THE UNIVERSITY FOUNDATION AT SACRAMENTO STATE

Transcription

1 THE UNIVERSITY FOUNDATION AT SACRAMENTO STATE Independent Auditor s Report, Management s Discussion and Analysis, Basic Financial Statements and Supplementary Schedules

2 Table of Contents Page(s) Independent Auditor s Report Management s Discussion and Analysis (Required Supplementary Information) Basic Financial Statements: Statements of Net Assets... 7 Statements of Revenues, Expenses and Changes in Net Assets... 8 Statements of Cash Flows... 9 Notes to the Basic Financial Statements Supplementary Schedules: Schedule of Net Assets Schedule of Revenues, Expenses and Changes in Net Assets Other Information Note to Supplementary Schedules... 28

3 Sacramento 3000 S Street, Suite 300 Sacramento, CA Walnut Creek Oakland Board of Directors The University Foundation at Sacramento State Sacramento, California LA/Century City Newport Beach San Diego INDEPENDENT AUDITOR S REPORT Seattle We have audited the accompanying basic financial statements of The University Foundation at Sacramento State (the Foundation), a component unit of California State University, Sacramento, as of and for the years ended June 30, 2012 and 2011, as listed in the table of contents. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of June 30, 2012 and 2011, and the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 3 through 6 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 1

4 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary schedules on pages 19 through 28 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental schedules are fairly stated in all material respects in relation to the basic financial statements taken as a whole. Sacramento, California September 20,

5 Management Discussion and Analysis (Unaudited) This section of The University Foundation at Sacramento State s (the Foundation ) annual financial report presents management s discussion and analysis of the financial performance of the Foundation during the fiscal years ended June 30, 2012 and This discussion has been prepared by management along with the financial statements and related footnote disclosures and should be read in conjunction with, and is qualified in its entirety by the financial statements and footnotes. The financial statements, footnotes and this discussion are the responsibility of management. Financial Highlights Total restricted contributions and gifts along with return on investments and additions to permanent endowments received during fiscal year 2012 amounted to $2.31 million. The total Foundation funds used in support of University projects in fiscal year 2012 amounted to $2.34 million. Overview of the Financial Statements The financial statements presented herein include all of the activities of the Foundation as prescribed by statements of the Government Accounting Standards Board (GASB). The Foundation is a component unit of the California State University, Sacramento (University or CSUS). The Statements of Net Assets presents information on all of the Foundation s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Foundation is improving or deteriorating. The Statements of Revenues, Expenses and Changes in Net Assets present information showing how net assets changed during the most recent two fiscal years. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected interest receivable). The Statements of Cash Flows present information about the cash receipts and cash payments of the Foundation during the two most recent fiscal years. When used with related disclosures and information in the other financial statements, the information provided in these statements should help financial report users assess the Foundation's ability to generate future net cash flows, its ability to meet its obligations as they come due, and its need for external financing. It also provides insight into the reasons for differences between operating income and associated cash receipts and payments; and the effects on the Foundation's financial position of its cash and its noncash investing, capital, and related financing transactions during the year. 3

6 Management Discussion and Analysis (Continued) (Unaudited) Notes to the Basic Financial Statements provide additional information that is essential to a full understanding of the data provided in the Foundation's basic financial statements. The notes are included immediately following the basic financial statements within this report. The Foundation s Net Assets (Amounts Expressed in Thousands) Assets Current assets $ 9,036 $ 7,528 $ 8,122 Noncurrent assets 24,962 25,841 21,756 Total assets $ 33,998 $ 33,369 $ 29,878 Liabilities Current liabilities $ 470 $ 311 $ 278 Noncurrent liabilities 5,585 8,152 7,987 Total liabilities $ 6,055 $ 8,463 $ 8,265 Net assets Invested in capital assets, net of related debt $ 7 $ 12 $ 18 Restricted: Expendable 10,772 8,222 5,368 Nonexpendable 16,727 16,238 15,786 Unrestricted Total net assets $ 27,943 $ 24,906 $ 21,613 The Foundation experienced an increase in current assets of $1.5 million and a decrease in noncurrent assets of $879 thousand in the fiscal year 2012 against The changes were primarily due to the sales of long-term investments and deposit of sales proceeds in the Local Agency Investment Fund for funding of student scholarships. This transaction occurred twice in and not at all during due to timing factors. Another reason for the decrease in noncurrent assets was because of the decline in longterm investments due to the weakened financial market. The decrease in total liabilities was primarily due to the forgiveness of a note payable of $2.2 million and accrued interest payable of $435 thousand by the University during fiscal year 2012 (see Note 4). The Foundation experienced a decrease of $594 thousand in current assets in fiscal year 2011 compared to The change was primarily due to a decrease in the short-term Local Agency Investment Fund for the purpose of expenditure of student scholarships. The increase of approximately $4.1 million in noncurrent assets in fiscal year 2011 was due to stronger performance of the Foundation s investments. 4

