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2017Financial ReportSouth Dakota State University & Attached AgenciesBrookings, SD

Financial Report of

South Dakota State University Brookings, South Dakota, Its Colleges and Agencies

University Proper

College of Agriculture & Biological Sciences College of Arts & Sciences

College of Education & Human Sciences College of Nursing

College of Pharmacy Graduate School

Jerome J. Lohr College of Engineering University College

Van D. & Barbara B. Fishback Honors College

SDSU Extension

Agricultural Experiment Station

Animal Disease Research and Diagnostic Laboratory

For the years ended June 30, 2017 and 2016

31 copies of this document were printed by the Department of Finance and Business at a cost of $6.96 each 03/18 BU045

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SOUTH DAKOTA STATE UNIVERSITY

FINANCIAL REPORT FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

BOARD OF REGENTS

BOB SUTTON, President, Sioux Falls KEVIN SCHIEFFER, Vice President, Sioux Falls

JOHN W. BASTIAN, Secretary, Belle Fourche JIM MORGAN, Brookings

HARVEY C. JEWETT, Aberdeen PAM ROBERTS, Pierre

JOAN WINK, HOWES, Meade RANDY SCHAEFER, Madison

CONRAD ADAM, Pierre

OFFICE OF THE BOARD OF REGENTS

MICHAEL G. RUSH, Executive Director & CEO MONTE KRAMER, System Vice President of Finance & Administration

THE PRESIDENT OF THE UNIVERSITY

BARRY H. DUNN

Wesley G. Tschetter, Vice President of Finance & Business/CFO Jeffrey A. Siekmann, Special Assistant VP/CFO

Karen E. Jastram, Director of Accounting Services Derek Peterson, Director-Business & Auxiliary Operations Jacqueline C. Nelson, Assistant VP of Finance & Business

Michael Holbeck, Director of Finance & Budget James D. Rogness, Senior Associate Controller

Kristie Woods, Associate Controller Mark D. Pust, Senior Accountant

Cathy M. Lynn, Senior Accountant Carla Beckwith, Senior Accountant Vicki L. Soren, Purchasing Agent

Janet M. Peterson, Director of Payment Systems Arlys E. Janssen, Institutional Payroll Supervisor

Ross Pirlet, Student Accounts Specialist Leo Gannon, Bursar

* * * * * * * *

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SOUTH DAKOTA STATE UNIVERSITY FINANCIAL REPORT

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

TABLE OF CONTENTS

Page Management’s Discussion and Analysis 1-6 Statements of Net Position 7-8 Consolidated Statements of Financial Position (SDSU Foundation) 9 Statements of Revenues, Expenses, and Changes in Net Position 10-11 Consolidated Statements of Activities (SDSU Foundation) 12-13 Consolidated Statements of Changes in Net Assets (SDSU Foundation) 14 Statements of Cash Flows 15-16 Consolidated Statements of Cash Flows (SDSU Foundation) 17-18 Charts and Graphs

Operating Revenues 19 Operating Expenses 20 Non-Operating Revenue 21

Notes to Financial Statements 22-37 Notes to Consolidated Financial Statements (SDSU Foundation) 38-58

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SOUTH DAKOTA STATE UNIVERSITY MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED JUNE 30, 2017 This section of South Dakota State University’s (the University) annual financial report presents management’s discussion and analysis of the University’s financial operations during FY17. The discussion and analysis should be read in conjunction with the accompanying financial statements and notes. The accuracy of the discussion and analysis, financial statements, and note disclosures are the responsibility of management. Based on the provisions of Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations are Component Units, it has been determined that the South Dakota State University Foundation (the Foundation) is a component unit of the University. In accordance with GASB 39, the Foundation’s financial statements are presented behind the University’s financial statements. Independent auditors engaged by the Foundation’s Board of Directors audit the Foundation’s financial information. The University has no control or management responsibility over Foundation funds. REPORTING ENTITY South Dakota State University is one of six public universities under the control of the South Dakota Board of Regents (BOR), which is considered a component unit of the State of South Dakota (the State), and reported as such in the State’s Comprehensive Annual Financial Report. The financial operations of the University are audited as part of the State. An audit opinion is not issued on the individual statements, but rather on the State’s Comprehensive Annual Financial Report. USING THE ANNUAL REPORT The financial statements have been prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements–and Management’s Discussion and Analysis –for Public Colleges and Universities as amended by GASB No. 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position and by GASB No. 65 Items Previously Reported as Assets and Liabilities. The accompanying financial statements provide a comprehensive view of the financial operations of the University as a whole and include the Statement of Net Position; Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows. The financial statements are prepared under the accrual basis of accounting, whereby revenues are recognized when the service is provided, and expenses are recognized when a liability is incurred regardless of when the exchange of cash occurs. The Statement of Net Position presents information on all of the University’s assets, deferred outflows of resources, and liabilities with the difference between them reported as net position (one way of measuring the University’s financial position). Changes in net position are an indicator of the improvement or erosion of the University’s financial health and should be considered with non-financial facts such as enrollment levels and the condition of the facilities serving the students. The Statement of Revenues, Expenses, and Changes in Net Position presents revenues earned and expenses incurred during the year. Revenues and expenses are reported as either operating or non-operating. In accordance with the GASB Statement 35, General Fund (State) and Federal Appropriations are reported as non-operating revenues, resulting in the reporting of a significant net operating loss. The financial statements also reflect depreciation and amortization expense, which is the amortization of the capital asset’s cost over its estimated useful life.

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The Statement of Cash Flows presents information related to cash inflows and outflows which helps measure the University’s ability to meet financial obligations as they mature. Transactions are classified as operating, non-capital, capital, and investing activities. FINANCIAL HIGHLIGHTS The University’s financial position improved during FY17 as compared to the previous fiscal year as evidenced by:

• The University’s total assets increased from the previous year by $39.6 million.

• The most significant change was an increase to Buildings & Building Improvements of $93.2 million primarily from additions for the Dana J. Dykhouse Stadium, the North Chiller Plant, the Brown Hall addition and renovation, the Swine Unit and the Cow/Calf Unit.

• Another significant change was a decrease to Construction in Progress (CIP) of $72.7 million. In FY17, $111.6 million was moved out of CIP to Buildings & Building Improvements ($107.9 million), to Land Improvements ($2.0 million) and to Infrastructure ($1.70 million). The $111.6 million reduction was offset by $39.0 million of new construction primarily for the projects listed above and for the Performing Arts Center addition and for the Plant Science Research Facility.

• The University’s largest asset is its investment in physical plant which represents $478.6 million. In addition, the University had $27.8 million in Equipment & Other Property and $8.8 million in Museum & Art Collections.

• Another significant change was the increase in cash balances by $15.4 million, primarily in

Restricted Cash on Deposit – State Treasurer due to the construction proceeds received from the Series 2016 bonds.

• The University’s largest liability is its revenue bonds payable of $119.4 million, net of premiums

and discounts. Total Liabilities increased $6.8 million primarily from the issuance of the Series 2016 Revenue Bonds for $12.8 million which was offset by scheduled repayments.

• The University’s net position increased by $32.8 million to $428.8 million, of which $374.0 million

is net investment in capital assets and $6.5 million is restricted. The majority of the remaining $48.3 million of unrestricted net position is designated for future acquisition or maintenance and repair of plant facilities.

• The University’s current assets of $91.2 million were sufficient to cover current liabilities of $30.9

million (current ratio of 2.95).

Fund Type Change in cash balanceUnexpended Plant funds $9.8 millionUnrestricted Non-Appropriated funds $3.9 millionRenewal and Replacement funds $3.5 millionRetirement of Indebtedness funds $0.5 millionRestricted Appropriated funds ($2.3) million

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FINANCIAL HIGHLIGHTS (CONTINUED):

• Primary sources of operating revenues for the University are Tuition & Fees, Grants & Contracts,

General Sales & Services, and Auxiliaries. • Operating revenues increased by $3.8 million compared to the previous year, mostly from Auxiliaries

($1.9 million) and General Sales & Services revenues ($1.3 million).

• Tuition & Fee revenue increased by $.8 million from the previous year. Resident on-campus tuition, mandatory fees and discipline fees were all frozen for FY17. The increase in Tuition & Fee revenue was primarily from a 3.5% increase to Non-Resident on-campus tuition rates along with small increases to Other Fees and Student Charges. During FY17, there was a $1.4 million reduction in Delivery Fees that was reclassified to State Support Tuition due to a change in the method for assessing State Support Tuition.

• Auxiliaries increased by $1.9 million from the previous year primarily from increases for Residential

Life of $1.2 million and increases for Food Service of $1.0 million.

• General Sales & Services increased by $1.3 million from the previous year. Significant changes include an increase of $.7 million for Athletics from a one-time NCAA distribution from the NCAA endowment; an increase of $.7 million in Testing Services primarily from the Animal Diagnostic Lab; an increase of $.5 million for a new Fertilizer Fee from the Department of Agriculture from the newly formed Nutrient Research Education Council (NREC) offset by a decrease of $.6 million in Cattle Sales for Livestock Revolving.

2017 2016Assets:Current Assets 91,202,929.56$ 86,916,338.24$ Non-Current Assets 539,137,318.69 503,826,363.02 Deferred Outflow on Debt Refinancing 99,286.64 118,860.83

Total Assets & Deferred Outflows of Resources 630,439,534.89$ 590,861,562.09$

Liabilities:Current Liabilities 30,879,208.60$ 31,668,139.98$ Non-Current Liabilities 170,738,777.85 163,136,878.84 Total Liabilities 201,617,986.45$ 194,805,018.82$

Net Position:Net Investment in Capital Assets 374,015,594.61$ 345,724,504.09$ Restricted 6,506,676.75 9,855,843.33 Unrestricted 48,299,277.08 40,476,195.85 Total Net Position 428,821,548.44$ 396,056,543.27$

Total Liabilities & Net Position 630,439,534.89$ 590,861,562.09$

Condensed Statements of Net Position

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FINANCIAL HIGHLIGHTS (CONTINUED):

• Total Grants & Contracts decreased by only $.1 million. However, there was a major shift in funding sources with Federal Grants & Contracts decreasing by $1.1 million, State Grants & Contracts decreasing by $.7 million and Private Grants & Contracts increasing by $1.6 million. This shows quite dramatically that the University has had to rely heavier upon private funding sources and less upon federal and state funding sources. This trend is likely to continue in the future.

• Overall Operating Expenses increased by $12.9 million (4.5%) compared to the previous year. The

most significant change was to Personal Services which increased by $8.8 million (5.4%) from the previous year. For FY17, the SD Legislature approved a 2.7% salary policy for all employees along with an additional 2.5% movement to market for CSA employees. Other significant changes from the previous year included a $2.8 million increase to Contractual Services (6.5% increase); a $2.8 million increase to Depreciation (14.4% increase) and a $2.3 million decrease to Grants & Subsidies (11.8% decrease).

• The operating loss totaled $82.1 million which was funded primarily by General Fund Appropriations

of $67.1 million and Federal Fund Appropriations of $5.2 million. In comparison, the FY16 operating loss was $73.0 million.

• State General Fund Appropriations were the most significant non-operating revenue at $67.1 million

which was a $.8 million increase from FY16. • The University received $5.2 million in Federal Appropriations in FY17, which was a decrease of $2.0

million from the previous year. Significant changes include a $1.1 million decrease in Smith Lever funding along with small decreases of $.3 million each for EFNEP funding, Hatch funding and Multi-State funding.

• The University received revenue from the Higher Education Facilities Fund (HEFF) of $8.8 million in FY17 which was a $2.0 million increase from the previous year. The $8.8 million consisted of $6.1 million in M&R HEFF and $2.7 million in General Funds HEFF. HEFF revenue for FY17 was reported on the University’s financial statement as $2.1 million in Non-Operating HEFF, $4.3 million in Capital HEFF, and $2.5 million in Capital Appropriations. HEFF revenue for FY17 was primarily used for the Campus North Tunnel Extension, for the Northern Plains Biostress Chiller Replacement, Storm Sewer Improvements, and for various other smaller construction projects.

• The University received $27.4 million in Capital Grants & Contracts in FY17 which was a $5.6 million

increase from the previous year. The most significant source in FY17 was $24.8 million received from the SDSU Foundation for the Dykhouse Stadium, Performing Arts Center Expansion, Headhouse/Greenhouse, Swine Unit, and other smaller building and renovation projects across campus. In addition, the University received $1.1 million from various grants & contracts, and an additional $1.0 million from the Soybean Research Council, and $0.5 million from Construction in Progress and Equipment.

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FINANCIAL HIGHLIGHTS (CONCLUDED):

• Major sources of operating cash included Tuition & Fees and Auxiliaries of $122.0 million, Grants &

Contracts of $56.8 million, and General Sales & Services of $32.6 million. The largest use of operating cash was for Personal Services of $172.0 million.

• The most significant source of cash for non-capital financial activities cash was General Fund

Appropriations of $67.1 million. • The most significant sources of cash for capital related financing activities were Capital Grants &

Contracts of $26.2 million, Proceeds from Capital Debt of $13.4 million, and $4.3 million from the Higher Education Facilities fund for capital projects. The most significant uses of cash for capital related financing activities include the Purchase of Capital Assets of $43.2 million which was predominately for Buildings & Building Improvement construction expenditures, and debt service payments of $13.2 million.

2017 2016

Total Operating Revenues 213,564,831.77$ 209,794,084.24$ Total Operating Expenses 295,682,556.92 282,816,943.11 Operating Loss (82,117,725.15)$ (73,022,858.87)$

Net Non-Operating Revenues 79,075,521.75 79,441,920.98 Other Revenues 34,668,249.28 37,854,429.93 Total Net Non-Operating & Other Revenues 113,743,771.03 117,296,350.91

Total Increase in Net Position 31,626,045.88$ 44,273,492.04$

Net Position, Beginning of Year 396,056,543.27 350,447,656.09 Prior Period Adjustments 1,138,959.29 1,335,395.14 Net Position, End of Year 428,821,548.44$ 396,056,543.27$

Condensed Statements of Revenues, Expenses, and Changes in Net Position

2017 2016Cash Provided (Used) by: Operating Activities (60,064,189.08)$ (53,990,187.97)$ Non-Capital Financial Activities 84,427,454.48 84,656,430.12 Capital Related Financing Activities (9,597,320.90) (26,586,376.60) Investing Activities 608,406.62 700,456.31 Net Increase in Cash 15,374,351.12$ 4,780,321.86$

Cash, Beginning of Year 58,584,335.71 53,804,013.85 Cash, End of Year 73,958,686.83$ 58,584,335.71$

Condensed Statements of Cash Flows

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OUTLOOK FOR FY18 AND BEYOND The ability of the University to fulfill its education mission and execute its strategic plans is positively influenced by stable enrollment. Fall 2017 total full-time equivalent enrollment decreased slightly from 10,130 in Fall 2016 to 10,108 in Fall 2017. Fall 2017 headcount enrollment decreased slightly from 12,613 in Fall 2016 to 12,527 in Fall 2017. It is projected that enrollment will continue to remain stable for FY19. Reliance on State Support remains an important non-operating revenue source for the University. For FY18, it is expected that the General Fund Appropriations will continue to be impacted by state and national economic pressures. Each year the University continues to be confronted with inflationary increases in compensation and other operating expenses. Additional challenges include maintenance and repair of plant facilities and major renovations to facilities. Maintenance and repair of facilities is essential to provide safe, effective and current education and service to the State. Major projects that are in the planning process or in progress include the construction of a Student Wellness Center addition, Performing Arts Center Phase 2 addition, Animal Disease Research & Diagnostic Laboratory addition and renovation, Plant Science research support facility, Storm Sewer Improvements, Harding Hall renovation, Meadows North & Meadows South window replacement, Stanley J. Marshall Center addition and renovation, Larson Commons chiller, and construction of a Residential Life maintenance facility. The University has a ten year Capital Plan which includes the Precision Ag Classroom Laboratory Building, South East University Residential Development, Campus redevelopment, Briggs Library renovation, Pugsley Hall renovation, Ag Experiment Station Dairy Unit Facilities expansion & upgrades, Lincoln Music Hall renovation, Natatorium Facility, Central Heating Plant boiler replacement & improvements, Scobey Hall apartment renovations, Utility repairs & modernization, Wagner Hall renovations, Intramural Building renovations, University Student Union Volstorff replacement, SD Art Museum addition & renovations, American Indian Student Center, Yeager Hall renovations, and Competition Soccer & Intramural Fields. South Dakota State University maintains a positive outlook for FY18 and beyond. The University continues to be well positioned for the future, both academically and financially in its mission of education, research and service.

