring within library support and acquisitions, academic information technology, research support and development, and new faculty start-up costs, primarily related to establishing research labs for new faculty members. The scholarships and fellowships category increased 8%, or $5.6 million. In addition to a $1.6 million increase in federally funded Pell financial aid grants, there were increases in tuition waivers expenditures, primarily in graduate assistant and undergraduate merit based tuition waivers, as well as increased privately funded scholarships and fellowships. There was a 7%, or a $5.9 million increase, in the student services and institutional support category. Student services increases occurred in registrar services, ASU East Campus student activities, career services, undergraduate admissions, and intercollegiate athletics. Departments with increased institutional support expenditures included development, administrative information technology, and academic facilities management. Research and public service expenditures increased 6%, or $6.4 million, and operation and maintenance of plant increased 5%, or $2.1 million, primarily due to increased utilities costs. Research expenditures increased by $6.6 million while public services expenditures decreased by $0.2 million between years. In addition to the programs mentioned above as having received increased NSF funding, other programs with increased research expenditures in fiscal 2001 were scalable enterprise systems, 21st century distributed learning, and the Mars Observer and Global Surveyor Thermal Emission Spectrometer Project. Facility additions, debt service, and other uses decreased 6% with the decrease primarily due to a $19.2 million decrease in additions to plant facilities, partially offset by a $9.5 million increase in retirement of indebtedness. Included in fiscal 2001 facility additions was $2.5 million of building renewal expenditures funded in prior years. The increase in retirement of indebtedness was primarily due to the early retirement of a debt obligation related to megavision scoreboards in ASU s football and basketball venues primarily funded from $8.6 million of University plant funds generated in prior years. The University s objective is for sources to slightly exceed uses over a three to five year period on the basis that (1) current operating funding sources should over the long run be equal to or slightly exceed uses and (2) endowment funding sources should exceed uses in accordance with the University s objective of increasing, over a period of time, externally provided endowments. For any given year, total University funding sources will either exceed or be less than uses. For the five years ended June 30, 2001, total University funding sources exceeded uses by more than 1%, with a significant portion of the five-year increase occurring in the restricted endowment funds. 4 Arizona State University

6 ENROLLMENT 47,051 49,243 48,922 49,700 50,365 43,910 44,637 40,910 43,105 42,946 Full-Time Equivalent Students Total Headcount Fall Degrees Granted in Academic Year Undergraduate Graduate 7,760 2,870 10,630 Fall 2000 Enrollment Undergraduate Graduate 38,399 11,966 In-State Out-of-State 37,690 12,675 6 Arizona State University

7 PERCENTAGE COMPOSITIONS General Operating Revenue Sources Unrestricted Current Operating s Revenue Sources Uses - By Expenditure Category Uses - By Expenditure Category Uses - By Program Uses - By Program Arizona State University 7

8 Assets Liabilities Financial Position Fiscal Year Percentage Change (Dollars in Millions) (Resources available to provide future services or to pay obligations) Property, Buildings, and Equipment $ 1,431.0 $ 1, % Other Assets (cash, investments, receivables, and deferred expenses) (4) Total Assets $ 1,729.9 $ 1, % (Obligations requiring cash or other resources in the future) Bonds Payable and Other Long-term Obligations $ $ (7) % Other Liabilities (accounts payable, deferred revenue, and deposits) Total Liabilities $ $ (3) % Balances (Resources available after obligations for providing of future services) Available for Current Operations: Restricted (must be spent as specified by external parties) $ 10.7 $ % Designated (may be spent as determined by University Administration) Restricted or Specified for Non-operating Purposes (bond reserves, student loans, endowments, and construction projects) (10) Total Balances before Net Investment in Plant $ $ (2) % Invested in Property, Buildings, and Equipment (property costs net of bonds payable and other long-term obligations) 1, , Total Balances $ 1,395.8 $ 1, % The 3% increase in total University assets resulted from a $64.0 million increase in property, buildings, and equipment, in conjunction with a $11.5 million decrease in other assets. Included in the property, buildings, and equipment increase was $5.1 million in property and buildings conveyed to the University in February 2001 by the Federal Government. This was the third conveyance to the University of property and buildings at the former Williams Air Force Base which now comprises the ASU East Campus. Earlier conveyances occurred in October 1996 and December 1999 and totaled $56.4 million and $27.6 million, respectively. A final conveyance of the remaining $0.6 million in property and buildings is anticipated in a subsequent fiscal year. Also contributing to the property, buildings, and equipment increase was a $39.1 million increase in buildings due to several construction and