Financial report / Northern Arizona University

              Financial Report 1998-1999

The Financial Report was produced by NAU Creative Communications. Printed on recycled paper. NAU is an Equal Opportunity/Affirmative Action Institution A36309/200/12-99



INDEPENDENT AUDITORS' REPORT



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DEBRA K. DAVENPORT, CPA

AUDITOR GENERAL



STATE OF ARIZONA

OFFICE OF THE



AUDITOR GENERAL



MEMBERS OF THE ARIZONA STATE LEGISLATURE THE ARIZONA BOARD OF REGENTS We have audited the accompanying balance sheet of Northern Arizona University as of June 30, 1999, and the related statements of changes in fund balances and current operating funds revenues, expenditures, and other changes for the year 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northern Arizona University as of June 30, 1999, and the changes in its fund balances and its current operating funds revenues, expenditures, and other changes for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the financial statements of Northern Arizona University taken as a whole. Disclosure regarding the year 2000 issue on Page 23 is not a required part of the University's financial statements, but it is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measuring and presenting the supplementary information; however, we did not audit the information and do not express an opinion on it. In addition, we do not provide assurance that the University is or will become year 2000 compliant, that the University's year 2000 remediation efforts will be successful in whole or in part, or that parties with which the University does business are or will become year 2000 compliant.



Debbie Davenport Auditor General September 8, 1999



1



ARIZONA BOARD OF REGENTS



FINANCIAL REPORT 1998-99

Ex Officio Jane D. Hull Governor Lisa Graham Keegan Superintendent of Public Instruction



George H. Amos III Tucson Rudy Campbell Tempe Judy Gignac Sierra Vista Chris Herstam Phoenix Jack Jewett Tucson Kay McKay Flagstaff John Munger Tucson Christine Thompson ASU Student, Tempe Don Ulrich Paradise Valley



Independent Auditors' Report . . . . . . . . . . . . . .1 About the University Degrees Reflect Diversity . . . . . . . . . . . . .5 NAU Serves State and Beyond . . . . . . . . . .6 Enrollment Trends Shift . . . . . . . . . . . . . . .7 Financial Highlights . . . . . . . . . . . . . . . . . . . . .8 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . .14 Statement of Changes in Fund Balances . . . . . . . . . . . . . . . . . . . . . . . .16 Statement of Current Operating Funds Revenues, Expenditures, and Other Changes . . . . . . . . . . . . . . . . . . . . .18 Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . .19 Notes to Financial Statements . . . . . . . . . . . . .20 Supplementary Information . . . . . . . . . . . . . .23



UNIVERSITY ADMINISTRATION

Clara M. Lovett President Charles W. Connell Provost J. Michael Mullen Vice President for Administration S. Theodore Ford Senior Vice President for University Advancement Kurt R. Davis Vice President of Public Affairs and Marketing



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About the University



Degrees Reflect Diversity

NAU has maintained a tradition over the past century as one of the West's premier universities � a tradition centering on academic excellence. The university's programs cover a diverse range of disciplines, from liberal arts and the sciences to professional and career-related programs. In fiscal year 1998-99, NAU awarded 3,041 bachelor's, 1,692 master 's degrees, and 45 doctoral degrees. Hotel and Restaurant Management Humanities Interior Design International Affairs Journalism Journalism and Political Science Liberal Studies Marketing Mathematics Mechanical Engineering Merchandising Management Microbiology Modern Languages Music Music, Five-year Program Music History and Literature Music Performance (Instrumental and Vocal) Nursing Spanish Special Education Speech Communication Technology Education Theater Visual Communication Vocational Education Zoology



Master's Degrees

Anthropology Applied Sociology Bilingual/Multicultural Education Biology Business Administration Chemistry Clinical Speech Pathology Counseling Criminal Justice Early Childhood Education Earth Science Educational Leadership Elementary Education Engineering English Forestry Geology History Liberal Studies Mathematics Music Nursing Physical Education Physical Science Physical Therapy Political Science Psychology Public Administration Quaternary Studies Reading and Learning Disabilities Rural Geography School Psychology Secondary Education Special Education Teaching English as a Second Language Vocational Education



Areas in Which Degrees Are Offered Bachelor's Degrees

Accountancy Advertising American Political Studies Anthropology Applied Geography Applied Science Applied Sociology Art Art Education Art History Arts Management Astronomy Biology Botany Business Economics Chemistry Civil Engineering Computer Information Systems Computer Science and Engineering Construction Management Criminal Justice Dental Hygiene Earth Science Economics Electrical Engineering Electronic Media Elementary Education Engineering Physics English Environmental Chemistry Environmental Engineering Environmental Science Exercise Science Finance Forestry French Geochemistry Geography Geology German Health Education History



Parks and Recreation Management Philosophy Photography Physical Education Physical Science Physics Physics and Astronomy Physics and Mathematics Political Science Psychology Public Planning Public Relations Religious Studies Social Science Social Work Sociology



Doctoral Degrees

Applied Linguistics Biology Curriculum and Instruction Educational Leadership Educational Psychology Forest Science History Political Science

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About the University



About the University



NAU Serves State and Beyond

With more than twenty sites in Arizona, students are never far from an NAU education. Each site offers a selection of undergraduate or graduate degrees, certifications, and endorsements selected especially for the needs of the community it serves. NAU partners with most Arizona community colleges so students can complete their first two years at a local community college and then transfer to a nearby NAU site to earn a bachelor's degree. With advisors, financial aid counselors, and full- and part-time faculty available at the various sites, NAU makes going to college convenient. NAU Online offers students the flexibility and convenience of taking courses on the web. Through NAU Online, students can obtain a complete certificate in a variety of programs, fulfill requirements toward a degree, round out their professional development, or take courses for personal enrichment. Technical and administrative support are available on line or over the phone.



