Idaho State University Financial Statements for the Years Ended June 30, 2003 and 2002 and Independent Auditors Reports Including Single Audit Reports for the Year Ended June 30, 2003
IDAHO STATE UNIVERSITY TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 MANAGEMENT S DISCUSSION AND ANALYSIS 2-9 FINANCIAL STATEMENTS: Statements of Net Assets 10 Statements of Revenues, Expenses and Changes in Net Assets 11 Statements of Cash Flows 12 Page Notes to Financial Statements 13-28 INDEPENDENT AUDITORS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED UPON THE AUDIT PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 29-30 SINGLE AUDIT INFORMATION: Schedule of Expenditures of Federal Awards for the Year Ended June 30, 2003 31-37 Notes to Schedule of Expenditures of Federal Awards 38 Independent Auditors Report on Compliance and Internal Control over Compliance Applicable to Each Major Federal Award Program 39-40 Schedule of Findings and Questioned Costs: Part I - Summary of Auditors Results Section 41 Part II - Financial Statement Findings Section 41 Part III - Federal Award Findings and Questioned Cost Section 41-45 Status of Prior Year s Findings and Questioned Costs Year Ended June 30, 2003 46
Deloitte & Touche LLP 101 South Capitol Boulevard Suite 1800 Boise, Idaho 83702-5987 Tel: (208)342-9361 Fax: (208)342-2199 www.us.deloitte.com INDEPENDENT AUDITORS REPORT To the State Board of Education: We have audited the accompanying statements of net assets of Idaho State University (the University ) as of June 30, 2003 and 2002, and the related statement of revenues, expenses and changes in net assets and of cash flows for the years then ended. These financial statements are the responsibility of the University s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Idaho State University at June 30, 2003 and 2002, the changes in its net assets and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The Management s Discussion and Analysis listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. This supplementary information is the responsibility of the University s management. We have applied certain limited procedures which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audits were performed for the purpose of forming an opinion on the basic financial statements of the University, taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audit of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. This schedule is the responsibility of the management of the University. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated October 3, 2003 on our consideration of the University s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audits. October 3, 2003
IDAHO STATE UNIVERSITY Management s Discussion and Analysis INTRODUCTION This discussion and analysis provides an overview of the financial position and activities of Idaho State University (the University ) for the fiscal year ended June 30, 2003, along with comparative information for the fiscal year ended June 30, 2002. This analysis has been prepared by management and should be read in conjunction with the financial statements and corresponding notes that appear in the sections that follow this discussion. The University is a comprehensive public institution of higher learning located in Pocatello, Idaho. It has served the citizens of Idaho since 1901, when it was first established as the Academy of Idaho. The University provides both general education and specialized programs in arts, humanities, sciences, the professions and technologies and contributes to the state and nation through related research and public service programs. The University offers a diverse range of degree programs from baccalaureate to postdoctoral levels through the Colleges of Arts and Sciences, Business, Education, Engineering, Health Professions, Pharmacy, Technology and the Graduate School. Through its programs in pharmacy, health professions, and the Family Practice Medical Residency and the Idaho Dental Education Program, the University is a center for education in the health professions. 2003 IN REVIEW The University entered fiscal year 2003 faced with the financial challenge of overcoming a decrease in general state appropriations of approximately $4,510,000 or 7.2%. This decrease was followed by an additional $1,778,000 (3.0%) reversion at the end of fiscal 2003, resulting in an overall reduction in general state appropriations of 10%. In order to partially offset this reduction in revenue, the University, with the approval of the State Board of Education, increased student fees. Full-time student fees increased 12% overall and part-time student fees increased 12.14% overall. The remaining decrease in revenue, not offset by the fee increase, was addressed by reducing expenditures where possible. On a more positive note, at the end of fiscal 2003, the state legislature passed a 1% increase in the State of Idaho sales tax, which appears to have increased state revenues enough to forestall, at least temporarily, any additional decrease in general state appropriations. OVERVIEW OF THE FINANCIAL STATEMENTS The University s financial report is prepared in accordance with Governmental Accounting Standards Board (GASB) principles and includes three financial statements: the statement of net assets; the statement of revenues, expenses and changes in net assets; and the statement of cash flows. Each of these statements will be discussed in greater detail in the following sections. During fiscal year 2002, the University adopted GASB Statement No. 35 which established the current standards for external financial reporting for public colleges and universities and requires that financial statements be presented on a consolidated basis to focus on the University as a whole. As fiscal 2003 is the second year using the new standards, selected comparative information will be provided. - 2 -
