Financial Report For the year ended June 30, 1998

Transcription

1 Financial Report For the year ended June 30, 1998

2 SCIENCE with PRACTICE STATE BOARD OF REGENTS Owen J. Newlin, Des Moines, President Lisa E. Ahrens, Osage James H. Arenson, Cedar Rapids David J. Fisher, West Des Moines Dr. Clarkson L. Kelly, Jr., Charles City Ellengray G. Kennedy, Bancroft Roger L. Lande, Muscatine Nancy C. Pellett, Atlantic Beverly A. Smith, Waterloo Frank J. Stork, Urbandale, Executive Director UNIVERSITY OFFICIALS Martin C. Jischke, President John J. Kozak, Provost Murray M. Blackwelder, Vice President for External Affairs Warren R. Madden, Vice President for Business & Finance Thomas L. Hill, Vice President for Student Affairs Margaret S. Pickett, Assistant Vice President for Business & Finance and Controller Joan K. Thompson, Treasurer 1

3 THE UNIVERSITY DOLLAR For the year ended June 30, 1998 Current Funds (in thousands) Tuition & Fees $98,067 (15.7%) Federal Appropriations $11,279 (1.8%) State Appropriations $250,297 (40.0%) Revenues (by source) Contracts & Grants $118,072 (18.8%) Auxiliary Enterprises $79,864 (12.7%) Other $43,076 (6.9%) Independent Operations $25,902 (4.1%) Instruction $142,009 (22.9%) Expenditures & Transfers (by function) Operations & Maintenance $26,434 (4.2%) Research $126,529 (20.4%) Public Service $61,233 (9.9%) Academic Support $41,706 (6.7%) Scholarships & Fellowships $30,184 (4.9%) Educational & General Mandatory Transfers $14,108 (2.3%) Auxiliary Enterprises $80,665 (13.0%) Student Services $20,379 (3.3%) Independent Operations $25,902 (4.2%) Institutional Support $31,704 (5.1%) Non-Mandatory Transfers $19,159 (3.1%) Salaries & Wages $312,251 (50.4%) Expenditures & Transfers (by object) Capital $18,873 (3.0%) Benefits $69,444 (11.2%) General $153,244 (24.7%) Scholarships $30,184 (4.9%) Mandatory Transfers $16,857 (2.7%) Non-Mandatory Transfers $19,159 (3.1%) 2

4 STUDENT PROFILE Fall, 1997 Enrollment 6,000 5,000 Non-resident Resident 6,118 4,000 4,205 4,260 3,000 2,812 2,968 2,000 1,632 1,838 1,000 1, Agriculture Business Design Education Engineering Family & Liberal Arts & Con. Sciences Sciences Veterinary Medicine Graduate Summary of Fall Enrollment 1988 through Undergraduate: Agriculture 1,959 1,986 2,065 2,170 2,282 2,487 2,594 2,654 2,722 2,812 Business 1,747 1,683 1,530 3,119 2,781 2,638 2,593 2,631 2,822 2,968 Design 1,920 2,050 2,056 2,031 1,990 1,875 1,735 1,634 1,567 1,632 Education 1,812 1,862 1,855 1,831 1,736 1,686 1,648 1,648 1,726 1,838 Engineering 4,555 4,315 4,259 4,106 4,289 4,351 4,260 4,164 4,115 4,205 Family & Consumer Sciences 1,383 1,390 1,347 1,263 1,265 1,191 1,105 1,123 1,177 1,141 Liberal Arts & Sciences 7,710 7,784 7,763 6,019 6,075 6,034 5,989 5,949 5,971 6,118 Veterinary Medicine Graduate 3,986 4,077 4,151 4,395 4,506 4,483 4,416 4,223 4,396 4,260 Total Enrollment 25,448 25,489 25,339 25,250 25,263 25,112 24,728 24,431 24,899 25,384 Degrees Conferred for the Academic Year Bachelors 3,876 Masters 829 DVMs 100 Doctorates 300 3

5 STAFF PROFILE Full-Time Equivalent Employment Fiscal Year 1998 Non- Professional General Graduate Student Student Faculty & Scientific Service Assistants Hourly Hourly Academic Programs 1, Administration & Support Library Physical Plant University Extension Cooperative Extension Ag Experiment Station Ames Laboratory Contracts & Grants Auxiliary TOTAL 1, , , , , Employment Costs (in Thousands) For the Year Ended June 30, 1998 Faculty $143,289 (36.6%) General Service $73,596 (18.8%) Professional & Scientific $112,721 (28.8%) Student Assistants $36,339 (9.3%) Hourly Employees $25,240 (6.5%) Full-Time Equivalent Employment Fiscal Years 1989 through 1998 Employee Category Faculty 1, , , , , , , , , , Professional & Scientific 1, , , , , , , , , , General Service 2, , , , , , , , , , Graduate Assistants 1, , , , , , , , , , Student Hourly , , , Non-Student Hourly TOTAL 7, , , , , , , , , ,