7 Management Discussion and Analysis (Continued) (Unaudited) The Foundation s Changes in Net Assets (Amounts Expressed in Thousands) Operating Revenues: Contributions and gifts $ 1,999 $ 1,478 $ 1,934 Fees and other Investment income (190) 3,493 1,789 Total operating revenues 2,528 5,760 4,164 Operating Expenses: University projects 2,341 2,406 2,475 General and administration Charitable remainder unitrust payments Total operating expenses 2,582 2,693 2,585 Operating income (loss) (54) 3,067 1,579 Nonoperating Revenues (Expenses): Interest expense - (131) (124) Contributions to the CSU, Sacramento - (95) (366) Total nonoperating expenses - (226) (490) Income (loss) before addition to permanent endowments and extraordinary items (54) 2,841 1,089 Additions to permanent endowments ,054 Extraordinary Items Forgiveness of accrued interest payable Forgiveness of note payable 2, Total extraordinary items 2, Change in net assets 3,037 3,293 4,143 Net assets, beginning of year 24,906 21,613 17,470 Net assets, end of year $ 27,943 $ 24,906 $ 21,613 5

8 Management Discussion and Analysis (Continued) (Unaudited) The Foundation s receipt of contributions and gifts increased by approximately $521 thousand in 2012 as compared to The primary purpose of these gifts has been to fund a variety of student scholarships as well as institutional and academic support for the University. Fees and other income decreased by $70 thousand in 2012 compared to 2011 due to the poor economy. Investment income decreased in 2012 compared to 2011 due to a weakened financial market which resulted in recognition of unrealized losses in the amount of $584 thousand compared to unrealized gains of $2.9 million in Operating expenses remained mostly consistent with prior years as the activity of the Foundation has leveled off slightly due to budgetary constraints. Extraordinary items in fiscal year 2012 were due to the forgiveness by the University of the loan of $2.2 million and accrued interest of $435 thousand. The Foundation s receipt of contributions and gifts decreased by $456 thousand in 2011 compared to 2010 as overall activity declined due to the continued weak economy. The primary purpose of these contributions and gifts has been to fund a variety of student scholarships as well as institutional and academic support for the University. Additions to permanent endowments were lower in 2011 than in 2010 due to a large endowed gift totaling $2.5 million received in Fees and other revenue increased in 2011 compared to 2010 due to the increased activities in various institutional programs. Investment income increased in fiscal year 2011 and 2010 respectively due to a stronger performance of investments in the financial markets resulting in recognition of unrealized gains on long-term investments. Total operating expenses in 2011 remained consistent with prior year as the activity of the Foundation leveled off due to the weak economy. The Foundation also made contributions to CSU, Sacramento to aid in the construction of the Broad Athletic Facility amounting to approximately $95 thousand and $366 thousand in fiscal years 2011 and 2010 respectively. Long-term debt totaled $0 and $2.154 million as of June 30, 2012, and 2011, respectively. The decrease is the result of the forgiveness of an outstanding loan from the University during fiscal year Additional information on long-term debt obligations can be found in Note 4 to the basic financial statements included in this report. Request for Information The financial report is designed to provide a general overview of the Foundation s finances. For questions concerning any information in this report or for additional financial information, please contact University Enterprise, Inc., Craig Barth, Chief Financial Officer, 6000 J Street, Sacramento, California or call (916)

9 Statements of Net Assets June 30, 2012 and 2011 Assets Current assets: Cash $ 265,393 $ 204,001 Restricted cash 7,429 11,694 Short-term investments 34, ,687 Restricted short-term investments 8,284,833 6,954,766 Total cash and cash equivalents 8,591,739 7,274,148 Restricted receivables 21,385 40,840 Restricted pledges receivable 422, ,027 Total current assets 9,035,606 7,528,015 Noncurrent assets: Cash surrender value of life insurance policies 137, ,731 Restricted long-term investments 19,298,720 20,220,796 Restricted pledges receivable 5,519,191 5,472,633 Capital assets, net 6,990 12,369 Total noncurrent assets 24,962,233 25,840,529 Total assets $ 33,997,839 $ 33,368,544 Liabilities Current liabilities: Accounts payable and accrued expenses $ 3,085 $ 8,590 Accounts payable from restricted assets 44,488 89,753 Unearned revenue 422, ,027 Total current liabilities 470, ,370 Noncurrent liabilities: Funds held in trust for others 65,728 89,807 Unearned revenue 5,519,191 5,472,633 Accrued interest payable from restricted assets - 435,168 Note payable from restricted assets - 2,154,000 Total noncurrent liabilities 5,584,919 8,151,608 Total liabilities 6,054,974 8,462,978 Net assets Invested in capital assets, net of related debt 6,990 12,369 Restricted: Expendable 10,772,173 8,221,904 Nonexpendable 16,726,883 16,237,464 Unrestricted 436, ,829 Total net assets 27,942,865 24,905,566 Total liabilities and net assets $ 33,997,839 $ 33,368,544 The accompanying notes are an integral part of these financial statements. 7