renovation projects either completed or underway. Major fiscal 2001 building activity included renovations to the Intercollegiate Athletic (ICA) building, the construction of two residential halls, and the addition of $4.6 million in buildings related to the ASU East conveyance. There was a $12.9 million increase in equipment during fiscal 2001, as well as a $9.4 million increase in the library books, media, and works of art category. Land and improvements increased $2.6 million. The $11.5 million decrease in other assets was primarily due to a $16.5 million decrease in cash and investments. Plant funds cash and investments decreased $25.0 million primarily due to certain construction and building renewal activities during fiscal 2001 funded from previous years balances, the timing of two fiscal 2000 residential hall bond issues which resulted in the bond proceeds ($15.0 million) being received in June 2000, and an advance retirement of a long-term obligation relating to megavision scoreboards at ASU s football and basketball venues. Construction of the two residential halls was substantially completed during fiscal 2001 with final completion scheduled to occur during the first six months of fiscal Fiscal 2001 cash and investments for current operating funds increased $7.8 million over fiscal 2000, primarily in the designated fund. The 3% decrease in total liabilities was due to a $21.0 million decrease in bonds payable and other long-term obligations, partially offset by a $12.3 million increase in other liabilities. During fiscal 2000 ASU issued $25.8 million in system revenue bonds and certificates of participation. There were no new bonds or certificates of participation issued during fiscal 2001, however $22.6 million of indebtedness was retired. Other liabilities primarily increased due to increased accounts payable in the plant funds and general operating fund. Total fund balances increased 5%, primarily due to the University s additional $65.0 million net investment in property, buildings, and equipment during fiscal This increase included $40.4 million of equipment and library acquisitions funded by current operating funds, and $5.1 million in property and buildings conveyed to ASU East. The 10% decrease in restricted or specified for non-operating purposes fund balances was primarily due to decreased endowment fund balances as a result of an overall decline in stock market values during the fiscal year and fiscal 2001 plant fund construction activity including building renewal projects, most of which was funded by the previous years balances. balances restricted for current operations increased 57%, or $3.9 million, primarily due to increased fund balances in accounts receiving private gift funding, including numerous scholarship and fellowship accounts and ASU s eminent scholars program accounts. Arizona State University 5

9 COMBINED SOURCES AND USES OF FUNDS Sources For the year ended June 30, 2001 (Dollars in Millions) 39% State Appropriations $327.5 Represents State of Arizona legislative appropriations for current operations of the University and capital outlay (building renewal funding) of $3.1 million. 25% Tuition and Fees Includes $11.4 million for summer sessions tuition and $32.8 million of waivers, consisting of $30.5 million for scholarships and fellowships and $2.3 million for faculty and staff benefits. Gifts, Grants, and Contracts 22% Consists of research and educational service agreements, scholarships, endowments, and plant facility additions. Includes $118.0 million of Federal grants and contracts, $9.4 million of state grants and contracts, and $4.1 million of local government grants and contracts. Auxiliary Enterprises 10% 79.8 Represents operations of essentially self-supporting activities such as bookstore, intercollegiate athletics, residence halls, and parking. Investment and Endowment Income 1% Other Sources 3% Consists of earnings from short-term investments on collections in advance of expenditures, long-term investments of endowment and bond retirement funds, and changes in fair value of endowment investments. Fair value typically is the quoted market price for investments. Consists primarily of sales and services, including ASU hosted national and international conferences and educational programs of academic departments. $836.8 Note: The Combined Sources and Uses of s statement highlights major financial data. The explanations provided are not intended to be all-inclusive. This statement provides an overview of total University financial operations including the ASU Main, ASU West, and ASU East Campuses. Restricted and unrestricted current operating and non-operating funds are included. Restricted funds have specific purposes stipulated by outside donors and agencies. Non-operating funds consist of the student loan, endowment, unexpended plant, and debt service funds. The investment in plant fund is not included, except for property gifts, since plant acquisitions are typically shown as a use of funds in either the current operating funds or unexpended plant fund at the time of acquisition. The non-operating funds generally are not available for use at the discretion of the University. Sources and uses are allocated and controlled by budgets. 8 Arizona State University

