2017/18. Annual Financial Report

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1 2017/18 Annual Financial Report

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3 Table of Contents Messages 1 Management Discussion and Analysis 3 Fiscal 2017/18 Overview 4 Financial Risks and Strategy 4 Looking Ahead 5 Financial Results 6 Consolidated Financial Statements 14 Notes to the Consolidated Financial Statements 20 Officers of the University 46 Financial Services / Administration Building / 105 Administration Place / Saskatoon, SK S7N 5A2 Canada Ph: / Fax: / terry.summers@usask.ca / usask.ca/fsd

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5 Lee Ahenakew Chair, Board of Governors The Board of Governors has worked diligently this year to provide oversight and support the leadership team so the university may meet the needs of our province and related global issues. The decisions we make are to ensure we are moving in the bold strategic direction now formalized in the University Plan endorsed by all three governing bodies including Senate and University Council. One of the most important roles we have each year is examining this annual financial report, which puts other university plans into perspective. Through the budget challenges of recent years, we have continually demonstrated a strong record of fiscal responsibility. The U of S recently earned a AA2 credit rating by Moody s, which places it tied for the highest among Canadian universities. This is a key indicator of the university s excellent financial management and financial situation. The province has supported the university to access long-term financing to fulfill much-needed renewal of facilities on-campus, and has worked with our leadership to meet our financial priorities in times with limited resources. Infrastructure and assets continue to grow to meet the ever-changing needs of our students, faculty and staff. We are in various stages of development on a centralized Prince Albert campus, the Livestock and Forage Centre of Excellence, the Collaborative Science Research Building, Health Sciences A-Wing, and Merlis Belsher Place. Built through funding partnerships and generous support, all of these projects help ensure a strong future for the University of Saskatchewan. We re honoured to ensure the appropriate and efficient use of the resources entrusted to us by and for the people of Saskatchewan. Peter Stoicheff President and vice-chancellor Our university can change the world and build Saskatchewan s global reputation. Scarcity of food, water and energy; pandemics and insufficient access to health care; and building inclusive communities, are all global challenges. But they are also challenges that the University of Saskatchewan can contribute to solving. We are attracting researchers, students and staff from around the world. We are assembling collaborative teams to utilize our incredible facilities and tackle issues in food and water security, human and animal health, and building strong and safe communities. And we are providing these teams with the tools and resources they need to succeed. These ambitions, of course, come with a financial cost. Over the last number of years, our funding model has had to change. We have, as the people of Saskatchewan always have, found paths towards financial sustainability. We have kept a keen eye on our balance sheet, ensuring appropriate reductions and new revenue enhancement plans to help us, and our government partners, meet the financial realities of the times. It s an investment worth making as the U of S becomes the university the world needs. 2017/18 University of Saskatchewan Annual Financial Report 1

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7 Management Discussion and Analysis 2017/ /18 University of Saskatchewan Annual Financial Report 3

8 Fiscal 2017/18 Overview Traditionally, the U of S, as with any Canadian university, has been funded through two main sources: government grants and individual user fees. Increased financial pressure on both of those sources has meant the U of S has had to evolve and enhance its financial model. Clear priorities, strong financial stewardship and comprehensive measures taken to address funding shortfalls, have permitted the U of S to continue to operate within its means while continuing to deliver a rich and rigorous educational experience as well as advance globally significant research. Financial Risks and Strategy Funding The evolution of our financial model does not have an end date. The University of Saskatchewan is financially sound today, however, long-term financial sustainability is an ongoing risk that we take very seriously. Over the last number of years the amount of provincial funding to the university has been reduced. We continue to explore alternative strategies. Infrastructure (Facilities and Systems) U of S Bond Our institution is more than 110 years old and, over the years, the need for critical infrastructure renewal has significantly outpaced our provincial funding. During the year, the university issued an $85-million bond to support targeted infrastructure renewal. The overall cost of the bond is lower than with traditional borrowing. The $85 million will support the critical renewal of five core campus buildings: Physics, Thorvaldson, W.P. Thompson (Biology), Murray Library and Arts. Merlis Belsher Place The official opening of Rutherford Rink took place on January 23, 1930 with an initial cost of $47,000. After 88 years of usage, a new campus arena was desperately needed. With a new approach to funding, and instead of a campus arena, the U of S focused on building a community arena. With a price tag of over $40 million we could not build it ourselves, but realizing the return on the investment, our donors, community and government partners quickly helped raise the funds. A new state-of-the-art arena, basketball practice facility and sports research facility Merlis Belsher Place will open on campus this fall. It will also be home to future convocation ceremonies. Future Initiatives Staying true to priorities and focusing resources, the U of S has recognized the need for renewal of our Applied Science/ Engineering building, in alignment with expansion and growth possibilities in engineering programs. Planning activities will commence during the coming year for this future capital development. Critical Success After four years of transformative work, the U of S College of Medicine has been granted full accreditation from the Committee on Accreditation of Canadian Medical Schools (CACMS). Key components of the successful result include the college s recently completed four-year transition to a new undergraduate medical curriculum and that faculty engagement in teaching in the college has more than doubled in the past year. As well, in addition to the strong Indigenous admissions program, the college launched a new Diversity and Social Accountability Admissions Program in In medical research, recent successes include increased funding through the Canadian Institutes of Health Research, and recruitment of key research positions including the Cameco Chair in Indigenous Health and the Saskatchewan Chair in Multiple Sclerosis Clinical Research. This positive outcome for the College of Medicine is vital to the province s health-care system. A strong medical school, housed within a leading research-intensive university like the U of S, benefits everyone in the province. 4