Enrollment Trends Shift

NAU's total enrollment grew slightly this past year, while enrollment of Hispanic and Native American students hit record levels. Freshman enrollment also increased and represented a high percentage of academic achievers. "Over the past year we have focused on getting the message out about the high caliber of NAU's programs," said Clara M. Lovett, NAU president. "Our freshman class with its increased quality and diversity, plus increased overall enrollment of Native Americans and Hispanics is an early indicator that our message is being heard." NAU's overall enrollment growth was modest, rising from 19,940 students in the fall of 1998 to 19,981 this year. Hispanic enrollment, however, is at 10 percent of the total student population for the first time in NAU's history � 1,989 representing a 2 percent increase in Hispanic enrollment from last year's 1,950. With that increase, the Hispanic Association of Colleges and Universities now classifies NAU as a Hispanicserving institution. Native American enrollment also is a historic high, now standing at 6.6 percent of total student population � shooting up 8.1 percent, from 1,216 to 1,314 students. In addition, the first-time freshman population grew 1.7 percent, from 2,772 to 2,819. On the Flagstaff campus, new freshman enrollment increased 2.6 percent. Especially encouraging is the 13 percent increase in Arizona freshmen who chose to come to NAU. The freshmen class at NAU is noteworthy for the following facts: � � 32 percent of all incoming freshmen were in the top 10 percent of their graduating class. Almost half of the students in the New Century Honors Program are freshmen � 239 freshmen out of 537 total participating, a 16.7 percent increase over last year. The average in-state grade point average is 3.43 percent for Arizona freshmen at NAU.



�



Challenges still remain for NAU because nonresident enrollment dropped 2.9 percent, and transfer students declined slightly. "As NAU's academic reputation and our smaller, personalized campus becomes more well-known, the growth of in-state freshmen should spread to out of state," Lovett said.



NAU Enrollment Headcount Comparison

1993-94 14,900 3,917 18,817



1999-00

2,000 4,000 6,000 8,000



14,597



5,384

Flagstaff



19,981



Statewide



Source: www.nau.edu



10,000 12,000 14,000 16,000 18,000 20,000 Gary Fox - Public Affairs & Marketing



NAU Enrollment - Statewide

= 1,000



1993-94



3,917



1999-00



5,384



6



Source: www.nau.edu



Gary Fox - OPA&M



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FINANCIAL HIGHLIGHTS

Funding Sources and Uses

Dollars in Millions Fiscal Year 1999 Funding Sources (Resources acquired during the year) State Appropriations Tuition and Fees Grants, Contracts, Gifts, and Advances Auxiliary Enterprise Operations Other Sources Total Funding Sources Funding Uses (Resources consumed during the year) Instruction Research and Public Service Student Services, Academic Support, and Institutional Support Operation and Maintenance of Plant Auxiliary Enterprise Operations Facility Additions and Debt Service Scholarships and Fellowships Other Uses Total Funding Uses Funding Sources Under Funding Uses 1998 Percentage of Change



Financial Position

Dollars in Millions Fiscal Year 1999 Assets (Resources available to provide future services or to pay obligations) Property, Buildings, and Equipment Other Assets (cash, investments, receivables, inventories, and deferred expenses) Total Assets Liabilities (Obligations requiring cash or other resources in the future) Bonds Payable and Other Long-Term Obligations Other Liabilities (accounts payable, payroll and other liabilities, deferred revenue, and deposits) Total Liabilities Fund Balances (Resources available after obligations for providing future services) Available for Current Operations: Restricted (must be spent as specified by external parties) Designated (may be spent as determined by University Administration) Restricted or Designated for Nonoperating Purposes (bond reserves, student loans, endowments, and construction projects) Total Fund Balances before Net Investment in Plant Invested in Property, Buildings, and Equipment (property costs net of bonds payable and other long-term obligations) Total Fund Balances 1998 Percentage of Change



$393.4 79.5 $472.9



$368.1 85.8 $453.9



7% (7) 4%



$ 108.1 63.6 37.2 25.7 12.4 $ 247.0



$ 100.6 61.6 35.1 24.8 14.3 $236.4



7% 3 6 4 (13) 4%



$97.2 28.1 $125.3



$ 103.3 23.6 $126.9



(6)% 19 (1)%



$ 79.9 24.6 59.6 13.4 26.4 30.3 23.1 0.4 $ 257.7 $ 10.7



$



77.4 26.0 56.7 14.1 27.6 27.1 20.2 0.4



3% (5) 5 (5) (4) 12 14 0 3%



$ 249.5 $ 13.1



$



2.8 15.4



$



1.9 17.6



47% (13)



The above table presents an overview of the financial operations of the university; current operating and nonoperating funds are included. State appropriations and tuition and fees continue to be the major funding sources for current operations related to educational purposes. State appropriations for 1999 included $4,378,100 for repair and maintenance of facilities and $389,500 for financial aid purposes. Other sources of funding include investment income, internal services, commissions, interest on loans, and other miscellaneous revenues. Educational and general expenditures continued to account for



the majority of uses of funds. Educational and general expenditures increased $6.2 million or 3 percent over the previous fiscal year. Significant components of the increase within educational and general expenditures are: instruction, $2.5 million; scholarships and fellowships, $2.9 million; and academic support, $2.7 million. Facility additions and debt service consist of $18.3 million of additions to physical facilities and $11.9 million in principal and interest. Funding uses exceed funding sources in 1999 due to spending bond proceeds for construction and renovation of facilities.



25.4 $ 43.6



23.0 $ 42.5



10 3%



304.0 $347.6



284.5 $327.0



7 6%



The 4 percent increase in university assets resulted from $25.3 million of additional property, buildings, and equipment and a $6.3 million decrease in other assets, primarily cash and investments. The increase in property, buildings, and equipment and the decrease in cash and investments results from spending 1997 bond proceeds and prior accumulated excess current fund revenues for construction and renovation of facilities and technology enhancement of equipment and operating systems.



Total fund balances increased 6 percent, primarily due to a $19.5 million increase in net investment in property, buildings, and equipment. Equipment and library acquisitions funded from current operating funds accounted for $11.1 million of this increase in net investment. The increase in net investment in property, buildings, and equipment results from the continued emphasis on renovation of facilities and the need to maintain equipment at current technology.



