SAN FRANCISCO STATE UNIVERSITY. Financial Statements. June 30, (With Independent Auditors Report Thereon)

Transcription

1 Financial Statements (With Independent Auditors Report Thereon)

2 Table of Contents Page(s) Independent Auditors Report 1 2 Management s Discussion and Analysis (Unaudited) 3 14 Financial Statements: Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position 17 Statement of Cash Flows Required Supplementary Information Schedule 1: Schedule of University s Proportionate Share of the Net Pension Liability (Unaudited) 50 Schedule 2: Schedule of Employer Contributions (Unaudited) 51-52

3 KPMG LLP Suite Pacifica Irvine, CA Independent Auditors Report Dr. Leslie E. Wong President San Francisco State University: Report on the Financial Statements We have audited the accompanying financial statements of San Francisco State University (the University), an agency of the State of California, and its aggregate discretely presented component units, as of and for the year ended, and the related notes to the financial statements, which collectively comprise the University s financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the aggregate discretely presented component units, is based solely on the reports of the other auditors. We conducted our audit 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 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 auditors 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinions, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the University and the aggregate discretely presented component units of the San Francisco State University, as of, KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended, in accordance with U.S. generally accepted accounting principles. Emphasis of a Matter Adoption of New Accounting Pronouncements As discussed in the note 2 to the financial statements, in fiscal year 2016, San Francisco State University adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management s discussion and analysis on pages 3 through 14 and the schedules of University s proportionate share of the net pension liability and employer contributions in Schedules 1 and 2, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the GASB 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. January 30,

5 Management s Discussion and Analysis (Unaudited) The following discussion and analysis provides an overview of the financial position and performance of San Francisco State University (the University) as of and for the year ended. The discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes, which follow this section. Separate financial statements are issued for each of the discretely presented component units and may be obtained from the management of these organizations. The financial statements of the University as of and for the year ended have been prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. For reporting purposes, the University is considered a special-purpose government engaged in business-type activities. Financial Statements This discussion and analysis is intended to serve as an introduction to the University s financial statements: the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. The financial statements are designed to provide readers with a broad overview of the University s finances from all sources of revenue, in a manner similar to the private sector. The Statement of Net Position is the University s balance sheet. It presents information on all of the University s assets, deferred outflows of resources, liabilities, and deferred inflows of resources, with the difference between these four are reported as net position (equity). Assets, deferred outflows of resources, liabilities, and deferred inflows of resources are generally reported at their book value, except investments, which are reported at their fair value. Over time, increases or decreases in net position may serve as a useful indicator of the financial position of the University. The University s net position is classified into three categories: Net investment in capital assets Restricted Unrestricted Changes from one year to the next in total net position as presented on the Statement of Net Position are based on the activity presented on the Statement of Revenues, Expenses, and Changes in Net Position. The Statement of Revenues, Expenses, and Changes in Net Position is the University s income statement. Revenues earned and expenses incurred during the year on an accrual basis are classified as either operating or nonoperating. This distinction results in operating deficits, as the GASB Statement No. 35 reporting model requires classification of state appropriations, a significant revenue stream to fund current operations, as nonoperating revenue. 3 (Continued)

6 Management s Discussion and Analysis (Unaudited) The Statement of Cash Flows presents the changes in the University s cash and cash equivalents during the most recent fiscal year. This statement is prepared using the direct method of cash flows. The statement breaks out the sources and uses of the University s cash and cash equivalents into four categories: Operating activities Noncapital financing activities Capital and related financing activities Investing activities The University s routine activities appear in the operating and noncapital financing categories. Capital and related financing sources in the fiscal year ended include debt proceeds, and state appropriations. Within the capital and related financing activities, uses of funds consist of acquisition of capital assets, transfers to escrow agent, and principal and interest payments on debt and capital leases. Sales and purchases of investments are part of investing activities. The Statement of Cash Flows for the discretely presented component units is not included in the University s financial statements. Financial Highlights Effective July 1, 2014, the University changed its pension accounting policies with the implementation of new accounting standards, GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date (amendment of GASB Statement No. 68). Changes in accounting policies for pensions are designed to improve transparency regarding pension liability by requiring recognition of a liability equal to the net pension liability, which is measured as the total pension liability, less the amount of the pension plan s fiduciary net position for the University s defined-benefit plans. This standard requires recognition of pension expense using systematic method, designed to match the cost of pension benefits with service periods for eligible employees. The net pension liability was $448.8 million as of. The pension related deferred outflows of resources and deferred inflows of resources were $45.1 million and $9.8 million, respectively. 4 (Continued)

