Treasurer's Office102 Prospect St., Suite 300 Ithaca, New York 14850-5650

Telephone: 607 277-0022 Facsimile: 607 272-0166

November 12, 1999

U.S. Nuclear Regulatory Commission Document Control Desk Attn: Dr. Theodore S. Michaels Office of Nuclear Reactor Regulations Washington, DC 20555

Dear Dr. Michaels:

Enclosed is a copy of Cornell University's financial statement for fiscal year 1998-99.

You will receive a completed copy of the Annual Report shortly. Please call me if you have

any questions.

Sincerely,

¾ .-~ -. ... ... . ...

cPatricia A. Johnson Treasurer

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CORNELL U N I V E R S I T Y

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CORNELL U N I V E R S I T Y

FINANCIAL

STATEMENTS

Independent Auditor's Report

To the Board of Trustees Cornell University

We have audited the accompanying statements of financial position of Cornell University as of June 30, 1999 and 1998, and the related statements of cash flows for the years then ended and the statement of activities for the year ended June 30, 1999. 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 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

I 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, the financial statements referred to above present fairly, in all material respects, the financial position of Cornell University as of June 30, 1999 and 1998, and its cash flows for the years then ended and the changes in its net assets for the year ended June 30, 1999, in conformity with generally accepted accounting principles.

Ict~crLLP September 8, 1999 Rochester, NewYork

14

STATEMENTS OF FINANCIAL POSITION AS OF

General Operations

JUNE 30, 1999 AND 1998 (IN THOUSANDS)

Physical Capital

1999 1998

Financial Capital Total Total

Assets

i Cash and cash equivalents (note 2) $ 48,890

Investments (note 2) 325,969

Accounts receivable, net (note 3)

4 Government 22,832

S Patients 57,152

o Contributions 127,834

7 Other 56,093

SInventories and deferred charges 33,700

S Student loans receivable (note 3C) 58,374

jo Land, buildings, and equipment, net of accumulated depreciation (note 5)

ii Funds held in trust by others (note 1D)

, Advances for capital investment 30,698

1_ Total assets S 761,542

Liabilities

i, Accounts payable and accrued expenses $ 114,649

!5 Deposits and deferred revenues 37,035

,, Deferred benefits (note 7) 86,040

i;, Funds held in trust for others (note 1 E)

i, Obligations under living trust agreements (note 1CQ

!Q Bonds, mortgages, and notes payable (note 6) 28,707

2o) Refundable government grants 39,433

2. Total liabilities 305,864

Net Assets (note 1B)

22 Unrestricted

23 Available for operations 229,841

24 Designated for student loans 4,636

2. Designated for plant

Net investment in plant

27 Appreciation on true endowments

28 Funds functioning as endowments

29 Temporarily restricted

0. Available for operations 221,201

i Designated for plant

31 Funds functioning as endowments

3 Funds subject to living trust agreements

44 Funds held in trust

3 Permanently restricted

"i, Student loan funds

True endowments

3e Funds subject to living trust agreements

.,} Funds held in trust

'2 Total net assets 455,678

41 Total liabilities and net assets $ 761,542

The accompanying notes are an integral part of the financial statements.

$ 255 3,103,344

36,638

18,163

66,039

$3,224,439

$ 43,425

97,480

109,305

250,210

1,227,889

775,488

31,991

27,831

29,692

20,498

777,313

20,159

63,368

2,974,229

$3,224,439

$ 54,594 $ 26,511 3,561,112 3,252,189

22,832 57,152

210,253

60,036

40,187

76,537

1,303,748

66,039

23,473 47,611

185,509

42,633

42,799

76,856

1,249,030

53,308

$5,452,490 $4,999,919

$ 114,649 37,035

129,465

97,480

109,305

454,642

39,433

982,009

229,841

4,636

225,197

747,062

1,227,889

775,488

221,201

68,315

31,991

27,831

29,692

20,498

777,313

20,159

63,368

4,470,481

$5,452,490

$ 110,426 35,374

124,565

100,235

100,277

448,870

37,557

957,304

223,971

5,207

232,741

711,173

1,096,249

700,590

202,622

29,382

25,510

31,075

24,750

18,541

672,996

23,764

44,044

4,042,615

$4,999,919

15

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 1999 (IN THOUSANDS)

(WITH SUMMARIZED COMPARATIVE FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 1998)

General Operations

Temporarily Unrestricted Restricted

Physical Capital Temporarily

Unrestricted Restricted

Revenues and other additions

; Tuition and fees

2 Scholarship allowance SNet tuition and fees ,i State appropriations

Federal appropriations

Federal grants and contracts State and local grants and contracts

s Private grants and contracts 9 Contributions

u) Interest and dividends

,, Net realized gain (loss) on investments :2 Net unrealized gain (loss) on investments

Medical Physicians' Organization i,, Enterprises and subsidiaries - Educational departments

J, Other sources

:i Total revenues

Investment payout Net assets released from restrictions Capital investments (withdrawals)

Total revenues and other additions

Expenses (Note 8) 2' Salaries and wages

2' Employee benefits

24 Purchased services

2' Supplies and general 26 Utilities, rents, and taxes 2.7 Interest expense

2s Depreciation

2) Other

3o Total expenses

3 i Change in net assets

3. Total net assets, beginning of year

$ 386,261

( 108,900)

277,361

140,587

18,308

279,867

18,634

18,383

80,440

35,475

471)

1,280)

241,398

116,854

50,877

24,774

1,301,207

39,883

59,574

84,113)

1,316,551

717,746

159,772

77,103

258,034

71,764

26,833

1,311,252

5,299

229,178

$ 6,971

415

$ 58,435

9,222

11

58)

466) 67,132

44,181

59,574)

33,160)

18,579

6,122

8,841

3)

5

3,176

25,527

12,921

106,674

145,122

106,967

9,810

116,777

18,579 28,345

202,622 943,914

Total net assets, end of year $ 234,477 $ 221,201 $ 972,259 $ 68,315 $2,003,377

The accompanying notes are an integralpartof the financial statements.