STATEMENT OF NET ASSETS The statement of net assets presents the assets, liabilities and net assets (assets minus liabilities) and presents a financial picture of the University as of a point in time. Net assets are one indicator of the current financial condition of the University, while changes in net assets is an indicator of whether the overall financial condition improved or deteriorated during the year. Finally, the statement of net assets provides information about net assets and their availability for use by the University. A summarized comparison of the University s assets, liabilities and net assets at June 30, 2003, and 2002 follows: 2003 2002 Assets: Current Assets $ 46,773,770 $ 37,658,785 Noncurrent Assets 114,914,574 102,875,133 Total Assets 161,688,344 140,533,918 Liabilities: Current Liabilities 22,755,737 18,804,767 Noncurrent Liabilities 19,670,921 20,062,760 Total Liabilities 42,426,658 38,867,527 Net Assets: Invested in capital assets, net of related debt 89,894,909 77,229,368 Restricted, expendable 5,001,157 5,114,158 Unrestricted 24,365,620 19,322,865 Total Net Assets $ 119,261,686 $ 101,666,391 A review of the University s statement of net assets at June 30, 2003, and 2002 shows that while facing cuts in state funding in each of those years, the University maintained a strong financial foundation. This financial health reflects prudent utilization of its financial resources, including careful cost controls, which have been essential given the economic climate of the State of Idaho during the last two fiscal years; in addition the University has been conservative in the utilization of debt. Current assets consisting primarily of cash and cash equivalents, accounts and loans receivable, and investments and inventory, totaled $46.8 million at June 30, 2003 as compared to $37.7 million at June 30, 2002, an increase of $9.1 million. Cash and cash equivalents for current operations totaled $37.9 million at June 30, 2003 and $29.6 million at June 30, 2002. The increase of $8.3 million represents the majority of the change in current assets and was due to an increase in student fees, an increase in indirect costs recovered and cash received from an external source to partially fund an addition to Idaho State University s Accelerator Center. - 3 -
Current liabilities consisting primarily of accrued compensation, deferred revenue, accounts payable and other liabilities totaled $22.8 million at June 30, 2003 as compared to $18.8 million at June 30, 2002. The increase of $4.0 million is principally attributable to an increase in accounts payable related to construction in progress. Capital and Debt Activities Noncurrent assets, consisting primarily of capital assets net of accumulated depreciation, which totaled $114.9 million at June 30, 2003 as compared to $102.9 million at June 30, 2002, increased $12.0 million. This increase is related to an increase in construction in progress on the L.E. and Thelma E. Stephens Performing Arts Center. Construction on this facility began on June 10, 2002. When completed in 2004, it will be an impressive 110,000 square foot facility on the Idaho State University campus. Its magnificent architectural design will make it the most extraordinary building of its kind in Idaho, boasting three versatile performance venues and auxiliary spaces designed for academic work and community enjoyment. This facility is being funded from donations to the Idaho State University Foundation. Notes and bonds payable, totaled $18.9 million at June 30, 2003, as compared to $20.1 million at June 30, 2002. This decrease of $1.2 million represents retirement of outstanding debt as scheduled. Other noncurrent liabilities of $.7 million relate to retainages payable on the Performing Arts Center. The University continues to work diligently to manage its financial resources effectively including the issuance of debt to finance capital projects to sustain the development and renewal of the University s capital assets. As of June 30, 2003, the University received a credit rating of A2 by Moody s Investors Service and a credit rating of A by Standards & Poors. Net Assets Net assets represent the residual interest in the University s assets after liabilities are deducted and on the statement of net assets they are divided into three major categories. The first category, invested in capital assets net of related debt, represents the University s capital assets net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. The second net asset category is restricted, expendable, which are assets that are available for expenditure by the institution but must be spent for the purposes stated by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The final category is unrestricted which are assets that are available for expenditure by the institution for any lawful purpose. - 4 -
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The statement of revenues, expenses and changes in net assets presents the University s results of operations. The purpose of the statement is to present the revenues and expenses of the institution, both operating and nonoperating, and any other revenues, expenses, gains or losses generated by University activities. Taken together the statement of net assets and the statement of revenues, expenses and changes in net assets provide information that help answer the question Is Idaho State University as a whole financially stronger or weaker as a result of the year s activities? A summarized comparison of the University s revenues, expenses and changes in net assets for the years ended June 30, 2003, and 2002 follows: 2003 2002 Operating Revenues: Student tuition and fees (Net of scholarship discounts and allowances of $13,482,412 and $11,559,270) $ 34,849,934 $ 30,792,205 Federal grants and