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9



Unrestricted Current Operating Funds Revenues

Dollars in Millions



Operating Funds Composition

For the year ended June 30, 1999



1995



1996



1997



1998



1999

50%



General Operating Fund

Sources Uses by Expenditure Category Uses by Program



49% 48% 48%

State Appropriations Tuition and Fees Auxiliary Enterprises and Other Sources Gifts, Grants, and Contracts (Comprised 2% for 1995-99)



49%



State Appropriations 74%

31%



Personal Services 62%



Scholarships and Fellowships 5%



Instruction 49%



Institutional Support 13%



31% 30% 31%



31%



19%



19%



19%



18%



17%



Other Sources 1%



Travel 1% Tuition and Fees 25% Capital 5%



Total Revenues



$167.5



$181.6



$189.9



$199.3



$205.7



Operations 19% Payroll Taxes and Fringe Benefits 13%



Research and Public Service 3%



Operation and Maintenance of Plant Student Services 9% 6% Academic Support 15%



Unrestricted Current Operating Funds Expenditures

Dollars in Millions



1995



1996



1997



1998



1999



Total Current Operating Funds

Sources Uses by Expenditure Category Uses by Program



50% 48%

Instruction and Academic Support Other Educational and General Auxiliary Enterprises



49% 49% 49% 37% 36% 35% 36% 36%



State Appropriations 44%



Tuition and Fees 26%



Travel 2%



Personal Services 52%



Instruction Scholarships 35% and Fellowships Student Services 10% 7%



16%



15%



15%



15%



14%



Gifts, Grants, and Contracts 15%



Total Expenditures

10



$151.1



$159.1



$173.5



$192.0



$194.4



Auxiliary Enterprises and Other Sources 15%



Capital 5% Payroll Taxes and Fringe Benefits 10%



Operations 31%



Academic Auxiliary Support Enterprises 10% 12% Operation and Research and Maintenance Public Service of Plant Institutional 10% 6% Support 10%

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Combined Sources and Uses of Funds

For the year ended June 30, 1999 Note: The Combined Sources and Uses of Funds is presented to highlight major financial data. The explanations provided are not intended to be all inclusive. This summary is presented to give an overview of total university financial operations. Restricted and unrestricted current operating and nonoperating funds are included. Restricted funds have specific purposes stipulated by outside donors or agencies. Nonoperating funds consist of the loan fund, endowment fund, unexpended plant fund, and debt service fund. The investment in plant fund is not included, except for property gifts, since plant acquisitions are typically shown as a use of funds in either the current operating funds or unexpended plant fund at time of acquisition. The nonoperating funds are generally not available for use at the discretion of the university. Sources and uses are allocated and controlled by budgets.



Utsucson and Academic Support e Ins r ti

39.4% $101,548,296 Instruction, totaling $79,892,282 includes expenditures of academic departments and other organizational units for undergraduate and graduate courses and for occupational or technical instruction, includes regular academic year, summer sessions, and continuing education. Academic Support, totaling $21,656,014 includes libraries, audiovisual services, and academic administration. Student Services and Institutional Support 14.7% $37,931,758 Student services, totaling $15,101,156, includes areas such as admissions, registrar, minority services, counseling, placement, student aid administration, and health services. Institutional support, totaling $22,830,602, includes executive management, financial operations, computing support, human resource services, security, and university relations. Auxiliary Enterprises 10.3% $26,383,778 Expenditures of organizational units that furnish services to students, faculty and staff, and the general public for a fee directly related to the cost of the service and are managed as essentially self-supporting activities. Facility Additions and Debt Service 11.8% $30,369,363 Additions to physical facilities of $18,347,714 were funded from the unexpended plant fund and $136,714 was received from property gifts. Not included in this category are additions to property of $11,142,414 funded from current operating funds. Debt service payments consisted of $5,810,113 of interest payments and $6,074,822 of principal retired. Research and Public Service 9.5% $24,561,583 Activities for which the primary objective is the discovery or application of knowledge and may be sponsored by external agencies or separately budgeted by organizational units within the university. Public service activities make available to the general public the benefits of the instructional or research activities and include local school consortiums and public broadcasting. Scholarships and Fellowships 9.0% $23,139,917 Includes grants paid from the restricted fund and tuition and fee waivers. Scholarships and fellowships are awarded to students enrolled in formal coursework for which the students are not required to perform personal services or repay the awards. Operation and Maintenance of Plant 5.2% $13,423,232 Represents expenditures for the operation and maintenance of plant, including administration, maintenance and custodial services, landscaping and grounds upkeep, and minor repairs and renovations. Also included are utilities and property insurance. Other Uses 0.1% $317,564 Other uses include $145,341 for trustee and administrative costs, refunds to grantors of $32,579, cancellation of student loans of $115,468, and an increase in provision for uncollectible student loans of $24,176.



Sources



State Appropriations 43.8% $108,085,600 Includes legislative appropriations from state of Arizona general revenue for current operations of the university, $389,500 for financial aid, and $4,378,100 for repair and maintenance of facilities. Tuition and Fees 25.8% $63,639,572 Includes $26,410,336 to support the operating budget, $5,590,504 for summer sessions, $22,422,801 for funding of local budgets, scholarships, and retirement of nonhousing bonded indebtedness, and $9,215,931 of waivers, consisting of $6,658,577 charged to scholarships and fellowships and $2,557,354 for faculty and staff benefits. Governmental Grants and Contracts 12.2% $30,175,747 Includes $22,557,504 of federal grants and contracts, $3,123,237 of state grants and contracts, and $4,495,006 of local government grants and contracts. Auxiliary Enterprises 10.4% $25,656,865 Operations of substantially self-supporting activities such as housing, bookstore, student unions, and intercollegiate athletics. Other Sources 3.2% $7,854,821 Includes interest on loans receivable, internal services, commissions, conferences, facility userfees, and other miscellaneous revenues. Private Gifts, Grants, and Contracts 2.8% $6,989,901 Includes gifts, grants, and contracts for scholarships, endowments, and plant facility additions. Investment and Endowment Income 1.8% $4,541,334 Earnings from short-term investments of funds not necessary for immediate expenditures and long-term investment of endowment and bondretirement sinking funds.



Total Sources



$246,943,840



Net Decrease in Fund Balances $10,731,651 Includes a decrease of $6,742,554 in cash and investments, and an increase in short-term liabilities of $4,485,838, offset by an increase in other assets of $496,741.