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JUNE 30, 2017 JUNE 30, 2016ASSETSCurrent Assets:

Cash on Deposit-State Treasurer 53,039,933.69$ 48,633,666.29$ Cash & Cash Equivalents 7,516,378.72 9,950,669.42 Accounts Receivable-Student 6,038,865.34 5,616,813.13 Accounts Receivable-Department Sales 4,268,147.44 3,753,306.33 Notes Receivable 1,738,331.83 2,139,931.22

(Net of Allowance of $131,950.45 & $99,734.24, Respectively)Interest Receivable 420,810.69 376,308.11 Prepaid Expenses 1,863,589.15 1,767,239.28 Inventories 5,739,973.12 5,221,665.01 Due From Federal Sources 8,916,163.97 7,313,528.09 Due From Primary Government 620,743.26 572,291.98 Due From Other Component Units 1,025,982.13 1,556,909.16 Unamortized Cost of Issuance 14,010.22 14,010.22

Total Current Assets 91,202,929.56$ 86,916,338.24$

Non-Current Assets:Restricted Cash on Deposit-State Treasurer 13,402,374.42$ -$ Notes Receivable 9,482,414.79 9,565,561.65

(Net of Allowance of $689,904.55 & $435,704.76 Respectively)Unrestricted Investments 296,123.01 283,056.67 Unamortized Cost of Issuance 224,163.62 238,173.84Other Assets 117,500.00 62,500.00

Total Non-Current Assets - Other 23,522,575.84$ 10,149,292.16$

Capital Assets , Net:Land 12,030,938.82$ 12,650,728.90$ Museum & Art Collections 8,837,315.50 8,830,215.50 Construction in Progress 20,863,452.47 93,601,929.55 Buildings & Building Improvements 419,903,206.46 326,705,046.28

(Net of Accum Depr $168,200,821.72 & $153,553,981.49, Respectively)Land Improvements 8,948,895.95 7,615,087.51

(Net of Accum Depr $8,155,775.31 & $7,454,789.00, Respectively)Infrastructure 16,806,484.90 15,807,296.33

(Net of Accum Depr $7,465,385.07 & $6,808,693.87, Respectively)Equipment & Other Property 27,771,029.27 28,000,951.65

(Net of Accum Depr $85,285,764.41 & $80,994,047.53, Respectively)Intangible Assets

(Net of Accum Amort $208,808.23 & $136,412.57, Respectively) 453,419.48 465,815.14 Total Capital Assets, Net 515,614,742.85$ 493,677,070.86$

Deferred Outflows of Resources:Deferred Outflow on Debt Refunding 99,286.64$ 118,860.83$

TOTAL ASSETS & DEFERRED OUTLFOWS OF RESOURCES 630,439,534.89$ 590,861,562.09$

SOUTH DAKOTA STATE UNIVERSITYSTATEMENTS OF NET POSITION

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JUNE 30, 2017 JUNE 30, 2016LIABILITIESCurrent Liabilities:

Accounts Payable 8,891,075.75$ 9,414,097.06$ Accrued Wages & Benefits 3,962,415.20 3,951,631.82 Accrued Interest Payable 1,393,093.19 1,312,031.94 Due To Primary Government 338,494.43 274,728.39 Due To Other Component Units 482,619.13 685,093.60 Student Deposits 471,246.07 417,892.10 Compensated Absences Payable 4,579,079.81 5,217,598.56 Note Payable - 165,000.00 Bonds Payable (Note XII) 6,018,801.28 5,469,542.88 Obligations Under Capital Leases 958,195.35 916,574.22 Unearned Revenue 3,619,281.77 3,374,392.96 Agency Funds-Funds Held for Others 164,906.62 469,556.45

Total Current Liabilities 30,879,208.60$ 31,668,139.98$

Non-Current Liabilities: Compensated Absences Payable 11,170,984.76$ 10,521,043.92$ Bonds Payable (Note XII) 113,427,565.64 105,911,408.14 Obligations Under Capital Leases 34,696,247.03 35,608,902.36 Federal Capital Contribution 11,443,980.42 11,095,524.42

Total Non-Current Liabilities 170,738,777.85$ 163,136,878.84$

TOTAL LIABILITIES 201,617,986.45$ 194,805,018.82$

NET POSITION:Net Investment in Capital Assets 374,015,594.61$ 345,724,504.09

Restricted Non-Expendable - Loans 1,665,931.56 2,051,898.58

Restricted Expendable:Scholarships and Fellowships 168,807.30 197,974.23 Research 1,501,116.90 2,732,610.54 Renewals & Replacements 3,170,820.99 4,873,359.98

Unrestricted 48,299,277.08 40,476,195.85 TOTAL NET POSITION 428,821,548.44$ 396,056,543.27$

TOTAL LIABILITIES & NET POSITION 630,439,534.89$ 590,861,562.09$

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

STATEMENTS OF NET POSITIONSOUTH DAKOTA STATE UNIVERSITY

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See Notes to Consolidated Financial Statements 3

South Dakota State University Foundation Consolidated Statements of Financial Position

December 31, 2016 and 2015

(Restated)2016 2015

Assets

Cash and Cash Equivalents 9,876,492$ 9,232,521$

Investments (Note 2) 131,534,369 131,783,982

ReceivablesPromises to give, net of allowance and discount (Note 3) 24,185,053 24,173,646 Trusts held by others 1,507,827 1,317,906 Notes, contract, and other receivables (Note 4) 3,546,825 3,451,126

Operating Property, Net of Accumulated Depreciation (Note 1) 11,802,542 5,673,297

Other Property Held (Note 1) 5,747,071 4,679,670

Other AssetsPrepaid expenses, inventory, and other assets 60,709 391,772 Cash surrender value of life insurance 550,330 517,593 Life estates 4,202,655 4,151,655 Beneficial interest in perpetual trust 953,502 919,052

193,967,375$ 186,292,220$

Liabilities

Accounts Payable, Accrued Expenses, and Other Liabilities 2,176,241$ 745,995$ Deposits from donors and others 1,500,877 590,615 Due to SDSU - Scholarships 1,805,590 1,777,596 Investments Held for Others 163,706 153,312 Gift Annuities, Life Income Agreements, and Life Estates 8,262,504 8,904,925 Notes Payable (Note 5) 3,937,362 6,534,285

Total liabilities 17,846,280 18,706,728

Net Assets (Deficit)

Unrestricted (Note 6) (13,978,499) (14,632,873) Temporarily Restricted (Note 7) 57,818,100 55,284,398 Permanently Restricted (Note 7) 132,281,494 126,933,967

Total net assets 176,121,095 167,585,492

193,967,375$ 186,292,220$

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JUNE 30, 2017 JUNE 30, 2016OPERATING REVENUES:

Tuition:State-Support Tuition 58,832,310.63$ 57,095,879.92$ Self-Support Tuition 17,378,559.66 17,681,630.89

Total Tuition 76,210,870.29$ 74,777,510.81$

Fees:General Activity Fees 7,979,980.23$ 7,987,967.94$ Special Discipline Fees 13,316,668.29 13,242,484.42 Vehicle Registration Fees 970,717.14 930,966.10 Delivery Fees 819,461.87 2,209,521.11 Other Fees 479,738.51 228,475.06 Student Charges 2,544,527.57 2,258,302.75

Total Fees 26,111,093.61$ 26,857,717.38$

Total Tuition and Fees 102,321,963.90$ 101,635,228.19$ Less Student Financial Assistance (12,185,310.40) (12,269,185.83) Total Tuition & Fees, Net of Student Financial Assistance 90,136,653.50$ 89,366,042.36$

Auxiliaries 34,574,841.02 32,680,951.16 Net Student Financial Assistance $4,673,171.06 & $4,487,418.69, Respectively

General Sales & Services 32,282,513.44 31,002,510.61 Federal Grants & Contracts 34,237,909.68 35,329,048.40 State Grants & Contracts 6,753,187.79 7,430,653.79 Private Grants & Contracts 15,355,916.34 13,721,041.72 Student Loan Interest 196,506.51 208,030.98 Other Revenues & Additions 27,303.49 55,805.22

TOTAL OPERATING REVENUES 213,564,831.77$ 209,794,084.24$

OPERATING EXPENSES:Personal Services (Salaries & Benefits) 172,024,017.84$ 163,267,767.39$ Travel 8,375,011.37 8,607,837.87 Contractual Services 46,158,260.13 43,356,350.53 Supplies & Materials 28,471,271.44 27,677,818.67 Grants & Subsidies 17,331,197.49 19,644,781.38 Interest 554.20 6,166.87 Loan Cancellation Expense 412,145.48 331,166.30 Bad Debts 287,315.00 188,295.00 Depreciation 22,444,598.55 19,613,611.18 Amortization of Intangibles 72,395.66 50,671.42 Other Operating Expense 105,789.76 72,476.50

TOTAL OPERATING EXPENSES 295,682,556.92$ 282,816,943.11$

OPERATING LOSS (82,117,725.15)$ (73,022,858.87)$

SOUTH DAKOTA STATE UNIVERSITYSTATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

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JUNE 30, 2017 JUNE 30, 2016NON-OPERATING REVENUES (EXPENSES):

General Fund Appropriations 67,059,012.83$ 66,298,703.34$School & Public Lands 788,724.06 705,977.10Federal Fund Appropriations 5,216,471.34 7,192,377.84Higher Education Facilities Fund 2,071,499.65 1,385,170.20Endo/Ecto Parasiticide Tax 250,000.00 250,000.00Investment Income 652,909.20 710,011.79Other Non-Operating Revenue PELL Grants 9,315,607.57 9,663,418.65Other Non-Operating Revenue Growth Partnership 1,100,000.00 - Other Non-Operating Revenue & Additions 31,874.11 26,307.83Interest Expense Related to Capital Assets (6,961,702.82) (5,484,541.63)Loss on Disposal of Capital Assets (300,899.11) (1,280,010.02)Bond Issuance Expense (147,975.08) (25,494.12)

NET NON-OPERATING REVENUES 79,075,521.75$ 79,441,920.98$

INCOME BEFORE OTHER REVENUES, EXPENSES& OTHER CHANGES (3,042,203.40)$ 6,419,062.11$

Capital Grants & Contracts 27,420,092.89$ 21,835,276.19$South Dakota Building Authority Bond Proceeds - 10,050,427.98Build America Bond Subsidy 524,107.38 538,646.70Capital Appropriations 2,470,768.10 1,485,718.42Higher Education Facilities Fund 4,253,280.91 3,944,360.64OTHER REVENUES, EXPENSES & OTHER CHANGES 34,668,249.28$ 37,854,429.93$

NET INCREASE IN NET POSITION 31,626,045.88$ 44,273,492.04$

NET POSITION, BEGINNING OF YEAR 396,056,543.27 350,447,656.09Prior Period Adjustments 1,138,959.29 1,335,395.14

NET POSITION, END OF YEAR 428,821,548.44$ 396,056,543.27$


SOUTH DAKOTA STATE UNIVERSITYSTATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

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See Notes to Consolidated Financial Statements

Temporarily PermanentlyUnrestricted Restricted Restricted Total

Revenue, Support, and Gains

Gifts 172,669$ 35,203,677$ 4,682,152$ 40,058,498$ Investment income 232,653 2,442,498 151,163 2,826,314 Net realized and unrealized

gains and losses 6,751 3,891,387 130,564 4,028,702 Change in split interest

agreements - 173,284 560,864 734,148 Other revenue

Development services 1,220,000 - - 1,220,000 Subsidiaries operating 489,738 - - 489,738 Other (218,863) 274,099 23,847 79,083

1,902,948 41,984,945 5,548,590 49,436,483

Transfer for underwaterendowments (181,905) 152,667 29,238 -

Other transfers 95,040 10,013 (105,053) - Net assets released from

restrictions (Note 7) 39,739,171 (39,613,923) (125,248) -

Total revenue, support,and gains 41,555,254 2,533,702 5,347,527 49,436,483

Expenses

Program ServicesSDSU scholarships 3,675,525 - - 3,675,525 SDSU operational and

program support 6,377,365 - - 6,377,365 SDSU capital projects 24,364,479 - - 24,364,479 Grants to others 345,523 - - 345,523 Subsidiaries operating 279,321 - - 279,321

Total program services 35,042,213 - - 35,042,213

Support ServicesAdministrative and general

expenses 3,026,377 - - 3,026,377 Fundraising expenses 2,832,290 - - 2,832,290

Total support services 5,858,667 - - 5,858,667

Total expenses 40,900,880 - - 40,900,880

Change in Net Assets 654,374$ 2,533,702$ 5,347,527$ 8,535,603$

2016

12

4

South Dakota State University Foundation Consolidated Statements of Activities

Years Ended December 31, 2016 and 2015


172,507$ 20,517,690$ 3,266,820$ 23,957,017$ 216,233 2,337,417 211,411 2,765,061

(13,466) (3,863,934) (158,096) (4,035,496)

- 34,509 (460,958) (426,449)

1,000,000 - - 1,000,000 462,139 2,667,887 - 3,130,026

30,124 264,187 26,484 320,795 1,867,537 21,957,756 2,885,661 26,710,954

(3,487,831) 3,451,299 36,532 - (196,338) 383,263 (186,925) -

26,155,401 (25,978,291) (177,110) -

24,338,769 (185,973) 2,558,158 26,710,954

3,684,838 - - 3,684,838

7,495,839 - - 7,495,839 7,617,849 - - 7,617,849 1,126,633 - - 1,126,633 3,181,834 - - 3,181,834

23,106,993 - - 23,106,993

2,835,771 - - 2,835,771 2,531,307 - - 2,531,307

5,367,078 - - 5,367,078

28,474,071 - - 28,474,071

(4,135,302)$ (185,973)$ 2,558,158$ (1,763,117)$

2015(Restated)

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South Dakota State University Foundation Consolidated Statements of Changes in Net Assets



Net Assets (Deficit)(10,497,571)$ 55,470,371$ 124,375,809$ 169,348,609$

Change in net assets - Restated (4,135,302) (185,973) 2,558,158 (1,763,117)

Net Assets (Deficit)(14,632,873) 55,284,398 126,933,967 167,585,492

Change in net assets 654,374 2,533,702 5,347,527 8,535,603

Net Assets (Deficit)(13,978,499)$ 57,818,100$ 132,281,494$ 176,121,095$ December 31, 2016