16

! ...

Unrestricted

18

19

20

2 J

$ 51,093 463

470)

61

51,147

6

12,921

701

38,933

$ 8,132

24,083

135,946

67,554

601

236,316

39,883

10,105

206,538

38,933

29,382

206,538

1,796,839

Financial Capital Temporarily Permanently

Restricted Restricted

9,015 89,385

32,448 18,596

21,277 9,444

5,262 7,140)

3,966) 10,769

53,512 121,054

44,187)

1,146 939 8,179 121,993

8,179 121,993

81,335 759,345

89,514 $ 881,338

1998

Total

$ 363,662

1 100,699)

262,963

158,502

19,084

262,169

18,146

19,059

295,259

105,155

234,614

96,750

218,835

110,556

45,861

34,241

1,881,194

1999

Total

$ 386,261

108,900)

277,361

147,558

18,308

280,282

18,634

18,383

302,622

129,128

166,192

53,344

241,398

116,854

50,882

34,949

1,855,895

1,855,895

717,746

159,772

77,103

258,034

71,764

26,833

106,967

9,810

1,428,029

427,866

4,042,615

$4,470,481

.9

I8

19

20

1,881,194 2i

676,355

149,037

73,531

234,070

73,042

29,077

101,013

11,054

1,347,179

24

;25

26

27

28

29

3{o

534,015 .i,

3,508,600 3,

$4,042,615 -

17

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE

Cash flows from operating activities SIncrease in net assets

Adjustments to reconcile change in net assets to net cask provided by operating activities

Nonoperating items

Contributions for physical and financial capital

Net realized gains on physical and financial capital investments

Income restricted for financial capital

Noncash items

Depreciation

Net unrealized gains on investments

1" Loss on equipment disposals

Provision for receivable allowances

L, Accretion of bond discount

i• Other noncash items

i.I Change in assets and liabilities

Accounts receivable

)6 inventories and deferred charges

*7 Accounts payable and accrued expenses

Ji• Deposits and deferred revenues

i9 Deferred benefits

Refundable government grants

. Net cash provided by operating activities

Cash flows from investing activities

2.1. Proceeds from the sale of investments

?4

11

Purchase of investments

Acquisition of land, buildings, and equipment (net)

Student loans granted

Student loans repaid

Change in funds held in trust for others

Net cash used by investing activities

Cash flow from financing activities

.9 Resources for long-term purposes

1ýi Contributions restricted to

,if Investment in true endowment

s-i

'6

"Si,

Investment in physical capital

Investment subject to living trust agreements

Income restricted for financial capital

Contributions designated for funds functioning as endowments

Other financing activities

Principal payments of bonds, mortgages, and notes payable

Proceeds from issuance of bonds, mortgages, and notes payable

Change in obligations under living trust agreements

Net cash provided by financing activities

• Net change in cash and cash equivalents

i., Cash and cash equivalents, beginning of year

ii Cash and cash equivalents, end of year

30, 1999 AND 1998 (IN THOUSANDS)

1999 $ 427,866

163,446) 166,667)

27,336 )

106,967

53,344 ) 7,329

16,604

762

233

67,306 )

2,379

4,223

1,661

4,900

1,876

96,701

4,776,319

4,865,236)

167,236) 10,254)

10,228

2,755

258,934)

74,392

55,436

6,255

27,336

12,859

40,199)

45,209

9,028

190,316

28,083

26,511

$ 54,594

1998 S 534,015

130,250)

235,028 )

6,671I

101,013

96,750 )

11,325

10,315

684

448

74,113)

1,333

6,164

177) 21,803

1,983

146,094

2,499,288

2,671,378 1 156,878)

12,947) 7,402

18,754

315,759)

59,098

21,219

8,574

6,671

14,872

13,650) 17,243

17,344

131,371

38,294)

64,805

$ 26,511

The accompanying notes are an integral part of the financial statements.

18

NOTES TO

THE

FINANCIAL

STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

A. Description of the Organization From a fiscal viewpoint, Cornell University consists of three major organizational unitsEndowed Ithaca, which includes the endowed colleges, the central university administration, and the enterprise and service operations for the Ithaca campus; Statutory Colleges at Ithaca; and the Joan and Sanford I. Weill Medical College and Graduate School of Medical Sciences (Medical College) in New York City. While those units operate as selfsupporting entities (net assets relating to one of the units are generally not available to the other units), the only legal limitations pertain to certain donor- restricted funds and funds of the Statutory Colleges. Specifically, the laws establishing the Statutory Colleges at Ithaca prohibit other segments of the university from using funds attributable to those colleges. In addition to the three major organizational units, six subsidiary corporations are included in the financial statements. All significant intercompany transactions and balances are eliminated in the accompanying financial statements.

B. Basis of Presentation The accompanying financial statements have been prepared on the accrual basis in accordance with generally accepted accounting principles, and presented in accordance with The AICPA Audit and Accounting Guide for Not-for-Profit Organizations. The standards for general purpose external financial statements of not- for-profit organizations require a statement of financial position, a statement of activities, and a statement of cash flows, and are displayed based on the concept of "net assets:" The Audit Guide requires presentation of net assets and revenues, expenses, gains, and losses in three categories, based on the presence or absence of donor-imposed restrictions. The categories are permanently

restricted, temporarily restricted, and unrestricted net assets.

Permanently restricted net assets include the historical dollar amount of gifts, including pledges and trusts, as well as gains, all of which are explicitly required by donors to be permanently retained. Pledges and trusts are reported at their estimated fair value.

Temporarily restricted net assets include gifts, pledges, trusts, income, and gains that can be expended, but for which the use and purpose restrictions have not yet been met. Such restrictions include purpose restrictions where donors have specified the purpose for which the net assets are to be spent, or time restrictions imposed by donors or implied by the nature of the gift (e.g., capital projects, pledges to be paid in the future, and life income funds).

Unrestricted net assets are all the remaining net assets of the university, including appreciation on true endowments where the donor restrictions are deemed to have been met.

