financial overview - university of california, san diego · uc san diego’s total assets increased...
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F I N A N C I A L O V E R V I E WUNIVERSITY OF CALIFORNIA, SAN DIEGO
ANNUAL FINANCIAL REPORT 2008–09
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In fiscal year 2008–09, UC San Diego elected not to publish its annual financial report highlighting major events and achievements for the period. This omission was a historical departure for the university, a cost-efficient measure, and a reflection of the most challenging and protracted economic crisis since the Great Depression.
The 2009–10 annual financial report will commemorate the 50th Anniversary of UC San Diego by tracing the university’s remarkable past, its recent achievements, and its campuswide campaign to Invent the Future. The three-year, $50 million Invent the Future fundraising effort will generate graduate fellowships and undergraduate scholarships to attract outstanding students to campus and prepare the next generation of leaders.
The university’s commitment to achieving the extraordinary remains intact. In good times and in bad, UC San Diego is a primary engine of economic development, a powerful catalyst for the advancement of knowledge, a critical force for improving human lives, and a vital investment in the future.
In addition to the financial overview presented here, please also reference the 2008–09 financial statements of the UC San Diego Foundation at http://www-er.ucsd.edu/foundationDir/FDN-ACT//pdf/June09.pdf.
Sincerely,
Steven W. Relyea Vice Chancellor for Business Affairs UC San Diego
L E T T E R F R O M T H E V I C E C H A N C E L L O R F O R B U S I N E S S A F F A I R S
OPERATING REVENUES BY PROVIDERS (in millions)
TOTAL EXPENSE BY FUNCTION (in millions)
UC San Diego’s annual operating budget is $2.6 billion.
$ 806 Medical center
$ 584 Federal grants and contracts
$ 284 Private and local grants and contracts
$ 261 Student tuition and fees
$ 245 State educational appropriations
$ 194 Medical group
$ 127 Other
$ 135 Auxiliary enterprises
$ 693 Medical center
$ 610 Research
$ 475 Instruction
$ 190 Academic support
$ 174 Depreciation
$ 122 Institutional support
$ 111 Auxiliary enterprises
$ 69 Operation and maintenance of plant
$ 62 Student services
$ 59 Student financial aid
$ 17 Public service
$ 2 Other
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L E T T E R F R O M T H E V I C E C H A N C E L L O R F O R B U S I N E S S A F F A I R S
Management’s Discussion and Analysis
The University’s Results of Operations
Statement of Revenues, Expenses, and Changes in Net Assets
Statement of Net Assets
Statement of Cash Flows
Notes to Financial Statements
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( U N A U D I T E D )
The objective of Management’s Discussion and Analysis is to help readers of the University of California, San Diego’s financial statements better understand the financial position and operating activities for the fiscal year ended June 30, 2009, with selected comparative information for the year ended June 30, 2008. The Financial Statements should be read in conjunction with the Management’s Discussion and the notes to the financial statements to gain a more complete understanding of the university’s financial information.
The audited, consolidated financial statements of the University of California are available at ucop.edu/ucophome/busfin/reports.html.
The University’s Financial Position
The statement of net assets presents the financial position of the university at the end of each fiscal year. At June 30, 2009 the university’s net assets were $2.0 billion, with assets of $3.7 billion and liabilities of $1.7 billion. The major components of the assets, liabilities, and net assets as of 2009 and 2008 are as follows (in thousands).
2009 2008 CHANGE
ASSETSCash and equity
in treasurer’s investments $ 878,737 $ 911,346 $ (32,609)
Receivables, net 282,728 292,356 (9,628)
Inventories 24,098 24,101 (3)
Capital assets, net 2,440,284 2,241,920 198,364
Other assets 88,086 70,580 17,506
Total assets $ 3,713,933 $ 3,540,303 $ 173,630
LIABILITIESDebt $ 1,268,130 $ 1,132,900 $ 135,230
Other liabilities 471,037 475,501 (4,464)
Total liabilities $ 1,739,167 $ 1,608,401 $ 130,766
NET ASSETSInvested in capital assets,
net of related debt $ 1,171,515 $ 1,108,337 $ 63,178
Restricted
Expendable 106,158 120,102 (13,944)
Unrestricted 697,094 703,463 (6,369)
Total net assets $ 1,974,767 $ 1,931,902 $ 42,865
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Assets
UC San Diego’s total assets increased by $174 million to $3.7 billion in 2009, compared to $3.5 billion in 2008, primarily due to increases in capital assets net of depreciation.