contracts 25,119,979 20,688,804 State and local grants and contracts 7,689,871 6,238,389 Private grants and contracts 4,188,037 3,907,924 Sales and services of educational departments 2,683,968 2,391,265 Sales and services of auxiliary enterprises 8,987,619 8,473,027 Other operating revenue 2,404,799 2,413,098 Total operating revenues 85,924,207 74,904,712 Operating Expenses 157,013,018 155,879,130 Operating loss (71,088,811) (80,974,418) Nonoperating revenues (expenses): State appropriations 69,594,553 76,230,421 Gifts 4,169,923 3,760,305 Investment income 452,490 708,760 Interest on capital asset related debt (1,046,650) (1,098,471) Net nonoperating revenues 73,170,316 79,601,015 Capital appropriations 1,536,840 9,362,104 Capital gifts 14,097,781 212,279 Loss on disposal of fixed assets (120,831) (61,479) Total capital revenues 15,513,790 9,512,904 Increase in net assets 17,595,295 8,139,501 Net assets beginning of year 101,666,391 93,526,890 Net assets end of year $ 119,261,686 $ 101,666,391-5 -
Revenues One of the University s strengths is its diverse stream of revenues, which supplement student fees, including support from state appropriations, the Idaho State University Foundation, governments and other sponsored programs. The University has in the past and will continue to seek funding from all possible sources consistent with its mission, to supplement student fees and to prudently manage the financial resources realized from these efforts to fund its operating activities. The following is a graphic illustration of revenues by source (both operating and non-operating), which are used to fund the University s activities for the year ended June 30, 2003. Please note that state appropriations, which are a significant and recurring source of revenue to the University are considered nonoperating, as defined by GASB Statement No. 35. Operating and Nonoperating Revenue Investment income 0.28% Gifts 2.60% Tuition and fees 21.76% State appropriations 43.46% Grants and contracts 23.10% Other revenue 1.50% Nonoperating revenue: State appropriations, Gifts, and Investment income Auxiliary enterprises 5.61% Sales and services of educational departments 1.68% State appropriations and student fees are the primary sources of funding for the University s academic programs. Student fees net of allowances for scholarships and fellowships increased $4.1 million, or 13.2% to $34.8 million in fiscal year 2003. Total state appropriations decreased $6.6 million, or 8.7% to $69.6 million in fiscal 2003, due to a decrease in overall appropriations as a result of economic conditions within the State of Idaho. Revenues from grants and contracts increased $6.2 million, or 19.9% to $37 million. The increase in grant and contract revenues was attributable to an increase in Pell grants as well as increased grant revenues at the Idaho Accelerator Center and programs within the Kasiska College of Health Professions. The University receives revenues for grants and contracts from government and private sources, which provide for the recovery of direct and indirect costs. - 6 -
Capital appropriations received from the State of Idaho decreased from $9.4 million in fiscal 2002 to $1.5 million in 2003. This decrease is attributable to the Physical Science Building project completion in fiscal 2002, which was a renovation of an existing facility and the addition of 25,000 square feet. Capital gifts and grants increased to $14.1 million as a result of the continuing construction of the L.E. and Thelma E. Stephens Performing Arts Center that is being funded by the Idaho State University Foundation. Expenses A comparative summary of the University s expenses for the years ended June 30, 2003, and 2002 follows: 2003 2002 Operating: Personnel costs $ 98,561,923 $ 98,472,559 Supplies 11,140,742 12,089,629 Services 15,747,410 15,784,928 Insurance, utilities and rent 5,236,581 5,149,711 Scholarships and fellowships 15,592,439 14,076,228 Depreciation expense 6,796,600 6,445,652 Other operating expenses 3,937,323 3,860,423 Total operating expenses 157,013,018 155,879,130 Nonoperating: Interest on capital asset related debt 1,046,650 1,098,471 Total expenses $ 158,059,668 $ 156,977,601 The following is a graphic illustration of total expenses by natural classification for the year ended June 30, 2003: Operating and Nonoperating Expenses Scholarships fellowships 9.86% Insurance, utilities, rent 3.31% Services 9.96% Supplies 7.05% Depreciation 4.30% Other Operating 2.49% Interest on capital asset related debt 0.66% Personnel costs 62.36% Nonoperating expenses: Interest on capital asset related debt - 7 -
Overall, operating expenses increased only $1.1 million, or less than 1% to $157 million in fiscal 2003. The only expenses that increased significantly in 2003 were scholarships and fellowships, which increased $1.5 million, or 10.8% to $15.6 million in 2003, and depreciation expense. These increases are attributable to an increase in Pell grants to students and the additional depreciation expense on capital assets. In addition to their natural (object) classification, it is also informative to review operating expenses by function. A summary of the University s expenses by functional classification for the years ended June 30, 2003 and 2002 is as follows: 2003 2002 Instruction $ 65,192,708 $ 67,872,093 Research 10,710,857 7,708,505 Public Service 3,080,841 3,126,795 Academic Support 6,917,741 7,585,865 Libraries 2,118,381 2,744,930 Student Services 6,991,083 8,566,157 Institutional Support 11,251,828 9,893,214 Maintenance and operations 10,841,235 11,130,691 Auxiliary enterprises 17,519,305 16,729,000 Scholarships and fellowships 15,592,439 14,076,228 Depreciation 6,796,600 6,445,652 STATEMENT OF CASH FLOWS $ 157,013,018 $ 155,879,130 The statement of cash flows provides additional information about the University s financial