Temporarily restricted net assets are reported as reclassifications from temporarily restricted to unrestricted when the donor purpose has been fulfilled or when the stipulated time period has elapsed. Contributions that are released from restriction within the current fiscal year are classified as increases in unrestricted net assets in the year the contribution is received.

Table 1 shows a summary of the balances and changes in net assets by restriction class for the years ended June 30, 1999 and June 30, 1998.

Classifying and aggregating items with similar characteristics into reasonably homogeneous groups and separating items with differing characteristics is a basic reporting practice that increases the usefulness of the information. Cornell has chosen to separate financial statement activity into three primary groups: general operations, physical capital, and financial capital.

General operations includes the financial activities and balances that are the result of carrying on the primary and supporting missions of the university.

19

Physical capital includes the activities and balances related to the acquisition, renewal, and replacement of investment in the university's infrastructure, as well as debt service on that infrastructure.

Financial capital includes balances or activity related to amounts set aside for the long-term economic stability of the university. Table 2 shows the composition of financial capital net assets.

As of June 30, 1999, the university's true endowment net assets consist of approximately 14 percent for unrestricted purposes, 22 percent for student aid, 31 percent for instruction, and 33 percent for other donor-specified purposes. On June 30, 1998, the breakdown was 17 percent for unrestricted purposes, 25 percent for student aid, 36 percent for instruction, and 22 percent for other donor-specified purposes.

C. Living Trust Agreements The university's living trust agreements with donors consist primarily of charitable gift annuities, charitable remainder trusts, and pooled income funds for which the university serves as trustee. Assets held in trust are either separately invested or included in the university's investment pools in accordance with trust instruments. Contribution

revenue and the assets related to living trust agreements, net of related liabilities, are classified as increases in temporarily restricted net assets or permanently restricted net assets. Liabilities associated with charitable gift annuities and charitable remainder trusts represent the present value of the expected payments to the beneficiaries over the term of the agreement. Pooled income funds are recognized at the net present value expected to be received at a future date. Gains or losses resulting from changes in actuarial assumptions and accretion of the discount are recorded as increases or decreases in the respective net asset categories in the Statement of Activities.

D. Funds Held in Trust by Others Funds held in trust by others represent resources neither in the possession or under the control of the university. These funds are paid and administered by outside trustees, with the university deriving income or residual interest from the assets of the funds. Funds held in trust by others are recognized at the estimated fair value of the assets or the present value of the future cash flows when the irrevocable trust is established or the university is notified of its existence. Contribution revenues related to these trusts for the fiscal years 1998-99 and 1997-98 were $6,118,543 and $20,348,529, respectively.

TABLE 1. SUMMARY OF CHANGE IN NETASSETS (IN THOUSANDS)

Temporarily Permanently Unrestricted Restricted Restricted Total

Net assets at June 30, 1997 $2,593,477 $242,611 $672,512 $3,508,600

2 1998 change in net assets: SGeneral operations (1,880) 4 Physical capital 63,093 . Financial capital 315,241

Total change in net assets 376,454

7 Net assets at June 30, 1998 $2,969,931

8 1999 change in net assets:

General operations

0 Physical capital i Financial capital

i2 Total change in net assets

Net assets at June 30, 1999

5,299

28,345

206,538

240,182

$3,210,113

48,626

6,640

15,462

70,728

46,746

69,733 86,833 417,536

86,833 534,015

$313,339 $759,345 $4,042,615

18,579

38,933

8,179

65,691

121,993

121,993

23,878

67,278

336,710

427,866

$379,030 $881,338 $4,470,481

20

TABLE 2. COMPOSITION OF FINANCIAL CAPITAL NET ASSETS AT JUNE 30,1999 (IN THOUSANDS)

(WITH SUMMARIZED COMPARATIVE FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 1998)

Net Asset Classification

Temporarily Permanently Unrestricted Restricted Restricted 1999 1998

True endowment, including

contributions receivable

of $36,638 $1,227,889 $777,313 $2,005,202 $1,769,245

4 Functioning as endowment 775,488 $31,991 807,479 726,100

Funds held in trust 29,692 63,368 93,060 68,794

Total university endowment 2,003,377 61,683 840,681 2,905,741 2,564,139

Living trust funds 27,831 20,159 $ 47,990 54,839

s Loan funds 20,498 20,498 18,541

STotal $2,003,377 $89,514 $881,338 $2,974,229 $2,637,519

E. Funds Held in Trust for Others Financial capital includes funds invested by the university as custodian for others. Independent trustees are responsible for the funds and for the designation of income distribution. The Center Fund, which benefits the New York Cornell Weill Center of the New York Presbyterian Hospital, accounted for $85,291,943 and $79,246,425 at June 30, 1999 and June 30, 1998, respectively. In addition, the present value of expected future income from The Center Fund of approximately $27,022,000 and $15,485,000 at June 30, 1999 and June 30, 1998, respectively, has been recorded in the net assets of financial capital.

F. Medical Physicians' Organization The Medical Physicians' Organization provides the management structure for the practice of medicine in an academic medical center. Physician members generate clinical-practice income from their professional services to patients, in addition to conducting instructional and research activities. Medical Physicians' Organization fees are reflected as university revenues. Expenses of the clinical practice, including physician compensation, administrative operations, and provision for uncollectible accounts, are reflected as university expenses. Net assets resulting from the activities of the Medical Physicians' Organization are designated for the respective clinical departments of the Medical College.

G. Collections Cornell's collections, which have been acquired through purchases and contributions since the university's inception, are recognized as assets on the statement of financial position. Gifts of collection items are recorded as increases in unrestricted net assets in the year in which the items are acquired.

H. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. Actual results may differ from those estimates.

I. Comparative Financial Information The statement of activities includes prior-year summarized information in total rather than net asset class. Such information does not include sufficient detail to constitute a presentation of prior-year data in conformity with generally accepted accounting principles.

Accordingly, such information should be read in conjunction with the university's financial statements for the fiscal year ended June 30, 1998, from which the summarized information was derived.