CASH AND EQUITY IN TREASURER’S INVESTMENTS — The university’s cash and equity in treasurer’s investments totaled $878.7 million at the end of 2009 and $911.3 million at the end of 2008. The decrease in the short-term investments component is primarily due to a late-term decrease in the California state budget support for fiscal year 2009.
ACCOUNTS RECEIVABLE, NET— Accounts receivable in total decreased by $9.6 million to $282.8 million in 2009 from $292.4 million in 2008. The decrease is primarily in the Medical Centers category, where there was an eleven-day decrease in accounts receivables due to improved collections.
CAPITAL ASSETS, NET — Capital assets, net of accumulated depreciation, increased by $198.4 million to $2.4 billion in 2009.
Liabilities
The university’s liabilities totaled $1.7 billion in 2009. This total includes the liabilities of $1.1 billion for capital projects that provide financing for projects on more than one campus and are accounted for centrally at the UC Office of the President.
LONG-TERM DEBT— This debt, principally recorded at the Office of the President, increased by $112.4 million to $1.1 billion in 2009.
OTHER LIABILITIES— Other liabilities decreased by $4.5 million to $471.0 million in 2009 from $475.5 million in 2008. The decrease is the result of a decrease in accounts payable at the Medical Center of $10.5 million, coupled with a $3.4 million decrease in the current portion of long-term debt, offset in part by an increase in deferred revenue associated with grants and contracts from all sources of $13.2 million.
Net Assets
Net assets represent the residual interest in the university’s assets after all liabilities are deducted. The university’s net assets grew to $2.0 billion in 2009, compared to $1.9 billion in 2008.
INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT— The category grew to $1.2 billion in 2009, compared to $1.1 billion in 2008. The increase represents the university’s continued investment in its physical facilities, in excess of the related financing and depreciation expense, and accounts for the majority of the university’s overall increase in its net assets.
RESTRICTED EXPENDABLE— The decrease of $13.9 million in 2009 to $106.2 million reflects a decrease of $8.5 million in capital projects, and a decrease of $5.8 million in debt service.
UNRESTRICTED— Unrestricted net assets decreased by $6.4 million to $697.1 million in 2009. The decrease reflects UCSD’s $55.5 million allocation of the UC budget cuts imposed by the state in May of 2009, offset in part by a $44.1 million increase in reserves associated with the university housing department, the Medical Center and UC San Diego Extension.
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ASSETS (in millions)
LIABILITIES (in millions)
NET ASSETS (in millions)
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invested in capi ta l assets , net o f re la ted debt
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The statement of revenues, expenses, and changes in net assets is a presentation of the university’s operating results for the year.
Revenues
Revenues to support the university’s core activities, including those classified as nonoperating revenues, increased in 2009 by $95.7 million to $2.6 billion. The university has diversified sources of revenue.
STUDENT TUITION AND FEES, NET— Student tuition and fees revenue, net of scholarship allowances, grew in 2009 by $30.5 million to $260.9 million. The increase is attributable to an increase in both enrolled students, and fee increases for all categories of students.
GRANTS AND CONTRACTS—Revenues from grants and contracts increased $47.3 million in 2009 to $812.8 million continuing a trend of increasing awards for federal, and private corporations. Local governments showed a 10 percent decrease in fiscal year 2009.
The table that follows details Awarded Grants and Contracts for fiscal year 2009 and 2008 (in thousands). Awarded grants and contracts may be reflected in the current fiscal year or in future periods as work is completed and billed.
New Awards Received (in thousands)
Campus Area 2009 2008
General Campus $ 260,915 $ 246,831
Health Sciences 494,279 456,191
Scripps Institution of Oceanography 126,430 125,760
Total $ 881,624 $ 828,782
MEDICAL CENTER— Revenues of $805.5 million in 2009 reflect an increase of $73.0 million from 2008. The Medical Center’s operating revenues reflect growth in inpatient volumes at both hospital sites and additional Medi-Cal funds made available under the American Recovery and Reinvestment Act. Increased utilization of outpatient services in key ancillary areas including surgery, radiation oncology, imaging, and infusion were major operating contributors.
SALES AND SERVICES, EDUCATIONAL ACTIVITIES— Revenues from educational activities grew to $227.4 million in 2009 from $223.8 million in 2008. The increase is primarily due to increased medical group’s patient services activities.
STATE EDUCATIONAL APPROPRIATIONS— Educational appropriations from the state of California decreased by $56.7 million to $244.6 million in 2009, as a result of the state of California budget situation.