10 Statements of Revenues, Expenses and Changes in Net Assets Operating revenues: Contributions and gifts $ 1,999,362 $ 1,477,868 Fees and other 718, ,997 Net investment (loss) income (190,162) 3,493,215 Total operating revenues 2,527,879 5,760,080 Operating expenses: University projects 2,341,125 2,406,255 General and administrative 155, ,673 Charitable remainder unitrust payments 85,199 18,421 Total operating expenses 2,581,970 2,693,349 Operating (loss) income (54,091) 3,066,731 Nonoperating (expenses): Interest expense - (130,637) Contributions to CSU, Sacramento - (95,326) Total nonoperating expenses - (225,963) Gain (loss) before additions to permanent endowments and extraordinary items (54,091) 2,840,768 Additions to permanent endowments 502, ,885 Extraordinary items: Forgiveness of accrued interest payable 435,168 - Forgiveness of note payable 2,154,000 - Total extraordinary items 2,589,168 - Change in net assets 3,037,299 3,292,653 Total net assets - beginning 24,905,566 21,612,913 Total net assets - ending $ 27,942,865 $ 24,905,566 The accompanying notes are an integral part of these financial statements. 8

11 Statements of Cash Flows Cash flows from operating activities: Cash received from campus community $ 2,734,895 $ 2,265,113 Investment income received 378, ,087 Cash paid to suppliers (2,651,440) (2,709,049) Net cash provided by operating activities 461, ,151 Cash flows from noncapital financing activities: Endowments received 502, ,885 Contributions made to the University - (95,326) Net cash provided by noncapital financing activities 502, ,559 Cash flows from investing activities: Proceeds from sale of long-term investments 2,644, ,584 Long-term investments purchased (2,290,672) (1,845,302) Net cash provided (used) by investing activities 353,684 (1,146,718) Net increase (decrease) in cash and cash equivalents 1,317,591 (651,008) Cash and cash equivalents - beginning 7,274,148 7,925,156 Cash and cash equivalents - ending $ 8,591,739 $ 7,274,148 Reconciliation of operating income to net cash provided by operating activities: Operating income (loss) $ (54,091) $ 3,066,731 Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Change in fair value of investments 583,846 (2,925,587) (Gain) loss on sale of investments (15,454) 15,459 Depreciation expense 5,379 6,097 (Increase) in cash surrender value of life insurance policies (2,601) (11,688) Decrease in restricted receivables 19,455 9,936 (Decrease) in accounts payable and accrued expenses (5,505) (74,995) (Decrease) increase in accounts payable from restricted assets (45,265) 41,923 (Decrease) increase in funds held in trust for others (24,079) 11,275 Net cash provided by operating activities $ 461,685 $ 139,151 Noncash investing, capital and financing activites: Forgiveness of notes payable from restricted assets $ (2,154,000) $ - Forgiveness of accrued interest payable from restricted assets (435,168) - Accrued interest payable from restricted assets - note payable 130,637 The accompanying notes are an integral part of these financial statements. 9

12 Notes to the Basic Financial Statements 1. Organization and Significant Accounting Policies Reporting Entity The California State University Sacramento Trust Foundation was established in 1986 as the philanthropic arm of California State University, Sacramento (the University or CSUS) to promote, assist, and enhance the educational mission of CSUS. In May 2006, the California State University Sacramento Trust Foundation changed its name to The University Foundation at Sacramento State (the Foundation). The Foundation is a governmental not-for-profit, tax-exempt California State University auxiliary organization located on the campus of California State University, Sacramento. The Foundation operates as a business enterprise and is a component unit of the University. The Foundation receives contributions and performs activities for the benefit of the University community. Basis of Presentation The Foundation operates as a business enterprise and the accompanying financial statements reflect the flow of economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The Foundation has elected under Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, to apply all applicable GASB pronouncements as well as any applicable pronouncements of the Financial Accounting Standards Board or any Accounting Research Bulletin issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements. The Foundation has elected not to apply private-sector standards issued after November 30, The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes accounting principles generally accepted in the United States of America (GAAP) for governmental units. The Foundation accounts for the general activities of the organization, gifts and contributions to the Foundation that have been restricted by donors as to the purposes for which the funds may be used, and endowment funds that have been contributed to the Foundation for which the donor has specified that the principal may not be expended. Income earned from the investment of endowment funds is generally expendable within the restrictions specified by the donors. Proprietary funds distinguish operating from nonoperating revenues and expenses. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenue are contributions and gifts, fees and other and investment income. Operating expenses include university projects and general and administrative expenses. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Foundation s policy to use restricted resources first, then unrestricted resources as they are needed. 10