9 The New University Plan An exciting project to become a reality in the past year is the new University Plan. It is a bold document that provides the U of S with focus and guides our aspiration for the next seven years. Built through consultation and collaboration, it evolves from our 2016 Mission, Vision and Values, and is informed by and takes us beyond our previous three integrated plans. The plan challenges us with three commitments: Courageous curiosity: Empower a daring culture of innovation with the courage to confront humanity s greatest challenges and opportunities. Boundless collaboration: Invigorate the impact of collaboration and partnership in everything we do. Inspired communities: Inspire the world by achieving meaningful change with and for our communities. As the plan is implemented, prospective students around the globe will see the U of S as a place to develop the knowledge and skills they need to thrive in a future defined by constant change. Faculty will view the university as a place that creates unmatched possibilities for collaboration, discovery and impact. Staff will find inspiration in the opportunity to create solutions systems, practices, physical spaces that reflect the university s ambition. Our diverse communities will engage with, and find inspiration in, everything we do, and we will take our place among the world s top institutions of higher learning. Looking Ahead The University of Saskatchewan is a significant stakeholder in the growth and success of our province. With the 2018 Saskatchewan budget, the government demonstrated confidence in the advanced education sector, and a continuing commitment to post-secondary education and to the University of Saskatchewan. The university s world-ready graduates and research provide real value to the province, its people and its economy. Ongoing monitoring of the comprehensive financial plan and budget has provided information that enables more informed decisions related to the financial health of the university and ensures financial sustainability. It also allows us to focus resources in key areas. Based on labour market demands, the U of S has identified prosperous opportunities for growth in computer science, biomedical science, engineering, and internships and co-op programs. The U of S is also building Indigenization efforts, expanding graduate programs and pursuing growth in international student enrolment. The University of Saskatchewan is a university for the future. 2017/18 University of Saskatchewan Annual Financial Report 5

10 Financial Results 1 Overall, revenues were down $91.6 million or 9% over the prior year, expenses were up by $24.4 million or 3%, and fund balances decreased by $9.8 million. Operational activities reported a $28.6 million reduction in operating fund balances for the year which was partially offset by favourable results in the Restricted fund activities. Revenues Decreases in grant and contract revenue along with a decrease in the investment earnings when compared to prior year which had better than expected investment returns, contributed to the overall decrease in the total revenues for the year. Expenses In the current year the voluntary exit plans for faculty and staff were implemented at a cost of $21.8 million which contributed to the overall increases in expenses. Excluding the impact of this one-time cost in the current year, total costs for the university rose by 0.3% during 2017/18. Fund Balances Of the $73.4 million general fund balance, $70.8 million is restricted for specific purposes ($45.7 million by donors) and $2.6 million relates to financial reserves which is unrestricted (represents 0.3% of total expenditures). Assets Total assets increased by $62.5 million, or 2% over the prior year as a result of the issuance of an $85 million bond as well as strategic investments in capital assets. Cash and Short-term Investments At April 30, 2018 cash and short-term investments were $21.8 million or 1% of total assets of the university. During the year this balance increased by $24.6 million and is attributable to the decrease in non-cash working capital. Accounts Receivable Millions Assets As at April 30, Total $2,713.3 M ( $2,650.8 M) $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 -$200 Cash & Short-term Investments Accounts Receivable April 2018 April 2017 Investments Other Assets Capital Assets At April 30, 2018 accounts receivable were $212.8 million or 8% of total assets of the university. During the year this balance decreased by $7.6 million or 3%. The decrease relates to grants and contracts related to research activities. The magnitude of the accounts receivable balance results from the fund accounting methodology followed by the university whereby revenues are recognized when confirmation of awards have been received, not when funds have been received. 1 Management s Discussion and Analysis should be read in conjunction with the University of Saskatchewan annual audited financial statements and accompanying notes. This discussion document and the annual audited financial statements are approved by the university s Board of Governors upon recommendation of the Audit Committee of the Board. The university s financial statements are prepared in accordance with Canadian generally accepted accounting principles for not-for-profit organizations, following the restricted fund method of financial reporting. 6