10 Uses 43% Instruction and Academic Support $363.9 Consists of (1) instruction expenditures totaling $263.0 million, which include credit and non-credit courses for academic, occupational, and vocational instruction for regular academic year and summer sessions, and continuing education, and (2) academic support expenditures totaling $100.9 million, which include libraries, academic information technology support, and academic administration. Research and Public Service 13% Represents (1) activities specifically organized to produce research outcomes, whether funded by external agencies or separately budgeted by organizational units within the University, and (2) public service expenditures of $29.5 million for non-instructional services beneficial to individuals and groups external to the University, such as public broadcasting and public events. Student Services and Institutional Support 11% Operation and Maintenance of Plant 5% 93.2 Consists of (1) student services expenditures totaling $33.9 million, which include admissions, registrar, student activities, counseling, career guidance, student financial aid administration, and student health services, and (2) institutional support expenditures totaling $59.3 million, which include executive management, financial operations, human resources, public safety, community relations, administrative information technology support, and alumni relations Represents expenditures for the operation and maintenance of plant, exclusive of amounts charged to auxiliary enterprises, including services related to facilities and grounds, and utility costs. Auxiliary Enterprises 9% Scholarships and Fellowships 9% Facility Additions and Debt Servicing 7% Consists of departments managed as essentially self-supporting activities that furnish services to students and staff for a fee directly related to, but not necessarily equal to, the cost of the service. Includes grants paid from the restricted fund, and tuition and fee waivers awarded to students enrolled in formal course work, with the students not being required to perform personal services or repay the awards. Represents (1) additions to physical facilities of $15.0 million funded from the unexpended plant fund and $2.2 million of property gifts (excludes $40.4 million of property additions charged to current funds, since such uses have already been reflected in the above programs and $5.1 million of property conveyed from the Federal Government for ASU East), and (2) debt servicing payments, totaling $38.6 million, consisting of $16.0 million of interest payments and $22.6 million of principal retired. Other Uses 3% 25.8 Consists primarily of indirect costs recovered of $18.7 million. Net Decrease in Balances $840.5 (3.7) $836.8 Arizona State University 9

11 BALANCE SHEET (Dollars in Thousands) June 30, 2001 (with comparative totals for 2000) CURRENT OPERATING FUNDS Unrestricted s Total General Auxiliary Current Operating Designated Enterprises Restricted Operating s Assets Cash and investments - Note A $ 15,021 $ 88,546 $ 4,619 $ 4,915 $ 113,101 Accounts receivable, less allowance of $1,817 in 2001 and $1,470 in ,611 10,475 11,794 26,229 Loans receivable, less allowance of $1,212 in 2001 and $1,396 in Note B Inventories 5,826 5,826 Deferred expenses and deposits 5,915 1, ,999 Due from other funds Donated land Property, buildings, and equipment - Note C $ 15,370 $ 98,880 $ 21,956 $ 16,757 $ 152,963 Liabilities and Balances Liabilities - Accounts payable and accrued expenses $ 4,595 $ 2,138 $ 1,995 $ 815 $ 9,543 Deferred revenue 5,274 12,506 7,633 4,931 30,344 Employee retirement and insurance deposits Other deposits Due to other funds Bonds payable - Note D Lease-purchases and other long-term obligations - Note E $ 9,869 $ 14,681 $ 9,816 $ 6,070 $ 40,436 Balances 5,501 84,199 12,140 10, ,527 $ 15,370 $ 98,880 $ 21,956 $ 16,757 $ 152,963 Balances Consist of - Restricted - U.S. Government grants refundable Endowments General $ 10,687 $ 10,687 Designated - Outstanding purchase orders and other commitments $ 5,281 5,281 Summer sessions $ 3,562 3,562 Quasi-endowments General ,637 $ 12,140 92,997 Net investment in plant $ 5,501 $ 84,199 $ 12,140 $ 10,687 $ 112,527 See Summary of Significant Accounting Policies and Notes to Financial Statements. 10 Arizona State University

12 Student Loan NON-OPERATING FUNDS Endowment Combined Plant s Agency TOTAL ALL FUNDS Memorandum Only $ 955 $ 60,664 $ 53,391 $ 15,902 $ 244,013 $ 260, ,259 28,905 26,455 11,569 11,569 11,880 5,826 5, ,064 4, ,431,048 1,431,048 1,366,950 $ 12,638 $ 61,599 $ 1,484,542 $ 18,226 $ 1,729,968 $ 1,677,364 $ 22 $ 10 $ 13,473 $ 1,483 $ 24,531 $ 17, ,346 29,351 8,284 8,284 7,039 8,459 8,684 5, , , ,288 52,589 52,589 64,245 $ 24 $ 10 $ 275,404 $ 18,226 $ 334,100 $ 342,792 12,614 61,589 1,209,138 1,395,868 1,334,572 $ 12,638 $ 61,599 $ 1,484,542 $ 18,226 $ 1,729,968 $ 1,677,364 $ 9,611 $ 9,611 $ 9,848 $ 56,293 56,293 59,175 3,003 $ 11,353 25,043 23,422 5,281 8,327 3,562 4,074 5,296 5,296 5,609 18, , ,908 1,179,267 1,179,267 1,114,209 $ 12,614 $ 61,589 $ 1,209,138 $ 1,395,868 $ 1,334,572 Arizona State University 11