13 Notes to the Basic Financial Statements (Continued) Cash and Cash Equivalents Cash and cash equivalents, for purposes of the statements of cash flows, consists of cash on hand, cash in commercial accounts, short-term money market funds (excluding the charitable remainder unitrusts) and deposits in State of California Investment Pooled Money Investment Account-Local Agency Investment Fund (LAIF). Restricted Cash and Short-term Investments Restricted cash and short-term investments represent restricted donations. Investments Excess cash is pooled for investing purposes. Interest, dividend income and net realized gains and losses from the sale of such marketable securities are recorded as investment income on the statement of revenues, expenses and changes in net assets. The Foundation's policies authorize investment of excess funds in certificates of deposit, savings accounts, federally guaranteed notes and bills, money market funds, equity and other fixed income securities and mutual funds. These investment securities are exposed to risks, such as interest rate and various capital market fluctuations. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities may occur in the near term and that such changes could materially affect the financial statements. The Foundation invests its available cash in the LAIF on a short-term basis. In addition, other longterm investments are held primarily in debt and equity mutual funds. The investments in LAIF are carried at fair value, which approximates amortized cost. Generally, the investments in LAIF are available for withdrawal on demand. LAIF is part of the State of California Pooled Money Investment Account (PMIA), which as of June 30, 2012 and 2011 had a balance of $60.5 billion and $66.4 billion, respectively. The weighted average to maturity of PMIA investments was 270 days and 237 days as of June 30, 2012 and 2011, respectively. The total amount invested by all public agencies in LAIF as of June 30, 2012 and 2011 was $21.9 billion and $24.0 billion, respectively. The Local Investment Advisory Board (Board) has oversight responsibility for LAIF. The Board consists of five members as designated by state statute. The value of the pool shares in LAIF which may be withdrawn is determined on an amortized cost basis, which is different than the fair value of the Foundation s portion of the pool. PMIA funds are on deposit with the State s Centralized Treasury System and are not SEC registered, but are managed in compliance with the California Government Code, according to a statement of investment policy which sets forth permitted investment vehicles, liquidity parameters and maximum maturity of investments. These investments consist of U.S. government securities, securities of federallysponsored agencies, domestic corporate bonds, interest bearing time deposits in California banks, prime-rated commercial paper, bankers acceptances, negotiable certificates of deposit, repurchase and reverse repurchase agreements. The PMIA policy limits the use of reverse repurchase agreements subject to limits of no more than 10% of PMIA. The PMIA does not invest in leveraged products or inverse floating rate securities. Included in PMIA s investment portfolio are structured notes and asset-backed securities totaling $800 million and $1.3 billion as of June 30, 2012 and $1.1 billion and $2.2 billion as of June 30, Charitable remainder unitrusts contain investments in money market mutual funds and debt and equity mutual funds which are reported at fair value. 11

14 Notes to the Basic Financial Statements (Continued) Marketable equity securities and debt securities are reported at fair value. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, and is determined from published data provided by the exchanges, computerized pricing sources, the National Association of Securities Dealers National Market System, securities custodians, and other authoritative sources. Investments in life insurance policies on the lives of donors under which the Foundation is named as beneficiary are carried at the cash surrender value of the policy. Restricted Pledges Receivable Restricted pledges receivable represents private pledge donations, which are recorded at the net realizable value. As of June 30, 2012 and 2011, restricted pledges receivable are recorded as unearned revenue as all applicable eligibility requirements have not been met, in particular the time requirements. Restricted pledges receivable are to be received over the next ten-year period. Capital assets and Depreciation Equipment is stated at cost, if purchased, or at estimated fair market value as of the date of receipt if acquired by gift or donation. Equipment is depreciated using the straight-line method over its estimated useful life, ranging from four to five years. Gains and losses on assets sold or retired are reported as other income. Funds Held in Trust for Others Funds held in trust for others consist of one separate interest in a charitable remainder unitrust partially attributable to other beneficiaries where the Foundation is the principal beneficiary and has been named as trustee. All activity of the unitrusts is allocated ratably among the beneficiaries. Also included in funds held in trust for others are funds earmarked by a donor for a specific student s cost of education. Net Assets Certain net assets of the Foundation have been designated by the Board of Directors with the intention of providing funds for certain University programs and activities. Donations and Contributions Unrestricted contributions are recorded as revenue when received. Under the accrual basis of accounting, receivables and revenues from private donations that are voluntary nonexchange transactions are recognized when all applicable eligibility requirements (required characteristics of recipients, time requirements, reimbursements and contingencies) are met. When the revenue recognition requirements have not been met, amounts are reported as unearned revenue. Noncash donations are recorded at estimated fair market value on the date of donation. Contributions received with donor restrictions are recorded as revenue when all applicable eligibility requirements, generally timing restrictions, have been met. Unexpended contributions with donor purpose restrictions are classified as expendable restricted net assets. Additions to permanent endowments are classified as nonexpendable restricted net assets because the principal is required to be retained in perpetuity pursuant to the donor agreements. 12