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7 BALANCE SHEET June 30, 1998 ENDOWMENT CURRENT FUNDS LOAN and SIMILAR Unrestricted Restricted FUNDS FUNDS Unexpended ASSETS Cash and Investments (Note III C) $ 83,011,341 $ 5,651,163 $ 2,623,220 $ 71,320,999 $ 16,833,307 Accounts Receivable, Net (Note III D) 7,902,653 2,812,450 3,378,713 Notes Receivable, Net (Note III D) 21,195,885 Accrued Interest Receivable 1,642, , ,197 35,380 Due from U.S. Government 14,655,379 Due from State/State Agencies 1,475,167 2,925,465 Due from Trustee on Defeased Debt (Note III I 2) Due from Other Funds 1,011, Deferred Charges (Note III G) 2,358, , Inventories (Note III E) 14,282,928 Investment in/advances to Subsidiary (Note III A 1) 66,152 Deposits with Paying Agents (Note III I 3) Land Buildings Improvements Other Than Buildings Equipment Library Materials Accumulated Depreciation Total Assets $110,276,194 $ 24,820,765 $ 24,381,963 $ 71,426,196 $ 23,173,005 LIABILITIES Accounts Payable $ 7,256,870 $ 2,653,350 $ 5,150 $ 130,871 $ 2,689,941 Salaries & Wages Payable 1,741, ,470 Deferred Revenue (Note III G) 8,429,971 Compensated Absences Payable (Note III H) 18,662,315 10,666,824 Unpaid Claims Liability (Note II C 1) 3,036,000 Due to Other Funds 66,319 8, ,423 73,115 Bonds Payable (Note III I 1) 19,318,375 Accrued Interest Payable Capital Leases and Notes Payable (Note III J) 880,754 Deposits Held in Custody for Others (Note III L) Total Liabilities 39,192,766 14,008,850 5,150 1,035,294 22,962,185 FUND BALANCES Restricted for: U.S. Government Grants Refundable 18,637,049 Institutional Capital Contributions 5,008,436 Specific Purposes (Note III M for Endowment Funds) 10,811,915 30,968,806 Unrestricted: Designated for: Auxiliary Enterprises 2,799,695 Risk Management Reserves 7,448,068 Specific Purposes (Note III M for Endowment Funds) 19,851, ,328 39,422,096 Undesignated 40,983, ,820 Net Investment in Plant Component Unit Total Fund Balances 71,083,428 10,811,915 24,376,813 70,390, ,820 Total Liabilities and Fund Balances $110,276,194 $ 24,820,765 $ 24,381,963 $ 71,426,196 $ 23,173,005 6 See the accompanying notes which are an integral part of these financial statements.

8 TOTAL PLANT FUNDS TOTAL PRIMARY REPORTING Renewals and Retirement of Investment AGENCY UNIVERSITY COMPONENT ENTITY Replacements Indebtedness in Plant FUNDS (Memo Only) UNIT (Memo Only) $ 33,054,866 $ 22,475,916 $ $ 43,196,516 $ 278,167,328 $ 272,417 $ 278,439,745 43,712 10, ,168 14,274, ,849 14,691,095 21,195,885 21,195,885 87, ,733 2,597,277 2,597,277 14,655,379 14,655,379 4,400,632 4,400, , , ,694 38,480 1,423 1,052,063 1,052,063 10,018 10,902 2,605,849 31,149 2,636, ,047 14,402, ,774 15,109,749 66,152 66,152 13,043,980 13,043,980 13,043,980 4,442,216 4,442,216 1,235 4,443, ,427, ,427, , ,946, ,435, ,435, ,435, ,507, ,507, , ,406,263 97,443,947 97,443,947 97,443,947 (1,315,058) (1,315,058) $ 33,195,928 $ 36,703,353 $872,255,520 $ 43,455,056 $1,239,687,980 $ 1,531,569 $1,241,219,549 $ 203,819 $ 118,353 $ $ 11,595,987 $ 24,654,341 $ 518,606 $ 25,172,947 50,548 2,472,309 13,998 2,486,307 8,429, ,758 8,613, ,694 30,118,833 4,584 30,123,417 3,036,000 3,036,000 1,052,063 1,052,063 11,456, ,304, ,080, ,080,000 10,204,424 10,204,424 10,204,424 3,295,364 4,176, ,176,119 31,018,827 31,018,827 31,018, ,819 21,779, ,600,184 43,455, ,242, , ,963,833 18,637,049 18,637,049 5,008,436 5,008,436 32,992,109 14,923,771 89,696,601 89,696,601 2,799,695 2,799,695 7,448,068 7,448,068 60,005,410 60,005,410 41,194,499 41,194, ,655, ,655, ,655, , ,622 32,992,109 14,923, ,655, ,445, , ,255,716 $ 33,195,928 $ 36,703,353 $872,255,520 $ 43,455,056 $1,239,687,980 $ 1,531,569 $1,241,219,549 7

9 STATEMENT OF CHANGES IN FUND BALANCES For the year ended June 30, 1998 ENDOWMENT CURRENT FUNDS LOAN and SIMILAR Unrestricted Restricted FUNDS FUNDS REVENUES AND OTHER ADDITIONS Unrestricted Current Fund Revenues $424,698,617 $ $ $ Federal Appropriations-Restricted 11,265,232 State Appropriations-Restricted 62,003,021 Federal Grants & Contracts-Restricted 76,662, ,246 State Grants and Contracts-Restricted 11,236,513 Local Government Grants & Contracts-Restricted 848,451 Private Gifts, Grants & Contracts-Restricted 20,322,679 6,017 Investment and Endowment Income 218,485 6,412,843 Net Increase in Fair Value of Investments 496 4,698,979 Interest on Student Loans 596,091 Expended for Plant Facilities Retirement of Indebtedness Fees and Other Additions 4,497,738 12,647,927 Independent Operations 25,561,672 Component Unit Total Revenues & Other Additions 424,698, ,616, ,354 23,759,749 EXPENDITURES AND OTHER DEDUCTIONS Education and General Expenditures 304,221, ,956,345 Auxiliary Enterprises Expenditures 77,915,713 Independent Operations 25,902,433 Indirect Costs Recovered 10,965,421 Loan Cancellations and Write-Offs 110,216 Loan Administration and Collection Costs 333,068 Expended for Plant Facilities (including non-capitalized costs of $8,358,727) Retirement of Indebtedness Interest on Indebtedness Loss on Bond Refunding Issuance Disposal/Deductions of Plant Assets Arbitrage Rebate Other Deductions 29,822 Component Unit Total Expenditures & Other Deductions 382,136, ,824, ,106 0 TRANSFERS AMONG FUNDS-ADDITIONS/(DEDUCTIONS) Mandatory: Debt Service (16,384,308) Loan Fund Matching Grant (111,737) 111,737 Other (360,749) Nonmandatory (17,913,759) (1,038,085) 110,000 80,310 Total Transfers (34,770,553) (1,038,085) 221,737 80,310 NET INCREASE/(DECREASE) FOR THE YEAR 7,791,077 (1,245,675) 711,985 23,840,059 FUND BALANCE, JULY 1, ,157,442 12,056,303 23,664,828 37,235,466 PRIOR PERIOD ADJUSTMENTS (Note III R) 2,134,909 1,287 9,315,377 RESTATED FUND BALANCE, JULY 1, ,292,351 12,057,590 23,664,828 46,550,843 FUND BALANCE, JUNE 30, 1998 $ 71,083,428 $ 10,811,915 $ 24,376,813 $ 70,390,902 8 See the accompanying notes which are an integral part of these financial statements.