December 31, 2014

December 31, 2015 - Restated

14

JUNE 30, 2017 JUNE 30, 2016Cash Flows From Operating Activities:Tuition, Fees, & Auxiliaries (Net of Student Financial Assistance) 121,997,681.07$ 118,415,836.00$ General Sales & Services 32,593,669.86 31,395,085.99 Federal Grants & Contracts 33,628,369.73 36,685,881.74 State Grants & Contracts 7,509,760.10 6,404,830.62 Private Grants & Contracts 15,697,888.48 14,233,163.12 Loans Collected from Students 1,883,837.97 2,001,044.34 Student Loan Interest 196,506.51 208,030.98 Other Receipts 146,404.49 37,949.22 Personal Services (Salaries & Benefits) (171,991,095.75) (162,765,478.76) Travel (8,405,864.88) (8,771,847.25) Contractual Services (46,530,093.34) (44,488,211.95) Supplies & Materials (29,105,926.04) (27,692,081.81) Grants & Subsidies (17,578,983.32) (19,575,746.84) Interest (554.20) (6,166.87) Other Payments (105,789.76) (72,476.50) Net Cash Flows Used by Operating Activities (60,064,189.08)$ (53,990,187.97)$

Cash Flows From Non-Capital Financial Activities:General Fund Appropriations 67,059,012.83$ 66,298,703.34$ School & Public Lands 788,724.06 705,977.10 Federal Fund Appropriations 3,727,799.00 5,923,006.58 Federal Loans Disbursements (Stafford & PLUS) (56,437,142.00) (56,649,960.00) Federal Loan Receipts (Stafford & PLUS) 56,437,142.00 56,649,960.00 Higher Education Facilities Fund 2,071,499.65 1,385,170.20 Endo/Ecto Parasiticide Tax 250,000.00 250,000.00 Federal Capital Contribution-Student Loans 348,456.00 251,712.00 Net Change in Funds Held for Others (252,452.40) 159,605.85 Other Non-Operating Revenue PELL Grants 9,315,607.57 9,663,418.65 Other Non-Operating Revenue Growth Partnership 1,100,000.00 18,836.40 Other Non-Operating Revenue & Additions 18,807.77 - Net Cash Flows Provided by Non-Capital Financial Activities 84,427,454.48$ 84,656,430.12$

Cash Flows From Capital Related Financing Activities:Higher Education Facilities Fund 4,253,280.91$ 3,944,360.64$ South Dakota Building Authority Bond Proceeds - 32,117,063.11 Purchase of Capital Assets (43,229,855.20) (72,641,023.02) Gain on Disposal-Surplus Sales 116,521.50 23,560.60 Proceeds from Capital Lease & Revenue Bond 13,447,914.44 919,602.00 Principal Payments on Capital Leases & Revenue Bonds (6,006,574.22) (5,011,099.98) Interest Payments on Capital Leases & Revenue Bonds (7,241,990.76) (5,871,798.79) Notes Payable Financing Agreement (165,000.00) (165,000.00) Build America Bond Subsidy 524,107.38 538,646.70 Capital Appropriations 2,470,768.10 1,485,718.42 Capital Grants & Contracts 26,233,506.95 18,073,593.72 Net Cash Flows Used by Capital Related Financing Activities (9,597,320.90)$ (26,586,376.60)$

SOUTH DAKOTA STATE UNIVERSITYSTATEMENTS OF CASH FLOWS

15

JUNE 30, 2017 JUNE 30, 2016Cash Flows From Investing Activities:Investment Income 608,406.62$ 700,456.31$

Net Cash Flows Provided by Investing Activities 608,406.62$ 700,456.31$

Net Increase in Cash 15,374,351.12$ 4,780,321.86$ Cash, Beginning of year 58,584,335.71 53,804,013.85 Cash, End of year 73,958,686.83$ 58,584,335.71$

Reconciliation of Net Operating Loss to Net Cash Used by Operating Activities

Operating Loss (82,117,725.15)$ (73,022,858.87)$

Adjustments to Reconcile Operating Loss to Net Cash Flows Used byOperating Activities:

Depreciation 22,444,598.55 19,613,611.18 Amortization of Intangibles 72,395.66 50,671.42 Bad Debts 287,315.00 188,295.00 Loan Cancellation Expense 412,145.48 331,166.30

Change in Assets and Liabilities: Accounts Receivable-Students (422,052.21) (1,080,508.91) Accounts Receivable-Department Sales 189,048.70 (184,396.47) Prepaid Expenses (146,788.61) (691,407.93) Notes Receivable (214,714.23) (614,201.66) Due From Federal Sources (255,954.11) 610,208.06 Due From Primary Government (48,451.28) 387,261.37 Due From Other Component Units 635,955.48 (667,516.54) Inventories (518,308.11) 842,505.80 Other Assets (55,000.00) 45,000.00 Accounts Payable (426,322.00) (1,729,759.72) Accrued Wages & Benefits 21,500.00 106,322.38 Due To Primary Government 63,766.04 (167,090.20) Due To Other Component Units (202,474.47) 447,494.46 Compensated Absences Payable 11,422.09 395,966.25 Unearned Revenue 205,454.09 1,149,050.11 Net Cash Used by Operating Activities (60,064,189.08)$ (53,990,187.97)$

Supplemental Disclosure of Noncash Activities: Loss on Disposal of Capital Assets (300,899.11)$ (1,280,010.02)$


SOUTH DAKOTA STATE UNIVERSITYSTATEMENTS OF CASH FLOWS

16


South Dakota State University Foundation Consolidated Statements of Cash Flows


2016 2015

Operating ActivitiesChange in net assets 8,535,603$ (1,763,117)$ Adjustments to reconcile change in net assets to

net cash (used for) from operating activitiesDepreciation 357,894 439,319 Net realized and unrealized (gains) losses (4,028,702) 4,035,496 Loss on the disposal of operating property - 2,112 Gain on the disposal of other property held - (145) Provision for uncollectible receivables 2,445,553 296,328 Change in value of cash surrender value of life insurance (32,737) (43,484) Change in value of beneficial interest in perpetual trust (34,450) 65,489 Unrestricted and temporarily restricted non-cash gifts (1,443,088) (73,695) Restricted for long-term purposes

Permanently restricted gifts and revenue (4,356,523) (3,071,321) Permanently restricted gifts other than cash (494,564) (188,652)

Transfer of property held for investment to SDSU 28,337 1,814,967 Changes in assets and liabilities

Promises to give (2,852,648) 1,886,088 Trusts held by others (189,921) 1,024,782 Prepaid expenses, inventory, and other assets 331,063 1,325,723 Accounts payable, accrued expenses, and other liabilities 1,619,508 323,149 Due to SDSU - scholarships 27,994 181,273 Gift annuities, life income agreements, and life estates (642,421) (929,580)

Net Cash (used for) from Operating Activities (729,102) 5,324,732

Investing ActivitiesProceeds from the sale of investments 12,594,719 2,048,144 Purchases of investments (7,383,208) (6,545,601) Proceeds from the sale of operating property - 359,247 Purchases of operating property (5,755,745) (660,778) Proceeds from the sale of other property held 1,112,500 804,413 Purchases of other property held (988,238) (1,094,835) Advances on notes, contracts and other receivables (400,000) - Receipts on notes, contract, and other receivables 37,757 196,798

Net Cash used for Investing Activities (782,215) (4,892,612)

Financing ActivitiesPayments on notes payable (2,596,923) (3,440,907) Proceeds from permanently restricted contributions 4,752,211 3,373,826

Net Cash from (used for) Financing Activities 2,155,288 (67,081)

Net Change in Cash and Cash Equivalents 643,971 365,039

Cash and Cash Equivalents, Beginning of Year 9,232,521 8,867,482

Cash and Cash Equivalents, End of Year 9,876,492$ 9,232,521$

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South Dakota State University Foundation Consolidated Statements of Cash Flows


2016 2015

Supplemental Disclosure of Cash Flow InformationCash paid during the year for interest 175,616$ 305,226$

Supplemental Disclosure of Non-Cash TransactionsInvestments received as a non-cash settlement of a

receivable from a deconsolidated subsidiary 266,544 - Operating property acquired with accounts payable 734,194 2,800 Exchange of investment held in trust for other receivable - 883,351

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INCREASE2017 2016 (DECREASE)

OPERATING REVENUES:Tuition & Fees, Net Student Financial Assistance 90,136,653.50$ 89,366,042.36$ 770,611.14$ Auxiliaries, Net Student Financial Assistance 34,574,841.02 32,680,951.16 1,893,889.86 General Sales & Services 32,282,513.44 31,002,510.61 1,280,002.83 Federal Grants & Contracts 34,237,909.68 35,329,048.40 (1,091,138.72) State Grants & Contracts 6,753,187.79 7,430,653.79 (677,466.00) Private Grants & Contracts 15,355,916.34 13,721,041.72 1,634,874.62

213,341,021.77$ 209,530,248.04$ 3,810,773.73$ Other Operating Revenues:

Student Loan Interest 196,506.51$ 208,030.98$ (11,524.47)$ Other Revenues & Additions 27,303.49 55,805.22 (28,501.73)

223,810.00$ 263,836.20$ (40,026.20)$

TOTAL OPERATING REVENUES 213,564,831.77$ 209,794,084.24$ 3,770,747.53$

OPERATING REVENUESFOR THE YEARS ENDING JUNE 30, 2017 AND 2016

SOUTH DAKOTA STATE UNIVERSITY

Tuition & Fees, Net Student Financial

Assistance -$90,136,653.50

Auxiliaries, Net Student Financial

Assistance -$34,574,841.02

General Sales & Services -

$32,282,513.44Federal Grants &

Contracts -$34,237,909.68

State Grants & Contracts -

$6,753,187.79Private Grants &

Contracts -$15,355,916.34

Other Operating Revenues -$233,810.00

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OPERATING EXPENSES:Personal Services (Salaries & Benefits) 172,024,017.84$ 163,267,767.39$ 8,756,250.45$ Travel 8,375,011.37 8,607,837.87 (232,826) Contractual Services 46,158,260.13 43,356,350.53 2,801,910 Supplies & Materials 28,471,271.44 27,677,818.67 793,453 Grants & Subsidies 17,331,197.49 19,644,781.38 (2,313,584) Depreciation 22,444,598.55 19,613,611.18 2,830,987 Loan Cancellation Expense 412,145.48 331,166.30 80,979 Bad Debts 287,315.00 188,295.00 99,020

295,503,817.30$ 282,687,628.32$ 12,816,188.98$ Other Operating Expenses:Other Operating Expense 105,789.76$ 72,476.50$ 33,313.26$ Amortization of Intangibles 72,395.66 50,671.42 21,724 Interest 554.20 6,166.87 (5,613)

178,739.62$ 129,314.79$ 49,424.83$

TOTAL OPERATING EXPENSES 295,682,556.92$ 282,816,943.11$ 12,865,613.81$

SOUTH DAKOTA STATE UNIVERSITYOPERATING EXPENSES

FOR THE YEARS ENDING JUNE 30, 2017 AND 2016

Personal Services (Salaries & Benefits) -

$172,024,017.84Travel -

$8,375,011.37

Contractual Services -

$46,158,260.13

Supplies & Materials - $28,471,271.44

Grants & Subsidies -$17,331,197.49

Depreciation -$22,444,598.55

Loan Cancellation Expense -

$412,145.48

Bad Debts -$287,315.00

Other Operating Expenses -$178,739.62

20


NON-OPERATING REVENUES:General Fund Appropriations 67,059,012.83$ 66,298,703.34$ 760,309.49$ Federal Fund Appropriations 5,216,471.34 7,192,377.84 (1,975,906.50) Capital Appropriations 2,470,768.10 1,485,718.42 985,049.68 Capital Grants & Contracts 27,420,092.89 21,835,276.19 5,584,816.70 Capital Higher Education Facilities Fund 4,253,280.91 3,944,360.64 308,920.27 South Dakota Building Authority Bond Proceeds - 10,050,427.98 (10,050,427.98) Higher Education Facilities Fund 2,071,499.65 1,385,170.20 686,329.45

108,491,125.72$ 112,192,034.61$ (3,700,908.89)$ Other Non-Operating Revenues:Other Non-Operating Revenue PELL Grants 9,315,607.57$ 9,663,418.65$ (347,811.08)$ Other Non-Operating Revenue Growth Partnership 1,100,000.00 - 1,100,000.00 Other Non-Operating Revenue & Additions 31,874.11 26,307.83 5,566.28

10,447,481.68$ 9,689,726.48$ 757,755.20$ Other Miscellaneous Non-Operating Revenues:Build America Bond Subsidy 524,107.38$ 538,646.70$ (14,539.32)$ Endo/Ecto Parasiticide Tax 250,000.00 250,000.00 - Investment Income 652,909.20 710,011.79 (57,102.59) School & Public Lands 788,724.06 705,977.10 82,746.96

2,215,740.64$ 2,204,635.59$ 11,105.05$

TOTAL NON-OPERATING REVENUE 121,154,348.04$ 124,086,396.68$ (2,932,048.64)$

SOUTH DAKOTA STATE UNIVERSITYNON-OPERATING REVENUES

FOR THE YEARS ENDING JUNE 30, 2017 AND 2016

General Fund Appropriations -$67,059,012.83

Federal Fund Appropriations -

$5,216,471.34

Capital Appropriations -

$2,470,768.10

Capital Grants & Contracts -

$27,420,092.89Capital Higher Education Facilities

Fund - $4,253,280.91

Higher Education Facilities Fund -

$2,071,499.65

Other Non-Operating Revenues -

$10,447,481.68

Other Miscellaneous Non-Operating

Revenues -$2,215,740.64

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SOUTH DAKOTA STATE UNIVERSITY NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2017 AND 2016 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION South Dakota State University (the University) has adopted the financial statement presentation required by GASB Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments and GASB Statement No. 35, Basic Financial Statements-and Management’s Discussion & Analysis-for Public Colleges and Universities as amended by GASB Statement No, 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position and by GASB Statement No. 65 Items Previously Reported as Assets and Liabilities. GASB No. 35 allows public colleges and universities to report as a business-type activity under GASB No. 34 which requires a comprehensive, entity wide presentation of the University’s assets, deferred outflows, liabilities, net position, revenues, expenses, changes in net position, and cash flows and replaces the fund-group perspective previously required prior to FY 2002. BASIS OF ACCOUNTING The University is considered to be a special-purpose government engaged only in business-type activities. Accordingly, the University’s financial statements have been presented under the economic resources measurement focus and the accrual basis of accounting. The economic resources measurement focus emphasizes the long-term effects of operations on overall net resources (e.g. total assets, total deferred out flows of resources, and total liabilities). Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred, or benefit has been received. All significant intra-university transactions have been eliminated. Interdepartmental charges are treated as a transfer of expense per NACUBO guidelines. REPORTING ENTITY The financial statements include the funds of the University’s agencies: University Proper, SDSU Extension, and Agricultural Experiment Station. The University is governed by the South Dakota Board of Regents (BOR), a component unit of the State of South Dakota (the State), and is included in the State’s Comprehensive Annual Financial Report (CAFR) as Higher Education, a discretely presented component unit. Based on the provisions of GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, it was determined that South Dakota State University Foundation (the Foundation) is a component unit of the University. In accordance with GASB 39, the Foundation’s financial statements are presented behind the University’s financial statements. The Foundation’s financial statements are audited by independent auditors engaged by the Foundation’s Board of Directors. FUND ACCOUNTING In order to ensure observance of the limitations and restrictions placed on the use of the resources available to the University, the accounts of the University are maintained according to the principles of "fund accounting". This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds that are maintained in accordance with activities or objectives specified by donors, governmental appropriations, granting agencies, and other outside sources or regulations. Separate funds are maintained for each activity; however, in the financial statements, all funds have been combined to present the University from a comprehensive entity-wide perspective.