11 Investments At April 30, 2018 investment balances were $881.6 million or 32% of total assets of the university. During the year this balance decreased by $46.4 million or 5%. The decrease reflects the market situation of investments during the year and withdrawals necessary to cover cash requirements for operating expenditures. Overall investment returns for the year were 2.8%; fixed income returns of 0.4% and long-term pool returns of 3.2% and long-term diversified strategies pool of 2.7%, compared to expected returns of (0.8)%, 3.7% and 3.2% respectively. These results are within normal volatility ranges for the investment portfolio and are consistent with benchmark returns. Other Assets Including Inventories and Prepaid Expenses At April 30, 2018 other assets were $29.0 million or 1% of total assets of the university. During the year this balance increased by $1.6 million or 6%. The increase is due to the increase in inventory related to the Livestock and Forage Centre of Excellence. Capital Assets At April 30, 2018 capital assets were $1,568.1 million or 58% of the total assets of the university. During the year, this balance increased by $90.3 million or 6%. This increase reflects the cost of additions to the capital assets during the year of $169.6 million which was partially offset by current year amortization of $79.3 million; this activity is net of current year disposals. Significant construction and improvements during the year are: $54.3 million Collaborative Science Research Building $30.8 million in College Quarter Ice Facility $16.6 million Livestock and Forage Centre of Excellence $11.6 million in Health Science Wing A Renovation $7.1 million building purchase in Prince Albert for the University of Saskatchewan Northern Gateway Hub Liabilities Total liabilities increased by $72.4 million or 23% over the prior year, with current liabilities increasing by $25.3 million and long-term liabilities increasing by $47.1 million as a result of the issuance of an $85.0 million bond, and offset by decreases in the liabilities recorded for employee future benefits and our risk management positions. Liabilities As at April 30, Total $389.8 M ( $317.4 M) $250 $200 April 2018 April 2017 Accounts Payable and Accrued Liabilities, Deferred Revenue, Accrued Decommissioning Costs and Other Liabilities At April 30, 2018 accounts payable, deferred revenue, accrued decommissioning costs and other liabilities were $164.5 million or 42% of total liabilities of the university. During the year this balance increased by $29.1 million or 21%. This increase relates to an increase in payables and accrued liabilities on significant construction projects, liability for the incentivized exit programs offered to staff and faculty, as well as the timing of our payroll remittances. Millions $150 $100 $50 $0 Accounts payable and other liabilities Debt Risk management liabilities Employee future benefits Debt At April 30, 2018 debt was $203.0 million or 52% of total liabilities of the university. During the year this balance increased by $73.3 million or 57%. This increase relates to the issuance of an $85.0 million bond that will be used for the renewal of five core campus buildings that are essential to the university s academic mission, less principal repayments of long-term debt. An internally held and administered sinking fund has been established for the purpose of retirement of the $85 million bond. Sinking fund contributions and annual debt service costs for the bond are covered through annual contribution from the university operating budget. Other existing debt relates to capital construction projects and debt service costs are provided through revenues generated by the operations of the facilities (eg. parking fees, residence fees), or through capital grants. 2017/18 University of Saskatchewan Annual Financial Report 7

12 Risk Management Liabilities At April 30, 2018 risk management liabilities were $20.4 million or 5% of total liabilities of the university. During the year this balance decreased by $11.2 million or 36%. This decrease relates to a $9.6 million decrease in the liability of interest rate swaps, and a $1.6 million decrease in the liability for foreign currency hedges. The university enters into natural gas commodity swap agreements to manage the risk of fluctuating natural gas prices by fixing the purchase price into the future. No new swaps have been purchased in the current fiscal year. Interest rate risk on long-term debt is managed through the use of interest rate swaps by converting the interest charged on variable rate loans to fixed interest rates. No new interest rate swaps have been purchased since 2012/13. The university enters into a foreign currency hedge agreement in order to manage the foreign exchange rate exposure associated with global investments. Employee Future Benefits At April 30, 2018 employee future benefit liabilities were $1.9 million or 1% of the total liabilities of the university. During the year this balance decreased by $18.8 million or 91%. This decrease reflects the improved position of the university s defined benefit pension plans and other obligations due to employees upon retirement. The university provided special going-concern payments of $6.2 million to the defined benefit pension plans in 2017/18. Fund Balances Fund Balances are a significant indicator of the financial health of an organization. They represent the net resources of the organization after all obligations have been met. At April 30, 2018 the fund balances of the university were $2,323.5 million (including investments in capital assets of $1,426.3 million). During the year this balance decreased by $9.9 million or 1%. A key driver in this decrease is the impact of the voluntary exits plans offered to faculty and staff, pension liabilities, and investment returns. Endowment Fund Balance At April 30, 2018 endowment fund balance was $378.1 million or 16% of the total fund balance of the university. During the year this balance increased by $3.5 million or 1%. This increase is due to donations of $2.7 million, and a reallocation of university resources in the amount of $4.4 million (including the recapitalization of spending allocations), which was partially offset by investment losses of $3.4 million. Millions Millions Fund Balances As at April 30, Total $2,323.5 M ( $2,333.4 M) $2,500 $2,000 $1,500 $1,000 $500 $ Financial Reserves Designated General Funds Restricted for Endowments Restricted for Research Restricted for Student Financial Aid Restricted for Capital Invested in Capital Assets Endowment Fund Balance As at April 30, Total $378.2 M ( $374.6 M) $400 $300 $200 $100 $163.1 M 43.1% $215.0 M $162.1 M 43.3% $212.5 M Segregated Capital Contributed Capital $