10 TOTAL TOTAL PLANT FUNDS PRIMARY REPORTING Renewals and Retirement of Investment UNIVERSITY COMPONENT ENTITY Unexpended Replacements Indebtedness in Plant (Memo Only) UNIT (Memo Only) $ $ $ $ $424,698,617 $ $424,698,617 11,265,232 11,265,232 22,143,467 84,146,488 84,146, ,378 77,406,946 77,406,946 33,911 11,270,424 11,270, , ,451 2,190,895 17,000 22,536,591 22,536, ,723 4,700,596 1,278,433 13,009,080 23,491 13,032,571 6,008 76, ,562 4,924,141 4,924, , ,091 61,430,742 61,430,742 61,430,742 10,784,380 10,784,380 10,784,380 9,229 18,900 17,173,794 17,173,794 25,561,672 25,561, ,949,428 1,949,428 25,165,611 4,776,692 1,439,895 72,232, ,652,649 1,972, ,625, ,177, ,177,619 77,915,713 77,915,713 25,902,433 25,902,433 10,965,421 10,965, , , , ,068 34,414,149 5,459, ,743 40,134,600 40,134,600 10,784,380 10,784,380 10,784,380 9,976,041 9,976,041 9,976, , , ,000 12,980,967 12,980,967 12,980, , , ,305 29,822 29, ,831,142 1,831,142 34,414,149 5,459,708 21,139,469 13,600, ,048,585 1,831, ,879,727 (107,282) (99,796) 16,591, ,204 (157,455) ,931,384 4,446,846 2,383, ,824,102 4,865,254 18,817, ,575,564 4,182,238 (882,339) 58,631,155 95,604, ,777 95,745,841 (2,364,744) 28,861,045 15,822, ,024, ,456, , ,125,414 (51,174) (15,938) 11,384,461 11,384,461 (2,364,744) 28,809,871 15,806, ,024, ,841, , ,509,875 $ 210,820 $ 32,992,109 $ 14,923,771 $716,655,336 $941,445,094 $ 810,622 $942,255,716 9

11 STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES, AND OTHER CHANGES For the year ended June 30, 1998 (with comparative totals for the year ended June 30, 1997) TOTALS UNRESTRICTED RESTRICTED REVENUES Tuition & Fees $ 98,067,468 $ $ 98,067,468 $ 92,873,108 Federal Appropriations 11,278,566 11,278,566 10,877,434 State Appropriations 188,293,865 62,003, ,296, ,509,924 Federal Grants & Contracts 9,348,245 66,629,911 75,978,156 79,728,845 State Grants & Contracts 837,303 10,319,595 11,156,898 11,865,937 Local Government Grants & Contracts 67, , , ,192 Other Gifts, Grants & Contracts 10,275,200 19,875,713 30,150,913 24,123,641 Investment & Endowment Income 5,491, ,045 5,665,043 2,559,211 Net Increase in Fair Value of Investments 1,755, ,756,123 0 Sales and Services of Educational Activities 8,238,931 8,238,931 7,521,021 Sales and Services of Auxiliary Enterprises 79,863,768 79,863,768 77,171,234 Other Sources 22,458,342 4,958,084 27,416,426 32,514,624 Independent Operations 25,902,433 25,902,433 29,288,311 Total Revenues 424,698, ,858, ,557, ,472,482 EXPENDITURES AND MANDATORY TRANSFERS Educational and General Instruction 141,326, , ,009, ,231,413 Research 17,410, ,118, ,528, ,877,939 Public Service 13,205,955 48,026,690 61,232,645 59,455,514 Academic Support 41,178, ,034 41,705,817 37,213,952 Student Services 19,623, ,366 20,379,355 18,965,631 Institutional Support 30,725, ,432 31,704,295 30,326,568 Operation and Maintenance of Plant 26,419,325 14,169 26,433,494 24,690,769 Scholarships and Fellowships 14,330,533 15,853,364 30,183,897 27,442,554 Total Educational and General Expenditures 304,221, ,956, ,177, ,204,340 Mandatory Transfers for: Debt Service 13,961,206 13,961,206 14,238,413 Loan Fund Matching Grant 111, ,737 63,237 Other Mandatory Transfers 35,000 35, ,551 Total Educational and General Mandatory Transfers 14,107, ,107,943 14,504,201 Total Educational and General 318,329, ,956, ,285, ,708,541 Auxiliary Enterprises: Expenditures 77,915,713 77,915,713 74,685,060 Mandatory Transfers for Debt Service & Other 2,748,851 2,748,851 2,800,491 Total Auxiliary Enterprises 80,664, ,664,564 77,485,551 Independent Operations: Ames Laboratory 25,902,433 25,902,433 29,288,311 Total Expenditures and Mandatory Transfers 398,993, ,858, ,852, ,482,403 OTHER TRANSFERS AND ADDITIONS/(DEDUCTIONS) Non Mandatory Transfers (17,913,759) (1,038,085) (18,951,844) (17,427,609) Excess of Transfers to Revenue over Restricted Receipts (207,590) (207,590) 885,192 Total Other Transfers and Additions/(Deductions) (17,913,759) (1,245,675) (19,159,434) (16,542,417) NET INCREASE/(DECREASE) IN FUND BALANCE $ 7,791,077 $( 1,245,675) $ 6,545,402 $ 15,447, See the accompanying notes which are an integral part of these financial statements.