7 Management s Discussion and Analysis (Unaudited) The University s condensed summary statement of net position as of and 2015 is as follows: Condensed Summary Statement of Net Position June Assets: Current assets $ 192,982,917 $ 181,179,957 Capital assets 525,474, ,970,352 Other noncurrent assets 79,408,334 24,766,847 Total assets 797,865, ,917,156 Deferred outflows of resources 45,093,580 44,848,497 Liabilities: Current liabilities 95,559,455 79,951,976 Long-term debt obligations, net of current portion 280,966, ,512,807 Other noncurrent liabilities 482,861, ,924,216 Total liabilities 859,388, ,388,999 Deferred inflows of resources 9,766,618 76,833,017 Net position: Net investment in capital assets 263,607, ,842,869 Restricted: Nonexpendable 2,424,567 2,418,164 Expendable 7,680, ,206 Unrestricted (299,908,031) (325,353,602) Total net position $ (26,195,673) $ (45,456,363) 5 (Continued)

8 Management s Discussion and Analysis (Unaudited) Assets Total assets increased $85.9 million from fiscal year 2015 due to a $11.8 million increase in current assets and a $74.1 million increase in noncurrent assets. Total current assets increased $11.8 million primarily due to a $10.7 million increase in short-term investments from the CSU Consolidated Investment Pool from $164.5 million to $175.3 million due to the increase in the collection of the Recreation and Wellness center fee in the fiscal year Total noncurrent assets increased $74.1 million primarily due to a $5.7 million increase in noncurrent accounts receivable, $49.5 million increase in other long-term investments, and $19.5 million increase in capital assets. Noncurrent accounts receivable increased $5.7 million primarily due to $1.4 million increase in state appropriation receivable for deferred maintenance projects in fiscal year 2016, and $4.4 million receivable from the meal plan provider. Other long-term investments increased $49.5 million due to $37.0 million proceeds from the issuance of 2015A Systemwide Revenue Bond (SRB) for the Recreation and Wellness Center project, and $12.0 million investment designated for academic capital improvements in fiscal year Capital assets net increased $19.5 million primarily due to $48.1 million current year addition offset by current year depreciation of $28.5 million. Current year capital asset additions of $48.1 million are primarily related to (a) $44.7 million in construction work-in-progress that are primarily related to the following projects: The Recreation Wellness Center ($35.3 million) and Science Building lab renovation ($7.1 million), and (b) $2.0 million purchases of equipment. Capital assets, net of accumulated depreciation, as of and 2015, are shown below: June Land and land improvements $ 54,826,407 $ 54,826,407 Works of art and historical treasures 4,959,807 4,959,807 Buildings and building improvements 374,526, ,522,459 Improvements, other than buildings 1,865,341 2,170,775 Infrastructure 26,209,673 26,734,963 Personal property 16,300,700 17,824,848 Leasehold improvements 397, ,759 Intangible assets 162, ,134 Construction work in progress 46,225,722 9,810,200 Total capital assets, net of accumulated depreciation $ 525,474,231 $ 505,970,352 Liabilities Total liabilities increased $134.0 million from prior year due to $15.6 million increase in current liabilities and a $118.4 million increase in noncurrent liabilities. 6 (Continued)