13 Endowment Funds account for donations received where the donor s intent is that the principal will never be spent. A portion of the investment income earned on the endowment is directed to activities identified by the donor. In accordance with the university spending policy 4.0% of the endowment fund balance was made available to support current year activities. A review of the spending policy was conducted in the prior year to ensure that stable annual funding is provided by endowments and that the purchasing power of the endowments are protected. Based on the current year analysis, the annual spending allocations have been reduced from 4.0% to 3.75% for 2018/19. The university will continue to monitor these funds and review the spending allocation to optimize the current and long term support to research and student financial aid. Student Financial Fund Balance At April 30, 2018 student financial aid fund balance was $57.9 million or 3% of the total fund balance of the university. During the year this balance increased by $0.1 million or 0.3%. This increase is due to current year contributions of $28.3 million exceeding expenditures of $28.2 million. Student Financial Aid Funds account for activities related to providing scholarships and bursaries to students. Terms of reference established by donors may require that donations received, and accumulated interest, be spent over an extended period of time rather than in the year the donation is received, hence the accumulated fund balance. The university actively manages these funds to ensure appropriate aid is passed on to the students as prescribed by the donors request. Capital Fund Balance At April 30, 2018 capital fund balance was $1,492 million or 64% of the total fund balance of the university. During the year this balance increased by $41.8 million or 3%. This increase is due to current year contributions of $123.1 million exceeding noncapitalized expenditures of $81.3 million. Capital Funds account for activities related to the acquisition of capital assets, major renovations and improvements to capital assets. As a result of the current year review of financial reserve balances, $8.3 million was transferred in the current year from the general fund for specific identified capital purposes. Research Fund Balance At April 30, 2018 research fund balance was $322.1 million or 14% of the total fund balance of the university. During the year this balance decreased by $27.4 million or 8%. This decrease is due to current year expenditures of $149.3 million exceeding contributions of $121.9 million. Research Funds account for activities related to the support of research. Terms of reference established by funding agencies and donors may require that monies received be spent over an extended period of time rather than in the year the revenue is recognized. The university recognizes revenue for government contributions annually, after appropriations have been made, while grants not subject to appropriations are recognized in their entirety when the research agreement has been signed. This generally results in revenue being recognized in advance of the expenditures being incurred which results in accumulated fund balances. General Fund Balance At April 30, 2018 general fund balance was $73.4 million or 3% of the total fund balance of the university. During the year this balance decreased by $27.9 million or 28%. This decrease is due to planned spending initiatives, including the costs of voluntary exit plans, and poorer than expected investment returns. General Funds account for unrestricted activities of the university. This includes operating activities associated with teaching and learning, administration, plant maintenance, clinical activities, future employee benefits, non-credit instruction, fee for service activities, and the consolidation of subsidiaries. Also included are ancillary activities that provide goods and services to the university community such as the bookstore, food services, residences, parking, real estate development, etc. In accordance with the current Financial Reserves Policy which became effective May 1, 2015, the university continues to review all general fund balances and has classified funds for designated projects separately from financial reserves. As at April 30, 2018, of the $73.4 million general fund balance, $70.8 million relates to designated projects and $2.6 million relates to financial reserves. Designated projects include funds received from donors, and restricted in use, in the amount of $45.7 million. 2017/18 University of Saskatchewan Annual Financial Report 9

14 Revenues University revenues have decreased by $91.6 million or 9% over the prior year to a total of $970.9 million. This decrease is comprised of a $30.2 million decrease in grants and contracts, an increase in student fees of $6.4 million, a $64.6 million decrease in investment returns, an increase in gifts, grants and bequests in the amount of $2.5 million, a decrease in sales of services and products of $3.6 million, and a decrease in real estate income, royalties and miscellaneous income in the amount of $2.1 million. Total Revenue by Source for the year ended April 30, Total $970.9 M ( $1,062.5 M) April 2018 April 2017 $350 $250 Millions $150 $50 ($50) Government of Canada Gov t SK Operating Grant Gov t SK Other Grants & Contracts Other Gov t Non Gov t Student Fees Gifts & Bequests Sales of Products & Services Investment Income Other Grants and Contracts Grants and contracts account for $642.8 million or 66% of total university revenues. These revenues decreased by $30.2 million over the previous year. Federal government grants decreased by $10.9 million over the prior year and non-government grants increased by $2.9 million as a result of CFI funding for operational and capital projects needs. Support from other governments increased by $4.6 million while the funding from the Province of Saskatchewan decreased by $26.8 million. Decreases in funding from the Federal Government relate to an annual grant for the indirect costs involved in administering Tri-Agency awards. The funding letters are usually finalized and received prior to the year-end. The funding letter was finalized and received in May 2018 and, therefore, funding was recorded in the 2018/19 fiscal year. 10