Total



$257,675,491



Total Uses

12



$257,675,491

13



BALANCE SHEET

June 30, 1999 (with comparative totals for 1998) CURRENT OPERATING FUNDS Unrestricted Designated Auxiliary Restricted Fund Enterprises Fund Fund $14,339,096 1,063,806 $ 6,483,379 636,715 2,426,249 140,889 $ 88,950 385,310 6,287,824 OTHER FUNDS TOTAL ALL FUNDS Memorandum Only 1999 1998 $ 46,422,702 12,644,386 8,128,929 6,048,858 2,426,249 1,642,375 942,718 1,190,986 393,414,377 $472,861,580 $ 41,531,535 24,278,107 7,928,778 6,021,325 2,374,572 1,449,131 918,582 1,190,986 368,110,670 $ 453,803,686



General Operating Fund Assets Cash and short-term investments Cash and investments held by trustee Accounts receivable Loans receivable Inventories Deferred expenses and deposits Due from other fund Donated land Property, buildings, and equipment Total Assets Liabilities and Fund Balances LiabilitiesAccounts payable Payroll and related liabilities Deferred revenue Retirement and insurance deposits Other deposits Due to other fund Long-term obligations Bonds payable Total Liabilities Fund balances Total Liabilities and Fund Balances Fund Balances Consist ofRestrictedU.S. government grants refundable Endowments General DesignatedOutstanding purchase orders Funding of ensuing year's budget Summer sessions Quasi-endowment General Net investment in plant Total Fund Balances $5,527,124



Total Current Operating Funds $26,438,549 385,310 7,988,345 2,426,249 1,466,510 942,718



Loan Fund $ 346,257



Endowment Fund $ 4,870,590 3,033,053 418



Plant Funds $ 1 1 , 214,746 9,226,023 103,494



Agency Fund $3,552,560 36,672



6,048,858 1,325,621 942,718 175,865 1,190,986 $5,527,124 $17,671,241 $ 9,687,232 $6,762,084 $39,647,681 $ 6,395,115 $ 9,095,047 393,414,377 $413,958,640 $3,765,097



$ 951,167 4,229,286



$



698,855 1,352,181 6,244,048 86,085



$



637,438 594,464 1,942,145 749,125



$ 380,566 856,313 1,787,528



$ 2,668,026 7,032,244 9,973,721 835,210 942,718



607 3,601



$ 2,816,996 15,164



$ 1,363,500 252,723 2,054,897 93,977



942,718



$5,180,453 346,671 $5,527,124



$ 8,381,169 9,290,072 $17,671,241



$ 3,923,172 5,764,060 $ 9,687,232



$3,967,125 2,794,959 $6,762,084



$21,451,919 18,195,762 $39,647,681



$ 607 6,394,508 $ 6,395,115



$



3,601 9,091,446 $ 9,095,047



1,207,976 95,980,000 $100,020,136 313,938,504 $413,958,640



$3,765,097 $3,765,097



$ 6,849,129 7,284,967 9,992,486 2,054,897 929,187 942,718 1,207,976 95,980,000 $125,241,360 347,620,220 $472,861,580



$



3,976,657 6,904,864 8,964,545 1,834,747 968,151 918,582 1,357,798 101,905,000 $ 126,830,344 326,973,342 $ 453,803,686



$5,341,149 $ 4,931,981 $2,794,959 $ 212,761 100,000 $ 33,910 $ 346,671 48,630 9,241,442 $ 9,290,072 $ 5,764,060 $ 5,764,060 $2,794,959 $ 2,794,959 212,761 100,000 48,630 4,159,465 15,039,412 $18,195,762 261,518 $6,394,508 $ 9,091,446 6,983,187 304,005,802 $313,938,504 791,841 $ 2,949,515



$ 5,341,149 4,931,981 6,536,315 212,761 100,000 48,630 4,159,465 22,284,117 304,005,802 $347,620,220



$



5,292,203 4,200,591 4,446,251



206,070 100,000 182,126 3,320,609 24,735,177 284,490,315 $ 326,973,342



See Summary of Significant Accounting Policies and Notes to Financial Statements



14



15



STATEMENT OF CHANGES IN FUND BALANCES

For the year ended June 30, 1999 (with comparative totals for 1998) CURRENT OPERATING FUNDS Unrestricted General Operating Fund Revenues and Other Additions Unrestricted current revenues $138,922,485 State appropriations Student fees Governmental grants and contracts Private gifts, grants, and contracts Investment and endowment income U.S. government advances and reimbursements Expended for plant facilities, including $11,142,414 charged to current funds expenditures in 1999 and $16,517,655 in 1998 Retirement of indebtedness Other additions Total Revenues and Other Additions $138,922,485 Expenditures and Other Deductions Educational and general expenditures $138,786,183 Auxiliary enterprises expenditures Indirect costs recovered Refunded to grantors Loan cancellations Administrative costs Provision for bad debts Expended for plant facilities, including expenditures not capitalized of $2,301,639 in 1999 and $4,129,035 in 1998 Retirement of indebtedness Interest on indebtedness Disposal of plant facilities Total Expenditures and Other Deductions Transfers Among Funds-Additions (Deductions) MandatoryPrincipal and interest Loan fund matching Grant matching Voluntary-net Total Transfers Net Increase (Decrease) for the Year Fund Balances at Beginning of Year Fund Balances at End of Year $138,786,183 Designated Auxiliary Fund Enterprises Fund $38,423,619 $28,402,538 $ 194,750 206,608 29,903,637 4,368,635 449,554 Restricted Fund Total Current Operating Funds $205,748,642 194,750 206,608 29,903,637 4,368,635 449,554 Loan Fund Endowment Fund OTHER FUNDS Plant Funds Investment Unexpended Debt Service In Plant Plant Fund Fund Fund TOTAL ALL FUNDS Memorandum Only 1999 $205,748,642 4,767,600 1,091,665 29,951,219 4,515,153 2,591,187 89,588 1998 $199,261,569 2,470,600 1,101,816 26,868,264 5,397,672 3,149,054 74,994