Expenses
Expenses associated with the university’s core activities, including those classified as nonoperating expenses, increased by $108.3 million, from $2.5 billion to $2.6 billion in 2009.
SALARIES AND BENEFITS— Over 60 percent of the university’s expenses are related to salaries and benefits. During 2009, salaries and benefits grew by $95.7 million to $1.6 billion or 6.4 percent.
UTILITIES— During 2009, utility expenses were $48.0 million. Fiscal year 2008 expenses were restated downward by $26.0 million to $43.7 million due to mis-coding related to recharges. The offset is reflected in other expenses.
SCHOLARSHIPS AND FELLOWSHIPS— Scholarships and fellowships (gross) increased in 2009 by $6.3 million to $58.0 million or 12.3 percent.
OTHER EXPENSES— Expenses in this category were $325.7 million in 2009. Fiscal year 2008 was restated upward by $26.0 million to $324.1 million due to a mis-coding of recharge expenses related to utilities expenses.
Other Changes in Net Assets
A significant decrease occurred in the state capital appropriations, which decreased by $27.9 million, or 57 percent to $20.8 million in 2009, due to the worsening of the state of California’s budget situation. The decrease represents San Diego campus’ share in the UC budget cuts distributed in December 2008 and May 2009.
In accordance with the Governmental Accounting Standards Board’s (GASB) reporting standards, operating losses were $285.9 million in 2009 and $336.0 million in 2008. These operating losses were more than offset by net revenues and expenses that are required by GASB to be classified as nonoperating, but which remain available to support operating activities of the university, $332.9 million in 2009 and $395.5 million in 2008. This income is restricted by either legal or fiduciary obligations, allocated for academic and research initiatives or programs, necessary for debt service, or required for capital purposes.
The University’s Cash Flows
In 2009, the net cash outflow from operating activities was $99.7 million, offset by $290.1 million of cash provided by noncapital financing activities. Similarly, in 2008, the net cash outflow from operating activities was $148.9 million, offset by $358.2 million of cash provided by noncapital financing activities.
The net cash outflow from capital and related financing activities was $324.1 million in 2009 and $232.0 million in 2008. The primary uses of cash were payments to employees, suppliers, utilities and capital asset purchases. Cash sources include grants and contract, and receipts from the medical centers.
T H E U N I V E R S I T Y ’ S R E S U L T S O F O P E R A T I O N S
C AM P US F O U N DAT I O N 2009 20081 2009 2008
OPERATING REVENUESStudent tuition and fees, net $ 260,915 $ 230,451 $ — $ —Grants and contracts Federal 584,294 564,095 — — State 42,115 35,812 — — Private 175,215 153,152 — — Local 11,201 12,453 — —Sales and services Medical Center 805,547 732,500 — — Educational activities 227,425 223,764 — — Auxiliary enterprises, net 134,575 130,696 — —Contributions revenue — — 32,409 40,007 Other operating revenues, net 56,752 54,936 — — Total operating revenues 2,298,039 2,137,859 32,409 40,007
OPERATING EXPENSES Salaries and wages 1,319,900 1,249,558 — —Benefits 278,283 252,920 — —Scholarships and fellowships 57,962 51,626 — —Utilities1 47,997 43,675 — —Supplies and materials 379,893 383,559 — —Depreciation and amortization 174,200 168,423 — —Grants to campus — — 47,107 61,356 Other operating expenses Building maintenance 108,280 106,944 — — Travel 33,963 32,171 — — Telecommunications 30,098 27,642 — — Other 153,398 157,341 29 123 Total operating expenses 2,583,974 2,473,859 47,136 61,479 Operating income (loss) (285,935) (336,000) (14,727) (21,472)
NONOPERATING REVENUES (EXPENSES) State educational appropriations 244,612 301,300 — —State financing appropriations 13,030 17,602 — —Private gifts 55,791 59,136 — —Investment income 24,613 24,505 7,702 10,433 Realized gain on sale of investments — — 1,620 9,203 Unrealized appreciation/depreciation on investments — — (84,377) (25,405)Interest expense (336) (4,743) — —Change in value of annuity and life income liabilities — — (2,613) 2,690 Loss on disposal of capital assets, net (3,626) (1,614) — —Other nonoperating revenues (expenses) (1,215) (641) 126 (1,932) Total net nonoperating revenues (expenses) 332,869 395,545 (77,542) (5,011) Income before other changes in net assets 46,934 59,545 (92,269) (26,483)
OTHER CHANGES IN NET ASSETS State capital appropriations 20,797 48,672 — —Capital gifts and grants 10,894 22,982 — —Permanent endowments — — 12,616 14,654 Transfers (34,998) 69,139 — — Total other changes in net assets (3,307) 140,793 12,616 14,654 Increase in net assets 43,627 200,338 (79,653) (11,829)
NET ASSETS Net assets, beginning of year 1,931,902 1,731,564 496,788 508,617 Cummulative effect of a change in accounting principle (762) — — — Net assets, end of year $ 1,974,767 $ 1,931,902 $ 417,135 $ 496,788
Financial statements for the University of California, San Diego are unaudited. Financial statements for the UC San Diego Foundation are audited. See accompanying Notes to the Financial Statements. (1) Restated 2008 Utilities expenses (decreased by $26.000 million) and Other expenses (increased $26.000 million).