12 NOTES to the FINANCIAL STATEMENTS For the Year Ended June 30, 1998 I. GENERAL The Iowa State University of Science and Technology (Iowa State University), located in Ames, Iowa, is a Land Grant institution owned and operated by the State of Iowa, under the governance of the Iowa State Board of Regents (Board of Regents). The Board of Regents is appointed by the state governor and confirmed by the state senate. Because the Board of Regents holds the corporate powers of Iowa State University, the University is not deemed to be legally separate. Accordingly, for financial reporting purposes, the University is included in the financial report of the State of Iowa, the primary government, as required by generally accepted accounting principles. The Iowa State University Financial Report includes the University and its interrelated organizations as described in Note III A below. The University offers courses of study leading to degrees at the undergraduate, graduate, and post-graduate levels. Degrees are available from eight colleges: Agriculture, Business, Design, Education, Engineering, Family and Consumer Sciences, Liberal Arts and Sciences, and Veterinary Medicine. Other major operating units of the University are: Agricultural Experiment Station; statewide Cooperative Extension Service; and the Ames Laboratory, a U.S. Department of Energy sponsored Independent Operation. The campus consists of approximately 1,788 acres. In addition, farms and other properties which are stocked and equipped for teaching and research purposes total approximately 9,350 acres. II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Iowa State University have been prepared in conformity with generally accepted accounting principles as applied to government colleges and universities. The more significant of the University s accounting policies are described below. A. Basis of Accounting - The financial statements of the University have been prepared on the accrual basis except, in accordance with the customary accounting practices of government colleges and universities, no provision is made for depreciation of physical plant assets. However, fixed assets of the discretely shown component unit are depreciated over the estimated useful lives of the assets using the straight-line method. The statement of current funds revenues, expenditures, and other changes is a statement of financial activities of current 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 income or a statement of revenues and expenses. To the extent that current 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 service and reserve accumulations, and (3) non-mandatory transfers in the case of payments made to the Unexpended Plant Fund for incurred costs. (1) Investments are stated at fair value. All gains and losses arising from the sale, collection, change in the fair value, or other disposition of fund owned investments and ordinary investment income are accounted for in the fund which owned such assets, except for income derived from pooled and endowment fund investments. Pooled investment income and gains/losses are allocated to the current unrestricted fund, federal student loan accounts, and other designated accounts on a percentage method based on cash balances with the remainder available for discretionary distribution. Endowment Fund investment income and gains/losses are accounted for in a pooled Endowment fund and investment income account and, except for a reserve for losses, are distributed based upon unit values at market. Unit values are adjusted quarterly. (2) Inventories are composed of supplies and merchandise for resale and livestock. Inventories of supplies and merchandise are valued at the lower of cost (primarily weighted average) or market. Inventories of livestock are valued at fixed prices per head, adjusted at the end of the fiscal year to existing market. (3) Investment in Plant is stated at cost at the date of acquisition or at estimated fair market value at the date of donation. The University capitalizes interest during the construction period. (4) Debt issuance costs are reported as expenditures in the year that revenue bonds are sold. 11

13 NOTES to the FINANCIAL STATEMENTS (continued) (5) Summer session revenues and expenditures are reported within the fiscal year in which the summer session program is predominantly conducted. Accordingly, only the revenues and expenditures of the 1997 summer session are included in the statement of current funds revenues, expenditures, and other changes. Revenues and expenditures for the 1998 summer session which have been received or paid at June 30, 1998, are reported as deferred revenue or charges, respectively. (6) Compensated absences (earned vacation and sick leave pay) related to the current unrestricted, current restricted, and agency funds are recorded as liabilities in the respective funds. These liabilities for compensated absences are based on current rates of pay. (7) Total columns on the balance sheet and statement of changes in fund balances are captioned, Memo Only, to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position in conformity with generally accepted accounting principles. Neither are such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of these data. (8) Encumbrances represent outstanding purchase orders which are commitments for goods or services not received as of fiscal year end. Because they do not constitute liabilities, they are not reported on the Balance Sheet. Outstanding encumbrances as of June 30, 1998, and June 30, 1997, are indicated in Note III N of these Notes to the Financial Statements. B. Fund Accounting - In order to ensure the observance of limitations and restrictions placed on the use of available resources, the accounts of the University are maintained in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are classified, for accounting and reporting purposes, into funds that are in accordance with activities or objectives specified. Separate accounts are maintained for each fund; however, in the accompanying financial statements, funds that have similar characteristics have been combined into fund groups. Within each fund group, fund balances restricted by outside sources are so indicated and are distinguished from unrestricted funds allocated to specific purposes. Externally restricted funds may only be used in accordance with the purposes established by the source of such funds as contrasted with unrestricted funds which the University retains control to use in achieving any of its institutional objectives. The assets, liabilities, and fund balances of the University are reported in five self-balancing fund groups plus a component unit designation for discrete presentation of certain interrelated organizations. (1) Current Funds include all unrestricted and restricted resources which are available for operating purposes of performing the primary missions of the University. (2) Loan Funds are restricted for use in making loans to students and include resources received from donors, governmental agencies, and mandatory institutional matching grants. (3) Endowment and Similar Funds include the following: (1) funds which are subject to restrictions of the gift instruments requiring the principal be invested in perpetuity with only the income to be expended, and (2) quasi endowments which are established by the administration to act as endowments where the principal, as well as the income, may be expended. (4) Plant Funds are used to account for the transactions relating to investment in University properties. They include the following subgroups: (1) Unexpended, (2) Renewals and Replacements, (3) Retirement of Indebtedness, and (4) Investment in Plant. The unexpended subgroup is comprised of amounts which have been appropriated or designated for additions or improvements to land, buildings, improvements other than buildings, and equipment. The Renewals and Replacements subgroup provide for the renewal and replacement of plant fund assets. The retirement of indebtedness subgroup consists of bond sinking funds to provide for payment of principal and interest. Investment in plant represents the total of land, buildings, improvements other than buildings, equipment, library materials, and the related liabilities. (5) Agency Funds are used to account for assets held by the University as custodian or fiscal agent for others. Consequently, the transactions of this fund are not reflected in the Statement of Changes in Fund Balances. (6) Component Unit is used to account for an interrelated organization that qualifies for discrete presentation in accordance with Governmental Accounting Standards Board Statement No