13 STATEMENT OF CHANGES IN FUND BALANCES (Dollars in Thousands) For the year ended June 30, 2001 (with comparative totals for 2000) General Operating CURRENT OPERATING FUNDS Unrestricted s Auxiliary Designated Enterprises Restricted Total Current Operating s Revenues and Other Additions Unrestricted current revenues $ 454,458 $ 135,660 $ 88,620 $ 678,738 Restricted - Governmental grants and contracts $ 113, ,988 Private gifts, grants, and contracts 32,637 32,637 State appropriations Financial aid trust fund 1,096 1,096 Conveyance of property - Note C Investment and endowment income - Note A 2,193 2,193 Interest on student loans Expended for plant facilities including $40,368 charged to current funds expenditures in 2001 and $36,811 in 2000 Retirement of indebtedness Other additions Total revenues and other additions $ 454,458 $ 135,660 $ 88,620 $ 149,914 $ 828,652 Expenditures and Other Deductions Educational and general expenditures $ 457,533 $ 95,741 $ 132,082 $ 685,356 Auxiliary enterprises expenditures $ 73,559 73,559 Indirect costs recovered 18,689 18,689 Cancellation of loans and provision for bad debts Administrative and collection costs Expended for plant facilities Interest on indebtedness Retirement of plant facilities Retirement of indebtedness Other deductions Total expenditures and other deductions $ 457,533 $ 95,741 $ 73,559 $ 150,837 $ 777,670 Transfers Among s - Additions (Deductions) Mandatory - Bond indenture requirements $ (14,459) $ (7,360) $ (21,819) Other mandatory transfers (11,590) (611) $ 5,072 (7,129) Voluntary, net (4,686) (8,646) (248) (13,580) Total transfers $ (30,735) $ (16,617) $ 4,824 $ (42,528) Net Increase (Decrease) for the Year Balances, Beginning of Year Balances, End of Year $ (3,075) $ 9,184 $ (1,556) $ 3,901 $ 8,454 8,576 75,015 13,696 6, ,073 $ 5,501 $ 84,199 $ 12,140 $ 10,687 $ 112,527 See Summary of Significant Accounting Policies and Notes to Financial Statements. 12 Arizona State University

14 Student Loan Endowment NON-OPERATING FUNDS TOTAL ALL FUNDS Plant s Memorandum Unexpended Debt Investment Combined Plant Service Plant Only in Plant s $ 678,738 $ 646,632 $ 79 $ 303 $ , , $ 1,481 2,664 $ 2,226 4,890 39,022 35,021 3,077 3,077 3,077 2,846 1,096 2,192 2,036 5,067 5,067 5,067 27, (5,794) 930 $ 880 1,810 (1,630) 4, ,142 77,142 77,142 87,204 22,622 22,622 22,622 13, $ 638 $ (3,217) $ 7,546 $ 938 $ 107,057 $ 115,541 $ 941,614 $ 925,084 $ 685,356 $ 637,381 73,559 71,758 18,689 16,419 $ $ 36,774 $ 36,774 36,774 50,393 $ 16,031 16,031 16,031 14,639 $ 20,248 20,248 20,248 19,186 22,622 22,622 22,622 13,101 6, ,232 6,298 5,659 $ 741 $ 42,923 $ 38,736 $ 20,248 $ 101,907 $ 880,318 $ 829,556 $ 21,819 $ 21,819 $ 26 $ 89 7,014 7,103 $ 22 27,167 8,142 $ (21,751) 13,558 $ 26 $ 22 $ 27,256 $ 36,975 $ (21,751) $ 42,480 $ (77) $ (3,195) $ (8,121) $ (823) $ 65,058 $ 56,114 $ 61,296 $ 95,528 12,691 64,784 23,906 14,909 1,114,209 1,153,024 1,334,572 1,239,044 $ 12,614 $ 61,589 $ 15,785 $ 14,086 $ 1,179,267 $ 1,209,138 $ 1,395,868 $ 1,334,572 Arizona State University 13

15 STATEMENT OF CURRENT OPERATING FUNDS REVENUES, EXPENDITURES, AND OTHER CHANGES (Dollars in Thousands) For the year ended June 30, 2001 (with comparative totals for 2000) General Operating Unrestricted s Designated Auxiliary Enterprises Restricted Total Current Operating s Memorandum Only Revenues State appropriations $ 324,416 $ 324,416 $ 315,050 Tuition and fees - Collected 105,267 $ 69,115 $ 2, , ,558 Value of waivers 23,574 9,260 32,834 30,213 Governmental grants and contracts 17,012 $ 98, , ,333 Private gifts, grants, and contracts 7,828 5,012 30,841 43,681 41,264 Financial aid trust fund 1,192 1,192 1,004 Investment and endowment income 9, ,904 11,805 11,216 Sales and services - Auxiliary enterprises 79,839 79,839 80,948 Academic departments 15,232 15,232 12,317 Internal services, less related expenditures of $34,715 in 2001 and $32,163 in ,622 1,622 1,570 Other sources 1,201 7,427 8,628 7,293 Total revenues $ 454,458 $ 135,660 $ 88,620 $ 132,082 $ 810,820 $ 766,766 Expenditures and Mandatory Transfers Educational and general - Instruction $ 241,223 $ 15,560 $ 6,243 $ 263,026 $ 248,867 Research 12,243 8,368 57,933 78,544 71,892 Public service 2,757 2,069 24,624 29,450 29,728 Academic support 76,328 23, ,907 87,088 Student services 23,848 5,950 4,053 33,851 31,715 Institutional support 37,511 21, ,360 55,612 Operation and maintenance of plant 41, ,207 40,134 Scholarships and fellowships 22,032 17,770 38,209 78,011 72,345 Educational and general expenditures $ 457,533 $ 95,741 $ 132,082 $ 685,356 $ 637,381 Mandatory transfers 26,049 (5,072) 20,977 20,173 Total educational and general $ 457,533 $ 121,790 $ 127,010 $ 706,333 $ 657,554 Auxiliary enterprises - Expenditures $ 73,559 $ 73,559 $ 71,758 Mandatory transfers 7,971 7,971 6,914 Total auxiliary enterprises $ 81,530 $ 81,530 $ 78,672 Total expenditures and mandatory transfers $ 457,533 $ 121,790 $ 81,530 $ 127,010 $ 787,863 $ 736,226 Other Transfers and Deductions Restricted receipts under transfers to revenues $ (857) $ (857) $ (1,342) Voluntary transfers, net $ (4,686) $ (8,646) (248) (13,580) (16,832) Other (66) (66) (85) Net Increase (Decrease) in Balances $ (3,075) $ 9,184 $ (1,556) $ 3,901 $ 8,454 $ 12,281 See Summary of Significant Accounting Policies and Notes to Financial Statements. 14 Arizona State University