15 Notes to the Basic Financial Statements (Continued) The Foundation has received contributions in the form of charitable remainder unitrust funds. These are funds contributed to the Foundation subject to the requirement that the Foundation periodically pay a percentage of the fair market value of the unitrust to the donor for the remainder of the donor's life. The balance, if any, upon the death of the donor, of principal and accumulated earnings will become available to be used in accordance with the designation of the gift. If the Foundation is named as a beneficiary of a charitable remainder unitrust but the funds are held by others, the Foundation does not record the contribution until received, either upon the death of the donor or when the Foundation is named as trustee and receives the unitrust funds to manage in accordance with the terms of the respective unitrust agreement. The Foundation has received contributions in the form of being named as owners and beneficiaries of life insurance policies. Revenues are recognized when cash surrender values are established and upon receipt of any death benefit proceeds from the policies. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures at the date of the financial statements. Accordingly, actual results could differ from those estimates. Income Taxes The Foundation is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and comparable state statutes and is not classified as a private foundation under (509)(a) of the Internal Revenue Code. Contributions to the Foundation qualify as charitable contributions. 2. Cash and Investments As of June 30, 2012 and 2011, the Foundation had the following cash and investments: Cash on hand $ 1,000 $ 1,000 Deposits 265, ,001 Money market deposit 55,091 76,551 US Agency obligations 52,377 54,213 US Treasury obligations 26,113 26,985 Corporate bonds 27,370 27,614 LAIF 8,318,917 6,510,937 Mutual funds: Equity 11,227,872 11,844,338 Money market 6,429 10,694 Fixed income 6,622,290 7,423,131 Real estate 1,085,112 1,099,223 Other 63,334 65,445 Equity common stocks 139, ,812 Total cash and investments $ 27,890,459 $ 27,494,944 13

16 Notes to the Basic Financial Statements (Continued) The Foundation s Board of Directors periodically updates the Foundation s investment policies. These policies establish investment guidelines, asset allocation targets, and allowable investments for endowment funds, current funds and charitable remainder unitrust funds. The Foundation applies the provisions of GASB Statement No. 40, Deposit and Investment Risk Disclosures an amendment to GASB Statement No. 3, which requires governmental entities to provide proper disclosures on common deposit and investment risks related to interest rate risk, credit risk, custodial credit risk, and concentration of credit risk. Interest Rate Risk This is the risk of loss due to the fair value of an investment falling due to rising interest rates. As a means of limiting its exposure to fair value losses arising from rising interest rates, the Foundation s investment policy for current funds limits its investment portfolio for fixed income securities to an average maturity between one and one half to three years. Generally, endowment funds invested in fixed income securities are limited to 20 50% of total endowment funds invested; charitable remainder unitrust funds invested in fixed income securities are limited 20 70% of total charitable remainder unitrust funds; and current funds are limited entirely to either fixed income securities or cash equivalents. There is no interest rate risk for money market accounts as they are available on demand. Refer to the tables on the next page for the interest rate risk disclosure as of June 30, 2012 and Credit Risk This is the risk that an issuer or other counterparty to a debt instrument will not fulfill its obligations. Credit risk is measured by the assignment of ratings by nationally recognized statistical rating organizations. Investments in commercial paper should be rated A-1 by Standard & Poor s and P-1 by Moody s Investors Service and the senior long-term debt of the issuer must be rated above investment grade. Refer to the tables on the next page for the credit risk disclosure as of June 30, 2012 and Custodial Credit Risk Custodial credit risk for deposits is the risk that in the event of a bank failure, the Foundation s deposits may not be returned. The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by depository regulated under State law. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. The Foundation does not have a policy regarding custodial credit risk for deposits. For investments, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Foundation will not be able to recover the value of its investments that are in the possession of the counterparty. The Foundation does not have an investment policy for custodial credit risk. Concentration of Credit Risk This is the risk of loss attributed to the magnitude of an entity s investment in a single issuer. The Foundation s investment policy generally limits fixed income securities to those rated above investment grade. The Foundation s Board of Directors may give permission for some investment managers to purchase bonds below investment grade, but no more than 10% of the portfolio may be invested in securities below investment grade. The Foundation s investment policy generally prohibits investments in the following vehicles without prior permission from the Foundation Board of Directors: short sales, derivatives, margin purchases, acting as an underwriter, options trading, 14

