Notesto Financial Statements Note 2. Deposits June 30.2005_part2 docx

Notes to Financial Statements June 30 2005 Future minimum lease payments for the above assets under capital leases together with the present value of the minimum lease payments at June 30, 2005, ile as follows: Year Ending June 30 2006 2007 2008 2009 Total minimum lease payments Less amount representing interest Net present value Total $ 251,704 235,991 211,979 132,188 831,862 (54,353) $ 777,509 OPERATING LEASES The University has entered into agreements to lease recreational space and office space that the University is treating as operating leases. Rent expense for the years ended June 30, 2005 and2004 was $442,413 and$354,266, respectively. The leases expire between July 2005 and May 2012. Following is a schedule of future minimum lease payments. Year Ending June 30 2006 2007 2008 2009 2010 20ll-2012 Total Building 285,515 59,407 59,407 59,407 59,407 113,866 _637,9q2_ In 1990, the Foundation established a Chicago office to provide the University with direct access to Chicago area alumni, corporation, and Foundation networks. Lease payments for the Chicago office were $58,867 in 2005 and $61,684 in 2004. The current lease has been amended to expire on December 31, 2014. tn addition, the Foundation leases a vehicle for the Executive Director of the Foundation and ten vehicles for the University Athletic Department employees at a cost of $55,986 in 2005 and $45,661 in 2004. The lease for the Executive Director expires in the fiscal year ending June 30, 2006. Nine of the leases for the Athletic Department vehicles expire in the fiscal year ending June 30, 2009, with one lease expiring in the fiscal year ending June 30,2007. The following is a schedule of future minimum lease payments for both. Year Ending June 30 2406 2007 2008 2009 2010 20tl-20r5 Total Building 70,643 72,051 73,458 74,865 76,273 360,470 727,760 Vehicles $ 41,385 37,I8l 34,639 6,094 s ___1_19,298 ILLINOIS STATE UNIVERSITY 32 This is trial version www.adultpdf.com Notes to Financial Statements June 30 2005 Note 11. State Universities Retirement System (SURS) Plsn Description.' Illinois State University contributes to the State Universities Retirement System of Illinois (SURS), a cost-sharing multiple-employer defined benefit pension plan with a special funding situation whereby the State of Illinois makes substantially all actuarially determined required conffibutions on behalf of the participating employers. SURS was established July 2 l, l94l to provide retirement annuities and other benefits for staff members and employees of the state universities, certain affiliated organizations, and certain other state educational and scientific agencies and for survivors, dependents, and other beneficiaries of such employees. SURS is considered a component unit of the State of Illinois' financial reporting entity and is included in the State's financial reports as a pension trust fund. SURS is governed by Section 5/15, Chapter 40, of the Illinois Compiled Statutes. SURS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to SURS, l90l Fox Drive, Champaign, IL 61820 or by calling l -800-275 -7877 . Funding Policy: Plan members are required to contribute 8.0% of their annual covered salary and substantially all employer contributions are made by the State of Illinois on behalf of the individual employers at an actuarially determined rate. The cunent rate is I l.l2o/o of annual covered payroll. The contribution requirements of plan members and employers are established and may be amended by the Illinois General Assembly. The employer contributions to SURS for the years ending June 30, 2005,2004, and 2003, were $1 1,889,799,575,566,368, and $12,412,437, respectively, equal to the required contributions for each year. On April 7,2003, the Governor signed Public Act 93-0002 into law authorizing the issuance of up to $10 billion of general obligation bonds for making contributions to the State's designated retirement systems, including the SURS. On June 12,2003, the State issued $10 billion of General Obligation Bonds, Pension Funding Series of June 2003, which generated $9.96 billion in proceeds in order to pay the