21

TABLE 3. CASH AND INVESTED ASSETS AT MARKET VALUE (IN THOUSANDS)

General Physical Operations Capital

True Functioning Living Trust Endowment as Endowment Funds

Long-Term Investment Pool $1,935,378 $ 694,095 2 Separately Invested Portfolios 33,186 98,205 S134,303

Short-Term Investment Pool $ 329,512 $ 100,725 15,179 599 4 Life Income Fund Pools

22,393 Other means of investment 45,347 36 522

1 Total $ 374,859 $ 137,248 $1,968,564 $ 807,479 S 157,295

7 Cash and cash equivalents $ 48,890 $ 5,449 s Investments 325,969 131,799 31,968,564 $ 807,479 $ 157,295 STotal $ 374,859 $ 137,248 $1,968,564 $ 807,479 $ 157,295

J. Reclassifications Certain prior-year amounts have been reclassified to conform to the current-year presentation.

K. Income Taxes The university is a not-for-profit organization as described in section 501(c) (3) of the Internal Revenue Code and is exempt from Federal income taxes on related income pursuant to the appropriate sections of the Internal Revenue Code.

2. CASH AND INVESTMENTS

A. General Information Investment policy of the university is established by the Investment Committee of the Board of Trustees. University investments are stated at fair value. The value of publicly traded fixed-income and equity securities is based upon quoted market prices and exchange rates, if applicable. The fair value of significant real estate investments is determined from valuations prepared by independent appraisers. Private equities and certain other nonmarketable securities are valued using current information obtained from the general partner or investment manager for the respective funds. Fees paid to managers in fiscal years 1998-99 and 1997-98 for investing the university's portfolios amounted to approximately $6,700,000 and $7,100,000, respectively.

Investment income is recorded on the accrual basis, and purchases and sales of investment securities in the Long-Term and Short-Term Investment Pools are reflected on a trade-date basis.

Realized and unrealized gains and losses on investments are accounted for in the group (general

operations, physical capital, or financial capital) holding the assets. Realized gains and losses are calculated

on the average-cost basis. Income earned from investments or from services rendered is accounted for in the same group as the assets or service provider.

The university considers all instruments that bear an original maturity date of ninety days or less to be cash or a cash equivalent. The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The fair values of cash and invested assets at June 30, 1999, are shown in Table 3. The fair value and cost in Table 4 includes interest receivable of approximately $10,952,000 and $9,970,000 at June 30, 1999 and June 30, 1998, respectively.

B. Investment Pools and Separately Invested Portfolios The university maintains the following investment pools, and invests the principal of certain funds separately:

The Short-Term Investment Pool includes cash balances invested for the production of income and other funds that are expected to be expended within three years. The objective of the pool is to produce a payout which is competitive with bank certificate of deposit rates while maximizing the total return. Income distributed amounted to $26,423,755 and $27,309,042 in 1999 and 1998, respectively, based on distribution rates of 5.0 percent and 6.0 percent, on average monthly balances of $465,378,437 and $449,438,498, respectively. Any gains or losses realized on investments in the Short-Term Investment Pool are treated as adjustments to income.

22

Financial Capital

Funds Held Student Loan

in Trust Deferred Benefits Funds Total 1999 Total 1998 Total

$ 90,470 $ 40,320 $2,760,263 $2,760,263 $2,427,635

34,031 3,105 302,830 302,830 319,898

$1,061 16,839 447,076 429,865

22,393 22,393 22,826

1,274 1,274 83,144 78,476 $ 124,501 $ 43,425 $ 2,335 $3,103,599 $3,615,706 $3,278,700 6

$ 255 $ 255 $ 54,594 $ 26,511

$ 124,501 $ 43,425 2,080 3,103,344 3,561,112 3,252,189

$ 124,501 $ 43,425 $ 2,335 $3,103,599 $3,615,706 $3,278,700

The Long-Term Investment Pool is a mutual fund

like vehicle used for investing the university's true

endowment funds, funds functioning as endowment, and other funds that are not expected to be expended for at least three years.

Effective July 1, 1998, the Long-Term Investment Pool recorded a 2 for 1 unit split. The opening share

value changed from $95.30 per unit to $47.65 per

unit. At June 30, 1999 and June 30, 1998, the market prices per unit were $51.16 and $95.30, respectively.

The Long-Term Investment Pool was invested, as

of June 30, 1999, as a balanced fund consisting of 68 percent marketable-equity securities, 8 percent real estate and private-equity investments, and 24

percent bonds and fixed-income investments. At June 30, 1998, the pool consisted of 66 percent marketable-equity securities, 8 percent real estate and private-equity investments, and 26 percent

bonds and fixed-income investments. The objective is to achieve a total return, net of expenses, of at

least 5 percent in excess of inflation, as measured by the Consumer Price Index, over rolling five-year periods.

The university has a total return policy. Under

this policy, a distribution from the pool is provided for program support that is independent of the cash yield and of appreciation of investments in that

year. This insulates investment policy from budget

ary pressures, and insulates the distribution from fluctuations in capital markets. The total return of

the long-term investment pool was $292,419,275 (12.2 percent) for fiscal year 1998-99. The total return consisted of $67,000,298 (2.8 percent) of income and $225,418,977(9.4 percent) of appreciation.

Distributions from the pool are approved by the Board of Trustees as part of the financial planning process. The annual distribution is set so that a sufficient portion of the return is reinvested to main

tain the purchasing power of the endowment, and to provide reasonable growth in the support of program budgets.

For the year ended June 30, 1999, distributions for investment payout were $95,709,539 ($1.85 per unit), of which $84,064,979 supported general operations. The remaining distribution of $11,644,560 went to funds held in trust for others, shown in the

accompanying Statement of Financial Position. For the fiscal year ended June 30, 1998, the investment

payout was $68,466,930 ($2.75 per unit). The distribution for 1999 comprised $52,455,340 in net investment income and $43,254,199 in capital

appreciation. The distribution for 1998 comprised $46,521,789 in net investment income and $21,945,141 in capital appreciation.