17 Notes to the Basic Financial Statements (Continued) restricted or private placement investments, foreign securities, except those traded on an organized exchange, securities of the investment manager s firm or affiliated firms, futures, commodities, currency hedges, working interests in oil or gas wells, and tobacco stocks. Except for U.S. Treasury and agency obligations, no more than 5% of the portfolio assets should be invested in the securities of a single issuer. Generally, no more than 15% of the endowment or charitable remainder unitrust portfolios shall be invested in a single industry. Banker s acceptances and certificates of deposit should only be purchased from institutions with equity in excess of 5% of assets and profitable operations. The Foundation is not exposed to concentration of credit risk as of June 30, 2012 and The following indicates the credit and interest rate risk of investments as of June 30, 2012 and The credit ratings listed are for Standard and Poor s and Moody s Investor Services, whichever rating is lower. June 30, 2012 Fair Value Credit Rating Weighted Average Maturity LAIF $ 8,318,917 Not Rated 270 days US Agency obligations 52,377 AAA 1 year US Treasury obligations 26,113 AAA 2 years Corporate bonds 27,370 A 2.5 years Mutual funds: Fixed income 6,622,290 A years June 30, 2011 Fair Value Credit Rating Weighted Average Maturity LAIF $ 6,510,937 Not Rated 237 days US Agency obligations 54,213 AAA 3 years US Treasury obligations 26,985 AAA 3 years Corporate bonds 27,614 A 2.81 years Mutual funds: Fixed income 7,423,131 AA years Investment Income The rate of return on investments varies with the rate of return of the underlying portfolios. For the years ended June 30, 2012 and 2011, the rate of return earned on investments governed under the Foundation s investment policy approximated -0.9% and 13.0%, respectively. The rate of return on other long-term investments, as designated by the donors, approximated -5.8% and 14.0% for the years ended June 30, 2012 and 2011, respectively. Investment income for the years ended June 30, 2012 and 2011 are comprised of interest, dividends, realized gains and losses, and unrealized gains and losses due to changes in the fair value of investments held at year-end. 15

18 Notes to the Basic Financial Statements (Continued) 3. Capital Assets Capital asset activity for the years ended June 30, 2012 and 2011, was as follows: July 1, June 30, 2011 Additions Retirements 2012 Capital assets: Equipment $ 29,049 $ - $ - $ 29,049 Less accumulated depreciation for: Equipment (16,680) (5,379) - (22,059) Total capital assets, net $ 12,369 $ (5,379) $ - $ 6,990 July 1, June 30, 2010 Additions Retirements 2011 Capital assets: Equipment $ 29,049 $ - $ - $ 29,049 Less accumulated depreciation for: Equipment (10,583) (6,097) - (16,680) Total capital assets, net $ 18,466 $ (6,097) $ - $ 12, Notes Payable from Restricted Assets The Foundation received a loan from the University on December 11, 2007 in the amount of $2,154,000 that compounded interest annually at 5.3%. The loan was to provide the necessary funds to cover construction costs related to the Broad Athletic Facility project. The loan was to be repaid from future gift funds, sponsorship pledges and other unrestricted funds of the Foundation. Were the funds to be insufficient to repay the loan, University Enterprises, Inc. (UEI), a related party, guaranteed repayment of the loan in full. Payments towards accumulated interest and principal can be made at any time on the note without penalty. On November 1, 2013, the outstanding accumulated interest and principal was to be converted to a five-year fixed rate loan with interest compounding annually at 5.3%. Scheduled payments were going to be due annually on November 30, beginning in 2013, with the final payment due on November 30, In letter dated August 24, 2011 the President of the University authorized the forgiveness of the loan. Subsequently, the accrued interest payable of $435,168 was also forgiven. 16

19 Notes to the Basic Financial Statements (Continued) Long-term liability activity for the year ended June 30, 2012 and 2011 was as follows: July 1, 2011 Additions Retirements June 30, 2012 Note payable to the University $ 2,154,000 $ - $ (2,154,000) $ - July 1, 2010 Additions Retirements June 30, 2011 Note payable to the University $ 2,154,000 $ - $ - $ 2,154,000 Interest expense for the fiscal year ended June 30, 2012 and 2011 amounted to $0 and $130,637, respectively. 5. Related-Party Transactions Other than those disclosed elsewhere in these financial statements, transactions between the Foundation and related organizations during the years ended June 30, 2012 and 2011, included the payments by the Foundation to University Enterprises, Inc. (UEI) of $100,000 and $75,000 for personnel and administrative services. The Foundation made reimbursements to the University for salaries of University personnel working on contracts, grants and other programs that amounted to $187,236 and $213,157, as well as for expenses other than salaries of University personnel that amounted to $62,610 and $73,627 for the years ended June 30, 2012 and 2011, respectively. Amounts due to the University totaled $23,717 and $31,144 at June 30, 2012 and 2011, respectively. During the years ended June 30, 2012 and 2011, the Foundation paid on behalf of the University, from expendable resources, $152,963 and $66,402, respectively, for capital improvements and equipment which are owned by the University. These amounts are presented as part of University projects expense on the statement of revenues, expenses and changes in net assets. 6. Endowments The Foundation s endowments consist of multiple individual donor-restricted funds for a variety of purposes. The amounts of net appreciation on investments of donor-restricted endowments that are available for authorization for expenditure as of June 30, 2012 and 2011 were $736,415 and $719,433, and are included in the balance of restricted expendable net assets as reported in the statement of net assets. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) has been adopted by the State of California and is codified in the Probate Code at Sections UPMIFA applies to institutional funds existing or established after January 1, 2009, and governs decisions made after that date. 17