Combined Plant Funds



$ 194,750 206,608 $ 3,600 6,154 1,162,734



$ 4,378,100 $ 50 802,958 678,449 47,582 $ 175,941 136,714



$



4,378,100 678,449 47,582 136,764 978,899



89,588



27,188,489 6,074,822 $38,423,619 $29,277,989 $26,383,778 1,992,340 32,579 $28,402,538 $35,123,184 $32,540,614 $240,871,826 $200,604,786 26,383,778 1,992,340 32,579 213,301 $ 306,489 $ 1,570,246 15,142 $ 5,196,250 $ 901,972 $ 33,400,025



27,188,489 6,074,822 15,142 $ 39,498,247



27,188,489 6,074,822 228,443 $282,246,808 $200,604,786 26,383,778 2,039,657 32,579 115,468 145,341 24,176



26,589,676 5,742,872 166,589 $270,823,106 $194,367,395 27,652,690 2,018,876 6,462 122,142 82,282 231,481



$



47,317 115,468 44,061 24,176



$



101,280



$



101,280



$ 18,347,714 6,074,822 5,810,113 $ 2,021,496 $29,277,989 $26,383,778 $34,565,533 $229,013,483 $ 231,022 $ 18,347,714 $ 11,986,215 $ 2,021,496



18,347,714 6,074,822 5,810,113 2,021,496 $ 32,355,425



18,347,714 6,074,822 5,810,113 2,021,496 $261,599,930



14,201,056 5,742,872 6,144,690 2,618,787 $253,188,733



$



(121,141)



$

$



(121,141) 15,161 331,510 346,671



$ (7,930,566) (1,853) (251,389) (1,485,314) $ (9,669,122) $ (523,492) 9,813,564 $ 9,290,072



$ (2,612,512) 251,389 105,830 $ 357,219 $ 914,870 1,880,089 $ 2,794,959 $



$ (10,664,219) (1,853) (2,438,230) $ (13,104,302) $ (1,245,959) 19,441,721 $ 18,195,762



$ $ 1,853



(901,470)



$11,565,689



$ 10,664,219



(1,058,746) $ (3,671,258) $ (1,652,498) 7,416,558 $ 5,764,060



(35,207) $ (33,354) $ 42,113 6,352,395 $6,394,508



$ 1,570,246 7,521,200 $ 9,091,446



14,414,742 $ 13,513,272 $ 361,808 7,678,964 $ 8,040,772



(78,263) $ (11,863,042) $ 11,487,426 $ (11,863,042) $ 403,183 $ 19,515,487 1,488,747 284,490,315 $ 1,891,930 $304,005,802



2,473,437 $ 13,137,656 $ 20,280,478 293,658,026 $ 313,938,504



$ 20,646,878 326,973,342 $347,620,220



$ 17,634,373 309,338,969 $326,973,342



$



See Summary of Significant Accounting Policies and Notes to Financial Statements



16



17



STATEMENT OF CURRENT OPERATING FUNDS REVENUES, EXPENDITURES, AND OTHER CHANGES

For the year ended June 30, 1999 (with comparative totals for 1998) Unrestricted General Operating Fund Revenues State appropriations $103,318,000 Tuition and fees 35,425,339 Governmental grants and contracts Private gifts, grants, and contracts Investment income Endowment income Sales and services of auxiliary enterprises Internal services, less related expenditures of $9,549,723 in 1999 and $9,600,660 in 1998 Other sources 179,146 Total Revenues $138,922,485 Expenditures Educational and general Instruction $ 68,405,275 Research 2,742,975 Public service 1,618,957 Academic support 20,142,650 Student services 8,334,707 Institutional support 17,982,023 Operation and maintenance of plant 12,901,019 Scholarships and fellowships 6,658,577 Educational and general expenditures $138,786,183 Auxiliary enterprises Total Expenditures $138,786,183 Mandatory Transfers Principal and interest $ 121,141 Loan fund matching Grant matching Total mandatory transfers $ 121,141 Total Expenditures and Mandatory Transfers $138,907,324 Other Transfers-Additions (Deductions) Restricted receipts over transfers to revenues Voluntary transfers-net Refunded to grantors Net Increase (Decrease) in Fund Balances $ 15,161 Designated Auxiliary Restricted Fund Enterprises Fund Fund $ $26,611,666 1,929,193 1,812,215 1,667,494 $ 510,902 64,424 796,196 282,653 194,750 206,608 27,594,316 4,095,386 116,743 332,811 Total Current Operating Funds Memorandum Only 1999 1998 $103,512,750 $ 98,310,350 62,754,515 60,703,290 29,587,933 6,703,797 2,066,890 332,811 25,656,865 27,228,106 6,804,539 2,359,906 292,872 24,830,743



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For the Year Ended June 30,1999



Basis of Accounting

The financial statements of the university include all funds for which the university has financial accountability. Fiscal responsibility for the university remains with the State of Arizona; therefore, the university is considered part of the reporting entity for the State's financial reporting purposes. The financial statements do not include the financial activities of the Northern Arizona University Foundation, Inc. The foundation is a nonprofit corporation, controlled by a separate board of directors. The goals of the foundation are to promote the cause of education and the objectives of the university. The financial statements have been prepared on the accrual basis of accounting in conformity with generally accepted accounting principles as applied to governmental colleges and universities in the AICPA College Guide model as defined in Governmental Accounting Standards Board (GASB) Statement No. 15. The Statement of Current Operating Funds Revenues, Expenditures, and Other Changes is a statement of financial activities of operating funds related to the current reporting period. It does not purport to present the results of operations or the net income or loss for the period, as would a statement of revenues and expenses. Loans and accounts receivable as of June 30, 1999, are reported less allowances for estimated uncollectible amounts and collection costs of $820,000 and $928,000, respectively ($800,000 and $778,000 in 1998). The allowances for estimated uncollectible amounts and collection costs relating to federal loan programs have been charged to federal and university fund balances in the ratio of their respective contributions to such loan programs. At June 30, 1999, investments are reported at fair value. Fair value typically is the quoted market price for investments.