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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

USE OF ESTIMATESTo prepare the financial statements in conformity with accounting principles generally accepted in the United States of America, management must make estimates and assumptions. These estimates and assumptions may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant areas that require the use of management’s estimates relate to Notes Receivable, Inventories, Capital Assets, Compensated Absences, and Student Financial Assistance.

EMERGING ACCOUNTING STANDARDSIn June 2017, GASB issued Statement No. 87, Leases which requires the recognition of certain lease assets and liabilities for leases previously classified as operating to be recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. Although expected to be significant, University management has not yet determined the impact on the financial statements. This statement is effective for the University’s year ending June 30, 2021.

ACCOUNTS RECEIVABLEAccounts Receivable - Student consists of funds owed from students for tuition & fee charges. Accounts Receivable – Department Sales consists of funds owed to University departments from external sources for various sales & services as well as for funds owed to the University for expenditures made on grants for which reimbursement has not yet been received. The University uses the direct write-off method for uncollectible receivables.

NOTES RECEIVABLENotes receivable primarily consists of amounts associated with student loan programs. The allowance method is used in calculating uncollectible accounts for these receivables. Under the allowance method, a reserve is established for the projected amount that will become uncollectible. The projection for loan funds is based on current default rates and on departmental knowledge of loans considered to be uncollectible. Under the allowance method the expense is recognized as soon as the loan is projected to be uncollectible.

In addition to student notes receivable, the University had a ten year note receivable for $173,711.00 with the South Dakota Growth Partnership for construction of the Agricultural Extension Station (AES) Hoop Barn. Payments on the notes receivable began on September 1, 2015 and were scheduled to end on September 1, 2024. In October 2016, the BOR approved the request to accept $120,000 from the South Dakota Growth Partnership in full satisfaction of the balance, which was received by year end.

INVENTORIESSupplies and material inventories are reported at original cost or last invoice price at June 30, except for Foundation Seed Stock reported at lower of cost or market, Dairy Plant reported at estimated cost of production, and Livestock reported at market price at June 30. Changes in inventory valuations are reported as a portion of expenditures. All inventories are resalable or consumable.

DUE TO/DUE FROMDue from Federal Sources represent expenditures made on grants or Federal Appropriations for which reimbursement has not yet been received.

Due to/Due from Primary Government represents balances owed to or from various South Dakota agencies outside of Higher Education.

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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): DUE TO/DUE FROM (CONTINUED): Due to/Due from Other Component Units represent funds owed to or from other South Dakota public universities and from the South Dakota Board of Regents. The University’s internal due to/due from balances have been eliminated for financial reporting purposes. INVESTMENTS Investments consist of Cash on Deposit-State Treasurer which are funds pooled by the State Investment Council for investment purposes. Investments are reported at cost as market values are not readily available. Interest earnings on non-participating funds are not received by the University, but are credited to the State’s General Fund. Interest earnings are returned annually to the University for participating funds based upon the State Investment Council’s prorated rate of return. Participating funds for the University include School & Public Lands, Foundation Seed Stock, Seed Certification, Self-Support Tuition, Campus Card Revolving, NREC Fertilizer Fees, Auxiliary Enterprises, Federal Loan programs (Perkins Student, Nursing Student, Nursing Faculty, and Health Professions Student), Unexpended Plant Funds, Renewals and Replacements Funds, and Retirement of Indebtedness Funds. Interest earnings in the Unexpended Plant Fund are primarily from unspent bond proceeds for construction projects for the Auxiliary bond system. Other investments include patronage equities which consist of equity credits from various vendors resulting from business transactions. CAPITAL ASSETS Equipment & Other Property is capitalized when the unit cost equals or exceeds $5,000.00 and the useful life is one year or longer. Equipment is depreciated over various useful lives based on asset classes. Equipment & Other Property included $42,301,949.85 and $41,133,051.81 for Library books and $88,025.71 and $87,939.71 in Nursing films at June 30, 2017 and 2016, respectively. Books and films are capitalized at cost during the year of their purchase. Library books and films are depreciated based on a ten year average. Upon disposal, Library books and films are valued and removed at the previous year’s average cost at year end. Nursing films are removed at actual cost if available, otherwise a reasonable cost is used for disposition. Museum & Art Collections are non-depreciable assets and include items with individual costs less than $5,000. Additions to the art collections are based on the actual purchase price of the item or on the estimated fair market value of the item on the date of the gift. Items are disposed of at the carrying cost of the item on the date of disposal. Major additions and renovation projects are recorded as Construction in Progress until the earliest occurrence of substantial completion of the project, occupancy, or when the asset is placed in service. The project is then transferred to Buildings & Building Improvements, Land Improvements, or Infrastructure. Land, Buildings & Building Improvements, Land Improvements, and Infrastructure are capitalized at cost at the time of purchase or at the appraised value on the contribution date. Major additions and renovation projects are capitalized when the value equals or exceeds $100,000 for Buildings & Building Improvements and $50,000 for Land Improvements, and Infrastructure. Buildings are depreciated over 50 years for a major structure, 25 years for pole and storage buildings, and 10 years for minor structures. Building Improvements and Land Improvements are depreciated over 20 years. Infrastructure is depreciated over a range of 20 to 50 years.

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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): CAPITAL ASSETS (CONTINUED): Effective Summer 2016, the Higher Education Facilities Fund is allocated 11.5% of state support tuition and system fees to be used for building improvements which had previously been at 20% prior to that. The change was implemented as a result of rolling the University Support Fee (USF) into State Support Tuition. The Statement of Revenues, Expenses, and Changes in Net Position has been restated for comparative purposes to conform to current year presentation. INTANGIBLE ASSETS Intangible Assets are capitalized when the unit cost equals or exceeds $100,000.00 and the useful life is longer than one year. The University’s Intangible Assets include purchased licensed software (Facilities AIM software system, StarRez Software for Residential Life, Parking Management System, and SdState Website – CMS) which are amortized over 5 to 10 years. DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources is a consumption of net position applicable to a future reporting period. The Deferred Outflow on Debt Refunding is the difference between the reacquisition price and the net carrying amount of the refunded debt and is amortized over the life of the refunded debt. Deferred Outflow on Debt Refunding consisted of $82,708.91 and $100,982.98 from the Series 2014A issuance (a current refunding of the Series 2004 bonds), and $16,577.73 and $17,877.85 from the Series 2015 issuance (a current refunding of the Series 2005A bonds) at June 30, 2017 and 2016, respectively. NET POSITION Net Position is reported in the following components: Net Investment in Capital Assets represents the net carrying value of capital assets (Land, Construction in Progress, Buildings & Building Improvements, Land Improvements, Infrastructure, Equipment & Other Property, Museum and Art Collections, and Intangible assets) less the outstanding debt incurred to acquire or construct the assets. Nonexpendable Restricted Net Position consists of Loan Funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be either expended or added to principal. Expendable Restricted Net Position is restricted for specific purposes by grantors, donors, or law. Restrictions on these resources are released when the University complies with the stipulations required by the grantor, donor, or legislative act. Unrestricted Net Position are resources that have no external restrictions and derive from Tuition & Fees, State Appropriations, Sales & Services, and Auxiliaries. Resources are used for the University’s educational and general operations at the discretion of governance. As expenses are incurred which can be paid from either restricted or unrestricted funds, the University’s policy is to allow the department who incurred the expense to determine the appropriate funding source. Factors used by departments to determine which resources to use include relative priorities of the department in accordance with the University’s strategic initiatives, externally imposed matching requirements of certain restricted funds, and any pertinent lapsing provisions of the available restricted or unrestricted funding sources. Major capital purchases are many times funded from multiple restricted and unrestricted funding sources.

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I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): STUDENT FINANCIAL ASSISTANCE Tuition & Fees and Auxiliaries revenue are reported net of Student Financial Assistance in accordance with the alternative method prescribed by the National Association of College and University Business Officers (NACUBO). Under the alternative method, Tuition & Fees and Auxiliaries revenue are reduced for the amount paid by certain types of financial aid (PELL grants, scholarships and other governmental grants, etc.). This eliminates the double reporting of revenue, first as financial aid revenue and then as Tuition & Fees and Auxiliaries revenue. Using the alternative method, revenue is recognized for the financial aid grants, scholarships, etc. while the financial aid expense and Tuition & Fees and Auxiliaries revenue is eliminated for the amount of financial aid applied to student accounts. OPERATING AND NON-OPERATING REVENUES The University considers operating revenues and expenses in the Statement of Revenues, Expenses, and Changes in Net Position to be those revenues and expenses that result from exchange transactions or from other activities that are connected directly to the University’s primary functions. Exchange transactions include charges for services rendered and the acquisition of goods and services. Operating revenues include Tuition & Fees, Auxiliaries, Sales & Services, Grants & Contracts, Student Loan Interest, and Other Revenues & Additions. Other transactions are reported as non-operating revenues and expenses and include General Fund and Federal Appropriations, Investment Income, Interest Expense Related to Capital Assets, Loss on Disposal of Capital Assets, Bond Issuance expense, and non-exchange transactions. II. CASH AND CASH EQUIVALENTS Cash & Cash Equivalents and Cash on Deposit – State Treasurer includes cash on hand, cash in local banks and cash with the State Treasurer, and investments with original maturities of three months or less reported at fair market value. Restricted Cash on Deposit – State Treasurer are monies held for construction projects. III. RETIREMENT PLAN The South Dakota Retirement System (SDRS) is a cost sharing, multiple employer public employee retirement system (PERS) established to provide retirement benefits for employees of the State and its political subdivisions. Members of SDRS include full time employees of public schools, the State, the BOR, city and county governments, and other public entities. Public schools, cities, and counties may choose not to include certain full time employees in SDRS. SDRS is considered a part of the State financial reporting entity and is included in the State’s financial report as a pension trust fund. Authority for establishing, administering, and amending plan provisions is found in South Dakota Codified Law (SDCL) 3-12. Copies of the audited SDRS financial statements are available at http://www.sdrs.sd.gov/. As the University is a component unit of the State, the University’s proportionate share of SDRS activity and balances are calculated and reported in the State’s CAFR. The right to receive retirement benefits vests after three years of credited service. Employees are required by state statute to contribute 6 percent of their salary to the plan, while public safety and judicial employees contribute at 8 percent and 9 percent, respectively. State statute also requires the employer to contribute an amount equal to the employee’s contribution. The University’s share of contributions for FY17, FY16, and FY15 were $7,261,758.95, $6,895,361.54, and $6,612,026.08 respectively, equal to the required contributions each year.

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http://www.sdrs.sd.gov/

IV. DEFERRED COMPENSATION PLAN Through the State, the University maintains a deferred compensation plan known as the Supplemental Retirement Plan (SRP), created in accordance with Internal Revenue Code Section 457. The SRP is available to all public employees and permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the SRP, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are at all times held in trust for the exclusive benefit of the participants until made available to a participant or the participant’s beneficiary. The University has no liability for losses under the plan. The assets of the deferred compensation plan are not included in the accompanying financial statements because the assets are remitted to a third party who administers and markets the plan for the participants. A copy of the South Dakota Retirement System financial statements is available to the public at www.sdrs.sd.gov. V. TUITION & FEES Prior to Summer 2016, the University collected and remitted State Support tuition, system fees, and the Salary Competitiveness Fee to the BOR System Tuition Fund. Throughout the year, the funds are returned to the University to use for operations. Effective Summer 2016, the Salary Competitiveness Fee is no longer remitted to the BOR System Tuition Fund and is reported as State Support on the University’s financial statements. In addition, the University Support Fee (USF) is now assessed as part of State Support tuition within the University’s Student Information System (SIS). A portion of the USF assessment includes the BOR Technology Fee and the Maintenance & Repair (M&R) Fee. Tuition & Fees have been restated for FY16 for financial statement comparability purposes. As a result, $21,369,806.82 has been reclassified from Fees to State Support Tuition. The $21,369,806.82 consisted of $10,429,175.47 of University Support Fee, $7,584,488.40 of Salary Competitiveness Fee, and $3,356,142.95 of Technology Fee. A system-wide pool of funds has been created for the operation and computer system upgrade expenses of the Regents Information System (RIS). Each campus’s annual payment to the pool is determined on a three year average of RIS support. The University’s payment to RIS was $1,695,432.00 and $1,605,859.00 for FY17 and FY16, respectively. Payments for the Series 2007 Critical M&R Bond Debt Service were $374,839.00 and $379,436.00 for FY17 and FY16 respectively, expended from student fees to reimburse the State General Fund. VI. ENDOWMENT AND SIMILAR FUNDS Endowment assets and similar funds administered by the Department of School and Public Lands have not been included in the financial statements as the University does not actively participate in the administration of the funds. Information can be found on the Department of School & Public Lands’ web site at www.sdpubliclands.com. VII. COMMITMENTS At June 30, 2017 and 2016, the University had outstanding commitments of $52,696,506.35 and $31,912,569.41 for architectural, engineering, and construction contracts for Facilities & Services Capital Improvement Projects. These commitments do not include contracts filed in other departments nor does it include any commitments from Non-Capital projects. Commitments are expected to be substantially fulfilled by the following year end.