designated retirement systems' $300 million for the remaining statutorily required contributions for the fourth quarter of fiscal year 2003, S1.86 billion for the fiscal year 2004 statutorily required contributions, and $7.32 billion in order to reduce the actuarial reserve deficiencies of the State's designated retirement systems. The remaining $481 million of proceeds was authorized by the Bond Sale Order to be held by the State to make the first required interest payment on the bonds. On July 1,2003, the SURS received an allocation of $1,43 billion of their share of the $7 .32 billion to reduce the actuarial reserve deficiency at the SURS. The Universities' allocation of this amount was $75 million. Note 12. Post-employment Benefits In addition to providing pension benefits, the State provides certain health, dental and life insurance benefits to annuitants who are former State employees. This includes annuitants of the University. Substantially all State employees including the University's employees may become eligible for post-employment benefits if they eventually become annuitants. Health and dental benefits include basic benefits for annuitants under the State self-insurance plan and insurance contracts currently in force. Life insurance benefits for annuitants under age 60 are equal to their annual salary at the time of retirement; life insurance benefits for annuitants age 60 and older are limited to five thousand dollars per annuitant. Currently, the State does not segregate payments made to annuitants from those made to curent employees for health, dental, and life insurance benefits. The cost of health, dental and life insurance benefits is recognized on a pay-as-you- go basis. These costs are funded by the State and are not an obligation of the University. ILLINOIS STATE UNIVERSITY 33 This is trial version www.adultpdf.com Notes to Financial Statements June 30 200s Note 13. Transactions with Related Organnations Illinois State University Foundation (The Foundation) is a related organization formed to support in various ways the University's instructional, research, and public service missions. During fiscal years 2005 and}0}4,Illinois State University entered into contractual agreements with the Foundation requiring payments of $260,000 annually for fund raising services. During fiscal year 2005 and2004, the Foundation contributed services and expenditures of $12,078,305 and $7,973,005, respectively that were for the direct and/or indirect support of the University. These ffansactions have not been eliminated from the f,rnancial statements of the University or the Foundation. The Illinois Institute for Entrepreneurship Education (IIEE) was created by an act of the Illinois General Assembly in 1988. The purpose of the IIEE is to foster growth and development of entrepreneurship by educating Illinois citizens to the viability of entrepreneurship as a career option and to the role and contributions of entrepreneurs in economic development and job creation. The IIEE is mandated to reach all areas of the State, all ages, all ethnic groups, and income levels. The IIEE was created under the oversight of Illinois State University and, by working cooperatively with the University, the IIEE offers Illinois teachers two university-accredited graduate courses in entrepreneurship. During fiscal years 2005 and2004,the University contributed $188,724 and $192,135, respectively, of revenue and public service expenditures to the IIEE. These amounts are discretely blended in the University financial statements. Note 14. Student Health Insurance The University contracts with Chickering Group, an Aetna Company of Cambridge, Massachusetts for administration of the Aetna Health and Accident Insurance Plan, to provide group insurance benefits to University students. Students taking 9 or more semester hours of class pay a fee for this coverage. The contract provides for a premium stabilization reserve (PSR) that is used to minimize increases in the premium and to be used against unexpected claims utilization to reduce future premium increases. As each Plan year is finalized, costs are debited (gains are credited) to an account funded by the University each