20 Notes to the Basic Financial Statements (Continued) In its Investment Policy and Administrative Guidelines, the Foundation s Board has set forth the following investing goals and objectives for endowment funds: 1. The primary goal is to preserve the real value of the endowment corpus by achieving a growth rate on the principal amount of the endowment over a market cycle (3-5 years) of not less than the rate of inflation as measured by the CPI. 2. The secondary goal is to provide spendable income equivalent to the spending rate as defined in the disbursement guidelines. 3. To the extent compatible with objectives 1 and 2, investment strategy should maximize longterm total return, while assuming a prudent level of investment risk. The Foundation s endowment fund spending policy allows for the allocation of income equivalent to 4%-6% of the moving average market value of the endowment portfolio. This average market value is computed using the previous twelve quarters of portfolio activity. Income earned in excess of the spending rate may be reinvested in endowment principal. The Foundation s Board has allowed spending in the amount of 5% within the above Investment Policy in 2012 and Unrestricted Net Assets Designated by Board of Directors The Foundation s Board of Directors has established designations of its unrestricted net assets for certain University programs and activities. As of June 30, 2012 and 2011, designated unrestricted net assets totaled $77,302 and $81,019, respectively. 18

21 SUPPLEMENTAL SCHEDULES

22 Schedule of Net Assets June 30, 2012 (for inclusion in the California State University) Assets: Current assets: Cash and cash equivalents $ 265,393 Short-term investments 8,318,917 Accounts receivable, net 21,385 Leases receivable, current portion - Notes receivable, current portion - Pledges receivable, net 422,482 Prepaid expenses and other assets - Total current assets 9,028,177 Noncurrent assets: Restricted cash and cash equivalents 7,429 Accounts receivable, net - Leases receivable, net of current portion - Notes receivable, net of current portion - Student loans receivable, net - Pledges receivable, net 5,519,191 Endowment investments 18,267,888 Other long-term investments 1,030,832 Capital assets, net 6,990 Other assets 137,332 Liabilities: Total noncurrent assets 24,969,662 Total assets 33,997,839 Current liabilities: Accounts payable 47,573 Accrued salaries and benefits payable - Accrued compensated absences current portion - Deferred revenue 422,482 Capitalized lease obligations current portion - Long-term debt obligations current portion - Depository accounts - Self-insurance claims liability - current portion - Other liabilities - Total current liabilities 470,055 Noncurrent liabilities: Accrued compensated absences, net of current portion - Deferred revenue 5,519,191 Grants refundable - Capitalized lease obligations, net of current portion - Long-term debt obligations, net of current portion - Self-insurance claims liabilities, net of current portion - Depository accounts - Other postemployment benefits obligation - Other liabilities 65,728 Total noncurrent liabilities 5,584,919 Total liabilities 6,054,974 Net assets: Invested in capital assets, net of related debt 6,990 Restricted for: Nonexpendable endowments 16,726,883 Expendable: Scholarships and fellowships 3,270,063 Research - Loans - Capital projects - Debt service - Other 7,502,110 Unrestricted 436,819 Total net assets $ 27,942,865 The accompanying note is an integral part of these supplementary schedules. 19

23 Schedule of Revenues, Expenses and Changed in Net Assets Year Ended June 30, 2012 (for inclusion in the California State University) Revenues: Operating revenues: Student tuition and fees (net of scholarship allowances of $ ) $ - Grants and contracts, noncapital: Federal - State - Local - Nongovernmental - Sales and services of educational activities - Sales and services of auxiliary enterprises (net of scholarship allowances of $ ) 718,679 Other operating revenues - Expenses: Total operating revenues 718,679 Operating expenses: Instruction - Research - Public service - Academic support 926,183 Student services 687,534 Institutional support 503,783 Operation and maintenance of plant - Student grants and scholarships 459,091 Auxiliary enterprise expenses - Depreciation and amortization 5,379 Total operating expenses 2,581,970 Operating income (loss) (1,863,291) Nonoperating revenues (expenses): State appropriations, noncapital - Federal financial aid grants, noncapital - State financial aid grants, noncapital - Local financial aid grants, noncapital - Nongovernmental and other financial aid grants, noncapital - Gifts, noncapital 1,999,362 Investment income (loss), net (190,162) Endowment income (loss), net - Interest expenses - Other nonoperating revenues (expenses) 2,589,168 Net nonoperating revenues (expenses) 4,398,368 Income (loss) before other additions 2,535,077 State appropriations, capital - Grants and gifts, capital - Additions (reductions) to permanent endowments 502,222 Increase (decrease) in net assets 3,037,299 Net assets: Net assets at beginning of year, as previously reported 24,905,566 Restatements - Net assets at beginning of year, as restated 24,905,566 Net assets at end of year $ 27,942,865 The accompanying note is an integral part of these supplementary schedules. 20