results by reporting the major sources and uses of cash in five components. Operating activities shows the operating cash flows and the net cash used by the operating activities of the institution. Noncapital financing activities reflects the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. Capital and related financing activities reports the cash used for the acquisition and construction of capital and related items. Investing activities shows the purchases, proceeds and interest received from investing activities. The reconciliation section reconciles the net cash used in operating activities on the statement of cash flows to the operating income or loss reflected on the statement of revenues, expenses and changes in net assets. A comparative summary of the statement of cash flows for the years ended June 30, 2003 and 2002 is as follows: Statement of Cash Flows (Summary) 2003 2002 Cash provided by (used) in: Operating activities $ (61,060,918) $ (72,197,361) Noncapital financing activities 75,178,887 79,792,451 Capital and related financing activities (6,214,186) (6,728,568) Investing activities 416,551 909,530 Net change in cash 8,320,334 1,776,052 Cash and cash equivalents, beginning of year 29,573,447 27,797,395 Cash and cash equivalents, end of year $ 37,893,781 $ 29,573,447-8 -
For purposes of the statement of cash flows, the University considers all highly liquid investments with a remaining maturity of three months or less at the date of acquisition to be cash equivalents. ECONOMIC FACTORS THAT WILL AFFECT THE FUTURE A crucial element to the University s future will continue to be its relationship with the State of Idaho. The state has experienced decreased revenues in the past several years resulting from a decline in the state s economy. The result has been decreased state appropriation revenues to the University. The University continues to work to manage student fees while continuing to provide quality education, however, there is a direct correlation between state appropriations and the University s ability to control student fee growth. As appropriations are the single largest revenue source for the University, comprising 43.5% of total revenue, declines in appropriations generally result in increases in student fees. As a labor-intensive organization with salaries and benefits comprising 62.4% of total expenditures, the University faces competitive pressures related to attracting and retaining faculty and staff. Furthermore, the costs of the University s health benefits have increased substantially over the past several years. The University s success in meeting these challenges will largely depend upon the ability of the State of Idaho to provide adequate financial support through state appropriations. In an effort to address the revenue shortfalls in fiscal 2003, the state legislature enacted a 1% increase in the state sales tax at the end of fiscal 2003. Current revenue projections appear to indicate that the economic situation in Idaho is stabilizing so the outlook is more optimistic than it was at the end of fiscal 2002. Looking forward to fiscal 2004, there are very positive events happening at Idaho State University. The State of Idaho approved a building project that will provide the University with a unique multipurpose educational, residential, and social complex. Centrally located on campus, the Rendezvous will become a gathering place for the campus community. The complex will promote an enhanced collegial atmosphere that integrates upper and lower campuses in a facility where students and faculty can meet both in the classroom and in a social setting. In addition to apartments and a dining hall, facilities in the Rendezvous will include a large computer center, large meeting room with partitions for conversion into three small meeting rooms, and retail space housing an ISU Spirit Shop, an adjunct operation of the ISU Bookstore. The projected budget for this project is $38.8 million, of which $15.5 million will be funded by the State Permanent Building Fund. General Refunding and Improvement Revenue Bonds Series 2003 issued by the University in July 2003 will fund the remainder of this project. The purpose of this $35.9 million bond issue is threefold: To fund the University s share of the Rendezvous Center. To implement the Energy Improvement Project which consists of acquiring and installing energy savings equipment. The University expects to realize operating cost savings from this project that will well exceed the amount needed to pay the debt service on that portion of the Series 2003 Bond. To refund two outstanding bank notes and certain outstanding bonds to take advantage of the favorable interest rates. While it is not possible to reliably predict the level of support the state will provide to Idaho State University in the future, management believes the University s financial condition is strong enough to weather foreseeable economic conditions. - 9 -
IDAHO STATE UNIVERSITY STATEMENTS OF NET ASSETS JUNE 30, 2003 AND 2002 ASSETS 2003 2002 CURRENT ASSETS: Cash and cash equivalents $ 37,893,781 $ 29,573,447 Student loans receivable 550,964 349,719 Accounts receivable and unbilled charges, less allowance for doubtful accounts of $545,279 and $329,566 5,202,407 4,074,362 Due from state agencies 1,563,592 2,705,610 Interest receivable 37,919 26,822 Inventories 263,323 305,459 Investments 1,259,784 612,438 Deferred expenses 2,000 10,928 Total current assets 46,773,770 37,658,785 NONCURRENT ASSETS: Investments 624,263 Student loans receivable, less allowance for doubtful loans of $444,122 and $475,815 1,538,414 1,821,272 Investments held in trust 1,844,607 2,049,095 Property, plant and equipment, net 111,531,553 98,380,503 Total noncurrent assets 114,914,574 102,875,133 TOTAL $ 161,688,344 $ 140,533,918 See notes to financial statements.