year (15% of expected premium). The estimated refund for 2003-04 approximates $315,242. The initial retund of $252,194 was rolled over to tund 2004-05 ($67,757) and 2005-06 ($184,437); a final refund of $63,048 is expected in November 2005. Because potential refunds are still at risk for unexpected claims losses, they are not recorded as assets. The PSR fund held by the University as of September 2005 is $926,594, same as prior year. The amount required to fund the PSR for 2005-06 is $750,000. In addition to the 2003-04 refunds ($ 184,437) which have been committed to fund 2005-06, another $565,563 will be required from the PSR before December 31, 2005. Note 15. Student Financial Assistance The University participates in the U.S. Department of Education Direct Student Loan Program. The University awarded $58,385,787 and $55,686,070 in Direct Student Loans for the years ended June 30, 2005 and2004, respectively. The University classified this loan program as noncash federal awards, and it is disclosed in the footnotes to the Office of Management and Budget (OMB) Circular A-133 Schedule of Expenditures of Federal Awards. Accordingly, no revenue or expenditures are included in the financial statements of the University. ILLINOIS STATE UNIVBRSITY 34 This is trial version www.adultpdf.com Notes to Financial Statements June 30 2005 Note 16. Self-Insurance The University is exposed to various risks of loss related to torts, theft of, damages to, and destruction of assets; effors and omissions; injuries to employees; and natural disasters. The University purchases commercial insurance for these risks of loss. During the year ended June 30, 2005, there were no significant reductions in coverage. As a public University in the State of Illinois, Illinois State University enjoys certain statutory protections from liability through the Illinois Court of Claims statute and the State Indemnification Act. In addition, the University purchases an excess liability policy that covers claims above the $350,000 deductible level and has annual aggregate levels of $5,000,000 for educator's legal liability and $6,000,000 for general liability. To augment existing state and commercial coverage, and to assist in addressing potential risks and liabilities incurred through its operations, the Board of Trustees has established the Self-Insurance Fund. The balance in the fund at June 30, 2005 and2004 was $952,135 and $940,834, respectively. The University paid one claim of $4,250 for fiscal year 2005 and did not pay any claims for fiscal year 2004. The University made contributions of interest to the fund of $14,232 for fiscal year 2005 and $7,053 for fiscal year 2004. In accordance with the requirement of GASB Statement No. 10, a liability for claims is reported if information prior to the issuance of the financial statements indicates that it is probable that a liabilify has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. At June 30, 2005 and June 30,2004, no liability was reported. Note 17. Net Assets UNIVERSITY NET ASSETS University restricted net assets are comprised of the following at June 30, 2005 and2004: 2005 2004 Expendable Capital projects Debt retirement Student loans Total Expendable University unrestricted net assets: $ _J2]8,43:_ $ _r7,6rw2_ Board designated capital asset renewal and replacement for the internal service departments at June 30, 2005 and2004 was $838,226 and $963,026, respectively. These amounts are included in unrestricted net assets. FOT]NDATION NET ASSETS Foundation restricted net assets are comprised of the following at June 30, 2005 and20A4: 2005 2004 Nonexpendable Scholarship and fellowship College and academic department support Faculty and staff compensation Other Total nonexpendable $ 2,176,869 675,438 9,331,128 $ 7,570,000 675,438 9,372,694 22,526,597 $ 20,465,634 8,557,271 7 ,047,408 5,787,717 4,428,187 4,153,676 2,527,679 41,025,261 $ 34,468,908 ILLINOIS STATE UNIVERSITY 35 This is trial version www.adultpdf.com Notes to Financial Statements June 30 2005 Expendable Scholarship and fellowship Instructional departmental uses University capital proj ects Other restricted expendable Total expendable $ 7,238,687 $ 10,749,824 