16 NOTES TO FINANCIAL STATEMENTS June 30, 2001 Note A - Cash and Investments Under Arizona State law and Board of Regents policies, the University may invest its operating funds only in the State of Arizona Local Government Investment Pool, collateralized time certificates of deposit or repurchase agreements, U.S. Treasury securities, or other Federal agency securities. Gift and endowment funds may be invested under the direction of an investment committee in such a manner as to obtain the most favorable rate of return and income stability commensurate with safety of principal. Bond trustee funds are invested by the bond trustee in accordance with the financing indenture. A summary of the components of cash and investments at June 30, 2001 by management area follows (Dollars in Thousands): Bond trustee funds: Fair Value Money market portfolios and cash... Guaranteed Investment Contracts... $ 30,016 5,893 U.S. Treasury and other Federal agency securities... 3,596 Endowment funds: The Vanguard Group... 30,701 Metropolitan Life Insurance Corporation... 12,389 The Common... Arizona Universities financial aid trust fund endowment... 4,702 12,780 Sun Angel Foundation Pooled cash and short-term investments: State of Arizona Local Government Investment Pool, net of bank balance ,177 U.S. Treasury and other Federal agency securities... 2,971 $ 244,013 Bond trustee funds. The bond trustee funds are managed by Bank of New York, Bank One, and U.S. Bank, and generally consist of U.S. Government securities (Treasury securities or other Federal agency securities), cash, certificates of deposit, and Federal money market accounts. Each bank s trust department purchases U.S. Government securities for the University. U.S. Government securities are held by either the Federal Reserve Bank or the Depository Trust Company (DTC) in custodial accounts for Bank of New York, Bank One, and U.S. Bank, in computerized book-entry systems in which changes of financial institutions interests are recorded. In turn, changes in the University s ownership interests are recorded in Bank of New York s, Bank One s, and U.S. Bank s records. Generally, funds not directly invested in U.S. Government securities are invested in pooled Federal money market accounts in which securities are purchased and held by the trustee. Occasionally, small cash balances are maintained, or certificates of deposit are purchased by the bank s trust department. For cash and certificates of deposit, book-entry pledges of Federal government securities are obtained as collateral and held by the trust department on a pooled basis. In conjunction with the ASU West lease-purchase financing, there is a $5.4 million reserve fund maintained in a guaranteed investment contract (GIC). This GIC is from a major insurance firm and if the bond rating of this firm should fall to A- or below, the firm must provide U.S. Treasury securities as collateral for the GIC to the University s bond trustee. Endowment funds. The Vanguard Group investments are in three index equity funds: Institutional (Standard and Poor s 500) Index, Extended Market Index, and Total International Stock Index. The Vanguard Group is a mutual fund company offering a broad range of investment funds. The Metropolitan Life investments are in the MetLife South Station which invests in publicly traded fixed income securities. The Common endowment investments are in that organization s Multi-Strategy Bond. The Common is a unique, non-profit membership organization which provides investment management services exclusively for educational and other non-profit institutions. The financial aid trust fund is funded from student fees and by the Arizona State Legislature. The fund is managed in a pool by the University of Arizona along with the financial aid trust funds for the other two state universities. The Sun Angel Foundation manages a portion of ASU s endowment funds in equity and bond securities pursuant to a trust agreement. In accordance with generally accepted accounting principles investments are stated at fair value. Fair value typically is the quoted market price for investments. At June 30, 2001, more than one-half of the University s endowment funds were invested in stock (equity) investments. Due to the overall decline in the market value of stocks for the year ended June 30, 2001, the University incurred negative endowment income. This loss in value of stocks is consistent with the overall stock (equity) market activity during this period. Pooled cash and short-term investments. Pooled cash and short-term investments at June 30, 2001 were principally with the State of Arizona Local Government Investment Pool. The University s investment in the pool represents shares in that pool s portfolio. The shares are not identified with specific investments and are not subject to custodial credit risk. The University sometimes also has investments in collateralized repurchase agreements, U.S. Treasury securities, and Federal agency securities. Repurchase agreements are with various major financial institutions under master agreements with the University. For repurchase agreements with a duration of over two weeks, the University has underlying securities transferred to Bank of America s Treasury Management Department. U.S. Treasury and Federal agency securities are held in the bank s custodial account with the Federal Reserve Bank or DTC and in the University s name in the bank s records. These securities are either purchased from a broker/dealer or a financial institution. The University s bank and collected (portion of bank balance available for investment) balances at the bank at June 30, 2001 were $1.6 million and $0.3 million, respectively, and the carrying value of deposits on the University s accounting system was a deficit $8.6 million. The carrying value of deposits balance has been netted against the State of Arizona Local Government Investment Pool in the above table. The cash deficit balance on the accounting system occurs because cash is not transferred from investments to the bank account until outstanding checks are expected to be presented to the bank for payment. The University s deposits are fully collateralized with governmental securities (U.S. or investment grade municipals) held by either the bank s agent or the bank s agent s custodial account with either the Federal Reserve or the DTC in the University s name. Note B - Loans Receivable Loans receivable from students bear interest primarily at 5% and are generally repayable in installments to the University over a ten year period commencing nine months from date of separation from the University. The University provides an allowance for estimated uncollectible amounts and related collection costs. 16 Arizona State University