The Life Income Fund Pools consist of donated funds, the income from which is payable to one or more beneficiaries during their lifetime. On the

termination of life interests, the principal becomes available for university purposes, which may or may

not have been restricted by the donor. At June 30, 1999, the Life Income Fund pools were comprised of 19 percent marketable-equity securities and 81

percent cash and fixed income investments. At June 30, 1998, the composition was 20 percent marketable-equity securities and 80 percent cash and fixed income investments.

23

TABLE 4 . -S'U-M-M-AR---I-N-F&O-RJMkA-TIO-NI7NV t .ES .T. E-kN -T -POO ,LS

Fair Value Cost Net Gain Fair Value Number Lang-Term Investment Pool (in thousands) (in thousands) (in thousands) Per Unit of Units ' End of year $2.760 263 t) ')- D A )- r..

2 Beginning of year SUnrealized net gain for year

Change in interest receivable for year Realized net gain for year

Net gain for year

2,427,635 2,020,364

* There was a 2 for I unit split in the Long-Term Investment Pool on July 1, 1998

b4/ O,6OY

407,271

69,428

982

155,009

$225,419

$51.16' 53,956,942 95.30 25,474,777

Life Income Fund Pools 7 End of year $ 22,393 $ 22,302 $ 91 q Beginning of year 22,826 20,358 2,468 9 Unrealized net gain (loss) for year { 2,377) )0 Realized net gain for year 1,453

Net gain (loss) far year ( 9245)

Table 4 summarizes certain information about the Long-Term Investment and Life Income Fund pools.

The Separately Invested Portfolios consist of several types of funds that-for legal or other reasons, or by request of the donor-could not participate in any of the investment pools. At June 30, 1999, the portfolios consisted of 43 percent marketable-equity securities, 13 percent real estate and private-equity securities, and 44 percent cash and fixed-income investments. At June 30, 1998, the composition was 43 percent marketable-equity securities, 13 percent real estate and private-equity securities, and 44 percent cash and fixed-income investments.

C. Other Investments Under the terms of certain limited partnership agreements, the university is obligated to periodically advance additional funding for private-equity and real estate investments. At June 30, 1999 and June 30, 1998, the university had commitments of approximately $212,817,000 and $135,078,000, respectively, for which capital calls had not been exercised. Such commitments generally have fixed expiration dates or other termination clauses. The university maintains sufficient liquidity in its investment portfolio to cover such calls.

The university engages in limited use of futures, options, and other similar vehicles to manage market exposure and to enhance the total return of the investment portfolio. These financial instruments and certain other investments necessarily involve market risk and counterparty credit exposure.

D. Collateral Held for Investments Lent to Brokerage Firms Investment securities having a fair value of $89,512,003 at June 30, 1999, and $106,657,015 at June 30, 1998, were lent to various brokerage firms. The securities are returnable on demand and were collateralized by cash deposits of $92,513,384 at June 30, 1999 and $109,489,755 at June 30, 1998. The collateral is invested in short-term securities, and income earned is credited as additional income to the investment pools.

3. ACCOUNTS AND LOANS RECEIVABLE

A. Patient Accounts and Other Patient accounts receivable at June 30, 1999 and June 30, 1998, are net of provisions for allowances and doubtful accounts of $63,651,285 and $54,932,942, respectively. Other accounts receivable, including student accounts, at June 30, 1999 and June 30, 1998, are net of allowances for doubtful accounts of $936,851 and $946,653, respectively.

24

B. Contributions Contributions, including unconditional written or oral promises to donate to the university in the future, are recognized when received. Contributions of approximately $210,253,000 and $185,509,000, representing the present value of future cash flows, are recorded as receivables at June 30, 1999 and June 30, 1998, respectively. The corresponding revenue is assigned to the appropriate net asset category in the year the promise is received. The face value, discount, and allowance for contributions receivable are shown in Table 5. Conditional promises are recorded when donor stipulations are substantially met. At June 30, 1999 and 1998, conditional promises and donor intentions not reflected in the financial statements were approximately $230,629,000 and $195,733,000, respectively. Expenses related to fund-raising activities amounted to approximately $18,578,000 and $17,956,000 for fiscal years 1998-99 and 199798, respectively.

C. Student Loans Student loans receivable at June 30, 1999 and June 30, 1998, are reported net of allowances for doubtful loans of $7,566,567 and $7,328,949, respectively. The allowance is intended to provide for loans, both in repayment status and not yet in repayment status (borrowers are still in school or in the grace period following graduation), that may not be collected.

Determination of the fair value of student loans receivable could not be made without incurring

excessive costs. These loans include donor-restricted and federally sponsored student loans that bear mandated interest rates and repayment terms, and are subject to significant restrictions on their transfer and disposition.

4. PLEDGED ASSETS AND FUNDS ON DEPOSIT

The NewYork State Dormitory Authority and others hold investments in lieu of various required reserves as follows: $4,413,782 and $4,449,743 at June 30, 1999 and June 30, 1998, of financial capital; and $10,454,984 and $15,328,724, respectively, of general operations. In addition, investment securities of financial capital include United States government obligations of $16,156,160 and $16,142,920 at June 30, 1999 and June 30, 1998, respectively, that are held in escrow by the Workers' Compensation Board of New York State.

Physical capital assets include cash and United States government obligations of $22,527,237 and $36,658,111 at June 30, 1999 and June 30, 1998, respectively, held by the New York State Dormitory Authority, that will be used primarily for the retirement of debt at a future time. In addition, at June 30, 1999, $11,670,329 of bond proceeds was on deposit for future project expenditures.

Student loan assets in general operations include $5,207,002 and $5,331,878 at June 30, 1999 and June 30, 1998, respectively, on deposit with the New York State Dormitory Authority, that are available for future loan disbursements and the retirement of debt at a future time.