25,656,865



1,091,498 6,403,051 $38,423,619 $28,402,538 $32,540,614



1,091,498 1,537,117 6,582,197 7,169,126 $238,289,256 $229,236,049



$ 7,964,864 551,626 4,694,755 1,397,467 5,580,411 4,690,417 520,148 3,878,301 $29,277,989 $29,277,989 $ 7,930,566 1,853 251,389 $ 8,183,808 $37,461,797 $26,383,778 $26,383,778 $ 2,612,512



$ 3,522,143 9,067,053 5,886,217 115,897 1,186,038 158,162 2,065 12,603,039 32,540,614 $ 32,540,614



$ 79,892,282 $ 77,355,234 12,361,654 11,318,298 12,199,929 14,659,754 21,656,014 18,909,044 15,101,156 14,930,473 22,830,602 22,834,997 13,423,232 23,139,917 14,109,957 20,249,638



$ 200,604,786 $194,367,395 26,383,778 27,652,690 $ 226,988,564 $222,020,085 $ 10,664,219 $ 1,853 9,944,116 1,063



$ 2,612,512 $28,996,290



$ (251,389) $ (251,389) $32,289,225



$ 10,666,072 $ 9,945,179 $ 237,654,636 $231,965,264



$ $ (1,485,314) $ (1,058,746)



590,230 105,830 (32,579) 914,870



$



590,230 $ (52,505) (2,438,230) (2,705,536) (32,579) (6,462)



$



(523,492)



$ (1,652,498)



$



$ (1,245,959) $ (5,493,718)



See Summary of Significant Accounting Policies and Notes to Financial Statements



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Inventories are stated at the lower of cost or market. The cost of bookstore inventories is determined by the retail inventory method. The cost of other inventories is determined generally using the first-in, first-out or weighted average cost methods. Property, buildings, and equipment are stated at cost at the date of acquisition or fair market value at the date of donation. The university does not provide for depreciation of buildings and equipment. To the extent that current operating funds are used to finance plant assets, the amounts so provided are accounted for as (1) expenditures, in the case of normal acquisition and/or replacement of movable equipment and library books; (2) mandatory transfers, in the case of required provisions for debt amortization and interest, and equipment renewal and replacement; and (3) voluntary transfers in other cases. Tuition and fees revenues (net of refunds) include $6,658,577 of waivers charged to scholarships and fellowships and $2,557,354 of waivers for faculty and staff benefits charged to the appropriate expenditure programs to which the benefited personnel relate. Summer session revenues and expenditures are reported within the fiscal year in which the total summer session programs are predominantly conducted. Accordingly, only the revenues and expenditures of the 1998 summer sessions are included on the Statement of Current Operating Funds Revenues, Expenditures, and Other Changes. Revenues and expenditures as of June 30, 1999, for the 1999 summer sessions are reported as deferred revenues and expenses on the Balance Sheet. Federal grants provided to the university are subject to review by federal agencies and audit in accordance with the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non�Profit Organizations. In the opinion of the university, any adjustments or repayments that may be required would not be material to the overall financial condition of the university.



The university has not made accruals for vacation pay. If the accruals were made, General Operating Fund, Designated Fund, Auxiliary Enterprises Fund, and Restricted Fund liabilities would be increased by approximately $2,013,000, $253,000, $320,000, and $85,000, respectively. University management believes that this omission does not have a significant effect on the accompanying financial statements as a whole, because the General Operating Fund liability would be funded by the subsequent year's appropriations from the state legislature. Financial statement columns labeled "memorandum only" are summarized totals for fiscal years 1999 and 1998 and are presented for comparative purposes.



Fund Accounting

To ensure observance of limitations and restrictions placed on the use of the resources available, the university's accounts are maintained in accordance with the principles of "fund accounting." These principles require that resources be classified, for accounting and reporting purposes, into funds, according to the activities or objectives specified. Accounts are separately maintained for each fund; however, in the accompanying financial statements, funds that have similar characteristics have been combined into fund groups. Accordingly, all financial transactions have been recorded and reported by fund group. Within each fund group, fund balances restricted by donor or other external agencies as to the purpose for which they may be expended are distinguished from unrestricted funds.



Description of Funds

The current operating funds are used primarily to account for transactions related to performing the primary and support missions of the university: instruction, research, public service, academic support, student services, institutional support, operation and maintenance of plant, scholarships and fellowships, and auxiliary enterprises.

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Current operating funds consist of the following: 1. The General Operating Fund is used to account for transactions related to the university's state-appropriated budget as approved by the Arizona State Legislature and Arizona Board of Regents. 2. The Designated Fund is used primarily to account for transactions related to the university's summer session programs, the recovery of indirect costs of sponsored research programs, the recovery of administrative costs of student aid, and the use of unrestricted gifts and grants. Resources in this fund group have been designated for specific purposes by the university. 3. The Auxiliary Enterprises Fund is used to account for transactions of substantially self-supporting, noneducational activities that primarily provide a service to students, faculty, staff, and the public. Auxiliary enterprises include student housing, bookstore, student unions, intercollegiate athletics, internal service operations, and others. 4. The Restricted Fund is used to account for current funds expendable for operating purposes but restricted by donors or other outside agencies as to the specific purpose for which they may



be expended. Revenues of the Restricted Fund are reported in the Statement of Current Operating Funds Revenues, Expenditures, and Other Changes only to the extent expended for current operating purposes. Amounts received in excess of expenditures are reported as additions to the fund balance during the year and may be subject to repayment if not expended. Other funds consist of the Loan Fund, the Endowment Fund, the Plant Funds, and the Agency Fund. The Loan Fund, primarily financed by the federal government, is used to account for transactions related to loans to students. Interest is recorded on the accrual basis. Provisions of the federal loan program stipulate that: 1. The university matches a portion of federal contributions. 2. A portion of the loan principal and interest (maximum of 30 percent per year) will be canceled if the recipient completes certain employment requirements. These cancellations are absorbed by the federal government. The Endowment Fund consists of endowment and quasi-endowment funds. Endowment funds are subject to restrictions of the donor gift instruments, requiring that the principal be invested in perpetuity and that



only the income be utilized. Quasiendowment funds have been established by the university for the same purposes as endowment funds and any portion of such funds may be expended. The Plant Funds are used to account for transactions relating to investment in university properties. They include: (1) the Unexpended Plant Fund; (2) the Debt Service Fund; and (3) the Investment in Plant Fund. The Unexpended Plant Fund is composed of amounts that have been appropriated or designated for land, land improvements, buildings, and equipment. Expenditures for construction in progress are accumulated in this fund until the project is completed or until the end of the fiscal year and then transferred to the Investment in Plant Fund. The Debt Service Fund represents amounts set aside under terms of bond indentures to provide for payment of bond principal and interest and for renewals and replacement of properties. The Investment in Plant Fund represents the total of property, buildings, equipment, and related liabilities. The Agency Fund is used to account for assets held by the university as custodian or fiscal agent for others. The transactions of this fund do not affect the Statement of Changes in Fund Balances.