9 Management s Discussion and Analysis (Unaudited) Total current liabilities increased $15.6 million primarily due to a $10.2 million increase in accounts payable, $2 million increase in unearned revenue, $2 million increase in accrued salaries and benefits, and $0.7 million increase in accrued compensated absences. Accounts payable increased by $10.2 million primarily due to a) $2.1 million increase of retention payables related to capital projects involving the construction of the Recreation Wellness Center and the remediation to the Science Building, b) $3 million increase vendor payment to noncapital projects, c) $2.1 million reclassification of outstanding checks; and d) $3 million increase of payable to Associated Students. Total noncurrent liabilities increased $118.4 million primarily due to a) $55.5 million increase of long-term debt obligations, net of current portion from the issuance of SRB Series 2015A for the construction of the Wellness Recreation Center, b) $4.2 million increase of other postemployment benefits obligation because of increased billable rate as well as inclusion of dental liability, and c) $59.0 million increase of net pension liability due to GASB 68. Long-Term Debt Obligations Debt outstanding at and 2015 is summarized below by type of debt instrument: Systemwide revenue bonds $ 264,425,000 $ 215,200,000 Unamortized bond premium 23,971,780 17,522,807 Total long-term debt 288,396, ,722,807 Less current portion (7,430,000) (7,210,000) Long-term debt, net of current portion $ 280,966,780 $ 225,512,807 Bond Ratings Moody s Investors Service currently provides an intrinsic rating of Aa2, with a stable outlook, for the SRB. Standard & Poor s Rating Services currently provides an intrinsic rating of AA, with a stable outlook, for the SRB. All maturities in SRB Series 2007A, 2007B, 2007C, and 2007D and certain maturities in 2008A and 2009A were insured. Since the middle of fiscal year 2008, some providers of insurance for SRB have been downgraded to ratings below Aaa/AAA. Those bonds that are uninsured bear the intrinsic ratings of the SRB, which are Aa2 from the Moody s Investors Service and AA from the Standard & Poor s Rating Services. In addition, the State s General Obligation Bond program has provided capital funding for various projects of the University. The debt related to these projects is not allocated to the University by the State and thus is not recorded in the University s financial statements. The total General Obligation Bond debt carried by the State related to University projects at and 2015 is approximately $2.46 billion and $2.53 billion, respectively. The $59.0 million increase of net pension liability can be attributed to $136.9 million in additional employee service costs, $57.7 million in lower actual earnings from investments in pension plan, and $11 million in experience losses, while offset primarily by increases of $11.2 million in proportionate share, $41.5 million in 7 (Continued)

10 Management s Discussion and Analysis (Unaudited) employer contribution, $12.3 million in employee contributions, and $81.6 million in projected earnings on pension plan investments. Deferred Inflows of Resources Deferred inflows of resources are related to the University s changes in the net pension liability. Deferred inflows of resources decreased by $67.1 million due to $2.3 million decrease in the changes of proportionate share, $57.7 million decrease in actual earnings from investments in pension plan, and $7.1 million decrease in amortization. Net Position Total net position increased $19.3 million from the prior year. A significant portion, $263.6 million, of net position at the end of the year is net investment in capital assets. Net investment in capital assets, decreased $13.2 million from prior year primarily due to $55.5 million increase of long-term debt which is offset by $19.5 million increase in capital assets, net and $25.2 million increase in outstanding debt that is unspent at year-end. Restricted net position totaled $10.1 million as discussed below. The unrestricted net position is in a deficit position of $300.0 million of net position at the end of the fiscal year. Unrestricted net position represents all other net resources available to the University for general and educational obligations. A significant amount of unrestricted net position is designated to support future operations in areas specified by legislative requirements. These requirements limit the area of operations for which expenditures of net position may be made. Campus housing program, student center program, student health service, parking programs, and financial aid programs are primary examples of operations that have unrestricted net position with designated uses. Restricted Net Position Restricted net position has constraints on its use that are either externally imposed by creditors or imposed by law through constitutional provisions or enabling legislation. The following table summarizes, which funds are restricted, the type of restrictions, and the amounts: Restricted Net Position June Nonexpendable: Nonexpendable endowments $ 2,424,567 $ 2,418,164 Total restricted net position nonexpendable $ 2,424,567 $ 2,418,164 Expendable: Loans $ 696,662 $ 531,542 Capital projects 1,420,791 2,165 Debt Service 5,562, ,499 Total restricted net position expendable $ 7,680,074 $ 636,206 8 (Continued)

11 Management s Discussion and Analysis (Unaudited) Total restricted net position expendable increased $7.0 million primarily due to a $1.4 million increase in restricted net position, expendable for an appropriation for deferred maintenance for academic capital assets, and $5.5 million increase in restricted net position, expendable for debt service due to the capitalized (prepaid) interest for a construction project and additional funds to pay for future debt service. The University s condensed summary of revenues, expenses, and changes in net position for the years ended and 2015 is as follows: June Operating revenues: Student tuition and fees, net $ 132,543,847 $ 135,251,637 Grants and contracts, noncapital 24,473,898 27,768,917 Sales and services of educational activities 119, ,159 Sales and services of auxiliary enterprises, net 53,069,005 50,185,881 Other operating revenues 10,644,558 9,590,431 Total operating revenues 220,850, ,940,025 Operating expenses (459,854,555) (452,716,501) Operating loss $ (239,004,075) $ (229,776,476) Nonoperating revenues (expenses): State appropriations, noncapital $ 145,251,293 $ 139,195,211 Federal financial aid grants, noncapital 58,264,319 55,778,796 State financial aid grants, noncapital 37,314,747 33,981,240 Nongovernmental and other financial aid grants, noncapital Gifts, noncapital 9,425,972 1,533,953 Investment income, net 2,411,821 1,278,240 Endowment income 6,403 6,680 Interest expense (8,936,166) (9,669,329) Other nonoperating revenues, net 12,873,944 5,612,458 Net nonoperating revenues 256,612, ,717,249 Income (loss) before other revenues and (expenses) $ 17,608,258 $ (2,059,227) 9 (Continued)