TABLE 5. CONTRIBUTIONS RECEIVABLE (IN THOUSANDS)

1999

Contributions expected to be realized In one year or less

Between one year and five years

More than five years

Discount

Allowance

Total discount and allowance

Total contributions receivable

$ 71,427

130,475

113,149

315,051

( 93,732 )

( 11,066)

(104,798)

$210,253

1998

$ 64,998

132,429

53,750

251,177

(55,904)

{ 9,764)

1 65,668)

$185,509

25

TABLE6. LAND, BUILDINGS, AND EQUIPMENT (IN THOUSANDS)

Book value at June 30, 1998

* Land, buildings, and improvements

Furniture, equipment, and books

Construction in progress

4 Total before accumulated depreciation

Accumulated depreciation

Land, buildings and equipment, net

$1,295,103

740,939

123,039

2,159,081

( 910,051]

$1,249,030

5. PHYSICAL CAPITAL

Physical plant and equipment are stated principally at cost at date of acquisition or at fair value on the date of donation, net of accumulated depreciation. Depreciation is computed on a straight-line basis over the useful lives of the buildings (30-100 years) and equipment (4-15 years). A full year of depreciation is taken in the year of acquisition, and no depreciation is taken in the year of disposal. Depreciation expense is reflected as a cost of physical capital.

Capital investments and withdrawals consist of net transfers to physical capital for principal payments on debt and the acquisition of capital assets.

Expenditures associated with the construction of new facilities are shown as construction in progress until the projects are completed. Land, buildings, and equipment are detailed inTable 6.

Gifts-in-kind of capital assets were approximately $1,778,000 and $5,564,000 for fiscal years 1998-99 and 1997-98, respectively.

Certain properties to which the university does not have title are included in physical capital at cost as follows: (1) land and buildings in the amount of $8,489,354 at both June 30, 1999 and June 30, 1998, that are leased from the New York State Dormitory Authority, the titles to which will pass to the university upon retirement of related indebtedness (see note 6); and (2) land, buildings, and equipment of the Statutory Colleges aggregating $495,845,210 and $479,683,472 at June 30, 1999 and June 30, 1998, respectively, the acquisition cost of which was borne primarily by New York State.

$

Disposals and Book value at Additions Closed Projects June 30, 1999

$ 47,423 $ 353 $1,342,173

85,657 39,625 786,971

99,758 63,824 158,973

232,838 $ 103,802 2,288,117

( 984,369 )

$1,303,748

61. BONDS. -5MORTGAGESANDNOTES PAYABLýE

The balance outstanding, interest rates, and final maturity dates of the bonds and other debt as of June 30, 1999 and June 30, 1998, are summarized in Table 7.

The total annual debt service requirements for the next five fiscal years and thereafter are shown in Table 8. Interest expense paid during fiscal year 1998-99 and 1997-98 was approximately $26,071,000 and $28,393,000, respectively. Debt and debt service related to borrowings by New York State for the construction and renovation of plant of the Statutory Colleges are not included in the financial statements because they are not liabilities of the university.

Under agreement with the New York State Dormitory Authority, certain revenues, principally rental income from facilities financed by bond proceeds plus a portion of tuition, are pledged by the university to meet debt service requirements (see note 4). Also, certain revenue bonds require maintenance of an asset-to-liability ratio.

The fair value of the university's bonds, mortgages, and notes payable is approximately $469,023,000 and $447,417,000 at June 30, 1999 and June 30, 1998, respectively. The estimated fair value of bonds is based on quoted market prices for the same or similar issues. The market prices utilized reflect the rate that the university would have to pay to a creditworthy third party to assume the university's obligation; they do not reflect an additional liability to the university. The estimated fair value of mortgages and notes payable is based upon the university's long-term borrowing rate for similar debt.

26

TABLI 7. BONDS, MORTGAGES, AND NOTES PAYABLE (IN THOUSANDS)

Balance Balance Maturity June 30, 1999 June 30, 1 998 Interest Rates Date

Plant Funds Dormitory Authority State of New York IDASNY)

Revenue Bond Series E $ 1,125 $ 1,560 5.00 2002 1986 18,335 18,335 5.00 2015 1985 Pooled Capital 13,481 7.80 1999 "1990A 88,135 88,555 6 .6 0 to 7.38 2030 1990B 60,000 60,000 variable 2025 1993 24,610 32,780 4.40 to 5.10 2005 1996 127,005 132,005 4.30 to 5.40 2014

, Bond Series 1987B 18,110 18,545 11.11 2012 , DASNY 1993 Pooled Loan Program 2,171 2,269 variable 2012

i2 Commercial Paper 1998 33,000 3.40 2004 i.3 Student Loan Marketing Association 29,425 29,516 various 2019 f4 Urban Development Corporation 3,750 3,875 zero 2029

Capitalized Leases 10 39 various 2000 GE Capital 827 1,382 9.78 2001 Private Foundation Line of Credit 18,740 16,125 zero 2003

is Other 692 732 various 2006 Total Physical Capital 425,935 419,199

Student Loan Funds 29 DASNY Bond 1 992 Serial 3,685 4,775 6.00 to 6.30 2002 2j DASNY Bond 1992 Capital Appreciation 4,208 3,939 6.60 to 6.80 2009 22 DASNY Bond 1993 Serial 2,820 3,455 4.45 to 4.90 2003 23 DASNY Bond 1993 Capital Appreciation 2,497 2,368 5.25 to 5.50 2007 24 DASNY Bond 1995 Serial 9,070 9,070 4.75 to 5.45 2005 25 DASNY Bond 1995 Capital Appreciation 6,427 6,064 5.70 to 6.15 2011 26 Total General Operations-Student Loans 28,707 29,671

27 Total Bonds, Mortgages, and Notes Payable $454,642 $448,870

TABLE 8. ANNUAL DEBT SERVICE REQUIREMENTS (IN THOUSANDS)

Annual Installment

Year Principal Interest Total

i 2000 $ 46,591 $ 25,146 $ 71,737 2 2001 26,951 22,795 49,746

2002 28,881 21,367 50,248 S2003 20,570 19,995 40,565

2004 48,897 19,596 68,493 Thereafter 282,752 221,632 504,384

STotal $454,642 $330,531 $785,173

27

In 1993, the university issued $58,275,000 of Series 1993 tax-exempt bonds and irrevocably placed $11,731,000 of bond proceeds in a trusteeadministered escrow fund. The escrow fund was used to pay the interest on $13,479,200 of bond Series 1985 Pooled Capital Program until Decemher 1998. At that time, the escrow fund was combined with the Series 1985 Pooled Capital Program debt service reserve fund, and the remaining $13,479,200 of principal was redeemed.