14 NOTES to the FINANCIAL STATEMENTS (continued) C. Risk Management - Iowa State University has elected to self-insure, or internally assume, certain potential losses where management believes it is more economical to manage these risks internally. Contingent liabilities are reported in Note III Q of these Notes to the Financial Statements when (1) it is probable that a loss has occurred or plaintiff claim has been filed, (2) the potential amount of the loss and or claim can be reasonably estimated, and (3) the amount is material. The University s exposure and management of various risks are delineated below. (1) Employee Health and Dental Benefits - The State of Iowa purchased commercial health and dental insurance for general service staff of the University. The University and employees share the cost of the premium and reimburse the State for the coverage. Effective February 1, 1997, the University elected to drop the premium-based insurance contract and self-fund medical and dental insurance for non-general service staff employees. The University insures its medical claims with stop-loss insurance at 120% in aggregate for the HMO plan, 125% in aggregate for all other plans, and a $300,000 individual maximum. The following schedule presents the changes in claims liabilities for the self-funded medical and dental insurance. Amount of claims and contingent liabilities accrued at July 1, 1997 $ 3,354,744 Claims incurred and contingent liabilities accrued for current and previous fiscal year 18,380,103 Payments on claims during the fiscal year (18,698,847) Amount of claims liabilities at June 30, 1998 $ 3,036,000 (2) Employee Workers Compensation/Unemployment Insurance - The State of Iowa self-insures, on behalf of the University, for losses related to workers compensation and unemployment claims on General Educational Fund employees. The Iowa Department of Personnel (IDOP) administers both programs. At the beginning of the fiscal year, IDOP calculates an annual workers compensation premium, to be paid in quarterly increments, for non-general Educational Fund employees of the University. The University s share of unemployment claims, for non-general Educational Fund employees, is also billed quarterly. The University establishes an internal rate for each program and separately charges each department for the benefits. Receipts from these charges are deposited into two separate reserve funds, considered self insured pools, from which the quarterly payments are made. Since these reserves are maintained at a level adequate to pay the required premiums by adjusting the internal rates, no additional risk is assumed. (3) Employee Flex II Program For Health and Dental Costs - University employees have an option to participate in a Flex II program where they can elect to have a pre-tax, non-refundable payroll-deduction of up to $5,000 set aside to pay for certain uninsured medical and dental claims and/or qualified dependent care. This program carries an element of selfinsurance risk, as required by federal law. Since the University deducts only 1/12 of the elected amount from the employees pay each month, but is liable for the total elected amount upon presentation of appropriate claims, it would be at risk for the difference between an employee s total claims and the amount collected from payroll deductions should the employee terminate before contributing an adequate amount. The University, by law, cannot seek restitution for this difference. However, these employee contributions are maintained in a separate agency fund account which has carried a surplus balance since inception of the program, due to contributions exceeding claims each year. (4) General Liability - The State maintains an employee fidelity bond whereby the first $100,000 of losses is the responsibility of the University. Losses between $100,000 and $2,000,000 are insured. The University also maintains an employee blanket bond for additional coverage. The State of Iowa self-insures, on behalf of the University, losses related to tort claims. The Board of Regents entered into an agreement with the Iowa Department of Management, the State Appeals Board, and the Attorney General for resolution of tort claims of $2,000 or less. Regents institutions are authorized to approve individual claims up to $2,000, but not to exceed $50,000 in aggregate per year. When a claim is filed against the State, the State Appeals Board has the authority to approve or reject ordinary claims within ten years of occurrence and tort claims up to $5,000. Tort claims settled or allowed in excess of $5,000 must be unanimously approved by all members of the Appeals Board, the Attorney General, and the District Court of the State of Iowa for Polk County. Tort claims may be paid from the State s General Fund without limit. 13

