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21 Management s Discussion and Analysis This section of Oakton Community College s Comprehensive Annual Financial Report presents management s discussion and analysis of the College s financial activity during the fiscal years ended June 30, 2008, and June 30, Since this management s discussion and analysis is designed to focus on current activities, resulting change and currently known facts, please read it in conjunction with the transmittal letter (pages 6-10) and the College s basic financial statements (pages 28-44). Responsibility for the completeness and fairness of this information rests with the College. Using This Annual Report The College financial statements (see pages 28-31) are designed to emulate corporate presentation models whereby all College activities are consolidated into one total. The focus of the Statements of Net Assets is to reflect the College s financial position at a certain date. This statement combines and consolidates current financial resources (short-term spendable resources) with capital assets. The Statements of Revenues, Expenses, and Changes in Net Assets focuses on both the gross costs and the net costs of College activities which are supported substantially by property taxes, state and federal grants and contracts, student tuition and fees and auxiliary enterprises revenues. This approach is intended to summarize and simplify the user s analysis of cost of various College services to students and the public. Financial Highlights Comparative of Net Assets - Fiscal Years Net Investment in Capital Assets Restricted Unrestricted 16

22 Financial Analysis of the College as a Whole This schedule is prepared from the College s statement of net assets which is presented on an accrual basis of accounting whereby assets are capitalized and depreciated. Fiscal Year 2008 Compared to 2007 Increase Increase (Decrease) (Decrease) Current assets $97.5 $102.0 ($4.5) $89.3 $12.7 Non-current assets Capital assets, net of depreciation (1.0) 62.3 (0.3) Other (2.1) Total assets Current liabilities Non-current liabilities Total liabilities Net assets Net Assets As of June 30 (in millions) Investment in capital assets (1.0) 62.3 (0.3) Restricted for: expendable (0.4) Unrestricted Total Net Assets $137.9 $132.4 $5.5 $126.2 $6.2 Current Assets have decreased by approximately $4.5 million due primarily to the College decreasing its short term investments gradually during the year to capture more yields. Property Tax Receivable increased due to an increase in the current levy. Student Tuition and Fees Receivables increased due to a tuition rate increase and slightly higher enrollments. Other Accounts Receivables decreased due to a decrease in Government Contracts Receivable at fiscal year end. Inventory, predominately for items for resale in the Bookstore have decreased due to timing issues of when items were recorded. Non- Current Assets have increased approximately $14.1 million primarily due to the reallocation of short term investments to long term investments. 17

23 Current Liabilities increased by $3.1 million primarily due to an increase in Unearned Property Tax revenue, Accrued Salaries, and Accounts Payable. The increase in Unearned Property Tax revenue was based on an estimated tax levy increase in the forthcoming year. The Accrued Salaries liability increased due to an increase in salary levels and the number of days required to be accrued into the current year. The Accounts Payable liability increased due to the increase in expenses this year and the payment of the corresponding invoices. Non-Current Liabilities increased approximately $1.1 million due to an increase in Unearned Property Tax revenue primarily. This revenue increased due to an estimated tax levy increase in the forthcoming year. The College has a current ratio of 2.0 versus 2.2 at June 30, 2008 and June 30, 2007 respectively. This means that for every dollar of Current Liabilities the College has $2 in Current Assets. This ration is an indicator of the College s ability to pay its debt in a timely manner. The change in Net Assets is explained on Page 25. Fiscal Year 2007 Compared to 2006 Current Assets have increased by approximately $12.7 million due primarily to the College increasing its short term investments gradually during the year as interest rates continued to increase. Property Tax Receivables increased due to an increase in the current levy. Other Accounts Receivables decreased due to a decrease in Government Contracts Receivables at fiscal year end. Inventory and prepaid expenses, predominately for items for resale in the Bookstore and prepaid salaries have increased due to timing issues of when these items were recorded in the years presented. Non-Current Assets decreased approximately $2.4 million primarily due to the reallocation of long term investments to short term investments. Investment in Capital Assets Net of Accumulated Depreciation decreased approximately $0.3 million due to a significant write off of building improvements this fiscal year. Current Liabilities increased by $2.6 million primarily due to an increase in Unearned Property Tax revenue and Unearned Tuition and Fees revenue. The increase in Unearned Property Tax revenue was based on an estimated tax levy increase in the forthcoming year. Unearned Tuition and Fees revenue increased due to the recording of Summer 2007 tuition reflecting an increase in the tuition rate of $7.00 per credit hour for in district students. Non-Current Liabilities increased approximately $1.4 million due to an increase in Unearned Property Tax revenue and Other Accrued Liabilities. Unearned Property Tax revenue increased due to an estimated tax levy increase in the forthcoming year. Other Accrued Liabilities increased primarily due to the recording of other postretirement employee benefits for medical coverage reimbursement. The change in Net Assets is explained on Page