On July 21, 1998, the university entered into an agreement to refinance the 1990A revenue bonds of $87,200,000. This agreement, effective April 2000, secures a fixed interest rate of 4.6 percent. The current rate on the 1990A revenue bonds averages 7 percent.

During February 1999, the university issued $7,290,000 of fixed-rate taxable revenue bonds through the Student Loan Marketing Association, to refinance the variable-rate mortgages on 55 Brown Road and East Hill Plaza, and to provide funds for new construction.

During fiscal year 1998-99, the university entered into an agreement for S100,000,000 of commercial paper financing. Under the agreement, a total of $490,000,000 of principal may be issued, with a maximum of $100,000,000 outstanding at any one time. The funds may be used for new capital projects, and to re-finance earlier projects. As of June 30, 1999, the university had issued $33,000,000 at 3.4%. The terms of the agreement require payments to begin by July 1, 2018, with the amount fully paid by July 1, 2028. The university intends to carry the debt in its short-term commercial paper form until fiscal year 2003-04, at which time it will be converted to longer-term debt securities.

7. BENEFIT PLANS

A. Pension Plans The university's employee pension plan coverage for Endowed Ithaca and the Medical College is provided by two basic types of plans: those based on a predetermined level of funding (defined contribution) and those based on a level of benefit to be provided (defined benefit). The primary plans for Endowed Ithaca and for exempt employees (those not subject to the overtime provisions of the Fair Labor Standards Act) at the Medical College are carried by the Teachers Insurance and Annuity Association and the College Retirement Equities Fund, which also permit employee contributions. In addition, certain accrued benefits and an appropriate amount of the university's pension reserves

are frozen in connection with plan reorganizations.

The pension liabilities recognized by the university in connection with the frozen plans were established by charges to expenses in prior years, to meet future retirement costs for current employees. Although the liabilities are considered internally funded, they are not intended to create a trust or fund in which any employee or former employee has any right or interest of any kind.

In accordance with ERISA requirements for the defined benefit plans, the university must annually fund with an independent trustee an actuarially determined amount that represents normal costs plus amortization of prior service costs over a forty-year period that began on July 1, 1976.

The defined benefit plan's funded status, amounts recognized in the university's statement of financial position at June 30, 1999, and assumptions used for calculations are shown in Table 9.

Total pension costs of the Endowed Ithaca and Medical College plans for the year ended June 30, 1999 and June 30, 1998, amounted to $36,539,705 and $35,105,151, respectively.

Employees of the Statutory Colleges are covered under the New York State pension plan. Contributions to the state retirement system and other fringe-benefit costs are paid directly by the state. The amount of the direct payments applicable to the university as revenue and expenditures is not currently determinable and is not included in the financial statements. The university reimburses the state for fringe-benefit costs on certain salaries, principally those associated with externally sponsored programs. The amount reimbursed to the state during the years ended June 30, 1999 and June 30, 1998, was $6,413,862 and $7,571,736, respectively, which are included in the expenses of general operations.

B. Postretirement Benefits Other Than Pensions

The university provides health and life insurance benefits for eligible retired employees and their dependents. Although there is no legal obligation for future benefits, the cost ofpostretirement benefits must be accrued during the service lives of employees. The university elected the prospective-transition approach and is amortizing the transition obligation over twenty years, through fiscal year 2012-13.

The plan assets for Endowed Ithaca and the Medical College are invested with an outside trustee.

28

TABLE 9. DEFINED BENEFIT PENSION PLANS -BENEFIT OBLIGATIONS, NET ASSETS AND COST (IN THOUSANDS)

Endowed Ithaca*

Change in benefit obligation

SBenefit obligation at beginning of year

2 Service costs (benefits earned during the period)

SInterest cost on projected benefit obligation

4 Actuarial (gain) loss

Benefits paid

6 Benefit obligation at end of year

Change in plan assets

Fair value of plan assets at beginning of year

Return on plan assets

9 Employer contribution

ýj Benefits paid

!I Fair value of plan assets at end of year

2 Excess of plan assets over projected benefit obligation

Unrecognized net obligation (asset) at July 1, 1987, recognized over fifteen years

14 Unrecognized prior service costs

ýJ Unrecognized net loss (gain) from past experience different than assumed

i 6 Prepaid pension cost

periodic pension cost components

Prepaid service cost

Interest cost on projected benefit obligation

Actual return on plan assets

Net amortization and deferral of

Initial transition obligation

Prior service cost

Net (gain) loss

Return on plan assets different from expected

Net periodic pension cost (income)

$22,600

2

1,543

1 2441

1 2,236 )

21,665

35,134

4,654

2,236 )

37,552

15,887

896

( 6,935)

$ 9,848

$ 2

1,543

( 4,654)

Medical College

$26,483

1,464

1,856

1 322)

2,685)

26,796

37,280

5,099

1 2,685)

39,694

12,898

275)

439

1 11,952)

$ 1,110

$ 1,464

1,856

5,099)

299 ( 92)

108

1 192 ) 640)

1,588 1,926

($ 1,414) 1$ 477)

1999

Combined

$49,083

1,466

3,399

1 566)

( 4,921

48,461

72,414

9,753

4,921

77,246

28,785

621

439

18,887)

$10,958

$ 1,466

3,399

1 9,753 )

207

108

832)

3,514

($ 1,891

Endowed Ithaca

1999 1998

Medical College :ndowed Ithaca Medical College

Assumptions used in accounting for the plans as of July 1

26 Discount rate

Expected return on plan assets

28 Rate of compensation increase

* A frozen retirement plan for the non -exempt employees of the endowed colleges ot Ithoca