15 During 2017/18 the Province of Saskatchewan provided an operating grant totaling $316.7 million which includes the following funding adjustments to the university: $20.0 million mid-year reinstatement of targeted funding to the College of Medicine; $15.7 million decrease due to a 5% operating grant funding base reduction for the 2017/18 fiscal year; $1.2 million reduction as a result of their funding formula shift; $1.1 million reduction in targeted funding for the International Centre for Northern Governance and Development which was closed during the year; A spring 2016 provincial election delayed the annual budget announcement until June which resulted in $28.8 million in annual grants to the University being recognized as revenue in 2016/17 rather than 2015/16. The provinces of British Columbia, Alberta, and Manitoba participate in supporting the operational activities of the Western College of Veterinary Medicine through an interprovincial agreement with the Province of Saskatchewan. The current agreement includes a 2% fee escalation factor. Student Fees Student tuition and fees account for $146.9 million or 15% of total university revenues. These revenues increased by $6.4 million over the previous year. This increase is attributable to an average tuition rate increase of 2.5%. Enrolment figures remained relatively constant to the previous year with a total headcount of 24,924 students (up slightly from 24,677 students in 2016/2017). The University of Saskatchewan will continue to follow its established principle-based approach in determining appropriate tuition rates for our colleges and schools. Income From Investments Investment income accounts for $25.0 million or 3% of total university revenues. These revenues decreased by $64.6 million from the previous year when investment returns reflected an income of $89.6 million. Overall investment returns for the current year were 2.8% compared to the 10.0% in the prior year. Gifts, Grants and Bequests Gifts, grants and bequests account for $34.6 million or 4% of total university revenues. These revenues increased by $2.5 million over the previous year. This increase is attributable to identified support for from donors being higher than what was experienced in the prior year. Sales of Services and Products Sales of services and products account for $90.1 million or 9% of total university revenues. These revenues decreased by $3.6 million over the previous year due to the reduction of fee-for-service medical services being conducted through the College of Medicine in accordance with its strategic plan. The university engages in a variety of activities that provide products and services to students, faculty, staff and external customers of the university, including bookstore, residences, food services, parking, non-credit instruction, veterinary services, dental services, medical services, farming operations, utilities, et al. Real Estate Income, Royalties and Miscellaneous Income Real estate income, royalties and miscellaneous income account for $31.5 million or 3% of total university revenues. These revenues decreased by $2.1 million over the previous year due to decreases in royalty revenues, foreign exchange gains, and other non-recurring miscellaneous revenues. Expenses University expenses have increased by $24.4 million or 3% over the prior year to a total of $993.0 million. One time salary costs were recognized in the current year, in the amount of $21.8 million, related to voluntary exit plans for faculty and staff. Excluding this extraordinary item expenses increased by $2.6 million or 0.3% over the prior year. 2017/18 University of Saskatchewan Annual Financial Report 11

16 Total Expenditures For the year ended April 30, Total $993.0 M ( $968.6 M) April 2018 April 2017 $600 $500 $400 $300 Millions $200 $100 $0 Salaries and benefits Operational supplies and expenses Cost of goods sold, equipment rental, travel and other Utilities Amortization Scholarships, bursaries and awards Salaries and Employee Benefits Salaries and employee benefits account for $586.7 million or 59% of total university expenses. These costs increased by $25.8 million over the previous year. Of this amount, $21.8 million relates to the voluntary exit plans which were exercised during the year across the University. Excluding this extraordinary item, salary and benefit costs increased by 0.7% over the prior year. Operational Supplies and Expenses Operational supplies and expenses account for $191.9 million or 19.3% of total university expenses. These costs decreased by $4.2 million or 2% compared to the previous year, primarily as a result of timing of major research project activity in the College of Medicine. Travel, Cost of Goods Sold, Maintenance Rental and Renovations, Interest, Bad Debt and Decommissioning Cost Expenses Travel, costs of goods sold, maintenance, rental, and renovations, interest, bad debt and other decommissioning cost expenses account for $50.8 million or 5% of total university expenses. These costs decreased by $9.9 million or 16% over the previous year. This decrease is attributable to the change in the value of interest rate swaps that were held throughout the year, where the value of swap agreements fluctuate as the market interest rate differs from the price negotiated in the swap agreement. During the year the market interest rate increased above the negotiated price in the swap agreement, which resulted in a cost recovery of $4.3 million to the university, compared to the previous year expense of $2.3 million. The remainder of the decrease is widely dispersed across expenditure categories and is not related to any specific activity. Utilities Utilities account for $26.6 million or 3% of total university expenses. These costs increased by $2.4 million or 10% over the previous year. The increase is attributable to the change in value of natural gas commodity swaps that were held throughout the year. The value of swap agreements fluctuate as the market price for natural gas differs from the price negotiated in the swap agreement. In the current year the market price for natural gas fell in relation to the negotiated price in the swap agreement, as compared to the previous year, which resulted in increased costs to the university as compared to the previous year. Amortization Amortization accounts for $82.3 million or 8% of total university expenses. These costs increased by $2.6 million or 3% over the previous year. Since the cost of an asset is allocated over its useful life, this increase is attributable to the impact of new assets that were brought into use during the year. 12