LIABILITIES AND NET ASSETS 2003 2002 CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 4,417,266 $ 1,689,960 Accrued salaries and benefits payable 11,959,954 11,386,793 Deposits 104,212 98,075 Funds held in custody for others 491,820 557,070 Deferred revenue 4,432,098 3,711,828 Accrued interest payable 262,654 272,666 Notes and bonds payable 1,087,733 1,088,375 Total current liabilities 22,755,737 18,804,767 NONCURRENT LIABILITIES: Other noncurrent liabilities 745,394 Notes and bonds payable 18,925,527 20,062,760 Total noncurrent liabilities 19,670,921 20,062,760 TOTAL LIABILITIES 42,426,658 38,867,527 NET ASSETS: Invested in capital assets, net of related debt 89,894,909 77,229,368 Restricted, expendable 5,001,157 5,114,158 Unrestricted 24,365,620 19,322,865 Total net assets 119,261,686 101,666,391 TOTAL $ 161,688,344 $ 140,533,918-10 -
IDAHO STATE UNIVERSITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEARS ENDED JUNE 30, 2003 AND 2002 2003 2002 OPERATING REVENUES: Student fees (net of scholarship discounts and allowances of $13,482,412 and $11,559,270) $ 34,849,934 $ 30,792,205 Federal grants and contracts 25,119,979 20,688,804 State and local grants and contracts 7,689,871 6,238,389 Private grants and contracts 4,188,037 3,907,924 Sales and services of educational activities 2,683,968 2,391,265 Sales and services of auxiliary enterprises 8,987,619 8,473,027 Other 2,404,799 2,413,098 Total operating revenues 85,924,207 74,904,712 OPERATING EXPENSES: Personnel costs 98,561,923 98,472,559 Services 11,140,742 12,089,629 Supplies 15,747,410 15,784,928 Insurance, utilities and rent 5,236,581 5,149,711 Scholarships and fellowships 15,592,439 14,076,228 Depreciation 6,796,600 6,445,652 Miscellaneous 3,937,323 3,860,423 Total operating expenses 157,013,018 155,879,130 OPERATING LOSS (71,088,811) (80,974,418) NONOPERATING REVENUES (EXPENSES): State appropriations: State general account general education 56,384,600 62,684,870 Endowment income 2,935,653 3,280,289 Other state appropriations 1,751,170 1,824,606 Professional technical education 8,523,130 8,440,656 Gifts 4,169,923 3,760,305 Net investment income 452,490 708,760 Interest on capital asset related debt (1,046,650) (1,098,471) Net nonoperating revenues 73,170,316 79,601,015 GAIN OR (LOSS) BEFORE OTHER REVENUES AND EXPENSES 2,081,505 (1,373,403) OTHER REVENUES AND EXPENSES: Capital appropriations 1,536,840 9,362,104 Capital gifts 14,097,781 212,279 Loss on disposal of fixed assets (120,831) (61,479) Net other revenues and expenses 15,513,790 9,512,904 INCREASE IN NET ASSETS 17,595,295 8,139,501 NET ASSETS, BEGINNING OF YEAR 101,666,391 93,526,890 NET ASSETS, END OF YEAR $ 119,261,686 $ 101,666,391 See notes to financial statements. - 11 -
IDAHO STATE UNIVERSITY STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2003 AND 2002 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Student fees $ 27,767,993 $ 23,899,794 Grants and contracts 37,328,737 32,278,439 Sales and services of educational activities 2,814,846 2,425,811 Sales and services of auxiliary enterprises 9,256,334 8,671,734 Payments to employees (98,736,969) (97,332,683) Payments to suppliers (27,896,403) (29,653,117) Payments for scholarships and fellowships (10,121,299) (10,650,371) Loans issued to students (709,394) (591,235) Collections on loans to students 738,722 483,232 Other operating payments (1,503,485) (1,728,965) Net cash used in operating activities (61,060,918) (72,197,361) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: State appropriations 70,504,803 76,284,128 Gifts 4,360,048 3,406,551 Agency account receipts 57,404,868 48,984,965 Agency account payments (57,122,843) (48,835,339) Direct lending receipts 39,885,826 35,707,372 Direct lending payments (39,853,815) (35,755,226) Net cash provided by noncapital financing activities 75,178,887 79,792,451 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital appropriations 357,000 Purchase of property, plant and equipment (16,877,324) (5,064,664) Gifts 12,618,304 132,488 Proceeds from capital disposals 33,125 Release of assets in hand of trustees 121,752 Principal paid on capital debt (1,055,375) (1,044,734) Interest paid on capital debt (1,054,668) (1,108,658) Net cash used in capital and related financing activities (6,214,186) (6,728,568) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales and maturities of investments 612,438 1,399,920 Purchase of investments (635,521) (1,236,701) Investment income 439,634 746,311 Net cash provided by investing activities 416,551 909,530 NET INCREASE IN CASH AND CASH EQUIVALENTS 8,320,334 1,776,052 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 29,573,447 27,797,395 CASH AND CASH EQUIVALENTS, END OF YEAR $ 37,893,781 $ 29,573,447 See notes to financial statements.