29

1998

Combined

$45,744

914

3,494

3,010

( 4,0791

49,083

63,770

11,977

746

1 4,079)

72,414

23,331

829

547

15,640)

$ 9,067

$ 914

3,494

1 11,977)

207

108

1 596)

6,501

($ 1,349)

Net

17

J 1

20

21

22

21

24

1 i

7.25%

9.00%

4.00%

7.25%

9.00%

6.10%

7.25%

9.00%

4.00%

7.25%

9.00%

6.10%

TABLE 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS- BENEFIT OBLIGATIONS, NET ASSETS AND COST (IN THOUSANDS)

1999 1998

Endowed Ithaca Medical College Combined Combined

Change in benefit obligation SBenefit obligation at beginning of year $93,964 $16,364 $110,328 $100,373

Service costs (benefits earned during the period) 3,680 893 4,573 3,632

Interest cost on projected benefit obligation 7,806 1,322 9,128 7,885

Actuarial (gain) loss 12,792 1,458 14,250 2,746

Benefits paid (outside of trust) 3,987 976 4,963 4,308) Benefit obligation at end of year 114,255 19,061 133,316 110,328

Change in plan assets

Fair value of plan assets at beginning of year 18,451 13,372 31,823 25,457

Return on plan assets 2,232 1,016 3,248 3,232

Employer contribution 3,514 339 3,853 3,134

Fair value of plan assets at end of year 24,197 14,727 38,924 31,823

Excess (deficiency) of plan assets

over projected benefit obligation ( 90,058 A 4,334 ( 94,392 )78,505) '2 Unrecognized net transition asset 37,351 13,669 51,020 54,664

!i Unrecognized net loss (gain) from past experience different than assumed 23,521 ( 9,335 14,186 456

), Prepaid (accrued) postretirement benefit cost ($29,186 ($29,186 ($23,385

Net periodic postretirement benefit cost components

1ý Service costs (benefits during the period) S 3,680 $ 893 $ 4,573 $ 3,632

,;s Interest cost on projected benefit obligation 7,806 1,322 9,128 7,885

1;' Actual return on plan assets ) 2,232 1,016 ) 3,248 ) 3,232) Is Net amortization and deferral of

11, Initial transition obligation 2,668 976 3,644 3,644

2ý) Prior service cost 184 184

21 Net (gain) loss 809 857) ( 48 ) 887)

22 Return on plan assets different from expected 571 187 384 941 2.! Net periodic postretirement benefit cost $13,302 $ 1,315 $14,617 $11,983

1999 1998

Endowed Ithaca Medical College Endowed Ithaca Medical College

Assumptions used in accounting for the plans as of July 1 24 Discount rate 7.25% 7.25% 7.25% 7.25% 2.S Expected return on plan assets 9.00% 9.00% 9.00% 9.00%

26 Health care cost trend rate initial 7.00% 5.50% 8.00% 6.00%

2; Health care cost trend rate final 4.75% 4.75% 4.75% 4,75%

28 Years to reach final 5 2 6 3

1999 Endowed Ithaco Medical College

Effect of I percentage point change in assumption

of Health Care Cost trend rate

2' 1 -Percentage point increase

30 Effect on total service cost and interest cost components 2,404 365

Effect on accumulated postretirement benefit obligation

as of June 30, 1999 19,870 2,518

-31, -Percentage point decrease

31 Effect on total service cost and interest cost components 1,872 ) ( 296)

4 Effect on accumulated postretirement benefit obligation

as of June 30, 1999 ) 15,900) ) 2,101)

30

Table 10 sets forth the funded status of the plans as of June 30, 1999 and June 30, 1998, the components of net periodic postretirement benefit costs for 1999 and 1998, and the assumptions used in accounting for the plans during 1999 and 1998. The accrued postretirement benefit cost shown in Table 10 is $5,801,000 of current-year unfunded cost plus $23,385,000 of accumulated prior-year unfunded cost.

C. Postemployment Benefits The university provides various benefits to former or inactive employees after employment, but before retirement. The expected costs of these benefits are recognized when they are earned, even though there may not be any legal requirement to continue the programs. Current-year estimated costs are allocated among the expenses of general operations.

8. FUNCTIONAL EXPENSES AND STUDENT AID

Table 11 shows expenses by functional category for

General Operations and Physical Capital. Expenses for operations and maintenance, depreciation, and interest have been allocated to functional categories using square-footage statistics. The amount allocated for operations and maintenance was approximately $107,300,000 for fiscal year 1998-99, and $95,380,000 for fiscal year 1997-98.

Institutionally provided student financial assistance that is not given in exchange for services is shown as a discount against revenue rather than as an expense. Aid in excess of the institution's actual tuition and fees, of $10,379,261 and $9,381,806 for fiscal years 1998-99 and 1997-98, respectively, are classified as instruction expense.

9'. ý.CýOt{.T.ING.ENIT LIA.B-IL.IJTIE-S The university is a defendant in various legal

actions, some of which are for substantial monetary amounts, that arise out of the normal course of its operations. Although the final outcome of the actions cannot currently be determined, the university's administration is of the opinion that eventual liability, if any, will not have a material effect on the university's financial position.

The university retains self insurance for property,

general liability, and certain health benefits, and has an equity interest in a multiprovider captive insurance company.

iTALE ._ -*FU N-C-T-l-N_ AL E-X-P-ENS-ES* ("IN- TH-OU SA ND S")

General

Operations

i Instruction

Research

Public service

Academic support

5 Student services

(, Medical services

7 Institutional support

8 Enterprises and subsidiaries

9 Total expenses and deductions

$ 304,293 311,460

77,144

97,249

67,608

215,227

123,085

115,186

$1,311,252

Physical Capital

$ 23,198 21,981

2,506

24,030

9,472

1,796

13,514

20,280

$ 116,777

1999

$ 327,491 333,441

79,650

121,279

77,080

217,023

136,599

135,466

$1,428,029

1998

$ 312,246 311,391

76,360

113,823

73,908

208,979

132,298

118,174

$1,347,179

31

2

4