15 NOTES to the FINANCIAL STATEMENTS (continued) (5) Motor Vehicle Insurance - The Board of Regents institutions cooperatively self-insure for liability losses related to motor vehicles up to $250,000. Each regents institution is required to pay a pre-determined monthly premium for each vehicle into the cooperative insurance pool. Losses in excess of $250,000 are self-insured by the State as provided in Chapter 669 of the Code of Iowa. The University self-insures its vehicles for physical damage. (6) Property Insurance - The State of Iowa self-insures, on behalf of the University, property deemed General University property which is exclusive of property belonging to self-supporting enterprises. A contingency fund exists under Section 29C.20 of the Code of Iowa to provide compensation for loss or damage to state property (includes General University property). By an agreement with the State, claims in excess of $5,000 or an annual aggregate of $10,000 may be submitted to the Executive Council for consideration. When a loss exceeds $500,000 it is necessary to seek an appropriation from the General Assembly. The University has purchased commercial property insurance, including earthquake and flood coverage, for its facilities. There is a $2,000,000 deductible on General University buildings. Additional coverage is provided for enterprise facilities such as the residence system, Iowa State Center, power plant, etc., with deductibles ranging from $5,000 to $1,000,000 per occurrence. (7) Business Interruption Insurance - The University self-insures for business interruption losses of its general mission revenues such as tuition and fees, etc. Commercial insurance is purchased to cover business interruption losses for selfsupporting enterprises such as the golf course, residence system, Iowa State Center, etc. (8) There were no significant reductions in insurance coverage for the prior year and settlements have not exceeded coverage for the past three fiscal years. III. NOTES TO THE FINANCIAL STATEMENTS The following notes are presented as explanatory additions to the statements and as such are an integral part of this financial report. A. Interrelated Organizations - The following related organizations are legally separate entities, controlled by separate boards of directors and not financially accountable to the University; therefore, their activities are not included in the financial statements or notes of the University: Iowa 4-H Foundation, Iowa State Memorial Union, Iowa Crops and Soils Research Association, Iowa State University Agricultural Foundation, and Iowa State University Committee for Agricultural Development. Other related organizations are included in the financial statements of the University as wholly-owned subsidiaries or component units, or disclosed in a detailed related organizations footnote. (1) Wholly Owned Subsidiary - Effective July 1, 1987, the University formed the ISU Equities Corp., (ISUEC), as a wholly owned subsidiary. The University has recorded the investment in this wholly owned subsidiary following the equity method of accounting. The University s carrying value as of June 30, 1998, was $66,152, the carrying value of ISUEC. (2) Blended Component Units are entities which are legally separate from the University, but are so intertwined with the University that they are, in substance, part of the University. They are reported as part of the University and blended into the appropriate funds. Iowa State University Research Foundation, Inc. was organized as a corporation to assist in securing protection for intellectual property such as patents and copyrights resulting from research, writing, and other projects of members of the Iowa State University community. The transactions of this organization are blended into the Current Unrestricted Fund group with revenues included in the Other Sources classification and expenses included in the Institutional Support classification. For the year ended June 30, 1998, these were $4,385,655 and $808,588 respectively. The corporation was audited by other independent auditors and their report, dated July 29, 1998, has been previously issued under separate cover and is available at the Office of the Vice President for Business and Finance of Iowa State University. Miller Endowment Incorporated was established December 18, 1995 pursuant to the will and codicil of F. Wendell Miller. The will and codicil appointed the presidents of Iowa State University and The State University of Iowa as coexecutors of the Miller Estate and co-trustees of the Miller Endowment Trust, a charitable trust, and further directed that the two universities be equal beneficiaries of the income from said trust. The will and codicil also directed the trustees to have the right and discretion to create a charitable corporation, to be the Miller Endowment Incorporated, to own, administer and control the affairs and property of the trust. This corporation has been organized under Chapter 504A of the code of Iowa and Section 501(C)(3) of the Internal Revenue Code. During fiscal year 1998 the assets of the trust were officially transferred to Miller Endowment Incorporated. Since the net revenues and assets of the corporation are solely for the equal benefit of the two universities, one half of the value of the corporation s transactions have been blended into the Endowment Fund group, as a Quasi Endowment. The corporation was audited by other independent auditors and their report, dated August 19, 1998, has been previously issued under separate cover and is available at the Office of the Vice President for Business and Finance of Iowa State University. 14

16 NOTES to the FINANCIAL STATEMENTS (continued) (3) Discrete Component Units are entities which are legally separate from the University, but are financially accountable to the University, or whose relationships with the University are such that exclusion would cause the University s financial statements to be misleading or incomplete. The Component Unit column of the financial statements includes the financial data of these entities. Iowa State University Press was founded on April 3, 1941, as a corporation for the exclusive purpose of providing for the educational welfare of Iowa State University and the students, alumni, and faculty through the conduct of publishing activities. The corporation was audited by other independent auditors and their report, dated July 9, 1998, has been previously issued under separate cover and is available at the Office of the Vice President for Business and Finance of Iowa State University. (4) Related Organizations - Several organizations exist that are not directly financially accountable to the University, but contribute funds to the University for student grants and scholarships, support of intercollegiate athletics, educational and general institutional support, or provide other forms of significant support to the University s missions. The organizations primarily receive funds through donations and dues, rents, or by-product sales. The organizations complete financial statements can be reviewed by contacting the Office of the Vice President for Business and Finance of Iowa State University. Significant financial data for the year ended June 30, 1998, follows: ISU Alumni Association ISU Foundation ISU Research Park Total Assets Cash & Investments $ 2,569,588 $245,549,643 $ 508,937 $248,628,168 Due from University 17,074 17,074 Other Assets 394,807 32,135,898 6,186,696 38,717,401 Total Assets $ 2,964,395 $277,685,541 $ 6,712,707 $287,362,643 Liabilities & Equity Current Liabilities $ 382,303 $ 22,997,420 $ 561,919 $ 23,941,642 Due to the University 93, , ,903 Long Term Liabilities 4,922,304 4,922,304 Equity 2,488, ,378,462 1,228, ,095,794 Total Liabilities & Equity $ 2,964,395 $277,685,541 $ 6,712,707 $287,362,643 Revenues Contributions & Gifts $ 533,033 $ 57,549,474 $ 58,082,507 Dues 537, ,657 Investment Income 989,445 30,030,506 $ 33,869 31,053,820 Rents & Other Revenue 1,329,314 1,329,314 Total Revenues $ 2,060,135 $ 87,579,980 $ 1,363,183 $ 91,003,298 Expenditures Operating Expenses $ 1,116,109 $ 1,116,109 Other Disbursements $ 874,454 $ 16,928,979 17,803,433 Total Expenditures $ 874,454 $ 16,928,979 $ 1,116,109 $ 18,919,542 Transfers from University $ 180,505 $ 1,262,396 ** $ 1,442,901 Transfers to University $ 922,308 $ 13,729,469 *** $ 14,651,777 ** Included in revenue are rental payments from the University of $534,769. *** Included in operating expenses are payments to the University of $49,