NOTES TO FINANCIAL STATEMENTS

For the Year Ended June 30, 1999



Note 1--Cash and Investments

In accordance with GASB Statement No. 31, investments are reported at fair value. Fair value typically is the quoted market price for investments. GASB Statement No. 31 also requires that changes in fair value of investments during the year be recognized as investment income. The university may invest only in the state Treasurer's Local Government Investment Pool, collateralized time certificates of deposit and repurchase agreements, U.S. Treasury securities, and in obligations of other agencies sponsored by the federal government. Gift and endowment funds may be invested according to conditions stipulated by the donor, but if no conditions are imposed, such funds

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may be invested under the direction of the university investment committee in such a manner as to obtain the most favorable rate of return and income stability commensurate with safety of principal. Demand deposit accounts with authorized financial institutions are required to be collateralized. Cash and short-term investments at June 30, 1999, consist of the following: Fair Value (372,945) 53,091 6,770,195 4,787,922 35,184,439 $46,422,702



Cash on hand and in bank Investments on hand Investments Student Financial Aid Trust Fund Local Government Investment Pool



$



The cash overdraft results from the university investing its funds until outstanding checks are cashed. The university's total cash and investments on hand were $186,893. The carrying amount of the university's total cash in bank was $(506,747) and the bank balance was $580,379, of which $100,000 was covered by federal depository insurance, and the remaining balance of $480,379 was collateralized by U.S. Government obligations held by the bank's trust department in the university's name. The $6,770,195 in investments are invested in U.S. Treasury notes, agency notes, or Federal Home Loan Bank securities, which are registered and held by the counterparty's agent in the agent's account with the Federal Reserve Bank. The university's ownership interest is recorded in the bank's records.



Included in the university's investments at June 30, 1999, is a principal and interest strip from a U.S. Government FHLMC mortgage (a form of mortgage-backed securities), with a fair value of $63,095. The value of this security is based on cash flows from principal and interest payments on underlying mortgages. Therefore, it is sensitive to prepayments by mortgagees, which may result from a decline in interest rates. In addition, the university receives interest at a fixed interest coupon rate of 6.95 percent for the FHLMC mortgage. The Student Financial Aid Trust Fund was established in accordance with Arizona Revised Statutes (ARS) �15-1642 for the purpose of providing aid to students with verifiable financial need. The three state universities participate in the Trust Fund, which is held with the University of Arizona. The university's investment in the State Treasurer's Local Government Investment Pool represents a proportionate interest in the pool's portfolio, however, the university's portion is not identified with specific investments and is not subject to custodial credit risk. The State Board of Deposit provides oversight for the State Treasurer's pools, and the Local Government Investment Pool Advisory Committee provides consultation and advice to the Treasurer. The fair value of a participant's position in the pool approximates the value of that participant's pool shares. Cash and investments held by trustees at June 30, 1999, consist of the following: Fair Value

U.S. Government money market portfolios Local Government Investment Pool Investments with NAU Foundation



A trust agreement between the university and the NAU Foundation, Inc. authorizes the foundation to invest certain university restricted and endowment funds according to the foundation's established investment policies and procedures. At June 30, 1999, the foundation invested the entire amount of $3,418,363 in pooled investments with selected investment financial institutions.



Note 2--Property, Buildings, and Equipment

Property, buildings, and equipment at June 30, 1999, consist of the following:

Land $ 4,893,214 Land improvements 33,024,002 Buildings 235,458,298 Equipment 77,560,184 Library books, media, 42,478,679 and special collections



$393,414,377 In addition to the accounts payable balance shown in the Plant Funds, the estimated cost to complete contracts in process at June 30, 1999, totaled $4,494,535.



Note 3--Retirement Plans

The university participates in one cost-sharing multiple-employer defined benefit pension plan and four defined contribution pension plans. The Arizona State Retirement System (ASRS) administers a costsharing multiple-employer defined benefit pension plan. Benefits are established by state statute and provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The ASRS is governed by the Arizona State Retirement System Board, in accordance with the provisions of A.R.S. Title 38, Chapter 5, Article 2. The ASRS issues a publicly available financial report that includes its financial statements and required supplementary information. That report may be obtained by writing to the ASRS, 3300 North Central Avenue, P.O. Box 33910, Phoenix, Arizona 85067-3910, or calling (602) 240-2000 or (800) 621-3778. For the year ended June 30, 1999, active ASRS members and the university were each required by statute to contribute at the actuarially determined rate of 3.34 percent (2.85 percent retirement and 0.49 percent long-term



$



176,706 9,049,317



3,418,363 $ 12,644,386



Bond indentures authorize the bond trustees to invest in obligations of or guaranteed by the federal government or any agency or instrumentality thereof; collateralized certificates of deposit with federally insured banks, trust companies, or savings and loan associations within the State of Arizona; or repurchase agreements. The bond trustees are authorized to purchase and sell securities.



disability) of the members' annual covered payroll. The university's retirement contributions to ASRS for the years ended June 30, 1999, 1998, and 1997 were $1,379,201, $1,389,602, and $1,346,364, respectively, which were equal to the required contributions for the year. The Arizona State Legislature establishes and may amend active plan members' and the university's contribution rates. In accordance with A.R.S. � 15-1628, university faculty, academic professionals, and administrative officers have the option to participate in defined contribution pension plans. These plans are administered by independent insurance and annuity companies approved by the Arizona Board of Regents. For the year ended June 30, 1999, plans offered by the Teachers Insurance Annuity Association/ College Retirement Equities Fund (TIAA/CREF), Variable Annuity Life Insurance Company (VALIC), Fidelity Investments Tax-Exempt Service Company (Fidelity), and Aetna Life Insurance and Annuity Company (Aetna) were approved by the board. Benefits under these plans depend solely on the contributed amounts and the returns earned on investments of those contributions. Contributions made by members vest immediately, and university contributions vest after five years of full-time employment. The distribution of member contributions and associated investment earnings are made in accordance with the member's contract with the applicable insurance and annuity company. University contributions and associated investment earnings must be distributed to the member in the form of an annuity paid over a period that is not less than the member's life. The Arizona State Legislature establishes and may amend active plan members' and the university's contribution rates. For the year ended June 30, 1999, plan members and the university were each required by statute to contribute an amount equal to 7 percent of a member's compensation. Contributions to these plans for the year ended June 30, 1999, are detailed on the following page.