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES June 30, 2001 Basis of Accounting For financial reporting purposes, the University includes those funds that are directly controlled by the University. Control by the University is determined on the basis of financial accountability. Fiscal responsibility for the University remains with the State of Arizona; therefore the University is considered a part of the reporting entity for the State s financial reporting purposes. The University s financial statements do not include the financially interrelated organizations described in Note F. The financial statements have been prepared on the accrual basis of accounting in conformity with generally accepted accounting principles applicable to governmental colleges and universities as set forth in the AICPA College Guide model as defined in Governmental Accounting Standards Board (GASB) Statement No. 15. The Statement of Current Operating s Revenues, Expenditures, and Other Changes is a statement of financial activities of operating funds related to the current reporting period. It does not purport to present the results of operations or the net income or loss for the period as would a statement of revenues and expenses. Investments in securities are stated at fair value at June 30, Fair value typically is the quoted market price for investments. Investment income includes realized and unrealized gains and losses on investments. Various methods are used by Auxiliary Enterprises units to value their inventory. The ASU Bookstore inventory comprises approximately 75% of the total inventory reported on the balance sheet and is valued using the retail method. Property, buildings, and equipment are stated at cost at the date of acquisition or, if donated, the fair market value at the date of acquisition. The University does not depreciate buildings and equipment. To the extent that current operating funds are used to finance plant assets, the amounts so provided are accounted for as (1) expenditures, in the case of normal acquisition and/or replacement of movable equipment and library books; (2) mandatory transfers, in the case of required provisions for debt amortization and interest, and equipment renewal and replacement; and (3) voluntary transfers in all other cases. Summer sessions revenues and expenditures are reported within the fiscal year in which the total summer sessions program is predominantly conducted. Accordingly, only the revenues and expenditures of the 2000 summer sessions are included in the Statement of Current Operating s Revenues, Expenditures, and Other Changes. Revenues and expenditures as of June 30, 2001 for the 2001 summer sessions are reported as deferred revenues and expenses on the Balance Sheet. Tuition and fees revenues (net of refunds) include $30.5 million of waivers charged to Scholarships and Fellowships and $2.3 million of waivers for faculty and staff benefits. The financial information shown for fiscal 2000 in the accompanying financial statements is included as a basis for providing comparison with fiscal 2001 and presents summarized totals only. Certain prior year amounts have been reclassified to conform with current year presentations. Accounting The accounts are maintained in accordance with the principles of fund accounting. These principles require that resources be classified for accounting and reporting purposes into funds in accordance with the activities or objectives specified for the resources. Accounts are separately maintained for each fund; however, in the accompanying financial statements, funds that have similar characteristics have been combined into fund groups. Description of s Current operating funds are used primarily to account for transactions which are expended in performing the primary and support missions of the University: instruction, research, public service, academic support, student services, institutional support, operation and maintenance of plant, scholarships and fellowships, and auxiliary enterprises. Current Operating s consist of the following: 1. The General Operating which is used to account for transactions related to the University s State-appropriated budgets as approved by the Arizona State Legislature and Arizona Board of Regents. 2. The Designated which is used primarily to account for transactions related to academic year tuition and fees retained by the University, the summer sessions program, the recovery of indirect costs of sponsored research programs, departmental sales and services, and the use of unrestricted gifts. The resources in this fund have been designated for specific purposes by the University. 3. The Auxiliary Enterprises which is used to account for transactions of substantially self-supporting activities that primarily provide services for students, faculty, and staff. Auxiliary enterprises include, but are not limited to, residence halls, food services, bookstore, and intercollegiate athletics. 