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VIII. RELATED PARTIES The University, as a component unit of the State, received approximately 20.0% of its revenues through General Fund Appropriations for FY17 and FY16. As a component unit, the University’s financial statements do not include the assets, liabilities, or net position of affiliated organizations, whose financial statements are separately audited. Each organization is described below: The SDSU Foundation is a non-profit corporation founded in 1946 to receive and administer private gifts made in support of programs at South Dakota State University. As the Foundation is a component unit of the University, its financial statements and notes are presented subsequent to the University’s information. IX. STUDENT DEPOSITS Student Deposits primarily consist of cash held for the University’s debit card program, the Student Alternative Loan programs, Residential Life security deposits for apartments, Nursing deposits, Pharmacy deposits, and Cashier’s clearing deposits. X. FUNDS HELD FOR OTHERS Funds Held for Others primarily consist of cash held for various student and affiliated organizations. XI. CAPITAL ASSETS Capital Assets as of June 30, 2017 consisted of the following:

Prior Period2016 Adjustments Additions Deletions 2017

Non-Depreciable Capital Assets:Land 12,650,728.90$ (619,790.08)$ -$ -$ 12,030,938.82$ Museum & Art Collections 8,830,215.50 - 7,100.00 - 8,837,315.50 Total Non-Depreciable Capital Assets 21,480,944.40$ (619,790.08)$ 7,100.00$ -$ 20,868,254.32$

Construction in Progress: 93,601,929.55$ (162,273.29)$ 39,046,461.06$ (111,622,664.85)$ 20,863,452.47$

Depreciable Capital Assets:Land Improvements 15,069,876.51$ -$ 2,034,794.75$ -$ 17,104,671.26$ Infrastructure 22,615,990.20 - 1,655,879.77 - 24,271,869.97 Buildings & Building Improvements 480,259,027.77 619,790.08 107,931,990.33 (706,780.00) 588,104,028.18 Equipment & Other Property 108,994,999.18 1,375,892.91 4,620,354.10 (1,934,452.51) 113,056,793.68 Total Depreciable Capital Assets 626,939,893.66$ 1,995,682.99$ 116,243,018.95$ (2,641,232.51)$ 742,537,363.09$

Less Accumulated Depreciation:Land Improvements (7,454,789.00)$ 13.00$ (700,999.31)$ -$ (8,155,775.31)$ Infrastructure (6,808,693.87) (5.00) (656,686.20) - (7,465,385.07) Buildings & Building Improvements (153,553,981.49) (61,940.00) (15,147,535.23) 562,635.00 (168,200,821.72) Equipment & Other Property (80,994,047.53) (13,515.97) (5,939,377.81) 1,661,176.90 (85,285,764.41) Total Accumulated Depreciation (248,811,511.89)$ (75,447.97)$ (22,444,598.55)$ 2,223,811.90$ (269,107,746.51)$

Intangible Assets:Intangible Assets 602,227.71$ -$ 60,000.00$ -$ 662,227.71$ Amortization (136,412.57) - (72,395.66) - (208,808.23) Intangible Assets, Net 465,815.14$ -$ (12,395.66)$ -$ 453,419.48$

Capital Assets, Net 493,677,070.86$ 1,138,171.65$ 132,839,585.80$ (112,040,085.46)$ 515,614,742.85$

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XI. CAPITAL ASSETS (CONTINUED): Capital Assets as of June 30, 2016 consisted of the following:

XII. RISK MANAGEMENT The Office of Risk Management of the Bureau of Administration is the insurance, loss control, and safety resource for all South Dakota state agencies. The responsibilities of the Office of Risk Management include protecting the State’s assets; providing a safe environment for State employees and for the general public who come in contact with State employees or property as services are provided; minimizing the possible interruptions of vital public services; ensuring exposures to financial loss are discovered and handled appropriately; and reducing costs and consequences of accidents, including insurance premiums, through effective safety management. Tort liability coverage is provided to state employees under the Public Entity Pool for Liability (PEPL). State law provides that sovereign immunity is waived to the extent that coverage is provided either through the purchase of insurance or an arrangement such as the State has with PEPL. Therefore, the “Agreement” and “Memorandum of Coverage” between the State and PEPL carve out the instances where the State waives sovereign immunity and agrees to cover damages for which an employee becomes liable. Coverage under PEPL includes general liability, law enforcement liability, public official’s errors and omissions liability, automotive liability and some medical malpractice liability. The coverage limit under PEPL is $1,000,000 per occurrence.

Prior Period2015 Adjustments Additions Deletions 2016

Non-Depreciable Capital Assets:Land 10,514,049.90$ -$ 2,136,679.00$ -$ 12,650,728.90$ Museum & Art Collections 8,753,715.50 - 76,500.00 - 8,830,215.50 Total Non-Depreciable Capital Assets 19,267,765.40$ -$ 2,213,179.00$ -$ 21,480,944.40$

Construction in Progress: 36,024,618.28$ 32,722.07$ 64,197,036.68$ (6,652,447.48)$ 93,601,929.55$

Depreciable Capital Assets:Land Improvements 14,595,657.48$ 2,374.75$ 471,844.28$ -$ 15,069,876.51$ Infrastructure 21,882,322.26 - 733,667.94 - 22,615,990.20 Buildings & Building Improvements 475,389,124.84 1,377,826.69 6,640,182.40 (3,148,106.16) 480,259,027.77 Equipment & Other Property 104,320,948.40 (1,866,995.88) 8,069,753.98 (1,528,707.32) 108,994,999.18 Total Capital Assets 616,188,052.98$ (486,794.44)$ 15,915,448.60$ (4,676,813.48)$ 626,939,893.66$

Less Accumulated Depreciation:Land Improvements (6,829,841.00)$ (238.00)$ (624,710.00)$ -$ (7,454,789.00)$ Infrastructure (6,216,513.87) - (592,180.00) - (6,808,693.87) Buildings & Building Improvements (143,142,941.09) (84,643.00) (12,510,753.40) 2,184,356.00 (153,553,981.49) Equipment & Other Property (78,174,895.00) 1,877,928.39 (5,885,967.78) 1,188,886.86 (80,994,047.53) Total Accumulated Depreciation (234,364,190.96)$ 1,793,047.39$ (19,613,611.18)$ 3,373,242.86$ (248,811,511.89)$

Intangible Assets:Intangible Assets 421,214.10$ -$ 181,013.61$ -$ 602,227.71$ Amortization (85,741.15) - (50,671.42) - (136,412.57) Intangible Assets, Net 335,472.95$ -$ 130,342.19$ -$ 465,815.14$

Capital Assets, Net 437,451,718.65$ 1,338,975.02$ 62,842,395.29$ (7,956,018.10)$ 493,677,070.86$

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XIII. LONG-TERM LIABILITIES Long-term liabilities include obligations under capital leases, notes payable, bonds payable, compensated absences, and federal capital contributions to the federal loan programs (Perkins Loan Program, Health Profession Loan Program, and Nursing Loan Program). Long-term liability activity for the year ended June 30, 2017 is as follows:

Interest Maturity CurrentRate Date 2016 Additions Reductions 2017 Portion

Capital Leases:BinnewiesLand 9.445% 2030 834,557.04$ -$ (32,587.81)$ 801,969.23$ 35,738.41$

New HollandRound Baler 0.00% 2023 - 45,540.02 - 45,540.02 7,590.00

Cow/Calf 4.630% - Unit 5.00% 2038 1,780,919.54 - (48,986.41) 1,731,933.13 49,866.94

Stadium 4.00% - Project 5.00% 2039 33,910,000.00 - (835,000.00) 33,075,000.00 865,000.00 Total Capital Leases 36,525,476.58$ 45,540.02$ (916,574.22)$ 35,654,442.38$ 958,195.35$

Note Payable:EquestrianFacility 2017 165,000.00$ -$ (165,000.00)$ -$ -$

Revenue Bonds Payable:Series 2006 3.92% 2026 4,770,000.00$ -$ (400,000.00)$ 4,370,000.00$ 415,000.00$

Series 2.15% - 2009 6.25% 2034 27,310,000.00 - (1,100,000.00) 26,210,000.00 1,135,000.00

Series 3.00% - 2011 5.00% 2036 53,035,000.00 (1,660,000.00) 51,375,000.00 1,735,000.00

Series 3.00% - 2014A 5.00% 2025 19,720,000.00 - (1,830,000.00) 17,890,000.00 1,900,000.00

Series 3.00% - 2015 5.00% 2030 1,870,000.00 - (100,000.00) 1,770,000.00 105,000.00

Series 2.00% -2016 5.00% 2041 - 12,840,000.00 - 12,840,000.00 320,000.00 Total Revenue Bonds Payable 106,705,000.00$ 12,840,000.00$ (5,090,000.00)$ 114,455,000.00$ 5,610,000.00$

Total Long Term Debt 143,395,476.58$ 12,885,540.02$ (6,171,574.22)$ 150,109,442.38$ 6,568,195.35$

Other Long Term Liabilities:Compensated Absences 15,738,642.48$ 7,470,795.29$ (7,459,373.20)$ 15,750,064.57$ 4,579,079.81$ Federal Capital Contribution 11,095,524.42 348,456.00 - 11,443,980.42 - Total Other Long Term Liabilities 26,834,166.90$ 7,819,251.29$ (7,459,373.20)$ 27,194,044.99$ 4,579,079.81$

Total Long Term Liabilities 170,229,643.48$ 20,704,791.31$ (13,630,947.42)$ 177,303,487.37$ 11,147,275.16$

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XIII. LONG-TERM LIABILITIES (CONTINUED): Long-term liability activity for the year ended June 30, 2016 is as follows:

Interest Maturity CurrentRate Date 2015 Additions Reductions 2016 Portion

Capital Leases:BinnewiesLand 9.445% 2030 -$ 919,602.00$ (85,044.96)$ 834,557.04$ 32,587.81$

Cow/Calf 4.630% - Unit 5.00% 2038 1,829,474.56 - (48,555.02) 1,780,919.54 48,986.41

Stadium 4.00% - Project 5.00% 2039 33,910,000.00 - - 33,910,000.00 835,000.00 Total Capital Leases 35,739,474.56$ 919,602.00$ (133,599.98)$ 36,525,476.58$ 916,574.22$

Note Payable:EquestrianFacility 2017 330,000.00$ -$ (165,000.00)$ 165,000.00$ 165,000.00$

Revenue Bonds Payable:Series 4.00% -2005A 5.00% 2016 2,220,000.00$ -$ (2,220,000.00)$ -$ -$

Series 2006 3.92% 2026 5,155,000.00 - (385,000.00) 4,770,000.00 400,000.00

Series 2.15% - 2009 6.25% 2034 28,380,000.00 - (1,070,000.00) 27,310,000.00 1,100,000.00

Series 3.00% - 2011 5.00% 2036 54,645,000.00 (1,610,000.00) 53,035,000.00 1,660,000.00

Series 3.00% - 2014A 5.00% 2025 21,410,000.00 - (1,690,000.00) 19,720,000.00 1,830,000.00

Series 3.00% - 2015 5.00% 2030 - 1,940,000.00 (70,000.00) 1,870,000.00 100,000.00 Total Revenue Bonds Payable 111,810,000.00$ 1,940,000.00$ (7,045,000.00)$ 106,705,000.00$ 5,090,000.00$

Total Long Term Debt 147,879,474.56$ 2,859,602.00$ (7,343,599.98)$ 143,395,476.58$ 6,171,574.22$

Other Long Term Liabilities:Compensated Absences 15,342,676.23$ 6,020,419.90$ (5,624,453.65)$ 15,738,642.48$ 5,217,598.56$ Federal Capital Contribution 10,843,812.42 251,712.00 - 11,095,524.42 - Total Other Long Term Liabilities 26,186,488.65$ 6,272,131.90$ (5,624,453.65)$ 26,834,166.90$ 5,217,598.56$

Total Long Term Liabilities 174,065,963.21$ 9,131,733.90$ (12,968,053.63)$ 170,229,643.48$ 11,389,172.78$

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XIII. LONG-TERM LIABILITIES (CONTINUED): OBLIGATIONS UNDER CAPITAL LEASES Obligations under Capital Leases are lease agreements to partially finance the cost of construction of the Stadium Project and the Cow/Calf Unit through the South Dakota Building Authority (SDBA) and to finance the purchase of Binnewies Land from the Foundation and to finance the purchase of a New Holland Round Baler from Farmers Implement. The following is a schedule of future minimum lease payments as of June 30, 2017:

Assets financed in full or in part through Capital Leases have the following cost and accumulated depreciation as of June 30, 2017 and 2016:

NOTE PAYABLE Note Payable was a financing agreement between the University and the Foundation for the Equestrian Facility. Annual payments of $165,000 were made to the Foundation for ten years, with the final payment made in FY17. Payments were from General Activity Fees designated for Title IX compliance.

FiscalYear Principal Interest Total2018 958,195.35$ 1,805,220.49$ 2,763,415.84$ 2019 997,738.48 1,766,069.69 2,763,808.172020 1,049,051.72 1,714,732.70 2,763,784.422021 1,105,958.44 1,660,653.18 2,766,611.622022 1,163,256.04 1,603,534.31 2,766,790.35

2023-2027 6,748,852.77 7,047,744.42 13,796,597.192028-2032 8,408,353.26 5,105,706.36 13,514,059.622033-2037 10,420,029.07 2,814,396.90 13,234,425.972038-2042 4,803,007.25 359,900.36 5,162,907.61

35,654,442.38$ 23,877,958.41$ 59,532,400.79$

Description Cost Accum Depr Net Book ValueBinnewies Land 2,000,000.00$ -$ 2,000,000.00$ NewHolland Round Baler 45,540.02 (2,820.96) 42,719.06Cow/Calf Unit 2,390,889.99 (47,817.80) 2,343,072.19Stadium Project 61,227,156.39 (1,224,543.13) 60,002,613.26

65,663,586.40$ (1,275,181.89)$ 64,388,404.51$

Description Cost Accum Depr Net Book ValueBinnewies Land 2,000,000.00$ -$ 2,000,000.00$ Cow/Calf Unit - In CIP 2,390,889.99 - 2,390,889.99Stadium Project - In CIP 53,769,185.43 - 53,769,185.43

58,160,075.42$ -$ 58,160,075.42$

2017

2016

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XIII. LONG-TERM LIABILITIES (CONTINUED): REVENUE BONDS PAYABLE Revenue Bonds Payable are bonds authorized by the BOR to finance construction or renovation of residence halls, food service facilities, Wellness Center, Student Union, and parking lots. The following is a schedule of Revenue Bonds Payable as of June 30, 2017:

These bonds are not collateralized. Principal and interest payments come from the pledged net revenues of the residence halls, food service, Student Union, Wellness Center, and parking operations. Pledged net revenues for 2017 and 2016 were $15,503,976.37 and $14,224,320.32, respectively. The Series 2009 bonds were issued as Build America Bonds. Under current procedures, the University is eligible to receive a Build America Bond Subsidy equal to approximately 35% of the interest payment then due, provided the subsidy request is filed on a timely basis.