24 1 Restricted cash and cash equivalents at June 30, 2012: Portion of restricted cash and cash equivalents related to endowments $ 7,429 All other restricted cash and cash equivalents - Total restricted cash and cash equivalents $ 7, Composition of investments at June 30, 2012: The University Foundation at Sacramento State Other Information June 30, 2012 (for inclusion in the California State University) Current Unrestricted Current Restricted Total Current Noncurrent Unrestricted Noncurrent Restricted Total Noncurrent State of California Surplus Money Investment Fund (SMIF) $ - $ - $ - $ - $ - $ - $ - State of California Local Agency Investment Fund (LAIF) 34,084 8,284,833 8,318, ,318,917 Wachovia Short Term Fund Wachovia Medium Term Fund Wachovia Equity Fund US Bank SWIFT pool Common Fund - Short Term Fund Common Fund - Others Debt securities ,370 27,370 27,370 Equity securities , , ,161 Fixed income securities (Treasury notes, GNMA's) ,490 78,490 78,490 Land and other real estate Certificates of deposit Notes receivable Mutual funds ,998,608 18,998,608 18,998,608 Money Market funds ,091 55,091 55,091 Collateralized mortgage obligations: Inverse floaters Interest-only strips Agency pass-through Private pass-through Other major investments: Total investments 34,084 8,284,833 8,318,917-19,298,720 19,298,720 27,617,637 Less endowment investments (enter as negative number) (18,267,888) (18,267,888) (18,267,888) Total investments $ 34,084 $ 8,284,833 $ 8,318,917 $ - $ 1,030,832 $ 1,030,832 $ 9,349, Investments held by the University under contractual agreements at June 30, 2012: Portion of investments in note 2.1 held by the University under contractual agreements at June 30, 2012: $ - $ - $ - $ - $ - $ - $ - Total 2.3 Restricted current investments at June 30, 2012 related to: Amount LAIF $ 8,284,833 Total restricted current investments at June 30, 2012 $ 8,284, Restricted noncurrent investments at June 30, 2012 related to: Amount Endowment Investments $ 18,267,888 Non Endowment investments 1,030,832 Total restricted noncurrent investments at June 30, 2012 $ 19,298,720 The accompanying note is an integral part of these supplementary schedules. 21

25 Other Information (Continued) June 30, 2012 (for inclusion in the California State University) 3.1 Composition of capital assets at June 30, 2012: Balance Transfers of Balance Prior period June 30, 2011 Completed Balance June 30, 2011 Adjustments Reclassifications (restated) Additions Reductions CWIP June 30, 2012 Nondepreciable/nonamortizable capital assets: Land and land improvements $ - $ - $ - $ - $ - $ - $ - $ - Works of art and historical treasures Construction work in progress (CWIP) Intangible assets: Rights and easements - Patents, copyrights and trademarks Internally generated intangible assets in progress Licenses and permits Other intangible assets: Total intangible assets Total nondepreciable/nonamortizable capital assets Depreciable/amortizable capital assets: Buildings and building improvements Improvements, other than buildings Infrastructure Leasehold improvements Personal property: Equipment 29, , ,049 Library books and materials Intangible assets: Software and websites Rights and easements Patents, copyright and trademarks Licenses and permits Other intangible assets: Total intangible assets Total depreciable/amortizable capital assets 29, , ,049 Total capital assets 29, , ,049 Less accumulated depreciation/amortization: Buildings and building improvements Improvements, other than buildings Infrastructure Leasehold improvements Personal property: Equipment (16,680) - - (16,680) (5,379) - - (22,059) Library books and materials Intangible assets: Software and websites Rights and easements Patents, copyright and trademarks Licenses and permits Other intangible assets: Total intangible assets Total accumulated depreciation/amortization (16,680) - - (16,680) (5,379) - - (22,059) Total capital assets, net $ 12,369 $ - $ - $ 12,369 $ (5,379) $ - $ - $ 6,990 The accompanying note is an integral part of these supplementary schedules. 22