4,522,812 1,800,485 6,070,016 11,769,401 10,445,610 1,823,590 $ _?1,31_1,8q9_ $ __19,108,612_ During fiscal year 2005, Foundation management identified an account classification error that occurred in a previous year. It was determined that an account previously identified as an endowment actually did not contain a stipulation that the principal remain in perpetuity. Therefore, on its June 30,2004 Statement of Net Assets, the Foundation reclassified $3,957,635 previously reported as Net Assets: Restrictedfor: Nonexpendable Scholarships andfellowships to Net Assets: Restrictedfor: Expendable Scholarships andfellowships. The same amount was reclassified from En dowm ent inv es tm ent s to Res tr i ct e d inv e s t m ent s . Note 18. Foundation Restricted Endowments If a donor has not provided specific instructions, state law permits the Foundation to authorize for expenditure the net appreciation (realized and unrealized) of the investments of endowment funds. The Foundation Investment Committee adopted a spending policy for fiscal years 2005 and2004 of 4.0%o and 0.070, respectively, of the average fair value of endowment investments for the preceding 12 months. At June 30, 2005 and 2004, net appreciation of $7,281,000 and $7,100,000, respectively, remains available for future authorization for expenditure by the Investment Committee. This amount is included in the Net Assets section of the Statements of Net Assets as Restricted for Nonexpendable. Note 19. Commitments During 2005, the Universify entered into two real estate deposit and option agreements. The agreements grant the University an irrevocable seven year option period to purchase the properties. The agreements provide that the option periods may be renewed for up to two additional periods of seven years. The University has made non-refundable option deposit payments of $500,250 which can be credited toward the purchase price. If the University exercises the option agreements, the purchase price for the properties will be 53,335,000. The agreements also require annual maintenance fees which will not be credited toward the purchase price. The University has entered into contracts for significant repairs and replacement of University capital assets. Total estimated costs under these contracts are $10,649,545, approximately 82,624,975 (25 percent) of the work has been completed as of June 30, 2005. The University is obligated to pay the remainder of the costs under the contracts as the work is completed. During 2003, the State of Illinois released funding for Schroeder Hall rehabilitation. The estimated project cost is $18,700,000 and will be funded through the State of Illinois Capital Development Board. Total estimated construction costs incurred at June 30, 2005 were $12,312,189. During 2005,the University placed into service a completed section of the project at a capitalized cost of $9,808,296. ILLINOIS STATE UNIVBRSITY 36 This is trial version www.adultpdf.com Notes to Financial Statements June 30 2005 Note 20. Contingencies The University is from time to time subject to various claims, legal actions, and inquiries related to compliance with environmental and other governmental laws and regulations. Although it is diffrcult to quantiff the potential impact of these claims, management believes that the ultimate cost of these matters will not adversely affect the University's future financial condition or results of operations. Accordingly, management does not believe that a reserve of the future effect, if any, of these matters on the financial condition or results of operations of the University is necessary at June 30,2005, as it is not possible to determine with any degree of probability the level of future expenditures for these matters. Note 21. Reclassification of Fiscal Year 2004 Revenue and Expense During fiscal year 2005, University management changed the manner of presentation of certain tuition and fee waivers. Consequently, on its Statement of Revenues, Expenses, and Changes in Net Assets for the year ended June 30,2004, the University reduced its revenue (Tuition revenues and fees) and its expenses (Student aid) by $5,134,000. This reclassification had no effect on