24 Operating Results for the Year Ended June 30 (in millions) Increase Increase (Decrease) (Decrease) Operating revenue Tuition and fees $ 14.7 $ 12.9 $ 1.8 $ 11.5 $ 1.4 Auxiliary Other (0.2) Total Operating Revenue Non-operating revenue State grants and contracts Federal and local grants and contracts Property and replacement taxes Investment income (0.4) Total Non - Operating Revenue Total Revenues Less operating expenses Net income before capital contributions (1.4) Capital appropriations Capital grants and gifts Increase in net assets (0.7) Net assets, beginning of year Net assets, end of year $ Fiscal Year 2008 Compared to 2007 Total revenues and expenses (Operating and Non-Operating) for the year 2008 were $81.3 million and $76.3 million. Total revenues and expenses (Operating and Non-Operating) for the year 2007 were $76.0 million and $69.8 million. Operating revenue increased $2.4 million primarily due to an increase in tuition from $75 to $82 per credit hour for in-district tuition. 19

25 Non-Operating revenue increased $2.9 million. The major factors contributing to the increase in Non-Operating revenue were Property and Replacement taxes realized and Grants and contracts received from State and Federal agencies. Property taxes realized increased $1.6 million due to an increased levy and minor property growth in the District. State Grants and Contracts increased approximately $1.3 million due to a substantial increase in the on behalf payments by the State toward employee s pension obligation. Investment Income decreased slightly due to a drop in interest rates versus the prior year. Operating expenses as of June 30, 2008 increased $6.7 million. The most significant Operating expenses is Instruction which increased $2.8 million in fiscal year The primary contributor to this increase was an increase in wages paid and employee benefit costs. As stated above, the State s on behalf payment toward employee s pension obligation increased by $1.0 million in Fiscal year In addition, salary cost increased by $3.4 million due to an increase in wages paid and partially due to an increase in enrollments. Services and supplies cost increased due to the enrollment increase and the harsh winter. Commodity costs also rose considerably during the fiscal year contributing to the increase in expenses. Fiscal Year 2007 Compared to 2006 Total revenues and expenses (Operating and Non-Operating) for the year 2007 were $76.0 million and $69.8 million. Total revenues and expenses (Operating and Non-Operating) for the year 2006 were $69.2 million and $68.1 million. Operating revenue increased $1.2 million primarily due to an increase in tuition from $69 per credit hour to $75 per credit hour for in-district tuition. Non-Operating revenue increased $5.6 million. The major factors contributing to the increase in Non-Operating revenue were the investment income earned during the year and Property Taxes revenue realized. Interest rate increases during the year in combination with an increase in investable funds produced significant interest income for the College. In addition, the fair value adjustment on the College s investment portfolio was significantly less than last year. Property Tax revenue increased $1.9 million due to an increased levy and minor growth in the College district. State Grants and Contracts increased approximately $1.0 million due to a substantial increase in the on behalf payments by the State toward employee s pension obligation. Operating expenses as of June 30, 2007 increased $1.7 million or approximately 2.4 percent over fiscal year The most significant Operating expense is Instruction which increased $2.0 million in fiscal year The primary contributor to this increase is an increase in wages paid. Institutional Support expenses decreased by $0.8 million due to the recognition of prior and current post retirement employee benefits in fiscal year 2006 which resulted in a much larger expense in fiscal year 2006 versus fiscal year Academic Support expenses decreased by $0.5 million due to a decrease in the receipt of grant funds pertaining to Academic Support activities. Student Services expenses increased by $0.5 million due to an increase in the receipt of grant funds pertaining to Student Services activities and salaries and direct expenses pertaining to the delivery of Student Services. Public Services expenses increased by $0.4 million primarily due to an increase in grant funds pertaining to Public Services activities. 20