17 Scholarships, Bursaries and Awards Scholarships bursaries and awards account for $54.7 million or 6% of total university expenses. These costs increased by $7.7 million or 16% over the previous year. The level of support provided to students through these awards has increased from 33% of total tuition revenue in the previous year to 37% in the current year. Comprehensive Budget In 2016, the university began the budget framework project designed to improve budget-related processes, and identify related training and change management requirements. This framework will also identify and mitigate related risks, and implement supporting technology to optimize the development and communication of university budgets and related activities. Using interim processes designed under the budget framework project, the university developed its first comprehensive budget, approved by the Board of Governors, for the fiscal year. The development of a comprehensive budget is part of the university s continuous improvement process for strong financial stewardship. Overall, comprehensive financial results for the university were favourable as ending fund balances were $6.7M higher than budgeted. A comparison of the comprehensive budget to actual results is as follows: Total for Budget Actual Variance Revenues Grants and contracts $ 628,433 $ 642,766 $ 14,333 Student fees 144, ,854 2,143 Gifts, grants and bequests 25,728 34,610 8,882 Income from investments 46,221 24,968 (21,253) All other income 112, ,700 9,082 Expenses 957, ,898 13,187 Salaries & Benefits 566, ,698 (20,354) Scholarships, bursaries and awards 44,829 54,685 (9,856) Interest 9,728 (4,326) 14,054 Amortization 92,257 82,318 9,939 All other non-salary 261, ,649 (12,522) 974, ,024 (18,739) Net increase (decrease) in fund balances for year (16,574) (22,126) (5,552) Fund balances, beginning of year 2,333,388 2,333,388 - Employee future benefits remeasurements and other items - 12,288 12,288 Fund balances, end of year $ 2,316,814 $ 2,323,550 $ 6,736 Comprehensive revenues had a favourable variance of $13.2 million. A major contributing factor to the favourable variance was a mid-year adjustment from the Province of Saskatchewan providing $20.0 million of targeted funding to the College of Medicine that was not included in the initial budget. Additionally, in , the university realized higher than anticipated tuition and other income, and successful fundraising efforts led to additional gift, grant and bequest revenues. Lower than expected investment income returns partially offset these favourable variances. Comprehensive expenses had an unfavourable variance of $18.7 million. Cost containment strategies, such as the implementation of voluntary exit plans offered to faculty and staff, resulted in a one-time expense of $21.8 million ($11.2M higher than budget). Increases in student scholarships, bursaries and awards and other non-salary expenditures were also significant factors in the unfavourable variance. A favourable variance in interest expense (recovery) due to a later than originally planned bond issuance and increases in the valuation of interest rate swaps partially offset these variances. Employee future benefits remeasurements of $12.3 million were recognized directly in fund balances as a separately identified line item and resulted in a favourable variance. 2017/18 University of Saskatchewan Annual Financial Report 13

18 Consolidated Financial Statements 2017/18 14

19 Statement of Administrative Responsibility for Financial Reporting The administration of the university is responsible for the preparation of the consolidated financial statements and has prepared them in accordance with Canadian generally accepted accounting principles. The administration believes that the consolidated financial statements fairly present the financial position of the university as of April 30, 2018 and the results of its operations and the changes in its fund balances for the year then ended. In fulfilling its responsibilities and recognizing the limits inherent in all systems, the administration has developed and maintains a system of internal controls designed to provide reasonable assurance that university assets are safeguarded from loss and that the accounting records are a reliable basis for the preparation of financial statements. The integrity of the internal controls is reviewed on an ongoing basis by internal audit. The Board of Governors carries out its responsibility for review of the consolidated financial statements principally through its Audit Committee, which is a committee of the Board of Governors. The external and internal auditors have access to the Audit Committee, with or without the presence of the administration. The consolidated financial statements for the year ended April 30, 2018 have been reported on by the Provincial Auditor of the Province of Saskatchewan, the external auditor appointed under The University of Saskatchewan Act, The Auditor s Report outlines the scope of her examination and provides her opinion on fairness of presentation of the information in the financial statements. The University of Saskatchewan is audited on an annual basis by the Provincial Auditor of Saskatchewan with results reported to the Board of Governors and the Legislative Assembly of Saskatchewan. The objective of the audit is to provide an opinion on the rules and procedures used by the University to safeguard public resources, to provide an opinion on the University s compliance with authorities governing its activities relating to financial reporting, safeguarding public resources, revenue raising, spending, borrowing, and investing, and to provide an opinion on the reliability of the University s consolidated financial statements. The audit report on the consolidated financial statements appears on the following page. The current year s audit by the Provincial Auditor did not identify any significant control or compliance with authorities deficiencies. Peter Stoicheff President Greg Fowler Vice-President Finance and Resources 2017/18 University of Saskatchewan Annual Financial Report 15

20 INDEPENDENT AUDITOR S REPORT To: The Members of the Legislative Assembly of Saskatchewan I have audited the accompanying consolidated financial statements of the University of Saskatchewan, which comprise the consolidated statement of financial position as at April 30, 2018, and the consolidated statements of operations and changes in fund balances, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian accounting standards for not-for-profit organizations for Treasury Board s approval, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express an opinion on these consolidated financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the University of Saskatchewan as at April 30, 2018, and the consolidated results of its operations and changes in fund balances and consolidated cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Regina, Saskatchewan July 27, 2018 Judy Ferguson, FCPA, FCA Provincial Auditor 16