4. The Restricted which is used to account for current funds expended for operating purposes but restricted by donors or other outside agencies as to the specific purpose for which they may be expended. Revenues of the Restricted are reported in the Statement of Current Operating s Revenues, Expenditures, and Other Changes only to the extent expended for current operating purposes. Amounts received in excess of expenditures are included as additions to fund balances during the year. Non-Operating s consist of the following: 1. The Student Loan, financed primarily by the Federal government, which is used to account for loans to students. Interest is recorded on the accrual basis. Provisions of the Federal loan program stipulate that: - The University match one-third of Federal contributions; and - A portion of the loan principal and interest (ranging from 15% to 30% per year) can be cancelled and absorbed by the Federal government, if the recipient completes certain employment requirements. 2. The Endowment which is used to account for permanent endowments, term endowments, and quasi-endowments. Permanent endowment funds are subject to the restrictions of donor gift instruments requiring that the principal be invested in perpetuity and that only the income be used. Term endowment funds provide that, upon the passage of a stated period of time or the occurrence of a particular event, all or part of the principal may be expended. Quasi-endowment funds have been established by the University for the same purposes as endowment funds; any portion of such funds may be expended. Restricted quasi-endowment funds must be expended according to donor specified purposes; unrestricted quasi-endowment funds, however, may be expended as determined by the University. 3. The Plant s which are used to account for the transactions relating to investment in University properties. They include the (1) Unexpended Plant, (2) Debt Service, and (3) Investment in Plant. The Unexpended Plant represents amounts which have been appropriated or designated for purchases of land, improvements, buildings, and equipment. The Debt Service represents funds set aside to provide for payments of indebtedness primarily pursuant to terms of bond and trust indentures. The Investment in Plant represents the total of property, buildings, equipment, and related liabilities. 4. The Agency which is used to account for assets held by the University as custodian or fiscal agent for others; therefore, the transactions of this fund do not affect the Statement of Changes in Balances. Arizona State University 15

18 Note C - Property, Buildings, and Equipment Property, buildings, and equipment at June 30, 2001 consisted of the following (Dollars in Thousands): Land and improvements... $ 140,055 Buildings ,876 Equipment ,388 Library books, media, and works of art ,729 $ 1,431,048 The Unexpended Plant balance is committed for projects planned and under construction and for future building repairs and equipment replacements. Future commitments approximate $10.9 million at June 30, In February 2001, the Federal Government made to the University its third conveyance of buildings and land of the former Williams Air Force Base which is used by the University as the ASU East Campus. Previous conveyances were made in October 1996 and December The property transfers are conditional upon the use of the property for educational purposes in accordance with the terms of the deed. The appraised fair value of all the property conveyed through June 30, 2001 is $89.0 million and consists of 70 multi-purpose use buildings and 653 single family residences valued at $68.8 million, site improvements valued at $3.5 million and approximately 584 acres of land valued at $16.7 million. The University recorded this conveyed property on its records at the time of title transfer at its appraised value. The University expects a final conveyance of the remaining property to occur. The appraised fair value of the property yet to be conveyed is less than $1.0 million, and includes 1 multi-purpose use building and approximately 1 acre of land. The University will record these remaining assets at the time they are conveyed by the Federal Government. Note D - Bonds Payable Bonds payable at June 30, 2001 consisted of the following (Dollars in Thousands): Average Final Maturities Outstanding Interest Rates (Calendar Year) Principal Housing revenue bonds 3.00% to 3.50% $ 1, System revenue bonds 7.09% , System revenue bonds 7.13% , System revenue refunding bonds 6.25% , A System revenue refunding bonds 5.88% , System revenue refunding bonds 4.93% , System revenue bonds 5.86% ,000 $ 208,858 In prior years, certain system revenue bonds of the University were defeased through advance refundings by depositing sufficient U.S. Government securities to pay all future debt service in an irrevocable trust. Accordingly, the liabilities for these defeased bonds are not included in the University s financial statements. The principal amount of all such bonds outstanding at June 30, 2001 was $75.6 million. The housing revenue bonds are payable from housing revenues as defined in the bond indentures. The 1992, 1992A, and 1993 System revenue refunding bonds, and the outstanding 1989, 1991, and 2000 System revenue bonds are payable from ASU Main Campus tuition and fees, certain auxiliary enterprises revenues, and certain other revenues as defined in the bond indentures. Securities and cash restricted for bond retirement funds and maintenance and replacement reserves held by trustees at June 