12 Management s Discussion and Analysis (Unaudited) June State appropriations, capital $ 1,367,000 $ Grants and gifts, capital 285,432 7,238 Additions (reductions) to permanent endowments (280,037) Increase (decrease) in net position 19,260,690 (2,332,026) Net position beginning of year (45,456,363) (43,124,337) Net position end of year $ (26,195,673) $ (45,456,363) Operating Revenues and Expenses Operating revenues and expenses come from sources that are connected directly to the University s primary business function. This includes revenues from categories such as tuition and fees, certain grants, and contracts that will be used for noncapital purposes, and sales and services of auxiliary enterprises and education activities. Expenses include categories such as salaries, benefits, supplies and other services, scholarships and fellowships, and depreciation and amortization. In this discussion and analysis, expenses are reported by functional program such as instruction, research, public service, academic support, student services, institutional support, operation and maintenance of plant, student grants and scholarships, auxiliary enterprise expenses, and depreciation and amortization. Operating Revenues Total operating revenues decreased $2.1 million primarily due to a $2.6 million decrease in state grants and contracts from the discontinuation of the Innovation Award program. The following charts present the proportional share that each category of operating revenues contributed to the totals for fiscal years ended and (Continued)

13 Thousands SAN FRANCISCO STATE UNIVERSITY Management s Discussion and Analysis (Unaudited) Operating Revenues The following chart displays the components of the University s revenues for fiscal years 2016 and 2015: $180,000 $160,000 $140,000 $120, $100,000 $80,000 $60,000 $40,000 $20,000 $0 Student tuition and fees (net of scholarship allowances) Grants and contracts, noncapital Sales and Services (educational activities and auxiliary enterprises), net Other Percentage Percentage 2016 of total 2015 of total Student tuition and fees, net $ 132,543, % $ 135,251, % Grants and contracts, noncapital 24,473, ,768, Sales and services of educational activities and auxiliary enterprises, net 53,188, ,329, Other 10,644, ,590, $ 220,850, % $ 222,940, % Operating Expenses The University s operating expenses consist of salaries and fringe benefits of $303.0 million, supplies and other services of $79.4 million, scholarships and fellowships of $48.9 million, and depreciation of $28.6 million. Total operating expenses increased by $7.1 million, primarily due to $9.8 million increase in the retirement contribution rate. 11 (Continued)

14 Management s Discussion and Analysis (Unaudited) The following charts present the distribution of resources in support of the University s mission for fiscal years 2016 and 2015: Percentage 2016 of total Instruction $ 165,346, % Research 11,225, Public service 3,781, Academic support 49,373, Student services 33,964, Student grants and scholarships 48,902, Total instruction and educational support activities 312,595, % Institutional support 43,209, Operation and maintenance of plant 36,714, Auxiliary enterprises expenses 38,775, Depreciation and amortization 28,559, Total operating expenses $ 459,854, % 8.4% 6.2% Total instruction and educational support activities Institutional support 8.0% Operation and maintenance of plant Auxiliary enterprise expenses 9.4% Depreciation and amortization 68.0% 12 (Continued)

15 Management s Discussion and Analysis (Unaudited) Percentage 2015 of total Instruction $ 162,306, % Research 13,938, Public service 3,366, Academic support 44,707, Student services 31,603, Student grants and scholarships 48,809, Total instruction and educational support activities 304,731, % Institutional support 42,188, Operation and maintenance of plant 38,812, Auxiliary enterprises expenses 38,565, Depreciation and amortization 28,418, Total operating expenses $ 452,716, % 8.5% 6.2% Total instruction and educational support activities Institutional support 8.6% Operation and maintenance of plant Auxiliary enterprise expenses 9.3% Depreciation and amortization 67.4% 13 (Continued)