21 UNIVERSITY OF SASKATCHEWAN Consolidated Statement of Financial Position As at April 30 ($ thousands) Current Assets General Restricted Endowment Cash and short-term investments (Note 4) $ (200,279) $ 219,511 $ 2,589 $ 21,821 $ (2,824) Accounts receivable (Note 5) 31, , , ,490 Inventories (Note 6) 14, ,006 13,092 Prepaid expenses 11, ,504 11,514 Risk Management Assets (Note 13) Long-Term Assets Total 2018 Total 2017 (142,652) 378,839 2, , ,272 Long-term accounts receivable (Note 7) 10 21,670-21,680 29,942 Long-term investments (Note 8) 351, , , , ,025 Other assets 943 1, ,911 2,789 Capital assets (Note 9) - 1,568,032-1,568,032 1,477,774 Current Liabilities 352,663 1,746, ,277 2,474,255 2,438,530 $ 210,011 $ 2,125,154 $ 378,153 $ 2,713,318 $ 2,650,802 Accounts payable and accrued liabilities (Note 10) $ 84,904 $ 26,533 $ - $ 111,437 $ 78,417 Deferred revenue (Note 11) 35, ,672 32,255 Loans (Note 12) Risk management liabilities (Note 13) 5,876 14,495-20,371 31,596 Current portion - long-term debt (Note 14) - 11,316-11,316 11,071 Current portion - employee future benefits (Note 15) 1, ,344 1,548 Current portion - capital lease obligation Long-Term Liabilities 127,910 52, , ,038 Long-term debt (Note 14) - 191, , ,648 Long-term accrued liabilities 7, ,389 15,137 Employee future benefits (Note 15) ,163 Accrued decommissioning costs (Note 16) - 9,153-9,153 8,892 Other long-term liabilities Fund Balances 8, , , ,376 Externally restricted funds (Note 19) - 373, , , ,430 Externally restricted permanent endowments (Note 19) , , ,385 Internally restricted funds (Note 20) 116,327 71,733 48, , ,039 Invested in capital assets - 1,426,373-1,426,373 1,315,087 Unrestricted funds (deficiency) (42,892) - - (42,892) (4,553) Commitments and Contingencies (Note 21) See accompanying notes and schedules to consolidated financial statements Statement 1 73,435 1,871, ,153 2,323,550 2,333,388 $ 210,011 $ 2,125,154 $ 378,153 $ 2,713,318 $ 2,650, /18 University of Saskatchewan Annual Financial Report 17

22 UNIVERSITY OF SASKATCHEWAN Consolidated Statement of Operations and Changes in Fund Balances For the Year Ended April 30 ($ thousands) Statement 2 Revenues Grants and contracts General Restricted Endowment Total l 2018 l Government of Canada $ 3,256 $ 76,461 $ - $ 79,717 $ 90,647 Government of Saskatchewan 401,732 68, , ,388 Other governments 21,965 9,524-31,489 26,857 Non-government 6,380 54,592-60,972 58,116 Student fees 146, , ,457 Gifts, grants and bequests 13,558 18,383 2,669 34,610 32,061 Sales of services and products 90, ,126 93,686 Income (loss) from investments 15,109 13,406 (3,547) 24,968 89,633 Real estate income 6, ,309 6,173 Royalties 18, ,696 19,370 Miscellaneous income 5, ,569 8,049 Expenses Total , ,274 (875) 970,898 1,062,437 Salaries (Note 22) 445,362 74, , ,660 Employee benefits (Note 23) 59,047 7,400-66,447 68,182 Operational supplies and expenses 156,381 35, , ,037 Travel 12,971 7,374-20,345 19,736 Cost of goods sold 15, ,017 15,808 Maintenance, rental and renovations 14,178 3,670-17,848 17,318 Utilities 24,860 1,742-26,602 24,232 Amortization - 82,318-82,318 79,668 Scholarships, bursaries and awards 5,012 49,673-54,685 47,028 Interest (Note 24) 5 (4,331) - (4,326) 2,332 Bad debt expense 1, ,398 4,980 Decommissioning costs (Note 16) , , , ,587 Excess (deficiency) of revenues over expenses (4,720) (16,519) (887) (22,126) 93,850 Interfund transfers (Note 27) (35,516) 31,070 4, Net increase (decrease) in fund balances for year (40,236) 14,551 3,559 (22,126) 93,850 Fund balances, beginning of year 101,383 1,857, ,594 2,333,388 2,237,508 Employee future benefits remeasurements and other items 12, ,288 2,030 Fund balances, end of year $ 73,435 $ 1,871,962 $ 378,153 $ 2,323,550 $ 2,333,388 See accompanying notes and schedules to consolidated financial statements 18