S T A T E M E N T O F R E V E N U E S , E X P E N S E S , A N D C H A N G E S I N N E T A S S E T S ( U N A U D I T E D )
АFOR THE FISCAL YEARS ENDED JUNE 30, 2009 AND JUNE 30, 2008 (in thousands)
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2009 REVENUES SUPPORTING CORE ACTIV ITI ES 2009 EXPENSES ASSOC IATED WITH CORE ACTIV ITI ES
51% Salaries and Wages
15% Supplies and Materials
12% Other Expensese
11% Benefits
7% Depreciation and Amortization
2% Utilities
2% Scholarships and Fellowships
31% Grants and Contracts
30% Medical Center
10% Student Tuition and Fees
10% State Educational Appropriations
9% Educational Activities
5% Auxiliary Enterprises
2% Other Revenues
2% Private Gifts
1% Investment Income
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C AM P US F O U N DAT I O N 2009 2008 2009 2008
ASSETSCurrent Assets Cash and equity in treasurer’s investments $ 878,737 $ 911,346 $ 3,024 $ 2,492 Investments held by trustees 676 1,443 72,437 72,814 Accounts receivable, net State and federal government 57,307 56,302 — — Medical Center 149,857 158,819 — — Other 75,563 77,235 65 96 Pledges receivable, net 4,629 4,163 7,028 6,951 Notes receivable, net 2,476 2,280 — —Inventories 24,098 24,101 — —Other current assets 20,623 17,321 380 198 Total current assets 1,213,966 1,253,010 82,934 82,551
Noncurrent Assets Investments held by trustees 18,164 5,981 313,738 397,686 Pledges receivable 4,373 3,284 37,935 38,846 Notes and mortgages 28,169 26,993 — —Land, buildings, equipment, libraries, and special collections 4,551,051 4,215,855 — —Less: Accumulated depreciation (2,110,767) ( 1,973,935) —Other noncurrent assets 8,977 9,115 1,507 1,673 Total noncurrent assets 2,499,967 2,287,293 353,180 438,205 Total assets $ 3,713,933 $ 3,540,303 $ 436,114 $ 520,756
LIABILITIESCurrent Liabilities Accounts payable $ 139,797 $ 154,386 $ 758 $ 1,325 Accrued salaries and benefits 64,790 64,623 — —Deferred revenue 110,262 105,236 — —Current portion of long-term debt 46,556 46,367 — —Funds held for others 1,780 1,485 150 136 Annuities payable — — 1,200 1,288 Liabilities to life beneficiaries — — 1,059 1,501 Other current liabilities 77,991 72,054 — — Total current liabilities 441,176 444,151 3,167 4,250
Noncurrent Liabilities Federal refundable loans 23,177 22,936 — —Annuities payable — — 7,729 8,181 Liabilities to life beneficiaries — — 8,084 11,088 Long-term debt Revenue bonds 953,116 722,627 — —Certificates of participation — 1,794 — —Mortgages and other borrowings 39,638 156,903 — —Capital lease obligations 228,820 205,209 — —Other noncurrent liabilities 53,240 54,781 — 449 Total noncurrent liabilities 1,297,991 1,164,250 15,813 19,718 Total liabilities $ 1,739,167 $ 1,608,401 $ 18,980 $ 23,968
NET ASSETSInvested in capital assets, net of related debt $ 1,171,515 $ 1,108,337 $ — $ — Restricted Nonexpendable Endowments — — 230,999 243,260 Annuity and life income funds — — 3,167 4,686 Expendable Endowments — — 58,360 115,596 Endowment income 10,636 10,830 — — Annuity and life income funds — — 4,989 6,091 Funds functioning as endowments — — 10,497 14,000 Loans 3,540 1,367 — — Gifts 80,343 81,940 105,879 110,492 Capital projects 6,703 15,250 — — Debt service 4,843 10,661 — — Other 93 54 — —Unrestricted 697,094 703,463 3,243 2,663 Total net assets $ 1,974,767 $ 1,931,902 $ 417,134 $ 496,788
Financial statements for the University of California, San Diego are unaudited. Financial statements for the UC San Diego Foundation are audited. See accompanying Notes to the Financial Statements.