2003 2002 RECONCILIATION OF NET OPERATING LOSS TO NET CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES: Operating loss $ (71,088,811) $ (80,974,418) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation expense 6,796,600 6,445,652 Maintenance costs paid by Department of Public Works (DPW) and other 1,500,543 1,351,970 Change in assets and liabilities: Student loans receivable 81,613 3,816 Accounts receivable and unbilled charges, net 516,990 209,643 Inventories 42,136 (8,932) Accounts payable and accrued liabilities 439,472 (222,729) Accrued salaries and benefits payable 567,263 16,764 Deposits 6,137 5,725 Deferred revenue 77,139 975,148 Net cash used in operating activities $ (61,060,918) $ (72,197,361) SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Property, plant and equipment acquired through DPW appropriations $ 122,557 $ 7,611,949-12 -
IDAHO STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2003 AND 2002 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Idaho State University (the University ) is part of the public system of higher education in the State of Idaho. The system is considered part of the State of Idaho financial reporting entity. The State Board of Education, appointed by the Governor and affirmed by the legislature, directs the system. The University is located in Pocatello, Idaho. The significant accounting policies are described below to enhance the usefulness of the financial statements to the reader. Financial Statement Presentation In June 1999, the Governmental Accounting Standards Board ( GASB ) issued Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. These statements establish financial reporting requirements for state and local governments and public colleges and universities throughout the United States. The State and the Idaho public colleges and universities implemented these statements for the fiscal year ended June 30, 2002. Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been eliminated. The University has the option to apply all Financial Accounting Standards Board ( FASB ) pronouncements issued after November 30, 1989, unless FASB conflicts with the GASB. The University has elected not to apply FASB pronouncements issued after the applicable date. Cash Equivalents The University considers all liquid investments with a remaining maturity of three months or less at the date of acquisition to be cash equivalents. Student Loans Receivable Loans receivable from students bear interest at rates ranging from 3% to 7% and are generally payable to the University in installments over a 5 to 10 year period commencing 6 or 9 months after the date of separation from the University. Accounts Receivable Accounts receivable consists of fees charged to students as well as auxiliary enterprise services provided to students, faculty and staff, the majority of each residing in the State of Idaho. Accounts receivable also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the University s grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. Inventories Inventories are valued at the lower of first-in, first-out ( FIFO ) cost or market. - 13 -
Investments The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statements of revenues, expenses, and changes in net assets. Non-current Cash and Investments Cash and investments that are externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other noncurrent assets, are classified as noncurrent assets in the statement of net assets. Property, Plant and Equipment Capital assets are stated at cost when purchased or constructed, or if acquired by gift, at the estimated fair value at date of gift. The University s capitalization policy includes all items with a unit cost of $5,000 or more, and an estimated useful life of greater than one year. Renovations to buildings and land improvements that significantly increase the value or extend the useful life of the structure are capitalized. Routine repairs and maintenance are charged to operating expense in the period in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 50 years for buildings, 12-25 years for land improvements, 10 years for library books, and 5 to 13 years for equipment. The University has an Idaho Museum of Natural History collection that it does not capitalize. This collection adheres to the University s policy to (a) maintain them for public exhibition, education or research; (b) protect, keep unencumbered, care for, and preserve them; and (c) require proceeds from their sale to be used to acquire other collection items. Generally accepted accounting principles permit collections maintained in this manner to be charged to operations at time of purchase as an alternative to capitalization. Deferred Revenues Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include amounts received from grant and contract sponsors that have not yet been earned. Compensated Absences Employee vacation pay that is earned but unused is accrued at year-end for financial statement purposes. Included in accrued salaries and benefits payable in the statement of net assets, is $2,983,028 and $3,054,816 at June 30, 2003 and 2002, respectively. Noncurrent Liabilities Noncurrent liabilities include principal amounts of revenue bonds payable, notes payable with contractual maturities greater than one year, and retainages payable on the Performing Art Center. Net Assets The University s net assets are classified as follows: Invested in Capital Assets, Net of Related Debt This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted, Expendable Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. - 14 -