2017 2016Housing & Auxiliary Facilities Revenue Bonds-Series 2006Wellness Center, Food Service and Residence Hall ImprovementsInterest at 3.92%Annually to 2026 4,370,000.00$ 4,770,000.00$

Housing & Auxiliary Facilities Revenue Bonds-Series 2009New Residence Halls, Dining Expansion and ParkingInterest at 2.15% - 6.25%Annually to 2034 26,210,000.00 27,310,000.00

Housing & Auxiliary Facilities Revenue Bonds-Series 2011New Residence Halls, Union Expansion/DiningFamily Student Housing and Parking ExpansionInterest at 3.00% - 5.00%Annually to 2036 51,375,000.00 53,035,000.00

Housing & Auxiliary Facilities Revenue Bonds-Series 2014ASuite Style Residence Hall/Union Expansion/Residence Hall RenovationInterest at 3.00% - 5.00%Annually to 2025 17,890,000.00 19,720,000.00

Housing & Auxiliary Facilities Revenue Bonds-Series 2015Residence Hall Renovation/RefinanceInterest at 3.00% - 5.00%Annually to 2030 1,770,000.00 1,870,000.00

Housing & Auxiliary Facilities Revenue Bonds-Series 2016Wellness Center Expansion/Parking Facility ImprovementsInterest at 2.00% - 5.00%Annually to 2041 12,840,000.00 - Total Revenue Bonds Payable 114,455,000.00$ 106,705,000.00$

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XIII. LONG-TERM LIABILITIES (CONTINUED): REVENUE BONDS PAYABLE (CONTINUED): On December 21, 2016, the BOR issued $12,840,000 in Housing and Auxiliary Facilities System Revenue Bonds, Series 2016 to finance the expansion of the Wellness Center and Parking Facility Improvements. The bonds were issued with a premium of $802,827.95 and with an original issue discount of $92,478.45, which are being amortized over the life of the bond. The bonds mature in 2041 and were issued at coupon rates ranging from 2.00% to 5.00%. Annual requirements to amortize revenue bonds outstanding as of June 30, 2017 are as follows:

At June 30, 2017, Revenue Bonds Payable are reported on the Statement of Net Position net of bond premiums and bond discounts as shown below:

At June 30, 2016, Revenue Bonds Payable are reported on the Statement of Net Position net of bond premiums and bond discounts as shown below:

FiscalYear Principal Interest Total2018 5,610,000.00$ 5,572,372.76$ 11,182,372.76$ 2019 5,830,000.00 5,324,586.00 11,154,586.002020 6,085,000.00 5,061,092.50 11,146,092.502021 6,350,000.00 4,765,465.00 11,115,465.002022 6,630,000.00 4,470,262.00 11,100,262.00

2023-2027 31,710,000.00 17,254,814.02 48,964,814.022028-2032 27,020,000.00 10,099,606.32 37,119,606.322033-2037 22,075,000.00 3,063,875.02 25,138,875.022038-2042 3,145,000.00 320,800.00 3,465,800.00

114,455,000.00$ 55,932,873.62$ 170,387,873.62$

Total Bonds Current Long TermPayable Portion Portion

Revenue Bonds Payable 114,455,000.00$ 5,610,000.00$ 108,845,000.00$ Premium 5,134,607.82 415,715.82 4,718,892.00 Original Issue Discount (143,240.90) (6,914.54) (136,326.36)

119,446,366.92$ 6,018,801.28$ 113,427,565.64$

Total Bonds Current Long TermPayable Portion Portion

Revenue Bonds Payable 106,705,000.00$ 5,090,000.00$ 101,615,000.00$ Premium 4,731,821.89 382,646.82 4,349,175.07 Original Issue Discount (55,870.87) (3,103.94) (52,766.93)

111,380,951.02$ 5,469,542.88$ 105,911,408.14$

34

XIII. LONG-TERM LIABILITIES (CONCLUDED): COMPENSATED ABSENCES Annual and sick leave are earned by State employees. At June 30, 2017 and 2016, a liability existed for accumulated annual leave calculated at the employees' June 30th pay rates. Upon termination, employees are eligible to receive compensation for their accrued annual leave balance. Employees who have been continuously employed by the State of South Dakota for seven years prior to the date of their retirement, voluntary resignation, or death will receive payment for one fourth of their accumulated sick leave balance, not to exceed the sum of twelve weeks of the employees’ annual compensation. FEDERAL CAPITAL CONTRIBUTION Federal Capital Contribution represents the funds that would be owed to the federal government if the federal loan programs were eliminated. XIV. LITIGATION The University is involved in various lawsuits arising out of the normal conduct of its operations. No determination can be made at this time regarding the potential outcome of these lawsuits. As discussed in Note XVI, the University has liability coverage for itself and its employees. In the opinion of University management, the resolution of these lawsuits will not have a material effect upon the University’s financial position. XV. RECONCILIATION OF GASB 34 & COLLEGE AUDIT MODELS

20172016 Changes 2017

Fund Balances, College & University Audit Guide 655,963,579.58$ 53,409,695.79$ 709,373,275.37$

Model Differences:Accumulated Depreciation (248,811,511.89) (20,296,234.62) (269,107,746.51)Reclassification of Federal Loan Programs (11,095,524.42) (348,456.00) (11,443,980.42)

Net Position 396,056,543.27$ 32,765,005.17$ 428,821,548.44$

20162015 Changes 2016

Fund Balances, College & University Audit Guide 595,655,659.47$ 60,307,920.11$ 655,963,579.58$

Model Differences:Accumulated Depreciation (234,364,190.96) (14,447,320.93) (248,811,511.89)Reclassification of Federal Loan Programs (10,843,812.42) (251,712.00) (11,095,524.42)

Net Position 350,447,656.09$ 45,608,887.18$ 396,056,543.27$

35

XVI. RESTRICTED NET POSITION Restricted Non-Expendable Net Position – Loans consists primarily of Cash and Notes Receivable issued to students less estimated allowance for uncollectible receivables and less Federal Capital Contributions. Restricted Expendable Net Position – Scholarships and Fellowships consists of funds available to be expended from outside scholarship sources. Restricted Expendable Net Position – Research consists of funds restricted by various Grants & Contracts and Federal Appropriations. Restricted Expendable Net Position – Renewals & Replacements consists of funds restricted by bond covenants for buildings and infrastructure repair and maintenance. XVII. SUBSEQUENT EVENT On December 21, 2017, the BOR issued $38,140,000 in Housing and Auxiliary Facilities System Revenue Bonds, Series 2017. The bond issue consisted of a new money portion and an advance refunding portion. The new money portion of the bond issue consisted of $16,275,000 to be used to finance the construction of new townhouse units and an apartment complex. This portion was issued at a premium of $1,863,110.70 which is being amortized over the life of the bond. The new money portion of the bonds mature in 2042 and were issued at coupon rates ranging from 3.00% to 5.00%. The advance refunding portion of the bonds consisted of $21,865,000 which was used to advance refund a portion of the Housing and Auxiliary Facilities Revenue Bonds, Series 2009 (Build America Program – Taxable). It was issued at a premium of $3,805,285.60 which is being amortized over the life of the old bond. The refunding portion had an average interest rate of 4.99% and was used to advance refund $23,900,000 of the Series 2009 bonds which had an average interest rate of 6.11% (prior to receipt of the BAB Subsidy). The refunding portion of the bonds mature in 2034. The net refunding portion of the Series 2017 bonds of $25,490,469.77 was deposited in trust with an escrow agent to provide for the advance refunding of a portion of the Series 2009 bonds. As a result, that portion of the Series 2009 bonds are considered defeased at the time of the bond issue and therefore the associated liability will be removed from the University financial statements in FY18. XVIII. PRIOR PERIOD ADJUSTMENTS Increases (decreases) to beginning Net Position were as follows:

2017 2016Accounts Receivable 787.64$ (3,579.88)$ Land (619,790.08) - Construction In Progress (162,273.29) 32,722.07 Buildings & Building Improvements 557,850.08 1,293,183.69 Land Improvements 13.00 2,136.75 Infrastructure (5.00) - Equipment & Other Property 1,362,376.94 10,932.51 Net Change to Beginning Net Position 1,138,959.29$ 1,335,395.14$

36

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8

South Dakota State University Foundation Notes to Consolidated Financial Statements

December 31, 2016 and 2015 Note 1 - Principal Activities and Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of South Dakota State University Foundation (the Foundation), Enterprise Institute (the Enterprise), and MightyFly SD, Inc. (MightyFly), (collectively, the Organization). All material intercompany balances and transactions have been eliminated. Principal Business Activities The Foundation is an independent organization established for the purpose of raising, holding, and administering funds for the benefit of South Dakota State University (SDSU). Effective January 1, 2016, the Foundation changed the model of Opportunities Farm, a previously consolidated entity. Previously, the Foundation employed a Farm manager to oversee all farming operations. Effective December 29, 2015, the inventory and machinery were sold and a cash rent agreement was established. The rent agreement grants South Dakota State University College of Agriculture and Biological Sciences access to the property in order to honor the original intent of the donor; providing students interested in becoming farmers or seeking careers in agri-business to have real life experiences in developing and executing farm management plans. Net proceeds generated from the cash rent agreement support programs of the College, including those carried out at the cow-calf facility in Brookings. The cash rent agreement is for $240,000 per year beginning January 1, 2016 through December 31, 2020. The Enterprise was incorporated to support and enhance scientific research and educational opportunities for faculty and students at SDSU. The Enterprise also educates students, faculty, and members of the independent inventor community about the multi-faceted nature and impact of intellectual property issues. Members of the Enterprise’s Board of Directors were subject to ratification by the Foundation’s Board of Governors. Pursuant to the Foundation’s Board of Governors action, effective August 8, 2016, the Enterprise amended its articles of incorporation to remove the ratification requirement and Enterprise was deconsolidated from the Foundation. MightyFly’s principal assets include two airplanes. MightyFly leases the airplanes to SDSU under agreements that provided payments of approximately $112,807 and $101,900 during the years ended December 31, 2016 and 2015, respectively. SDSU is responsible for all expenses related to the operations and maintenance of the airplanes. MightyFly pays annual dividends to the Foundation approximately equal to the lease payments received from SDSU. The Foundation is MightyFly’s sole shareholder. Tax Exempt Status The Foundation and the Enterprise are exempt from federal income tax as non-profit corporations under Section 501(c)(3) of the Internal Revenue Code. These entities are annually required to file a Return of Organization Exempt from Income Tax (Form 990) with the IRS and are subject to income tax on net income that is derived from business activities that are unrelated to their exempt purposes. The Foundation files an Exempt Organization Business Income Tax Return (Form 990-T) with the IRS to report its unrelated business taxable income. The Farm and the Enterprise have each determined they are not subject to unrelated business income tax and have not filed Form 990-T. MightyFly is a C Corporation subject to federal income tax and is annually required to file a U.S. Corporation Income Tax Return (Form 1120).

38

Sara.Brainard

Text Box

9


December 31, 2016 and 2015 Each entity believes that it has appropriate support for any tax positions taken affecting its annual filing requirements, and as such, does not have any uncertain tax positions at December 31, 2016 and 2015 that are material to the consolidated financial statements. Future accrued interest and penalties related to unrecognized tax benefits and liabilities will be recognized in income tax expense if such interest and penalties are incurred. Use of Estimates Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used. Consolidated Statements of Cash Flows The Organization considers all cash and highly liquid financial instruments with original maturities of three months or less, which are neither held for investment nor restricted by donors for long-term purposes of the Organization, to be cash and cash equivalents. Cash and highly liquid financial instruments restricted to capital expenditures of the Organization, permanent endowment, or other long-term purposes of the Organization are excluded from this definition. Financial Instruments and Credit Risks The Organization manages deposit concentration risk by placing cash and cash equivalents with financial institutions believed by management to be credit worthy. At times, amounts on deposit may exceed insured limits or include uninsured investments. Credit risk associated with promises to give and notes, contracts, and other receivables is considered to be limited due to high historical collection rates and because outstanding balances are primarily from donors and others that are supportive of the Organization’s mission. Investments are managed by a professional investment manager whose performance is monitored by management and the Foundation’s Investment Committee of the Board of Governors. Although the fair value of investments is subject to fluctuation on a year-to-year basis, management and the Investment Committee believe that the investment policies and guidelines are prudent for the long-term welfare of the Organization. Investments Investment purchases are recorded at cost or, if donated, at fair value on the date of the donation. Thereafter, investments other than property held in trust and certificates of deposit are measured at their fair value. Appreciation and depreciation in fair value are reflected in the period occurred. Fluctuations in the United States and global markets can have a direct effect on the value of the investments presented in the accompanying consolidated financial statements. Property held in trust, which is not readily marketable, is recorded at cost or, if donated, the fair value of the property as of the date of the donation. The property held in trust is periodically reviewed for impairment. For the years ended December 31, 2016 and 2015, no impairment charge has been recorded. Certificates of deposit are recorded at cost plus accrued interest.

39

Sara.Brainard

Text Box

10


December 31, 2016 and 2015 To achieve its investment objectives, the Foundation has acquired interests in certain investments that are not readily marketable. The fair values of these investments have been determined by management using the net asset value (NAV) provided by each fund. NAV is a practical expedient used to determine the fair value of investments that do not have readily determinable fair value and to prepare financial statements consistent with the measurement principles of an investment company or consistent with the attributes of an investment company. Investment income, including interest, dividends, realized gains and losses, and unrealized gains and losses are allocated to participants based upon their pro rata share of their investment. Distributions from and liquidation of these investments is restricted based on specific terms of the fund agreements. The estimated values may differ materially from the values that would have been used had readily available markets for the investments existed. Certain funds have been pooled for ease of management and to provide greater diversification of investments. Investments in equity and bond funds consist of direct ownership of investments or participation in mutual funds. Additionally, to achieve its investment objectives, the portfolio manager has the ability to invest in derivative and hedge instruments as a part of their investment strategies. While the Foundation does not have discretionary control over the asset guidelines of mutual funds, it believes these instruments allow the portfolio manager to take advantage of varying market forces in order to assist the Foundation in achieving its return objectives. Promises to Give Unconditional promises to give expected to be collected within one year are recorded at net realizable value. Unconditional promises to give expected to be collected in future years are initially recorded at fair value using present value techniques incorporating risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the asset. In subsequent years, amortization of the discount is included in gifts in the accompanying consolidated statements of activities. At times, an individual donor’s promise to give may represent a substantial portion of the total outstanding promises. Management determines the allowance for uncollectible promises to give based on management’s assessment of potential bad debts and historical experience. Promises to give are written off against the allowance when they are deemed uncollectible. Trusts Held by Others Donors have established various split-interest agreements where the Foundation is not the trustee but is the irrevocable beneficiary of the underlying assets. The Foundation has neither possession nor control over the assets of these trusts. At the date that the Foundation receives notice of a beneficial interest in a trust held by others, a temporarily or permanently restricted gift is recorded in the consolidated statements of activities, and the Foundation’s beneficial interest in the trust held by others is recorded in the consolidated statements of financial position at fair value using present value techniques and risk-adjusted discount rates designed to reflect the assumptions that market participants would use in pricing the expected distributions to be received under the agreement. Thereafter, beneficial interests in trusts held by others are reported at fair value in the consolidated statements of financial position, with trust distributions and changes in fair value recognized in the consolidated statements of activities. Upon receipt of trust distributions or expenditures in satisfaction of the restricted purpose stipulated by the donor, if any, temporarily restricted net assets are released from restrictions or permanently restricted net assets are transferred to the endowment.

40

Sara.Brainard

Text Box

11


December 31, 2016 and 2015 Operating Property The Organization’s operating property consists of land, buildings, and equipment. Property received as support is recorded at its fair value at the time of the gift and property purchased is recorded at cost. Property is presented in the accompanying consolidated financial statements net of accumulated depreciation of $3,037,907 and $2,680,014 at December 31, 2016 and 2015 respectively. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, ranging from 5-40 years. The Organization reviews the carrying value of property for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposal. Impairment loss is charged to expense when identified. There was no impairment loss as of December 31, 2016 and 2015. Other Property Held Other property held consists of land, buildings, and equipment. Other property held is recorded at cost or, if donated, the fair value of the property as of the date of the donation. Other property held is periodically reviewed for impairment. For the years ended December 31, 2016 and 2015, no impairment charge has been recorded. All of the assets included in other property held will eventually be used to support SDSU. Cash Surrender Value of Life Insurance The Foundation is the owner or assignee and beneficiary of certain whole life insurance policies. These policies have aggregate face values totaling $1,052,001 at December 31, 2016. Beneficial Interest Trusts The Foundation is a beneficiary in several revocable trusts administered by others. The assets of these trusts are not included in the accompanying consolidated statements of financial position because the beneficiaries may be changed in accordance with provisions of the trust agreements. The Foundation has been named as an irrevocable beneficiary of a perpetual trust held and administered by an independent trustee. The trust provides for the distribution of the net income of the trust to the Foundation; however, the Foundation will never receive the principal of the trust. At the date the Foundation receives notice of a beneficial interest, a permanently restricted gift is recorded in the consolidated statements of activities, and a beneficial interest in perpetual trust is recorded in the consolidated statements of financial position at the fair value of the Foundation’s share of the underlying trust assets. Thereafter, the beneficial interest in the trust is reported at the fair value of trust’s assets in the consolidated statements of financial position, with trust distributions and changes in fair value recognized in the consolidated statements of activities.