S T A T E M E N T O F N E T A S S E T S ( U N A U D I T E D )
FOR THE FISCAL YEARS ENDED JUNE 30, 2009 AND JUNE 30, 2008 (in thousands)
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S T A T E M E N T O F C A S H F L O W S ( U N A U D I T E D )
FOR THE FISCAL YEARS ENDED JUNE 30, 2009 AND JUNE 30, 2008 (in thousands)
C AM P US F O U N DAT I O N 2009 2008 2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees $ 265,523 $ 229,391 $ — $ —Grants and contracts 826,008 767,099 — —Receipts from sales and services of Medical Center 815,155 700,359 — — Educational activities 223,545 219,145 — — Auxiliary enterprises 132,428 133,559 — —Receipts from contributions — — 32,343 34,584Collections of loans to students and employees 3,008 2,960 — —Payments to employees (1,316,526) (1,229,537) — —Payments to suppliers and utilities (746,149) (718,398) — —Payments for benefits (275,456) (250,294) — —Payments for scholarships and fellowships (57,962) (51,626) — —Payments to campuses — — (44,356) (57,252)Payments to beneficiaries — — (2,536) (2,707)Loans issued to students and employees (3,805) (2,405) — —Other receipts (payments) 34,489 50,880 (5,028) (4,108) Net cash provided (used) by operating activities (99,742) (148,867) (19,577) (29,483)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State educational appropriations 244,612 301,300 — —Private gifts for endowment purposes — — 11,802 13,492Private gifts received for other than capital purposes 55,175 58,626 — —Other receipts (payments) (9,668) (1,738) 318 798 Net cash flows from noncapital financing activities 290,119 358,188 12,120 14,291
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES State capital appropriations 19,007 40,142 — —State financing appropriations 17,301 17,558 — —Capital gifts and grants 6,874 20,828 — —Proceeds from debt issuance 48,899 34,343 — —Proceeds from the sale of capital assets 204 124 — —Proceeds from insurance recoveries — — — —Purchases of capital assets (395,216) (326,953) — —Refinancing/prepayment outstanding debt — — — —Principal paid on debt and capital leases (18,563) (14,459) — —Interest paid on debt and capital leases (2,609) (3,571) — — Net cash provided (used) by capital and related activities (324,103) (231,988) — —
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale and maturities of investments (31) (627) 51,944 156,375Purchase of investments — — (53,917) (148,407)Other receipts 4,492 — 9,962 8,894 Net cash provided (used) by investing activities 4,461 (627) 7,989 16,862
CHANGE IN ACCOUNTING PRINCIPALS Cumulative effect of change in accounting principals (762) — — — Net change due to GASB Prouncements (762) — — —
CASH FLOWS FROM TRANSFERS Current Intercampus 280,929 280,465 — — Interfund (93,212) (82,380) — — Net revenue of bonds and other indebtedness programs 973 55,296 — —Unexpended plant 144,723 81,566 — —Retirement of indebtedness (71,031) (36,601) — —Investment in plant 2 (445) — —Loan 71 86 — —Indirect cost recovery (165,680) (154,195) — — Net cash flows from transfers 96,775 143,792 — — Total net increase in cash (33,252) 120,498 532 1,670
Cash beginning of year 911,040 790,542 2,492 822 Cash end of year $ 877,788 $ 911,040 $ 3,024 $ 2,492
RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIESOperating income (loss) $ (285,935) $ (336,001) $ (14,727) $ (21,471)Depreciation and amortization expense 174,200 168,423 — —Noncash gifts — — (1,313) (2,855)Allowance for doubtful accounts 7,707 2,078 — 46Loss on impairment of capital assets — — — —Change in assets and liabilities Receivables, net 2,262 (41,999) 835 (2,830) Inventories 2 (1,203) — — Deferred charges (3,302) (4,953) — — Other assets 126 (357) 413 259 Accounts payable (6,161) 27,970 (1,930) 873 Accrued salaries and benefits 169 11,711 — — Deferred revenue 5,956 12,823 — — Annuities payable — — (2,854) (3,505) Other liabilities 5,234 12,641 — — Net cash used by operating activities $ (99,742) $ (148,867) $ (19,576) $ (29,483)
Financial statements for the University of California, San Diego are unaudited. Financial statements for the UC San Diego Foundation are audited. See accompanying Notes to the Financial Statements.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the University of California, San Diego
campus, including the UCSD Medical Center, have been prepared in accordance
with generally accepted accounting principles, including all applicable effective
statements of the Financial Accounting Standards board through November 30,
1989 and generally adhering to the statements of the Governmental Accounting
Standards Board (GASB), using the accrual basis of accounting. The accounts of
the San Diego campus are subject to limited-scope procedures as a part of the
annual audit of the financial statements of the entire University of California. The
financial statements of the San Diego campus have not been individually audited.