Unrestricted Unrestricted net assets represent resources derived from student fees, state appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions related to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for any purpose. When an expense is incurred that can be paid using either restricted or unrestricted resources, expense allocation decisions are made on a program-by-program basis. The University does not have a policy regarding the preferred usage of unrestricted or restricted net assets. Income Taxes The University, as a political subdivision of the State of Idaho, is excluded from Federal income taxes under Section 115(1) of the Internal Revenue Code, as amended. Classification of Revenues The University has classified its revenues as either operating or nonoperating revenues according to the following criteria: Operating Revenues Operating revenues include activities that have the characteristics of exchange transactions, such as (1) student fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, (3) most Federal, state and local grants and contracts and Federal appropriations, and (4) interest on institutional student loans. Nonoperating Revenues Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue resources that are defined as nonoperating revenues by GASB No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting, and GASB No. 34, such as state appropriations and investment income. Scholarship Discounts and Allowances Student fee revenues are reported net of scholarship discounts and allowances in the statements of revenues, expenses, and changes in net assets. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or other third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other Federal, state or nongovernmental programs, are recorded as either operating or nonoperating revenues in the University s financial statements. To the extent that revenues from such programs are used to satisfy student fees and related charges, the University has recorded a scholarship discount and allowance. New Accounting Standards In May 2002, the GASB issued Statement No. 39, Determining Whether Certain Organizations are Component Units. Statement 39 amends Statement No. 14, The Financial Reporting Entity. This Statement amends Statement No. 14 to require reporting, as a component unit, an organization that raises and holds economic resources for the direct benefit of a government unit. The University has not completed the process of evaluating the impact that will result from adopting this Statement. The University is therefore unable to disclose the impact that adopting the Statement will have on its net assets, revenues, expenditures, and changes in net assets. The requirements of this statement are effective for the fiscal year ending June 30, 2004. - 15 -
In March 2003, the GASB issued Statement No. 40, Deposit and Investment Risk Disclosures. Statement No. 40 amends GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements. The objective of this Statement is to update the custodial credit risk disclosure requirements of GASB Statement No. 3 and to establish more comprehensive disclosure requirements addressing other common risks of the deposits and investments of state and local governments. The University has not completed the process of evaluating the impact that will result from adopting this Statement. The requirements of this Statement are effective for the University s fiscal year ending June 30, 2005. 2. CASH AND CASH EQUIVALENTS; OTHER DEPOSITS; AND INVESTMENTS The University accounts for its cash on a pooled basis whereby each fund has a positive or negative equity in cash depending upon the net effect of its cash receipts and disbursements activity. Cash and cash equivalents are deposited with various financial institutions. Such deposits for the years ended June 30, 2003 and 2002 are categorized below to give an indication of the level of risk assumed by the University at year end. Category 1 includes deposits that are insured or collateralized with securities held by the University or its agent in the University s name. Category 2 includes uninsured deposits collateralized with securities held by the pledging financial institution s trust department or agent in the University s name. Category 3 includes uninsured deposits, which are uncollateralized. Balances of deposits by such categories at June 30 consisted of the following: 2003 2002 Category 1 $ 100,000 $ 100,000 Category 2 32,179,612 25,221,098 Category 3 166,777 107,129 Cash equity with the state treasurer (not categorized) 5,361,982 4,038,977 Cash on hand (not categorized) 85,410 106,243 Total $ 37,893,781 $ 29,573,447 Of the cash and cash equivalents reported on the statement of net assets at June 30, 2003 and 2002, $911,053 and $388,555, respectively, is restricted by donors, granting agencies, or other contractual agreements. Book value of deposits does not materially differ from the bank balance of deposits. Investments The general investment policy of the University as adopted by the State Board of Education (the Board ) is that investments in securities are to be made with the objectives of maximizing long-term total return, ensuring safety of principal and providing satisfactory current income. Funds may be invested in FDIC passbook savings accounts, certificates of deposit, U.S. securities, Federal funds repurchase agreements, reverse repurchase agreements, federal agency securities, large money market funds, bankers acceptances, corporate bonds of AA grade or better, mortgage-backed securities of AA grade or better, and commercial paper of prime or equivalent grade. Authority to make investments in any other form requires prior Board approval. Such Board approval may be in the form of general authority to invest or reinvest cash, securities, and other assets. Covenants of certain bond resolutions restrict investment of funds to U.S. Government or government guaranteed securities. Repurchase agreements are collateralized by U.S. Government securities held by the pledging financial institution or financial institution s agent in the University s name. - 16 -