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Plan: TIAA/CREF

University Contributions $2,289,661 Member Contributions $2,289,661 Total Contributions $4,579,322



Plan: VALIC

University Contributions $624,792 Member Contributions $624,792 Total Contributions $1,249,584



System revenue bonds, Series of 1991 � 6%, principal maturing serially on June 1 through 2006, secured by a first lien on certain gross revenues, on a parity with the Series 1990, 1992, 1992A, and 1997 system revenue bonds 2,975,000 System revenue refunding bonds, Series of 1992 � 5.8% to 6.4%, principal maturing serially on June 1 through 2007, secured by a first lien on certain gross revenues, on a parity with the Series 1990, 1991, 1992A, and 1997 system revenue bonds 25,780,000 System revenue refunding bonds, Series of 1992A � 5.0% to 5.8%, principal maturing serially on June 1 through 2008, secured by a first lien on certain gross revenues, on a parity with the Series 1990, 1991, 1992, and 1997 system revenue bonds 34,180,000 System revenue bonds, Series of 1997 � 5.0% to 6.5%, principal maturing serially on June 1, 2009 through 2017, secured by a first lien on certain gross revenues, on a parity with the Series 1990, 1991, 1992, and 1992A system revenue bonds 30,900,000 $95,980,000 Principal and interest requirements to maturity, including $43,547,969 of interest, are as follows: 1999-00, $11,359,174; 2000-01, $10,902,587; 2001-02, $11,362,074; 2002-03, $11,450,693; 2003-04, $11,444,798; thereafter, $83,008,643.



Note 5--Risk Management

Pursuant to A.R.S. � 41-621, the university participates in a self-insurance program administered by the State of Arizona, Department of Administration, Risk Management Section. The State's Risk Management Program covers the university, subject to certain deductibles, for risks of loss from injuries to employees; theft of, damage to, and destruction of property, buildings and equipment; errors and omissions; natural disasters; and liability for acts or omissions of any nature while acting in authorized governmental or proprietary capacities and in the course and scope of employment or authorization except as prescribed in A.R.S. � 41-621. The university has no additional insurance coverage, and losses arising from contractual breaches and losses that arise out of and are directly attributable to an act or omission determined by a court to be a felony are not covered by the State's Risk Management Program. However, during the three years ended June 30, 1999, such losses have not been material to the university's financial statements taken as a whole.



REQUIRED SUPPLEMENTARY INFORMATION

Unaudited

For the Year Ended June 30,1999



Year 2000 Issue

Many of the university's missioncritical, electronic data processing systems and equipment items are subject to shortcomings related to the year 2000 that could adversely affect university operations. If not corrected, many programs and embedded chips would not be able to distinguish the year 2000 from the year 1900. This may cause them to process data inaccurately or stop processing data altogether. The university is aware of this problem and has been taking the necessary corrective action to its mission-critical systems since September 1997. Typically, efforts to address the year 2000 issue progress through the following four stages. However, the completion of these stages does not guarantee that the university's missioncritical systems and equipment will be year 2000 compliant. � Awareness-Establishing a project plan and budget for dealing with the year 2000 issue. � Assessment-Identifying all of the systems and equipment that are critical to the university's operations. � Remediation-Making changes to systems and equipment. � Validation/testing-Testing the changes made to systems and equipment and reviewing the test results.



Plan: Fidelity

University Contributions $293,278 Member Contributions $293,278 Total Contributions $586,556



Plan: Aetna

University Contributions $109,771 Member Contributions $109,771 Total Contributions $219,542



Note 4--Bonds Payable

In prior years, the university defeased certain revenue bonds by either placing the proceeds of new bonds, or cash and investments accumulated in the sinking fund, in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the university's financial statements. At June 30, 1999, $4,985,000 of such bonds outstanding are considered defeased. Bonds payable at June 30, 1999, are as follows: Student housing bonds (3 issues) � 3.75% to 6.1%, principal payable annually on April 1 through 2009, revenues of various housing projects pledged for payment $ 1,790,000 System revenue bonds, Series of 1990 � 6.6%, principal maturing serially on June 1 through 2000, secured by a first lien on certain gross revenues, on a parity with the Series 1991, 1992, 1992A, and 1997 system revenue bonds 355,000



Note 6--Reclassification

In prior years, the university presented due to other funds as a reduction of assets in the assets section of the balance sheet. For the fiscal year ended June 30, 1999, the university reclassified due to other funds at June 30, 1999, and presented the balance in the liabilities section of the balance sheet. Accordingly, the corresponding 1998 memorandum amounts have been reclassified to conform with the presentation in the 1999 financial statements.



The university has identified nine computer systems and electronic equipment groups that are critical to its operations (payroll, human resources, telecommunications, facilities, financial aid, student business services, admissions, student matriculation, and accounting.) These mission-critical systems and equipment groups affect the financial, personnel, and safety aspects of the university's operations. The university has completed the validation/testing stage for the telecommunications, facilities, and admissions systems. Remediation has been completed for all other systems, and the university is in the validation/ testing stage for those systems. Because of the unprecedented nature of the year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until the year 2000 and thereafter. Management cannot assure that the university is or will be year 2000 ready, that the university's remediation efforts will be successful in whole or in part, or that parties with whom the university does business will be 2000 ready.



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