16 Management s Discussion and Analysis (Unaudited) Instruction expenses increased by $3.0 million primarily due to additional faculty. Research expenses decreased by $2.7 million primarily due to the $2.2 million reduction in benefit expenses, primarily related to the current year adjustment to the pension liability. Academic support expenses increased by $4.7 million primarily due to a $5.0 million increase in benefit expenses, primarily related to the current year adjustment to the pension liability. Nonoperating Revenues Nonoperating revenues (expenses) come from sources that are not part of the University s primary business functions. Included in this classification are categories such as state appropriations, federal financial aid grants, certain financial aid grants, noncapital, grants and gifts, capital, investment income, and interest expense. As the University is part of the California State University System (the System), which is an agency of the State of California, the University s operations are funded primarily from appropriations of state tax revenues. State appropriations, noncapital increased $6.1 million to cover payroll expenses including the average general salary increase and retirement contribution increase for support staff. Gift, noncapital increased $7.9 million primarily due to the gifts from the newly contracted Housing Meal Plan provider in the current year. Other nonoperating revenue increased $7.3 million primarily due to $6.6 million revenue for the Academic Capital Projects. In addition, State appropriation, capital increased $1.4 million solely due to the new appropriation for the capital improvement projects. Factors Impacting Future Periods State Budget Act for Fiscal Year 2017 The State Budget Act for fiscal year 2017, approved by the Governor on June 27, 2016, resulted in noncapital state appropriation of $3.2 billion for the System, which represents an increase of $161.9 million over the fiscal year 2016 enacted budget. This increase consists of $69.6 million to pay employee compensation increases, $30.1 million for funded student enrollment growth, $10.2 million to fund Student Success and Completion Program, $35.1 million for employer-paid Health Care Premiums, $7.0 million for retirement costs adjustments, $7.8 million to pay SPWB capital lease obligation debt service, $0.9 million for operations and maintenance of new space, and $1.1 million for other items. Subsequent Events In September 2016, the State Legislature passed SB 1412, which allows the System to invest in mutual funds including equity mutual funds, subject to registration by, and under the regulatory authority of the United States Securities and Exchange Commission, or in United States registered real estate investment trusts, effective January 1, Prior to SB 1412, the System is restricted to investing in fixed income securities. Under SB 1412, the System is required to create an investment advisory committee reporting to the Board of Trustees. The total amount invested under the new authority shall not exceed $ million in fiscal year ending June 30, 2017; $ million in fiscal year ending June 30, 2018; $ million in fiscal year ending June 30, 2019; and in fiscal year ending June 30, 2020, and each fiscal year thereafter, 30.00% of total investments of the System. All earnings from investment under the new authority shall be used only for capital outlay or maintenance, and shall not be used for ongoing operations. 14

17 Statement of Net Position Discretely presented component units GASB FASB Total discretely discretely discretely presented presented presented component component component Assets University units units units Total Current assets: Cash and cash equivalents $ 9,075 $ 734,641 $ 40,621 $ 775,262 $ 784,337 Short-term investments 175,290,244 37,692,467 11,337,566 49,030, ,320,277 Accounts receivable, net 14,032, ,632 3,810,691 4,613,323 18,645,825 Notes receivable, current portion 41,000 41,000 41,000 Pledges receivable, net 456, , ,009 Prepaid expenses and other current assets 3,651,096 58,463 3,195,278 3,253,741 6,904,837 Total current assets 192,982,917 39,744,212 18,425,156 58,169, ,152,285 Noncurrent assets: Accounts receivable, net 5,717,000 5,717,000 Student loans receivable, net 7,648,083 7,648,083 Pledges receivable, net 524, , ,557 Endowment investments 2,424,567 44,330,325 44,330,325 46,754,892 Other long-term investments 63,618,532 15,526,633 15,526,633 79,145,165 Capital assets, net 525,474,231 1,174, ,557 1,293, ,767,369 Other assets , , ,706 Total noncurrent assets 604,882,567 61,708, ,557 61,827, ,709,772 Total assets 797,865, ,452,860 18,543, ,996, ,862,057 Deferred outflows of resources: Unamortized loss on debt refunding(s) 3,403,002 3,403,002 Pension related items 41,690,578 41,690,578 Total deferred outflows of resources $ 45,093,580 $ $ $ $ 45,093,580 Liabilities Current liabilities: Accounts payable $ 16,273,654 $ 2,543,238 $ 59,683 $ 2,602,921 $ 18,876,575 Accrued salaries and benefits 24,670, ,382 98, ,397 24,946,219 Accrued compensated absences, current portion 11,786,508 81,884 81,884 11,868,392 Unearned revenue 26,841,310 63, , ,593 27,147,903 Capital lease obligations, current portion 237,465 9,610 9, ,075 Long-term debt, current portion 7,430,000 7,430,000 Depository accounts 3,281,648 3,281,648 Other current liabilities 5,038, ,551 1,665,871 2,058,422 7,096,470 Total current liabilities $ 95,559,455 $ 3,267,760 $ 2,067,067 $ 5,334,827 $ 100,894,282 Noncurrent liabilities: Accrued compensated absences, net of current portion 5,673, , ,498 6,009,968 Grants refundable 8,857,893 8,857,893 Capital lease obligations, net of current portion 67,457 32,990 32, ,447 Long-term debt, net of current portion 280,966, ,966, (Continued)