Investments Held in Trust included cash and cash equivalents and government securities held in the University s name and are recorded at fair value. The entire amount of these investments are restricted by bond indentures or other contractual agreements. The University s investments described above are categorized below to give an indication of the level of risk assumed by the University at June 30, 2003 and 2002. Category 1 includes investments that are insured or registered, or for which the securities are held by the University or its agent in the University s name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty s trust department or agent in the University s name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty whether or not in the University s name; or by the counterparty s trust department or agent but not in the University s name. 2003 Investment Risk Category 1 2 3 Total INVESTMENTS: U.S. Government or government guaranteed securities $ 1,259,784 $ - $ - $ 1,259,784 $ 1,259,784 $ - $ - $ 1,259,784 INVESTMENTS HELD IN TRUST: U.S. Government or government guaranteed securities $ - $ 1,844,607 - $ 1,844,607 $ - $ 1,844,607 $ - $ 1,844,607 2002 Investment Risk Category 1 2 3 Total INVESTMENTS: U.S. Government or government guaranteed securities $ 1,236,701 $ - $ - $ 1,236,701 $ 1,236,701 $ - $ - $ 1,236,701 INVESTMENTS HELD IN TRUST: U.S. Government or government guaranteed securities $ - $ 2,049,095 - $ 2,049,095 $ - $ 2,049,095 $ - $ 2,049,095-17 -
3. ACCOUNTS RECEIVABLE AND UNBILLED CHARGES AND DUE FROM STATE AGENCIES Accounts receivable and unbilled charges and due from state agencies consisted of the following at June 30: 2003 2002 Operating: Student tuition fees $ 15,342 $ 8,313 Federal grants and contracts 1,023,924 981,340 State and local grants and contracts 1,422,695 1,482,632 Nongovernment grants and contracts 870,026 903,217 Sales and services of educational departments 273,587 228,172 Auxiliary enterprises sales and services 465,508 420,031 Other operating revenue 561,467 261,426 Services and supplies 16,525 10,202 Perkins 105,428 75,935 Revolving 461,816 1,146,325 Less: allowance for doubtful accounts (545,279) (329,566) Net operating accounts receivable and unbilled charges and due from state agencies 4,671,039 5,188,027 Nonoperating: State appropriations 49,995 720,648 Gifts 266,490 Capital appropriations 7,706 Capital gifts and grants (See Note 10) 1,511,725 79,792 Agency 533,240 517,309 Net nonoperating accounts receivable 2,094,960 1,591,945 Total accounts receivable and unbilled charges and due from state agencies $ 6,765,999 $ 6,779,972 4. STUDENT LOANS RECEIVABLE Student loans made through the Federal Perkins Loan Program (the Program ) comprise substantially all of the loans receivable at June 30, 2003 and 2002. Under this Program, the federal government provides approximately 75% of the funding for the Program with the University providing the balance. A borrower may have all or part of their loan (including interest) canceled for engaging in teaching, public service, service in the Peace Corps or ACTION, or service in the military. The Department of Education reimburses the University every award year for the principal and interest canceled in its Perkins Loan Fund for all of the cancellation provisions except death, total and permanent disability, and bankruptcy. The school must deposit this reimbursement into its Perkins loan fund. Schools are not required to deposit reimbursements for loans made prior to July 1, 1972 into the Perkins Fund as these reimbursements are considered institutional funds. In the event the University should withdraw from the Federal Perkins Loan Program or the government were to cancel the Program, the amount the University would be liable for as of June 30, 2003 and 2002 is $2,188, 321 and $2,192,293, respectively. - 18 -
As the University determines that loans are uncollectible and not eligible for reimbursement by the federal government, the loans are assigned to the U.S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management s opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2003 and 2002, the allowance for uncollectible loans was approximately $442,122 and $475,815. 5. PROPERTY, PLANT AND EQUIPMENT Following are the changes in property, plant and equipment for the year ended June 30: 2003 Balance at Balance at Property, Plant and Equipment Summary June 30, 2002 Additions Retirements Transfers June 30, 2003 Property, plant and equipment: Land $ 2,524,093 $ - $ - $ - $ 2,524,093 Construction in progress 2,437,287 16,249,585 18,686,872 Total property, plant and equipment not being depreciated $ 4,961,380 $ 16,249,585 $ - $ - $ 21,210,965 Other property, plant and equipment: Buildings and improvements $ 119,255,321 $ 271,140 $ - $ - $ 119,526,461 Furniture, fixtures and equipment 26,736,071 1,644,178 (950,336) 27,429,913 Library materials 27,039,354 1,936,703 (20,540) 28,955,517 Total other property, plant and equipment 173,030,746 3,852,021 (970,876) - 175,911,891 Less accumulated depreciation: Buildings and improvements (42,519,652) (3,283,076) (45,802,728) Furniture, fixtures and equipment (16,752,689) (2,077,760) 816,921 (18,013,528) Library materials (20,339,282) (1,435,765) (21,775,047) Total accumulated depreciation (79,611,623) (6,796,601) 816,921 - (85,591,303) Other property, plant and equipment net of accumulated depreciation $ 93,419,123 $ (2,944,580) $ (153,955) $ - $ 90,320,588 Property, Plant and Equipment Summary: Property, plant and equipment not being depreciated $ 4,961,380 $ 16,249,585 $ - $ - $ 21,210,965 Other property, plant and equipment at cost 173,030,746 3,852,021 (970,876) 175,911,891 Total property, plant and equipment 177,992,126 20,101,606 (970,876) - 197,122,856 Less accumulated depreciation (79,611,623) (6,796,601) 816,921 (85,591,303) Property, plant and equipment, net $ 98,380,503 $ 13,305,005 $ (153,955) $ - $ 111,531,553-19 -