23 UNIVERSITY OF SASKATCHEWAN Consolidated Statement of Cash Flows For the Year Ended April 30 ($ thousands) Statement 3 Operating Activities General Restricted Endowment Excess (Deficiency) of revenues over expenses $ (4,720) $ (16,519) $ (887) $ (22,126) $ 93,850 Add (deduct) non-cash items: Amortization of capital assets - 82,318-82,318 79,668 Amortization of decommissioning costs Change in unrealized fair value of investments 28,012 26,892 (7,233) 47,671 (45,669) Change in fair value of risk management asset/liability (1,095) (9,745) (974) (11,814) (3,924) Loss on disposal of capital assets - (80) - (80) 12 Employee future benefits expense Contributions for endowments and other asset purchases (1,252) (2,582) (98) (3,932) (3,289) Decrease (increase) in non-cash working capital (Note 17) 15,762 19, ,880 (72,313) Decrease (increase) in grants and contracts related to research and other project receivables 25 8,237-8,262 11,624 Employee future benefits contributions (6,178) - - (6,178) (5,536) Investing Activities Total 2018 Total , ,066 (9,181) 130,011 55,297 Sale (Purchase) of investments 112,805 (115,804) 769 (2,230) 5,569 (Increase) decrease in other assets (95) (27) - (122) (85) Purchase of capital assets - (171,074) - (171,074) (99,281) Change in other long-term liabilities (7,570) - - (7,570) 7, ,140 (286,905) 769 (180,996) (86,705) Financing Activities Contributions of cash for endowments - - 2,377 2,377 11,145 Proceeds from issuance of long-term debt - 84,363-84,363 - Repayment of loans (14) - - (14) (12) Repayment of long-term debt (27) (11,069) - (11,096) (10,872) (41) 73,294 2,377 75, Net increase (decrease) in cash 136,225 (105,545) (6,035) 24,645 (31,147) Interfund transfers (35,516) 31,070 4, Cash (bank indebtedness), beginning of year (300,988) 293,986 4,178 (2,824) 28,323 Cash (bank indebtedness), end of year $ (200,279) $ 219,511 $ 2,589 $ 21,821 $ (2,824) See accompanying notes and schedules to consolidated financial statements 2017/18 University of Saskatchewan Annual Financial Report 19

24 THE UNIVERSITY OF SASKATCHEWAN NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the Year Ended April 30, 2018 ($ Thousands) 1. Authority and Purpose The University of Saskatchewan (university) is a corporation operating under the authority of The University of Saskatchewan Act, 1995, Chapter U-6.1 of the statutes of Saskatchewan. The primary role of the university is to provide post-secondary instruction and research in the humanities, sciences, social sciences, and other areas of human, intellectual, cultural, social and physical development. The university is a registered charity and is therefore exempt from the payment of income tax, pursuant in section 149 of the Income Tax Act (Canada). 2. Summary of Significant Accounting Policies and Reporting Practices These financial statements have been prepared in accordance with Canadian accounting standards for not-for-profit organizations. The following accounting policies and reporting practices are considered significant: a) Basis of consolidation The consolidated financial statements include the accounts of the following entities: Agrivita Canada Inc., a not-for-profit corporation incorporated under the Canada Corporations Act and continued under the Canada Not-for-profit Corporations Act whose sole member is the University of Saskatchewan. The company promotes, targets, and funds research, training, and service initiatives in various disciplines for purposes related to agricultural health and safety for industry and farm workers, rural residents and families, and the impact of agricultural activities on the general public. This entity s year end for consolidation purposes is April 30, Canadian Light Source Inc. (CLSI), a not-for-profit corporation incorporated under The Non-profit Corporations Act, 1995 whose sole member is the University of Saskatchewan. The company s mandate is to advance Canadian scientific and industrial capabilities in synchrotron science and technical applications. The company is responsible for the operation and conduct of all activities related to the university s synchrotron light facility, its operation and performance. This entity s year end for consolidation purposes is March 31, Prairie Swine Centre Inc. (PSCI), a not-for-profit corporation incorporated under The Non-profit Corporations Act, 1995 whose membership is restricted to the members of the Board of Governors of the University of Saskatchewan. The company is engaged in research, education and technology transfer related to pork production in Canada. This entity s year end for consolidation purposes is June 30, Saskatchewan Ltd., a wholly owned subsidiary of the university incorporated under The Business Corporations Act, participates in real estate investment activities. This entity s year end for consolidation purposes is April 30, The Sylvia Fedoruk Canadian Centre for Nuclear Innovation (the Fedoruk Centre), a not-for-profit corporation incorporated under the Canada Not-for-profit Corporations Act whose sole member is the University of Saskatchewan. The mandate of the company is to place Saskatchewan among global leaders in nuclear research, development and training through investment in partnerships with academia and industry, for maximum societal and economic benefit. This entity s year end for consolidation purposes is March 31, b) Fund accounting The university follows the restricted fund method of accounting for contributions. Under fund accounting, resources are classified for accounting and reporting purposes into funds in accordance with specified activities or objectives. The university has classified accounts with similar characteristics into major funds as follows: i) The General Fund is unrestricted and accounts for the university s program delivery, service and administrative activities. This fund is further classified as Operating and Ancillary. The Operating Fund accounts for the university s functions of instruction (including academic support services), administrative services, plant maintenance and other operating activities. 20