17 NOTES to the FINANCIAL STATEMENTS (continued) B. Retirement Systems (1) Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) and Other Substitute Annuity Plans - The amount reported as salaries and wages includes $24,144,770 of employer contributions to the Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) and other substitute annuity plans. Concurrent participation in TIAA-CREF, IPERS, or other substitute plans is not permitted. During 1944, the Board of Regents adopted an optional retirement plan for faculty and staff resulting in the selection of TIAA as the annuities carrier. In addition, during 1955, the Board of Regents approved the substitution of retirement annuity contracts with other annuity companies. Participation in alternate annuity plans is based on employee selection. Eligibility requirements have been established by the Board of Regents and the annuity carriers. TIAA is a non-profit, legal reserve life insurance and annuity company incorporated in the State of New York. CREF is a separate non-profit corporation, companion to TIAA, established by a special act of the New York State Legislature to provide retirement benefits based on common stock investments. Accounting for the retirement system is done on a combined basis for over 3,800 participating institutions. Accordingly, the pension expense for the period specifically applicable to Iowa State University is not available. All pension plan liabilities are fully funded through individually owned annuity contracts. The University s responsibility is limited to payment of employer contributions as established by the Board of Regents. Both employee and employer contributions are based on budgeted salary and length of service. The employer participates on a twothirds basis with the employee paying the remaining one-third of the premium. During the first five years of continuous service, the employer contributes 6-2/3% of the first $4,800 and 10% of the budgeted salary over $4,800. Beginning with the 6th year of continuous service and for nine-month employees who work during the summer, the employer contribution is 10% of budgeted salary and the employee contribution is 5%. The University, by contributing to these plans, participates in a defined contribution retirement plan. A defined contribution retirement plan provides retirement benefits in return for services rendered, provides individual annuities for each plan participant, and specifies how contributions to an individual s annuity are to be determined instead of specifying the amount of benefits the participant is to receive. Under a defined contribution retirement plan, the benefits a participant will receive depend solely on the amount contributed to the participant s annuity and the returns earned on investments of those contributions. As required by Board of Regents policy, all eligible University employees must participate in a retirement plan from the date they are employed. Contributions made by both employer and employee vest immediately. Employees may contribute additional amounts without a corresponding contribution by the University. During fiscal year 1998, the University s required and actual contribution of $24,144,770 was approximately 10% of the wages of the employees who were covered by the plan. The employees required and actual contribution of $14,611,236 was approximately 6.05 % of the wages covered by the plan. The University s total fiscal 1998 payroll was $319,311,209 of which approximately $241,447,698 was for employees covered by the plan. No changes to the retirement plan provisions occurred during the year that affected the University s or employees required contributions. (2) Iowa Public Employees Retirement System - The University contributes to the Iowa Public Employees Retirement System (IPERS), a cost-sharing multiple-employer defined benefit pension plan administered by the State of Iowa. IPERS provides retirement and death benefits which are established by State statute to plan members and beneficiaries. IPERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Iowa Public Employees Retirement System, P.O. Box 9117, Des Moines, Iowa or by calling Plan members are required to contribute 3.7% of their annual covered salary; the University is required to contribute 5.75% of annual covered payroll. These contribution requirements are established by State statute. The University s contributions to IPERS for the years ended June 30, 1998, 1997 and 1996 were $573,367, $548,466 and $573,319 respectively, equal to the required contributions for each year. All employees, with certain exceptions, who do not participate in any other public retirement system in the State are eligible and must participate in IPERS. (3) Early Retirement Incentive Program - In addition to the retirement systems described above, faculty, professional and scientific employees, merit system employees, institutional officials, and staff of the Board Office not under the Regent Merit System who are employed by the Board of Regents for a period of at least fifteen continuous years and who have attained the age of 57 are eligible for participation in the early retirement incentives program. During the years of participation in the program, the University will provide the following fringe benefits based upon the employee s salary 16