30, 2001 totaled $17.2 million. Future debt service funding commitments, including interest, for bonds outstanding consisted of the following (Dollars in Thousands): Housing System Fiscal Revenue Bonds Revenue Bonds Total 2002 $ 492 $ 21,859 $ 22, ,950 22, ,022 22, ,135 22, ,314 20,463 Thereafter 189, ,673 $ 1,545 $ 297,953 $ 299,498 Note E - Lease-Purchases and Other Long-Term Obligations Lease-purchases and other long-term obligations at June 30, 2001 consisted of the following (Dollars in Thousands): Average Final Maturities Outstanding Interest Rates (Calendar Year) Principal Lease-Purchase Certificates of Participation: 1991 Towers Project (through ASU Foundation) 6.89% 2010 $ 3, ASU West Refunding 5.18% , A Downtown (DT) Center 5.75% , B Downtown (DT) Center 8.00% ,165 Other Lease-Purchases and Installment Purchases 4.59% to 10.00% ,634 $ 52,589 Arizona State University 17

19 NOTES TO FINANCIAL STATEMENTS Securities and cash restricted for non-bond retirement funds and maintenance and replacement reserves held by trustees at June 30, 2001 totaled $14.3 million. ing commitments, including interest, for lease-purchases and other long-term obligations consisted of the following (Dollars in Thousands): Certificates of Participation Towers ASU West 1999A 1999B Fiscal Project Refunding DT Center DT Center Other Total 2002 $ 442 $ 5,243 $ 431 $ 489 $ 557 $ 7, , , , , , , , ,604 Thereafter 1,773 15,727 7,772 8, ,610 $ 3,990 $ 41,935 $ 9,929 $ 11,206 $ 1,744 $ 68,804 Note F - Financially Interrelated Organizations Not included in the financial statements of the University are six financially interrelated organizations that are non-profit corporations controlled by separate Boards of Directors whose goals are to support Arizona State University. Financial statements of these organizations are audited by independent auditors. Four of these financially interrelated organizations the Arizona State University Alumni Association, Arizona State University Foundation, Sun Angel Foundation, and Sun Angel Endowment receive funds primarily through donations and dues, and contribute funds to the University for support of various programs. A fifth financially interrelated organization, Price-Elliott Research Park, Inc. (Park), is developing a research park to promote and support research activities, in coordination with the University. In developing the research park, the Park has issued bonds guaranteed by the University. As of June 30, 2001, the Park had $18.1 million of revenue bonds outstanding at an average interest rate of 5.26%. The debt service on the bonds is secured by a subordinated lien on ASU Main Campus revenues. Park revenues are not pledged in order to provide development flexibility to the Park. Annual debt service on the Park bonds will be $1.0 million in fiscal year 2002 and varies from a low of $0.9 million in fiscal 2004 to a high of $1.7 million in fiscal The University is obligated to pay the annual debt service, if not paid by the Park, under a debt service assurance agreement. Beginning in fiscal 1990, the University provided operating cash advances to the Park repayable with interest to the University (1) upon the Park s total gross receipts for a fiscal year exceeding its total disbursements for that fiscal year and (2) before any Park surpluses are transferred to the Arizona State University Foundation, for the benefit of Arizona State University. The last year for cash transfers to the Park was fiscal Since the Parks s repayment to the University was dependent upon successful future operations and the entering into of additional land leases, the transfers to the Park were recorded by the University as current year expenditures when made and not as an asset on the University s balance sheet. Total cash advances repayable to the University at June 30, 2001, including accrued interest, totaled $7.5 million. During fiscal year 2001, the Park repaid $1.1 million to the University, with this amount being recorded as other source revenues with the timetable for future repayments dependent upon the Park entering into additional land leases. A sixth financially interrelated organization, the Collegiate Golf Foundation, operates a University owned golf course. Assets, net assets, and revenues for these organizations for the most recent fiscal year for which audits have been completed aggregated $308.9 million, $247.8 million, and $91.1 million, respectively, with substantially all of the net assets being donor restricted or endowment funds. Note G - General Operating Beginning in fiscal 1995, the University has received a separate appropriation from the Arizona State Legislature for the ASU East Campus. This appropriation along with the separate appropriation for the ASU West Campus (since 1985) are combined with the ASU Main Campus appropriation to constitute the General Operating. Separation of the General Operating between campuses for fiscal 2001 follows (Dollars in Thousands): Main West East Total State Appropriations... $ 273,605 $ 39,474 $ 11,337 $ 324,416 Tuition, Fees, and Other Revenues ,158 3,031 3, ,042 Total Revenues... $ 396,763 $ 42,505 $ 15,190 $ 454,458 Expenditures ,529 41,745 15, ,533 Net Increase/(Decrease) for the Year... $ (3,766) $ 760 $ (69) $ (3,075) Balances, Beginning of Year... 7,380 1, ,576 Balances, End of Year... $ 3,614 $ 1,788 $ 99 $ 5,501 Balances Consist of: Outstanding Purchase Orders and Other Commitments... $ 3,398 $ 1,784 $ 99 $ 5,281 General $ 3,614 $ 1,788 $ 99 $ 5, Arizona State University