26 The College in fiscal year 2007 successfully completed negotiations with the Adjunct Faculty Association. Contracts with the Faculty Association, Classified Association and the Fraternal Order of Police will expire at June 30, During fiscal year 2007 the College began the implementation of the Sunguard Higher Education Finance/HR Data System. The go live target date for the Finance portion of the system was met on July 1, The HR portion has a targeted go live date of January 1, The College during fiscal year 2007 completed a self study report preparing for the Higher Learning Commission (HLC) reaccreditation visit in October The self study report serves a dual purpose. The report fulfills the HLC requirements for reaccreditation, and represents a two-year research effort of the College to think carefully and critically about who we are and who we want to be as a public community college. In addition, during fiscal year 2007, the College s Board of Trustees approved a Strategic Plan for fiscal years This plan document contains nine strategic goals and 29 objectives, which together comprise an ambitious agenda for change that will require multiple years, the work of many individuals, and a substantial amount of resources. The College in fiscal year 2008 began negotiations with the Faculty Association, Classified Association and the Illinois Fraternal Order of Police. Contracts have been brought forward to the Classified Association and the Illinois Fraternal Order of Police Unions for ratification in August, The contract with the Adjunct Faculty and Faculty Association will expire during Fiscal Year The College met its go live target date for the Finance and Human Resources/Payroll implementation of the SunGard Higher Education Finance/HR Data System during Fiscal year This system should improve services to our students and staff well into the future. 21

27 Revenue by Source June 30, 2008 Tuition and Fees 18.1% Auxiliary 12.2% Other 0.3% Investment Income 4.7% State Grants/Contracts 14.1% Federal/Local Grants/Contracts 5.7% Property Taxes 44.9% 22

28 Operating Expenses For the Year Ended June 30 (in millions) Net Net Increase Increase (Decrease) (Decrease) Operating expense Instruction $ 33.4 $ 30.6 $ 2.8 $ 28.6 $2.0 Academic support (0.5) Student services Public service (0.2) Operations and maintenance plant General administration Institutional support (1.9) 4.8 (0.8) Financial aid Auxiliary (0.2) Depreciation (0.3) Total $ 76.5 $ 69.8 $ 6.7 $ 68.1 $ 1.7 The following is a graphic illustration of operating expenses Operating Expenses June 30, 2008 Auxiliary 15.1% Depreciation 4.2% Financial Aid 2.5% Institutional Support 2.7% General Administration 5.4% Operations and Maintenance of Plant 8.8% Instruction 43.7% Public Services 3.0% Student Services 8.5% Academic Support 6.1% `` 23

29 Comparison of Operating Expenses Fiscal Years 2008 thru Instruction Academic Support Student Services Public Service Operations and Ma int of P la nt Ge ne ra l Administ ra t ion Institutional Support Financial Aid Auxiliary Depreciation Fiscal Year 2008 Compared to 2007 Operating expense for fiscal year 2008 increased by $6.7 million. Instructional expenses increased $2.8 million due primarily to an increase in instructional salary costs and related employee benefits. Operations and Maintenance cost increased by $1.1 million due to salary increase and related employee benefit costs. Auxiliary Fund cost increased also due to salary increases and related employee benefit costs primarily. Employee benefit costs increased to the College by approximately $1.0 million due to on behalf pension payments made by the State reflected on the College s financial statements. This large increase affected all functions employee benefit costs. Salary costs in the aggregate increased $3.4 million due to contractual agreements. Fiscal Year 2007 Compared to 2006 Operating expenses for fiscal year 2007 increased by $1.7 million. Instructional expenses increased $2.0 million due primarily to an increase in instructional salary costs and purchases of materials and equipment related to classroom instruction. Academic Support, Student Services and Public Services expenses either increased or decreased primarily due to the receipt of grant funds. Depreciation decreased due to the significant write off of site improvements in fiscal year Institutional Support expenses decreased by $0.8 million primarily due to the estimated liability for post employment benefits being reduced significantly versus last years initial recognition of this expense. 24