the change in net assets. The related amounts on Notes I and 22 were revised to refl ect this reclassification. ILLINOIS STATE UNIVERSITY 37 This is trial version www.adultpdf.com Notes to Financial Statements June 30 2005 Note 22. Crosswalk of Natural Classification with Functional Classifications Natural Classification for the Year Ended June 30, 2005 Compensation Supplies and Benefits and Services Total University Instruction Research Public Service Academic Support Student Services Institutional Support Operation of Plant Depreciation Staff Benefits Student Aid Payments on Behalf Auxiliary Facilities Other* Total Universitv University Instruction S Research Public Service Academic Support Student Services Institutional Support Operation of Plant Depreciation Staff Benefits Student Aid Payments on Behalf Auxiliary Facilities Other* 78,427,891 $ 9,766,596 5,666,147 8,398,359 12,629,313 11,430,354 8,398,943 1,783,893 3,084,600 42,893,414 17,984,440 24,756,395 2,693,254 (969,734) $ _200,062J91_ $_* 8:,63%_19!_ Scholarships Depreciation $s 44,970 13,553,122 18,057 14,090,685 $ 14,153,712 $ 10,842,401 3,344,494 6,346,299 1,603,671 12,929,909 I1,685,400 12,415,793 89,270,282 l3,l I1,090 12,057,416 10,002,030 25,559,122 23,115,754 20,414,726 13,553,122 l,g0l,g40 17,175,285 42,993,414 42,740,925 1,713,520 _:13408,526____l_3,551,122_ S * The negative amounts in the Other function line above are caused by an internal budgeting m€chanism used to allocate certain internal service department charges. Natural Classification for the Year Ended June 30. 2004 Compensation and Benefits Supplies and Services 76,995,202 $ 9,507,784 5,398,936 8,222,705 72,258,659 10,386,520 6,091,554 653,339 2,752,500 102,777,101 19,162,961 24,419,664 3,063,644 (1,324,623) Scholarships Depreciation $$ 1,2,340,446 34,639 12,956,516 $ 89,875,267 12,611,969 10,497,928 9,710,201 23,930,799 21,971,127 19,334,923 12,340,446 697,977 15,709,016 102,777,107 42,592,625 1,739,021 Total 12,880,065 3,104,084 5,098,992 1,487,496 r1,672,130 11,584,607 12,243,269 Total Universitv $ 253,518,403 83,918,194 $ 12,991,155 $ 12,340,446 $ 362,769,199 * The negative amounts in the Other function line above are caused by an internal budgeting mechanism used to allocate certain internal service department charges. ILLINOIS STATE UNIVERSITY 38 This is trial version www.adultpdf.com Notes to Financial Statements June 30. 2005 Note 23. Segment Information A segment is an identifiable activity reported as a stand-alone entify for which one or more revenue bonds are outstanding. A segment has a specific identifiable revenue stream pledged in support of revenue bonds and has related expenses, gains and losses, assets, and liabilities that are required by an external parfy to be accounted for separately. The University has one segment that meets the reporting requirements of GASB Statement No. 35. The University operates auxiliary facilities that include student housing, student activities and parking. Following are condensed financial statements for the Auxiliary Facilities System segment: 2004 Condensed Statements of Net Assets at June 30 Assets: Current assets Noncurrent assets: Capital assets, net Other noncurrent assets Total assets Liabilities: Current liabilities Noncurrent liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Expendable Unrestricted Total net assets Condensed Statements of Revenues, Expenses and Changes in Net Assets for the year ended at June 30 Operating revenues Depreciation expense Other operating expenses Operating income Nonoperating revenues Nonoperating expenses Increase in net assets Net assets - beginning of year Net assets - end of vear Condensed Statements of Cash Flows for the year ended June 30 Net cash flows provided by (used in) operating activities Net cash flows provided by (used in) non-capital financing activities Net cash flows provided by (used in) capital and related financing activities Net cash flows provided by (used in) investing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 2005 s 37,760,727 s 84,978,218 19,601,3 I I 142,340,253 11,939,268 49,752,340 18,452,006 80,157,589 34,957,560 133,567,155 10,358,382 53,106,804 63,465,186 61,691,608 34,175,155 