The significant accounting policies of the university, not including the UC San Diego
Foundation, are summarized below.
The UC San Diego Foundation is a nonprofit, public-benefit corporation organized
for the purpose of accepting and administering the full range of private contributions
for the campus. It is qualified as a tax-exempt organization under the provision of
Section 501(c)(3) of the Internal Revenue Code and is exempt from federal and
state income taxes on related income.
USE OF ESTIMATES— The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenditures
during the reporting period. Actual amounts could differ from those estimates.
GASB Statement No. 49, Accounting and Financial Reporting for Pollution
Remediation Obligations, was adopted by the University during the year ended
June 30, 2009. Statement No. 49 establishes criteria to ascertain whether certain
events result in a requirement for the university to estimate the components of any
expected pollution remediation costs and determine whether these costs should
be accrued as a liability. The costs were estimated using the expected cash flow
technique, which measures the liability as the sum of probability-weighted amounts
in a range of possible estimated amounts. Previously, pollution remediation costs
were accrued only if they were both probable of occurring and could be reasonably
estimated. In accordance with Statement No. 49 retrospective application is required.
The cumulative effect of the accounting change described above to establish the
initial $0.3 million liability was recorded as an adjustment to the July 1, 2007 net
assets.
The university also restated the 2008 financial statements for purposes of
presenting comparative information for the year ended June 30, 2009. The effect
of the changes from the adoption of Statement No. 49 on the university’s financial
statements for the year ended June 30, 2008 was to increase the liability from $0.3
million at June 30, 2007 to $1.0 million at June 30, 2008.
The adoption of Statement No. 49 did not result in any adjustments to the financial
statements of the UC San Diego Foundation.
CASH AND CASH EQUIVALENTS— The Office of the President (UCOP) Treasurer’s
Office maintains centralized management for substantially all of the university’s
cash. Cash in demand deposit accounts is minimized by sweeping available cash
balances into investment accounts on a daily basis.
SHORT-TERM INVESTMENTS— UCSD participates in a temporary investment pool
that is administered by the Office of the President. This pool invests primarily in
U.S. Treasury securities, commercial paper, and short-term corporate notes with
cost approximating market value. These temporary investments are considered cash
equivalents for the purposes of the statement of cash flows.
INVESTMENTS— The Regents, as the governing board, is responsible for the
management of the university’s investments, and establishes policy, which is carried
out by the treasurer. Investments are primarily recorded at fair market value.
ENDOWMENTS— The campus endowment funds are invested and administered by
the Endowment and Investment Accounting unit of the Office of the President, and
are not included in these financial statements. Income from campus endowment
funds is recorded at UCOP and transferred to the campus annually. The university’s
endowment income distribution policies are designed to preserve the value of the
endowment and to generate a predictable stream of spendable income.
INVESTMENTS HELD BY TRUSTEES— All investments held by trustees are insured,
registered, or held by the university’s trustee or custodial bank, as fiduciary for the
bondholder or as agent for the university.
ACCOUNTS RECEIVABLE— Accounts receivable include reimbursements due from
state and federal sponsors of externally funded research, patient billings, and other
receivables.
PLEDGES RECEIVABLE— Unconditional pledges of private gifts to the university to
be paid in the future are recorded as pledges receivable and revenue in the year
promised at the present value of expected cash flows.
NOTES AND MORTGAGES RECEIVABLE— Loans to students are provided from
federal student loan programs and from university sources. Home mortgage loans,
primarily for faculty, are provided by the Short-Term Investment Pool and from other
university sources.