41

Sara.Brainard

Text Box

12


December 31, 2016 and 2015 Gift Annuity, Life Income Agreements, and Life Estates Under charitable gift annuity contracts, the Foundation receives immediate and unrestricted title to contributed assets and agrees to make fixed recurring payments over the period stipulated in the annuity contract. Contributed assets are recorded at fair value on the date of receipt. The related liability for future payments to be made to the specified beneficiaries is recorded at fair value using present value techniques and risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the liability. The excess of contributed assets over the annuity liability is recorded as an unrestricted or restricted gift based on the donor’s wishes. In subsequent years, the liability for future annuity payments is reduced by payments made to the specified beneficiaries and is adjusted to reflect amortization of the discount and changes in actuarial assumptions at the end of the year. Upon termination of the annuity contract, the remaining liability is removed and recognized as a gift. The estimated present value of future payments, to be made under these agreements, discounted at rates ranging from 1.00% to 8.20%, totals $1,925,920 and $2,209,215 at December 31, 2016 and 2015, respectively. The Foundation’s life income agreements consist of various irrevocable charitable remainder unitrusts and pooled income funds over which the Foundation acts as trustee. These trusts are governed by the respective trust agreements, which generally provide for either an income stream or a future distribution of cash or other assets to the Foundation, in whole or in part, for a specified period or upon the occurrence of a specific event. The trust assets are recorded at fair value, and a related liability for future payments to be made to the specified beneficiaries is recorded at fair value using present value techniques and risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the liability. The excess of contributed assets over the trust liability is recorded as a temporarily or permanently restricted gift until such amount is received via trust distribution or is expended in satisfaction of the restricted purpose stipulated by the trust agreement, if any. The liability for future trust payments to the donor is reduced by payments made to the donor and is adjusted to reflect amortization of the discount and changes in actuarial assumptions at the end of the year. Upon termination of the trust, the remaining liability is removed and recognized as income. Investments held under life income agreements total $10,139,703 and $10,530,719 at December 31, 2016 and 2015, respectively. The estimated present value of future investment income distributions to beneficiaries, discounted at rates ranging from 6.50% to 7.40% is $5,469,366 and $5,791,063 at December 31, 2016 and 2015, respectively. The Foundation’s life estates consist of various contributions of real estate in which the donor has retained the right to use the real estate for the remainder of their life, or the life of a specified beneficiary. The life estate assets are recorded at fair value on the date of receipt. The related liability for the right to use the real estate is recorded at fair value using present value techniques and risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the liability. The excess contributed assets over the life estate liability is recorded as an unrestricted or restricted gift based on the donor’s wishes. In subsequent years, the liability for future use is adjusted to reflect amortization of the discount and changes in actuarial assumptions at the end of the year. Upon termination of the life estate, the remaining liability is removed and recognized as a gift. The estimated present value of the Foundation’s liability to the donor for future use under these agreements, discounted at rates ranging from 1.20% to 6.20%, totals $867,218 and $904,647 at December 31, 2016 and 2015, respectively. Net Assets Net assets, revenue, support, and gains are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted net assets are resources over which the Board of Governors has discretionary control and are available for use in general operations.

42

Sara.Brainard

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December 31, 2016 and 2015 Temporarily restricted net assets are resources currently available for use for purposes or time periods specified by the donor and income earned on permanently restricted net assets that has not yet been appropriated for expenditure by the Board of Governors. Permanently restricted net assets consist of a beneficial interest in a perpetual trust and gifts and bequests which have been accepted with the donor-stipulation that the principal be maintained intact in perpetuity with only the income to be utilized. Some endowments require net earnings to be permanently reinvested until a certain level of investment is attained. Support to University The Organization funds various construction projects and provides operational support for the benefit of SDSU. Contracts for construction projects are between SDSU and the contractors, and liabilities for expenditures incurred by departments are the responsibility of SDSU. The Organization records expense for payment of projects and operational support expenditures when such payments are made, in accordance with accounting guidance for financially interrelated entities. Investments Held for Others Investments held for others is primarily that portion of charitable remainder unitrusts for which the Foundation holds the asset but either the Foundation is not the beneficiary or the beneficiary designation may be changed in accordance with trust documents. Gifts Gifts are recognized when cash, securities, unconditional promises to give, or other assets or forgiveness of liabilities are received. Conditional promises to give are not recognized until the conditions on which they depend have been substantially met and the promises become unconditional. Gifts received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. Donated Services and Assets Many individuals, particularly board members, have contributed significant amounts of time to the activities of the Organization without compensation. However, these services do not meet the criteria for being recorded as contributions under accounting principles generally accepted in the United States of America and, accordingly, have not been recorded. Donated property, marketable securities, and other non-cash donations are recorded as gifts at their estimated fair value at the date of the donation. Such donations are reported as unrestricted support unless the donor has restricted use to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions.

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December 31, 2016 and 2015 Direct Investment Expenses Management and bank fees paid to third parties were $332,515 and $337,181 for the years ended December 31, 2016 and 2015 respectively, and are included in general and administrative expenses on the consolidated statements of activities. Reclassifications Certain reclassifications of transfers between net asset classes previously reported have been made to the accompanying consolidated statements of activities for the year ended December 31, 2015 to maintain consistency between years presented. The reclassifications had no impact on previously reported net assets or change in net assets in total or by class of restriction. The reclassifications provide greater detail on the nature of such transfers. Subsequent Events The Organization has evaluated subsequent events through July 10, 2017, the date which these consolidated financial statements were available to be issued. Note 2 - Fair Value of Assets and Liabilities Fair Value Measurements Certain assets and liabilities are reported at fair value in the accompanying consolidated financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal, or most advantageous, market at the measurement date under current market conditions regardless of whether that price is directly observable or is estimated using another valuation technique. Inputs used to determine fair value refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available. A three-tier hierarchy categorizes the inputs as follows: Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset or liability. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset and liability, and market-corroborated inputs. Level 3 inputs are unobservable inputs related to the asset or liability. In these situations, the Organization develops inputs using the best information available in the circumstances.

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December 31, 2016 and 2015 A significant portion of the Organization’s investments are classified within Level 1 because they are comprised of investments with readily determinable fair values based on daily redemption values. This includes investments in equity securities and bonds that are held in mutual funds. Bonds that are not held in mutual funds are valued by the custodians of the securities using pricing models based on credit quality, time to maturity, stated interest rates and market-rate assumptions. These are classified within Level 2. Management estimates the fair value of the preferred stock in a non-public company by applying market rate assumptions based on preferred stock yields, trusts held by others are valued by applying present value techniques and risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the underlying assets and the fair values of trust investments as reported by the trustees, and the fair value of the beneficial interest in perpetual trust is estimated based on the present value of the expected future cash flows. These are considered to be Level 3 measurements. The Organization uses Net Asset Value (NAV) per share, or its equivalent, such as member units or an ownership interest in partners’ capital, to estimate the fair value of its investments in certain international and fixed income equity funds, an equity security hedge fund, and various private equity funds. Investments valued at NAV are classified within Level 2 if the Organization has the ability to redeem the investment at NAV per share, or its equivalent, at the measurement date or within the near term; otherwise, the investments are classified within Level 3. The Organization does not have any liabilities that are measured at fair value. The following table presents the Organization’s assets that are measured at fair value, except those measured at cost as identified below, on a recurring basis:

Quoted Prices in Other UnobservableActive Markets Observable Inputs Inputs

(Level 1) (Level 2) (Level 3) TotalDecember 31, 2016

Investments Equity securities

DomesticLarge cap 30,341,385$ -$ -$ 30,341,385$ Small and mid cap 7,403,946 - - 7,403,946

International 32,023,749 - - 32,023,749 Total equity

securities 69,769,080 - - 69,769,080

BondsCorporate 16,546,696 352,750 - 16,899,446 Government 2,632,071 251,752 - 2,883,823

Total bonds 19,178,767 604,502 - 19,783,269

Alternative fundsInternational - 1,830,280 - 1,830,280 Fixed income - 7,651,484 - 7,651,484 Hedge - - 10,551,179 10,551,179

Total alternativefunds - 9,481,764 10,551,179 20,032,943

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(Level 1) (Level 2) (Level 3) Total

Private equity funds -$ -$ 6,631,531$ 6,631,531$

Preferred stock in non-public company - - 1,518,541 1,518,541

Certificates of deposit, atcost plus accrued interest - - - 12,196,355

Property held in trust, at cost - - - 1,602,650

Total investments 88,947,847$ 10,086,266$ 18,701,251$ 131,534,369$

Trusts held by others -$ -$ 1,507,827$ 1,507,827$

Beneficial interest in perpetual trust -$ -$ 953,502$ 953,502$

December 31, 2015 - Restated

Investments Equity securities

DomesticLarge cap 28,322,354$ -$ -$ 28,322,354$ Small and mid cap 4,303,951 - - 4,303,951

International 30,895,334 - - 30,895,334 Total equity

securities 63,521,639 - - 63,521,639

BondsCorporate 11,434,949 239,443 - 11,674,392 Government 7,134,833 320,304 - 7,455,137

Total bonds 18,569,782 559,747 - 19,129,529

Alternative fundsInternational - 10,415,868 - 10,415,868 Fixed income - 9,860,658 - 9,860,658 Hedge - - 5,351,781 5,351,781

Total alternativefunds - 20,276,526 5,351,781 25,628,307

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(Level 1) (Level 2) (Level 3) Total

Private equity funds -$ -$ 4,719,548$ 4,719,548$

Preferred stock in non-public company - - 1,250,000 1,250,000

All asset funds 145,079 - - 145,079

Certificates of deposit, atcost plus accrued interest - - - 15,786,530

Property held in trust, at cost - - - 1,603,350

Total investments 82,236,500$ 20,836,273$ 11,321,329$ 131,783,982$

Trusts held by others -$ -$ 1,317,906$ 1,317,906$

Beneficial interest in perpetual trust -$ -$ 919,052$ 919,052$

The following table presents a reconciliation of activity for assets measured at fair value based upon significant unobservable (non-market) information for 2016:

Preferred Stockin Non-Public

Hedge Private Equity Company

Balance at January 1, 2016 5,351,781$ 4,719,548$ 1,250,000$ Adjustments to fair value 199,398 156,826 1,997 Additions 5,000,000 2,405,819 266,544 Withdrawals and payments - (650,662) -

Balance at December 31, 2016 10,551,179$ 6,631,531$ 1,518,541$

BeneficialTrusts Held Interest inby Others Perpetual Trust

Balance at January 1, 2016 1,317,906$ $ 919,052 Adjustments to fair value 169,570 34,450 Additions 20,351 - Withdrawals and payments - -

Balance at December 31, 2016 1,507,827$ 953,502$

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December 31, 2016 and 2015 Unrealized gains and losses for assets still held at December 31, 2016 are included in the consolidated statements of activities as follows:

Preferred Stock Beneficialin Non-Public Trusts Held Interest in

Hedge Private Equity Company by Others Perpetual Trust

Unrealized gains and losses 199,398$ 156,826$ 1,997$ -$ -$

Change in split interestagreements -$ -$ -$ 169,570$ 34,450$

The following table presents a reconciliation of activity for assets measured at fair value based upon significant unobservable (non-market) information for 2015:

Preferred Stockin Non-Public

Hedge Private Equity Company

Balance at January 1, 2015 5,337,740$ 3,183,385$ 1,250,000$ Adjustments to fair value 14,041 346,083 - Additions - 1,921,106 - Withdrawals and payments - (731,026) -

Balance at December 31, 2015 5,351,781$ 4,719,548$ 1,250,000$

BeneficialTrusts Held Interest inby Others Perpetual Trust

Balance at January 1, 2015 2,342,688$ $ 984,541 Adjustments to fair value (335,079) (65,489) Additions 550,300 - Withdrawals and payments (1,240,003) -

Balance at December 31, 2015 1,317,906$ 919,052$

Unrealized gains and losses for assets still held at December 31, 2015 are included in the consolidated statement of activities as follows:

Preferred Stock Beneficialin Non-Public Trusts Held Interest in

Hedge Private Equity Company by Others Perpetual Trust

Unrealized gains and losses 14,041$ 346,083$ -$ -$ -$

Change in split interestagreements -$ -$ -$ (335,079)$ (65,489)$

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December 31, 2016 and 2015 Additional information on investments in certain entities that calculate NAV per share at December 31, 2016 and 2015 is as follows:

Unfunded Redemption RedemptionFair Value Commitments Frequency Notice Period

Alternative fundsInternational 1,830,280$ -$ Quarterly 95 daysFixed income 7,651,484 - Monthly (1) 5-10 daysHedge 10,551,179 - Quarterly (2) 100 days (2)

Private equity 6,631,531 14,242,364 Illiquid None

26,664,474$ 14,242,364$

Unfunded Redemption RedemptionFair Value Commitments Frequency Notice Period

Alternative fundsInternational 10,415,868$ -$ Quarterly 95 daysFixed income 9,860,658 - Monthly (1) 5-10 daysHedge 5,351,781 - Quarterly (2) 100 days (2)

Private equity 4,719,548 11,602,096 Illiquid None

30,347,855$ 11,602,096$

2016

2015

(1) A complete or partial withdrawal can be made on the last business day of each month. (2) Redemption requests can be made as of each calendar quarter end. Redemption requests require 100 days prior written notice and are based on a redemption schedule that “passes through” the underlying private investment funds. The international fund focuses on growth in global equities through private investment funds and derivative contracts. The investment is readily redeemable, subject to certain restrictions. Fair value has been estimated using the net asset value per share (practical expedient) provided by the underlying fund manager or the general partner. Fixed income funds (two funds) focus on growth in United States and global bond markets through various fixed income securities. These investments are readily redeemable, subject to certain restrictions. Fair values have been estimated using the practical expedient provided by the underlying fund manager or the general partner. The hedge fund focuses on growth in global private investments funds operated by various portfolio managers. The investment is redeemable, subject to certain restrictions. Fair value has been estimated using the practical expedient provided by the underlying fund manager or general partner. Private equity funds (several funds) focus on growth in equity of United States and global securities and derivatives. These investments are not readily redeemable; however, a secondary market does exist for some of the funds. Distributions are normally made through the liquidation of the underlying assets in the funds. The terms of these investments range from 7 to 20 years. Fair values have been estimated using the practical expedient provided by the underlying fund manager or the general partner.

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December 31, 2016 and 2015 Fair Value of Financial Instruments Not Required to Be Reported at Fair Value In addition to the items reported above that are recorded at fair value, the Organization has assets and liabilities that meet the definition of financial instruments, as reported in the accompanying consolidated financial statements. The carrying amount of cash and cash equivalents; other receivables; accounts payable, accrued expenses, and other liabilities; due to SDSU – scholarships; and investments held for others approximate fair value due to the short-term nature of the items. The carrying amounts of promises to give due in more than one year are based on the discounted net present value of the expected future cash receipts, and the carrying amounts of notes receivable are based on the discounted value of the expected future cash receipts. The carrying amount of the contract for deed is based on outstanding principal balances plus accrued interest determined from interest rates stated in the agreements, which are variable based on a function of prime. The carrying amount of gift annuities, life income agreements, and life estates is based on the discounted net present value of expected future cash payments. The carrying amount of notes payable is based on outstanding principal balances plus accrued interest determined from interest stated in the agreements, which are variable based on a function of prime or contain fixed rates that closely approximate prime. The estimated fair values of these instruments approximate their carrying amounts. Note 3 - Promises to Give Promises to give represent unconditional promises restricted for various purposes and estimated to be collected as follows:

2016 2015

Receivable in less than one year 9,374,418$ 9,894,330$ Receivable in one to five years 14,636,216 14,427,152 Receivable in more than five years 2,297,093 1,712,918

26,307,727 26,034,400 Discount to present value (.80% to 3.50%) (739,630) (588,458)

25,568,097 25,445,942 Allowance for uncollectible promises to give (1,383,044) (1,272,296)

Net promises to give 24,185,053$ 24,173,646$

Conditional promises to give as of December 31, 2016 and 2015 of approximately $15,271,700 and $31,058,000, respectively, consist of promises to fund various SDSU capital projects and are restricted by specific criteria designated by the donor. However, these conditional promises do not meet the criteria for being recognized as contributions revenue under accounting principles generally accepted in the United States of America and, accordingly, have not been recognized. Recognition will occur when donor conditions have been met. As of December 31, 2016 and 2015, promises to give from Board members accounted for approximately 16% and 21%, respectively, of total promises to give, and contributions from Board members accounted for approximately 1% and 5%, respectively, of total contributions.