18 NOTES to the FINANCIAL STATEMENTS (continued) at the time of retirement and adjusted for changes in benefits that occur at specific ages; (1) the employer s contributions for health and dental insurance until the employee is eligible for Medicare coverage; (2) a $4,000 paid-up life insurance policy; and (3) for employees covered by the TIAA/CREF retirement program, employee s and employer s contributions for up to three years and employer s contributions for up to an additional two years, with contributions payable for a maximum of five years or until eligible for full Social Security benefits, whichever occurs first (contributions for employees covered by IPERS are available as a cash payment equal to the present value of the benefits). As an alternative, if the employer agrees, all or part of the incentives except the $4,000 life insurance policy may be provided as a cash payment equal to the present value of the benefit(s) for which it is substituted. The discount rate used in calculation of the present value is determined by the Board of Regents annually and was approved at 5.46% for fiscal year Contingent Liability - As of June 30, 1998, the potential liability, if all eligible employees accept early retirement is $29,694,947. Committed Obligations - As of June 30, 1998, 333 employees had taken early retirement for which the University is committed to future benefit payments totaling $4,873,145. During the fiscal year, the University paid $2,134,495 for continuing benefits and $113,871 in lump sum payments for this program. Both amounts are included in the expenses on the statement of current fund revenues, expenditures, and other changes. All incentive payments are financed on a pay-as-you go basis. C. Deposits/Investments with Financial Institutions - The University s cash on hand at June 30, 1998, was $204,010. The bank balances and book balances are $1,806,176 and ($8,160,573), respectively. The deposits of the University were entirely covered by Federal Depository Insurance (FDIC), or collateral held by the University s agent in the University s name, or by a multiple financial institution collateral pool in accordance with Chapter 12C of the Code of Iowa. This code provides that, in the event a bank fails, the State Treasurer first determines the amount of the loss and validates the amount of applicable FDIC insurance. The Treasurer is empowered, by the chapter, to cover the remaining loss from the State sinking fund for public deposits in banks. If the balance in the sinking fund is inadequate to cover the remaining loss, the Treasurer is empowered to make assessments against other banks whose public fund deposits exceed the insurance coverage. In accordance with the Code of Iowa and the Board of Regents policy, the University s operating portfolio may be invested in obligations of the U.S. government or its agencies, certain high rated commercial paper, highly rated corporate bonds, certain limited maturity zero coupon securities, fully insured or collateralized certificates of deposits and savings, eligible bankers acceptances of 180 days or less, certain repurchase agreements, high quality money market funds, and highly rated guaranteed investment contracts. The University s endowment portfolio may invest in all of the above as well as certain listed investment grade securities, certain shares of investment companies, and new issues of investment grade common stock. The University s investments at June 30, 1998, are categorized below by credit risk and type of investment. Money market funds and real estate are not subject to credit risk categorization. As defined by GASB Statement No. 3, the three types of credit risk are: Category 1 Category 2 Category 3 Insured or registered securities or securities held by the University or its agent in the University s name. Uninsured and unregistered, with securities held by the counterparty s trust department or agent in the University s name. Uninsured and unregistered, with securities held by the counterparty s trust department or agent, but not in the University s name. Investment Category 2 Cost Fair Value U.S. Government Securities $139,788,128 $139,788,128 $141,364,625 Common & Preferred Stocks 50,470,214 50,470,214 68,502,691 Corporate Notes 3,120,581 3,120,581 3,154,309 Corporate Bonds 680, , ,234 Subtotal $194,059, ,059, ,707,859 Money Market Funds 72,338,815 72,356,382 Real Estate 536, ,077 TOTAL $266,934,254 $286,600,318 17

19 NOTES to the FINANCIAL STATEMENTS (continued) The University s investments at June 30, 1998, are reported at fair value per GASB Statement No. 31. Below is a fair value analysis of the Unversity s investment activity by fund group. Beginning Ending Fair Value Net Fair Value Change in 7/1/97 Purchases Subtotal 6/30/98 Fair Value Current Unrestricted $113,164,564 $13,225,281 $126,389,845 $128,161,408 $1,771,563 Current Restricted 6,257 6,257 6, Endowment 46,846,326 20,071,389 66,917,715 71,616,694 4,698,979 Plant 38,368,291 15,729,707 54,097,998 54,322, ,666 Agency 31,384, ,800 32,021,840 32,392, ,959 Component Unit 50,000 50, , ,000 0 TOTAL $229,819,478 $49,714,177 $279,533,655 $286,600,318 $7,066,663 Current Unrestricted Fund change in fair value includes $15,936 reported as Auxiliary Enterprise revenue on the Statement of Current Fund Revenues, Expenditures and Other Changes. D. Accounts Receivable/Notes Receivable - Accounts receivable and notes receivable are shown on the balance sheet net of their allowances for doubtful accounts. The amount of the allowance for the various fund groups is as follows: Fund Group June 30, 1998 June 30, 1997 Accounts Receivable Allowance: Current Unrestricted Fund $535,971 $499,403 Current Restricted Fund 14,403 16,871 Agency Fund 3,568 1,332 Component Unit 25,000 25,000 TOTAL $578,942 $542,606 Notes Receivable Allowance: Loan Fund $206,155 $198,726 E. Inventories - The Inventory balances on the balance sheet are comprised of two distinct categories as described in Note II, A2 above and scheduled below: Current Unrestricted Fund Agency Fund Component Unit June 30, 1998 June 30, 1997 Supplies for Resale $11,741,011 $120,047 $ 706,774 $12,567,832 $12,084,817 Livestock 2,541,917 2,541,917 2,744,185 TOTAL $14,282,928 $120,047 $ 706,774 $15,109,749 $14,829,002 F. Expended for Plant Facilities and Net Change in Investment in Plant - The change in Investment in Plant assets is detailed below: Educational Plant Auxiliary Enterprises Total Investment in Plant, June 30, 1997 $718,037,699 $ 102,310,013 $820,347,712 Expended for Plant Facilities 59,215,887 2,214,855 61,430,742 Borrowed Funds Expended for Fixed Assets 1,521,309 1,919,724 3,441,033 Private Gifts 17,000 17,000 Disposal of Plant Facilities (11,804,973) (1,175,994) (12,980,967) Investment in Plant, June 30, 1998 $766,986,922 $105,268,598 $872,255,520 Expended for Plant Facilities includes $29,654,869 charged to Current Fund expenditures. General fixed assets purchased with resources provided by outstanding capital lease agreements at June 30, 1998, consisted of buildings, improvements other than buildings, and equipment costing $6,612,