INVENTORIES— Inventories, consisting primarily of supplies and merchandise for
resale, are valued at cost, typically determined using the weighted average method,
which is not in excess of net realizable value.
CAPITAL ASSETS— Land, infrastructure, buildings and improvements, equipment,
libraries, and special collections are recorded at cost at the date of acquisition or fair
value at the date of donation in the case of gifts. Capital leases are recorded at the
present value of future minimal lease payments. Significant additions, replacements,
major repairs and renovations are generally capitalized if the cost exceeds $35,000
and if they have a useful life of more than one year. Minor renovations are charged
to operations. Equipment with a cost greater than $4,999 and a useful life of more
than one year is capitalized.
Interest on borrowings to finance facilities is capitalized during construction, net of
any investment income earned during the temporary investment of project related
borrowings.
Depreciation is calculated using the straight-line method over the estimated
economic life of the asset.
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Capital assets acquired through federal grants and contracts where the federal
government retains a reversionary interest are capitalized and depreciated.
Inexhaustible capital assets such as land or special collections that are protected,
preserved, and held for public exhibition, education, or research, including art,
museum, scientific, and rare book collections, are not depreciated.
DEFERRED REVENUE— Deferred revenue primarily includes amounts received
from grant and contract sponsors that have not been earned under the terms of
the agreement and other revenue billed in advance of the event, such as student
tuition and fees, and fees for housing and dining services.
FUNDS HELD FOR OTHERS— Funds held for others result from the university or
the campus foundations acting as an agent, or fiduciary, on behalf of organizations
that are not significant or financially accountable to the university or campus
foundations.
FEDERAL REFUNDABLE LOANS— Certain loans to students are administered by
the university with funding primarily supported by the federal government. The
university’s statement of net assets includes both the notes receivable and the
related federal refundable loan liability, representing federal capital contributions
owed upon termination of the program.
DEBT— Long-term financing includes bonds, certificates of participation, loans and
other borrowings, and capital lease obligations. Some loans, bonds, and certificates
of participation provide financing for projects on more than one campus and are
accounted for centrally at UCOP. For financial statement presentation, selected
statements have been adjusted to include long-term debt recorded at UCOP. In the
statement of net assets, the totals for long-term debt, including the current portion
of long-term debt, have been adjusted to reflect the UCOP-held debt. Likewise the
invested in capital assets, net of related debt total, has been adjusted. Similarly, the
transfers total in the statement of revenues, expenses, and changes in net assets
for 2009 has been adjusted by $112.4 million, the change in UCOP-held debt
from $975.9 million in 2008 to $1.1 billion in 2009. The statement of cash flows
has not been adjusted.
Following is the combined UCSD debt for the years ending June 30, 2009 and
2008 (in thousands).
Maturity Outstanding Outstanding
Years 2009 2008
REVENUE BONDS
General 2009-2040 $ 855,666 $ 605,263
Hospital 2009-2047 67,393 70,658
Multiple purpose project 2009-2041 58,157 64,082
Research facility 2009-2032 0 6,625
sub-total revenue bond 981,216 746,657
Mortgages and other borrowings 2009-2010 40,293 166,941
Capital lease obligations 2009-2030 245,692 215,789
Certificates of participation 2009-2010 659 3,513
Total outstanding debt 1,268,130 1,132,900
Less current portion of long-term debt 46,556 46,367
Total long-term debt $ 1,221,547 $ 1,086,533
NET ASSETS— Net assets are required to be classified for accounting and reporting
purposes into the following categories:
INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT— This category includes
all of the university’s capital assets, net of accumulated depreciation, reduced by
outstanding debt attributable to the acquisition, construction or improvement of
those assets.
RESTRICTED— The university and campus foundations classify net assets resulting
from transactions with purpose restrictions as restricted net assets until the
specific resources are used for the required purpose, or for as long as the provider
requires the resources to remain intact.
NONEXPENDABLE— Net assets subject to externally-imposed restrictions, which
must be retained in perpetuity by the university or the campus foundations, are
classified as nonexpendable net assets. Such assets include the university and
campus foundation permanent endowment funds.
EXPENDABLE— Net assets whose use by the university or the campus foundations
is subject to externally imposed restrictions that can be fulfilled by actions of the
university or campus foundations, pursuant to those restrictions, or that expire by
the passage of time, are classified as expendable net assets.