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December 31, 2016 and 2015 Note 4 - Notes, Contract, and Other Receivables Notes, contract, and other receivables consist of the following:

(Restated)2016 2015

Notes receivable, net of discount of $67,335 and 1,791,198$ 1,898,586$ $91,859, respectively

Other notes receivable 1,244,518 883,351 Contract for deed 537,944 599,495Other receivables 61,475 159,482 Allowance for uncollectible notes receivable (88,310) (89,788)

3,546,825$ 3,451,126$

Notes receivable are comprised of two notes that are discounted using discount rates of 3.50% and 1.25%. The first note was an interest free note due from SDSU in annual installments of $165,000 that matured in 2016. The second note was issued to the Foundation as a part of the settlement of a donor’s estate. The note bears interest at 5.00% per year on the unpaid principal balance and requires annual interest payments of $73,000 with a final payment of the outstanding principal plus accrued interest due in October 2020. Other notes receivable consist of two undiscounted note receivables. The first note is related to a farm-lease purchase agreement with the University, in which the Foundation will lease the property to the University, in which ownership will transfer to the University at the end of the lease term. The payments received by the Foundation from the University will be used to pay the remaining payment of the charitable remainder annuity trust relating to the property. The second note was issued to pay a portion of the renovation for a sorority house. The note bears interest at 5.70% per year on the unpaid principal balance and requires annual interest payments. The final payment of the outstanding principal is due in June 2019. The contract for deed represents amounts due from a collateralized obligation under payment terms exceeding one year. The interest rate on the contract for deed may change from time to time; however, the contract provides for a minimum interest rate of 4.00% and a maximum interest rate of 5.00%. Payments are applied first to unpaid interest with any remainder applied to the outstanding principal balance. Other receivables consist of various operating receivables originating through the normal course of business and bear no interest. Management determines the allowance for uncollectible notes, contract, and other receivables based on its assessment of potential bad debts, the specific circumstances of the underlying receivable, and historical experience. Management has determined that the contract for deed and other receivables are fully collectible and has not established a related allowance. Notes receivable are written off against the allowance when they are deemed uncollectible.

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December 31, 2016 and 2015 Note 5 - Notes Payable Building Note Payable The Foundation has a long-term note payable with a banking institution. The note is secured by its office building. The note bears interest at 3.95%, matures in March 2020, and requires monthly payments of principal and interest of $11,300. The balance of the note at December 31, 2016 and 2015 is $383,012 and $500,703, respectively. Bank-Qualified, Tax-Exempt Notes Payable The Foundation entered into $10,000,000 of bank-qualified, tax-exempt financing in an arrangement with Brookings County and a banking institution. A portion of the financing originally totaling $9,100,000 matures June 28, 2017, with the remaining portion originally totaling $900,000 maturing June 28, 2020. The financing was obtained to help fund the construction of several campus building projects and requires annual payments of $979,230, plus interest based on a variable rate equal to the prime rate less 100 basis points multiplied by .65 (1.625% as of December 31, 2016 and 2015). The financing is secured by substantially all current and future assets relating to the projects and is subject to certain financial and other covenants. The aggregate balance of these notes as of December 31, 2016 and 2015 is $2,166,157 and $3,145,388, respectively. The Foundation entered into $12,000,000 of bank-qualified, tax-exempt financing in an arrangement with Brookings County and a banking institution relating to the long-term financing of the Avera Health and Science Center. The agreement requires annual payments of $1,500,000 plus interest fixed at 4.25% and has a final maturity of July 31, 2017. The financing is secured by substantially all current and future assets related to the project and is subject to certain financial and other covenants. The balance of the note was $1,388,194 and $2,888,194 as of December 31, 2016 and 2015, respectively. Scheduled Maturities The estimated principal maturities by year of notes payable at December 31, 2016, are summarized as follows:

Years Ending December 31,

3,398,977$ 195,737 200,897 141,751

3,937,362$

20192020

20172018

Interest Expense Interest expense on notes payable totaled $143,643 and $254,757 for 2016 and 2015, respectively, and is recorded in administrative and general expenses on the accompanying consolidated statements of activities.

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December 31, 2016 and 2015 Note 6 - Unrestricted Net Assets Deficit Certain endowment investments had market values that were less than the original value of endowed gifts (Note 8). The effect of increase in these deficiencies, approximately $183,000 and $3,488,000 as of December 31, 2016 and 2015, respectively, is included in interfund transfers on the accompanying consolidated statements of activities. This cumulative deficiency totaled approximately $9,460,000 and $9,280,000 as of December 31, 2016 and 2015, respectively. The deficiency has resulted primarily from declines in the investment market and is reported in unrestricted net assets. The Foundation plans to recover the deficiency from future endowment investment returns. Additionally, support for various SDSU scholarships, programs and capital projects in excess of restricted gifts, including promises to give, has resulted in deficiencies that are reported in unrestricted net assets. This cumulative deficiency totaled approximately $4,302,000 and $5,264,000 as of December 31, 2016 and 2015, respectively. The Foundation plans to recover this unrestricted net assets deficit with future gifts as well as changes to the programmatic support provided to SDSU. Note 7 - Restricted Net Assets Temporarily restricted net assets are available for the following purposes:

(Restated)2016 2015

Scholarships 7,252,794$ 7,076,757$ SDSU operational and program support 21,509,706 21,138,782 SDSU capital projects 29,055,600 27,068,859

57,818,100$ 55,284,398$

Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors as follows:

(Restated)2016 2015

Purpose restrictions accomplishedCurrent year expenditures

Scholarships 3,585,235$ 3,615,337$ SDSU operational and program support 6,346,881 6,758,282 SDSU capital projects 24,285,773 7,033,549 Other program support and direct investment expenses 1,134,901 4,858,809 Foundation administrative fee retained 3,234,295 2,967,958

Previously incurred expendituresScholarships 546,060 651,609 SDSU operational and program support 326,220 95,246 SDSU capital projects 279,806 174,611

39,739,171$ 26,155,401$

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December 31, 2016 and 2015 Permanently restricted net assets with expendable earnings are dedicated to support the following purposes:

2016 2015

Scholarships 78,877,493$ 75,644,535$ SDSU operational and program support 53,404,001 51,289,432

132,281,494$ 126,933,967$

Note 8 - Endowments The Foundation’s endowment consists of approximately 1,700 individual funds established for a variety of purposes. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Foundation’s Board of Governors has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

• The duration and preservation of the fund • The purposes of the Foundation and the donor-restricted endowment fund • General economic conditions • The possible effect of inflation and deflation • The expected total return from income and the appreciation of investments • Other resources of the Foundation • The investment policies of the Foundation.

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December 31, 2016 and 2015 The changes in endowment net assets by fund type are as follows:


Endowment net assets at beginningof year, January 1, 2016 (9,277,063)$ 6,975,237$ 118,087,894$ 115,786,068$

Endowment net assets transferredfrom designation change during 2016 - 53,223 (24,250) 28,973

Investment returnInvestment income - 2,360,306 84,565 2,444,871 Net appreciation - 3,647,520 - 3,647,520

Total investment return - 6,007,826 84,565 6,092,391

Contributions - 2,829,358 5,211,096 8,040,454

Appropriation of endowmentassets for expenditureand transfers (182,905) (6,250,084) - (6,432,989)

Endowment net assets at end of year, December 31, 2016 (9,459,968)$ 9,615,560$ 123,359,305$ 123,514,897$

2016

Endowment net assets at beginningof year, January 1, 2015 (5,792,830)$ 10,014,879$ 113,646,557$ 117,868,606$

Endowment net assets transferredfrom designation change during 2015 3,598 65,048 (19,999) 48,647

Investment returnInvestment income - 1,496,651 84,565 1,581,216 Net depreciation - (3,752,340) - (3,752,340)

Total investment return - (2,255,689) 84,565 (2,171,124)

Contributions - 692,612 4,376,771 5,069,383

Appropriation of endowmentassets for expenditureand transfers (3,487,831) (1,541,613) - (5,029,444)

Endowment net assets at end of year, December 31, 2015 (9,277,063)$ 6,975,237$ 118,087,894$ 115,786,068$

2015

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December 31, 2016 and 2015 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. Deficiencies of this nature that are reported in unrestricted net assets were approximately $9,460,000 and $9,280,000 as of December 31, 2016 and 2015, respectively. These deficiencies result from unfavorable market fluctuations that occur shortly after the investment of new permanently restricted gifts and from continued appropriation for certain programs that are deemed prudent by the Board of Governors. Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for investment assets that attempt to provide a predictable stream of income for the funding of programs supported by its endowment. Investment assets include those assets of donor-specific funds that the Foundation will designate for a specified purpose as well as board-designated funds. Under this policy, as approved by the Board of Governors, the endowment assets are invested in a manner that seeks both preservation of capital and growth of capital on a real return basis. Asset allocation guidelines have been established for the endowment based on liquidity needs, risk tolerance and time horizon. The rebalancing of assets will occur at least annually, or as needed to stay within ranges set forth in the Foundation’s Investment Policy Statement. During the course of a complete market cycle, the total fund return objective shall be to achieve a return greater than capital market returns with lower risk, as measured by standard deviation, than a similarly weighted asset allocation. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The Foundation’s policy of appropriating for distribution each year is determined on an as-needed basis subject to the approval of the Board of Governors. The Foundation’s endowment pool is maintained primarily to provide for current and future distributions. To smooth the annual distributions, the Foundation applies a spending rate to the total endowment pool’s average market value of the most recent twenty quarters. The spending rate applied to the average market value over the twenty quarters ended during December 31, 2016 and 2015 was 4.00%. In addition to the annual spending in support of endowed programs, the Foundation may assess an administrative fee not to exceed 1.60% of the current market value of the endowment for the years ended December 31, 2016 and 2015. The annual spending calculation takes into consideration the program needs of SDSU, the administrative costs of the Foundation, current market conditions, and inter-generational equity. Note 9 - Retirement Plan The Organization provides retirement benefits for all full-time and permanent part-time employees. There is no time of service requirement, and employees enter the plan immediately upon their hire date. The Organization is required to contribute an amount equal to each employee's contribution, up to six percent, and made contributions of $146,618 and $138,568 to the plan for the years ended December 31, 2016 and 2015, respectively.

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December 31, 2016 and 2015 Note 10 - Commitments Capital Contributions The Foundation has entered into contracts to invest in various professionally managed private equity funds. Selection of these funds is based on several factors, including evaluation by the Foundation’s Investment Committee and professional investment consulting firm, and occurs only upon performance of due diligence procedures that help to ensure the quality of the investments. As of December 31, 2016, these contracts require the Foundation to contribute total capital of approximately $22,700,000, plus certain allowable expenses. As of December 31, 2016, the Foundation has contributed approximately $8,460,000. Additional contributions related to this commitment of approximately $14,240,000 will be paid when requested by the fund managers. The contributions are included in investments on the accompanying consolidated statements of financial position. Campus Building Projects The Foundation has committed to fund selected construction projects on the SDSU campus. The Foundation’s policy is to make such commitments only after 90% of the related fundraising goal has been met. As of December 31, 2016, the Foundation has committed to provide approximately $74,400,000 for fifteen SDSU building projects, either yet to be started or already in progress. Through December 31, 2016, the Foundation has paid costs of approximately $26,800,000 towards these projects. Foundation Construction As part of the overall Alumni Green Project, the Foundation has entered into a construction contract in relation to the SDSU President’s House Project and has committed to construction costs of approximately $3,000,000. In addition, the Foundation has also committed to approximately $8,000,000 for expansion of the Lohr Building. SDSU has committed to lease the President’s House from the Foundation upon completion under an arrangement that provides for the Foundation to receive annual payments of approximately $58,000 for a term of 30 years. Through December 31, 2016, the Foundation has incurred costs of approximately $6,000,000 towards these projects. As of July 10, 2017, the Foundation has secured funding of approximately $10,580,000 for the Alumni Green project, including $8,080,000 in private gifts and $2,500,000 in debt financing. The debt financing is in the form of a 20 year mortgage with interest at 4.70%. Leases The Organization leases certain office space and vehicles under long-term operating lease agreements. The agreements expire at varying times from 2017 to 2023. The estimated future minimum lease payments by year are summarized as follows:

Years Ending December 31,

2017 139,000$ 2018 121,000 2019 92,000 2020 82,000 Thereafter 205,000

639,000$

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December 31, 2016 and 2015 Note 11 - Restatement During 2016, the Organization discovered certain errors related to the accounting for premium seat fees and the accounting for an individual lease agreement within a trust. The Organization restated its previously issued financial statements for the year ended December 31, 2015 to appropriately reflect these transactions. The following is a summary of the effects of the restatement on the Organization’s December 31, 2015 Statement of Financial Position:

As PreviouslyReported Adjustment As Restated

As of December 31, 2015Investments 133,783,982$ (2,000,000)$ 131,783,982$ Notes, contract, and other receivables 2,567,775 883,351 3,451,126 Total assets 187,408,869 (1,116,649) 186,292,220 Deposits from donors and others - 590,615 590,615 Temporarily restricted net assets 56,991,662 (1,707,264) 55,284,398 Total net assets 169,292,756 (1,707,264) 167,585,492 Total liabilities and net assets 187,408,869 (1,116,649) 186,292,220

The following is a summary of the effects of the restatement on the Organization’s December 31, 2015 Statement of Activities:

As PreviouslyReported Adjustment As Restated

Year ended December 31, 2015Gifts 23,957,017$ -$ 23,957,017$

Temporarily restricted 21,108,305 (590,615) 20,517,690 Net assets released from restrictions

Unrestricted 25,038,752 1,116,649 26,155,401 Temporarily restricted (24,861,642) (1,116,649) (25,978,291)

Total revenue, support, and gains 27,301,569 (590,615) 26,710,954 Unrestricted 26,906,289 (2,567,520) 24,338,769 Temporarily restricted (2,313,271) 2,127,298 (185,973)

SDSU operational and program support 6,379,190 1,116,649 7,495,839 Unrestricted 6,379,190 1,116,649 7,495,839

Total program services 21,990,344 1,116,649 23,106,993 Unrestricted 21,990,344 1,116,649 23,106,993

Total expenses 27,357,422 1,116,649 28,474,071 Unrestricted 27,357,422 1,116,649 28,474,071

Change in temporarily restricted net assets 1,521,291 (1,707,264) (185,973) Change in total net assets (55,853) (1,707,264) (1,763,117)

There were no significant effects of the restatement on the Organization’s December 31, 2015 statement of cash flows.

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Sara.Brainard

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