30 June 30 Analysis of Net Assets (in millions) Increase Increase (Decrease) (Decrease) Net Assets Net Investment in Capital Assets $ 61.0 $ 62.0 ($1.0) $ 62.3 ($0.3) Restricted Expendable (0.4) Unrestricted Total $ $ $ 5.5 $ $ 6.2 Fiscal Year 2008 Compared to 2007 The increase in total net assets of $5.5 million was substantially due to the $5.8 million increase in Unrestricted Net Assets. This category of the Net Assets increased due to a tuition rate increase of $7.00 per credit hour, property tax revenue growth and additional State and Federal grants and contracts received by the College. Net Investment in Capital Assets decreased by $1.0 million primarily due to fewer Capital Assets purchased than in the prior fiscal year and a significant write off of site improvements also in the prior fiscal year. Restricted Expendable Net Assets increased by $0.7 million due to the completion of a number of site and remodeling improvements during the year and the increase in the College s specific purposes fund balances. Fiscal Year 2007 Compared to 2006 The increase in total net assets of $6.2 million was substantially due to the $6.9 million increase in Unrestricted Net Assets. This category of Net Assets increased due to a tuition rate increase of $6.00 per credit hour, property tax revenue growth, and significant increase in interest income to the College. In addition, the College s continual conservative spending policy which resulted in actual Operating Expenses raising less than two percent also contributed to the Unrestricted Net Assets growth. Net Investment in Capital Assets decreased primarily due to the significant write off of site improvements. Restricted Expendable Net Assets decreased due to the completion of Life Safety projects during the fiscal year using fund balance accumulated in prior years and building improvements and infrastructure improvements made during the year by the College. 25

31 Analysis of Net Assets June 30, 2008 Net Investment in Capital Assets 44% Unrestricted 40% Restricted 16% Capital Assets, Net June 30 (in millions) Increase Increase (Decrease) (Decrease) Capital Assets Land and Improvements $ 12.4 $ 12.6 $ (0.2) $ 11.7 $ 0.9 Building (1.3) Equipment (0.5) Computer Technology Total (0.7) Less Accumulated Depreciation (27.2) (25.5) (1.7) (25.9) 0.4 Net Capital Assets $ 61.0 $ 62.0 $ (1.0) $ 62.3 $ (0.3) 26

32 Detailed information on capital asset activity may be found on page 30 in the #3 notes to financial statements Capital Assets. Fiscal Year 2008 Compared to 2007 As of June 30, 2008, the College had recorded $88.2 million invested in Capital Assets, $27.2 million in Accumulated Depreciation and $61.0 million in Net Capital Assets. The College completed building improvements and its Pavilion addition ($0.9 million) and added various equipment and computer technology purchases ($1.2 million) during the year. These additions were offset by the write off of land improvements, campus buildings and computer technology and equipment of approximately $1.5 million. Accumulated Depreciation increased ($1.7 million) due to the large write off of $2.0 million of improvements made in 1998 to campus buildings last year and capital assets being depreciated increasing by approximately $0.6 million versus decreasing by $0.7 million the prior year. Fiscal Year 2007 Compared to 2006 As of June 30, 2007, the College had recorded $87.5 million invested in Capital Assets, $25.5 million in Accumulated Depreciation and $62.0 million in Net Capital Assets. The College continued to add building improvements, science labs and further recognition of improvements to its Pavilion addition, ($0.7 million) which was offset by the write off of ($2.0 million) of improvements made in 1998 to campus buildings. The College also during the year invested in its infrastructure, parking lot repaving, sidewalk repairs and roadway repairs significantly. These improvements approximately $0.7 million, were offset by the write off of improvements of approximately $0.4 million. Various equipment and computer technology purchases and disposals during the year resulted in the addition of $0.3 million invested in these categories of assets and a net decrease in accumulated depreciation of $0.4 million. CONTACTING THE COLLEGE S FINANCIAL MANAGEMENT This financial report is designed to provide our constituents with a general overview of Oakton Community College s finances and to demonstrate the College s accountability for the resources it receives. Questions concerning this report or requests for additional financial information should be directed to the office of the Vice President for Business and Finance, 1600 E. Golf Road, Des Plaines, IL

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President s Letter October 1, 2007 Members of the Board: I am pleased to submit to you and the residents of District 535 the Comprehensive Annual Fina

President s Letter October 1, 2007 Members of the Board: I am pleased to submit to you and the residents of District 535 the Comprehensive Annual Financial Report for Fiscal Year 2007. This document presents