2,852,307 43,621,186 ___qqgqgq_ 31,668,817 8,245,438 30,187,714 $ 70,101,969 : 57,752,634 (3,347,444) (42,740,825) 11,664,765 1,724,530 _ (2.842,616) 10,546,679 70,101,969 __gq'61!,61q_ 15,719,399 203,301 (l3,6l0,lol) 2,421,709 4,734,308 7,012,918 11,747,226 $ 58,447,697 (3,338,701) (42,582,625) 12,526,371 478,648 (3,016,509) 9,988,510 60,113,459 $ __zgJglfg2_ 16,276,556 184,575 (10,365,826) (13,126,391) (7,031,086) 14,444,004 7,012,918 ILLINOIS STATE UNIVBRSITY 39 This is trial version www.adultpdf.com Notes to Financial Statements June 30.2005 Following is additional segment disclosure information relating to University Auxiliary Facilities revenue bonds. See Note 9: RESERVES FOR DEBT SERVICE, REPAIR AND REPLACEMENT, AND DEVELOPMENT Debt Service A portion of the Debt Service Reserve Account (DSRA) that was established under the terms of the Revenue Bond Series 1989, 1992,1993 and 1996 indentures was used to purchase a Surety Bond. This Surety Bond constitutes a Reserve Account Credit Instrument under the requirements of the Bond Resolution. The Surety Bond is payable to the Bond Registrar. The proceeds of the Surety Bond held in the DSRA may be used solely for the purpose of paying principal and interest on the Series 1989, 1992,1993 and 1996 Bonds and any outstanding Parrfy Bonds. Debt Service Reserve Account (DSRA) $675,438 of the proceeds from the Series 2003 Bonds was deposited in a DSRA. These monies are to be used by the Bond Registrar whenever there exists a deficiency in the Bond and Interest Sinking Fund Account for the payment of the principal and interest on the Series 2003 Bonds and any Parity Bonds. Repair and Replacement and Development The Bond indentures also require a deposit be made in the Repair and Replacement Reserve Account. The sum of the deposit shall be greater than l0% of the Maximum Debt Service and shall not exceed the sum of 5% of the replacement cost of the auxiliary facilities' structures plus 20% of the replacement cost of their equipment plus l0% of the either the historical cost of the parking lots or 100% of the estimated cost of resurfacing any existing auxiliary facilities' parking lot. The Development Reserve Account consists of funds for projects approved by the Board. 2005 2004 Maximum Allowable Deposits at June 30 Assets Reserved Project Amount Approved by Board Repair and Replacement Reserve Develop- ment Reserve N/A $ 1,265,676 1,250,000 Repair and Replacement Reserve Develop- ment Reserve 27,169,824 $ 11,837,260 N/A 25,219,145 $ 13,458,771 N/A N/A 1,228,559 1,250,000 GRANT AGREEMENT WITH IJ.S. DEPARTMENT OF HOUSING & URBAN DEVELOPMENT On January l,l974,the U. S. Department of Housing and Urban Development (HUD) awarded a debt service subsidy to the University for the Union portion of the University Union Auditorium Bond Series 1970-70A. Annual payments under the grant agreement are not to exceed $160,640 and will continue until the year 2007, making the total grant subsidy approximately $5,542,080. This amount has not been reflected as an amount due to the auxiliary facilities since HUD has the right to reduce the amount of the grant upon giving notice to the University. This information is an integtal part of the accompanying financial statements. ILLINOIS STATE UNIVERSITY 40 This is trial version www.adultpdf.com . Depreciation $s 44,970 13,553, 122 18,057 14,090,685 $ 14,153,7 12 $ 10,8 42, 401 3,344,494 6,346 ,29 9 1,603,671 12, 929 ,909 I1,685,400 12, 415,793 89 ,27 0 ,28 2 l3,l I1,090 12, 057,416 10,0 02, 030 25 ,559, 122 23 ,115,754 20 ,414, 726 13,553, 122 l,g0l,g40 17,175 ,28 5 42, 993,414 42, 740, 925 1,713, 520 _:13408, 526 ____l_3,551, 122 _. Ended June 30. 20 04 Compensation and Benefits Supplies and Services 76,995 ,20 2 $ 9,507,784 5,398,936 8 ,22 2,705 72, 258,659 10,386, 520 6,091,554 653,339 2, 7 52, 500 1 02, 777,101 19,1 62, 961 24 ,419,664 3,063,644. (1, 324 , 623 ) Scholarships Depreciation $$ 1 ,2, 340,446 34,639 12, 956,516 $ 89,875 ,26 7 12, 611,969 10,497, 928 9,710 ,20 1 23 , 930, 799 21 ,971, 127 19,334, 923 12, 340,446 697,977 15,709,016 1 02, 777,107 42, 5 92, 625 1,739, 021 Total 12, 880,065 3,104,084 5,098,9 92 1,487,496 r1,6 72, 130 11,584,607 12, 243 ,26 9 Total