UNRESTRICTED— Net assets that are neither restricted nor invested in capital
assets, net of related debt, are classified as unrestricted net assets. The university’s
unrestricted net assets may be designated for specific purposes by management
or The Regents. The campus foundations’ unrestricted net assets may be
designated for specific purposes by their Boards of Trustees. Substantially all of
the university’s unrestricted net assets are allocated for academic and research
initiatives or programs, for capital programs or for other purposes. Expenses are
charged to either restricted or unrestricted net assets based upon a variety of
factors, including consideration of prior and future revenue sources, the type
of expense incurred, the university’s budgetary policies surrounding the various
revenue sources, or whether the expense is a recurring cost.
REVENUES AND EXPENSES— Operating revenues of the university include receipts
from student tuition and fees, grants and contracts for specific operating activities,
and sales and services from medical centers, educational activities and auxiliary
enterprises. Operating expenses incurred in conducting the programs and services
of the university are presented in the statement of revenues, expenses and changes
in net assets as operating activities. Certain significant revenues relied upon and
budgeted for fundamental operational support of the core instructional mission of
the university are mandated by the GASB to be recorded as nonoperating revenues,
including state educational appropriations, private gifts and investment income,
since the GASB does not consider them to be related to the principal operating
activities of the university. Campus foundations are established to financially
support the university. Private gifts to campus foundations are recognized as
operating revenues, since, in contrast to the university, such contributions are
fundamental to the core mission of the campus foundations. Foundation grants
to the university are recognized as operating expenses. Private gift or capital
gift revenues associated with campus foundation grants to the university are
recorded by the university as the gifts are made. Nonoperating revenues and
expenses include state educational appropriations, state financing appropriations,
private gifts for other than capital purposes, investment income, net unrealized
appreciation or depreciation in the fair value of investments, interest expense, and
gain or loss on the disposal of capital assets. State capital appropriations, capital
gifts and grants, and gifts for endowment purposes are classified as other changes
in net assets.
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COMMITMENTS AND CONTINGENCIES— Substantial amounts are received and
expended by the university, including its medical center, under federal and state
programs, and are subject to audit by cognizant governmental agencies. This funding
relates to research, student aid, medical center operations, and other programs.
University management believes that any liabilities arising from such audits will not
have a material effect on the university’s financial position.
COMPARATIVE INFORMATION— In connection with the preparation of the June 30,
2009 statement of revenues, expenses and changes in net assets, the university
concluded that internal departmental recharges associated with utility costs in 2008
should have been credited against utilities expense rather than other operating
expenses. As a result, revisions in classification have been made in the June 30,
2008 financial statements to reduce utilities expense and increase other operating
expenses by $26.0 million.
UNIVERSITY OF CALIFORNIA RETIREMENT PLAN— The University of California
Retirement Plan (UCRP) costs are funded by a combination of investment earnings,
employee member and employer contributions. In 2006, the Regents updated the
funding policy for UCRP to provide for a targeted funding level of 100 percent over
the long term, and for university and UCRP member contributions at rates necessary
to maintain that level within a range of 95 percent to 110 percent. The university
will implement a multiyear contribution strategy under which shared employer and
employee contribution rates will increase gradually over time to 16 percent of covered
compensation, based upon UCRP’s current normal cost. The Regents have not yet
authorized the initial resumption of shared employer and employee contributions.
NEW ACCOUNTING PRONOUNCEMENTS— In June 2007, the GASB issued Statement
No. 51, Accounting and Financial Reporting for Intangible Assets, effective for the
university’s fiscal year beginning July 1, 2009. This statement requires capitalization
of identifiable intangible assets in the statement of net assets and provides guidance
for amortization of intangible assets unless they are considered to have an indefinite
useful life. The university is evaluating the effect that Statement No. 51 will have on
its financial statements.
In June 2008, the GASB issued Statement No. 53, Accounting and Financial
Reporting for Derivative Instruments, also effective for the University’s fiscal year
beginning July 1, 2009. This statement requires the university to report its derivative
instruments at fair value. Changes in fair value for effective hedges that are achieved
with derivative instruments are to be reported as deferrals in the statement of net
assets. Derivative instruments that either do not meet the criteria for an effective
hedge or are associated with investments that are already reported at fair value are
to be classified as investment derivative instruments. Changes in fair value of those
derivative instruments are to be reported as net appreciation or depreciation in the
fair value of investments.
The university has determined that the interest rate swaps entered into in conjunction
with certain Medical Center Pooled Revenue Bonds are derivative instruments that
meet the criteria for an effective hedge and is continuing to evaluate the effect that
Statement No. 53 will have on its financial statements with respect to securities in
investment portfolios that may be derivative instruments.