18 Statement of Net Position Discretely presented component units GASB FASB Total discretely discretely discretely presented presented presented component component component Liabilities University units units units Total Other postemployment benefits obligations $ 19,307,983 $ $ $ $ 19,307,983 Net pension liability 448,835, ,835,081 Other liabilities 120, , , ,552 Total noncurrent liabilities 763,828, , , , ,350,704 Total liabilities 859,388,119 3,453,302 2,403,565 5,856, ,244,986 Deferred inflows of resources: Pension related items 9,766,618 9,766,618 Nonexchange transactions 70,000 70,000 70,000 Total deferred inflows of resources 9,766,618 70,000 70,000 9,836,618 Net position: Net investment in capital assets 263,607,717 1,131, ,557 1,250, ,858,255 Restricted for: Nonexpendable - endowments 2,424,567 44,330,325 44,330,325 46,754,892 Expendable: Scholarships and fellowships 36,329,584 36,329,584 36,329,584 Loans 696, ,662 Capital projects 1,420,791 6,967,951 6,967,951 8,388,742 Debt service 5,562,621 5,562,621 Others 4,705,829 4,705,829 4,705,829 Unrestricted (299,908,031) 9,169,717 11,315,762 20,485,479 (279,422,552) Total net position $ (26,195,673) $ 97,929,558 $ 16,140,148 $ 114,069,706 $ 87,874,033 See accompanying notes to financial statements. 16

19 Statement of Revenues, Expenses, and Changes in Net Position Discretely presented component units GASB FASB Total discretely discretely discretely presented presented presented component component component University units units units Eliminations Total Operating revenues: Student tuition and fees, gross $ 219,962,500 $ $ 6,652,796 $ 6,652,796 $ $ 226,615,296 Scholarship allowances (87,418,653) (87,418,653) Student tuition and fees (net of scholarship allowances of $87,418,653) 132,543,847 6,652,796 6,652, ,196,643 Grants and contracts, noncapital: Federal 18,832, , ,003 19,069,084 State 2,004,911 44,489 83, ,360 2,133,271 Local 1,650, , ,338 1,939,456 Nongovernmental 1,986,788 1,759, ,295 2,052,044 4,038,832 Sales and services of educational activities 119, ,172 Sales and services of auxiliary enterprises, gross 58,457,081 58,457,081 Scholarship allowances, auxiliary enterprises (5,388,076) 9,949,252 9,949,252 4,561,176 Sales and services of auxiliary enterprises (net of scholarship allowances of $5,388,076) 53,069,005 9,949,252 9,949,252 63,018,257 Other operating revenues 10,644,558 1,452,074 1,465,621 2,917,695 13,562,253 Total operating revenues 220,850,480 13,205,564 9,020,924 22,226, ,076,968 Expenses: Operating expenses: Instruction 165,346, , , ,130,999 Research 11,225,566 56,728 56,728 11,282,294 Public service 3,781, , ,627 4,618,520 Academic support 49,373,916 2,254,401 2,254,401 51,628,317 Student services 33,964, ,588 3,824,423 4,632,011 38,596,767 Institutional support 43,209,788 3,339,577 2,067,153 5,406,730 48,616,518 Operation and maintenance of plant 36,714,559 1,266,460 1,266,460 37,981,019 Student grants and scholarships 48,902,191 1,449,304 61,953 1,511,257 (1,256,728) 49,156,720 Auxiliary enterprise expenses 38,775,124 5,324,285 5,324,285 44,099,409 Depreciation and amortization 28,559, , , ,309 29,163,081 Total operating expenses 459,854,555 15,106,874 7,568,943 22,675,817 (1,256,728) 481,273,644 Operating income (loss) (239,004,075) (1,901,310) 1,451,981 (449,329) 1,256,728 (238,196,676) Nonoperating revenues (expenses): State appropriations, noncapital 145,251, ,251,293 Federal financial aid grants, noncapital 58,264,319 58,264,319 State financial aid grants, noncapital 37,314,747 37,314,747 Gifts, noncapital 9,425,972 9,534,709 9,534,709 (1,256,728) 17,703,953 Investment income (loss), net 2,411,821 (750,592) (750,592) 1,661,229 Endowment income (loss), net 6,403 6,403 Interest expense (8,936,166) (8,936,166) Other nonoperating revenues, net 12,873,944 (3,006,220) (3,006,220) 9,867,724 Net nonoperating revenues 256,612,333 5,777,897 5,777,897 (1,256,728) 261,133,502 Income before other revenues (expenses) 17,608,258 3,876,587 1,451,981 5,328,568 22,936,826 State appropriations, capital 1,367,000 1,367,000 Grants and gifts, capital 285, ,432 Additions to permanent endowments 655, , ,881 Increase in net position 19,260,690 4,532,468 1,451,981 5,984,449 25,245,139 Net position: Net position at beginning of year (45,456,363) 93,397,090 14,688, ,085,257 62,628,894 Net position at end of year $ (26,195,673) $ 97,929,558 $ 16,140,148 $ 114,069,706 $ $ 87,874,033 See accompanying notes to financial statements. 17

20 Statement of Cash Flows Cash flows from operating activities: Student tuition and fees $ 133,598,759 Federal grants and contracts 18,912,743 State grants and contracts 2,083,990 Local grants and contracts 2,150,140 Nongovernmental grants and contracts 2,844,246 Payments to suppliers (78,880,805) Payments to employees (303,590,069) Payments to students (49,134,783) Collections of student loans 216,154 Sales and services of educational activities 119,170 Sales and services of auxiliary enterprises 47,271,670 Other receipts 13,742,636 Net cash used in operating activities (210,666,149) Cash flows from noncapital financing activities: State appropriations 145,251,293 Federal financial aid grants 58,613,112 State financial aid grants 37,314,747 Gifts and grants received for other than capital purposes 9,425,973 Federal loan program receipts 107,040,479 Federal loan program disbursements (106,191,479) Monies received on behalf of others 5,874,033 Monies disbursed on behalf of others (5,623,852) Other noncapital financing activities 12,433,476 Net cash provided by noncapital financing activities 264,137,782 Cash flows from capital and related financing activities: Proceeds from capital debt 74,527,110 State appropriations 1,894 Acquisition of capital assets (40,797,773) Transfers to escrow agent (9,972,509) Principal paid on capital debt and leases (7,419,631) Interest paid on capital debt and leases (12,085,164) Net cash provided by capital and related financing activities $ 4,253, (Continued)

21 Statement of Cash Flows Cash flows from investing activities: Proceeds from sales of investments $ 696,731,985 Purchases of investments (756,468,776) Investment income proceeds 2,009,881 Net cash used in investing activities (57,726,910) Net decrease in cash and cash equivalents (1,350) Cash and cash equivalents at beginning of year 10,425 Cash and cash equivalents at end of year $ 9,075 Summary of cash and cash equivalents at end of year: Cash and cash equivalents $ 9,075 Restricted cash and cash equivalents Total cash and cash equivalents at end of year $ 9,075 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (239,004,075) Adjustments to reconcile loss to net cash used in operating activities: Depreciation and amortization 28,559,772 Change in assets and liabilities: Accounts receivable, net (5,037,060) Student loans receivable, net (16,438) Prepaid expenses and other current assets (554,936) Other assets Deferred outflows of resources (910,702) Accounts payable 5,936,205 Accrued salaries and benefits 2,003,612 Accrued compensated absences 273,707 Unearned revenue 1,994,945 Depository accounts Other postemployment benefits obligation 4,191,450 Net pension liability 58,987,732 Other current liabilities Other liabilities (23,960) Deferred inflows of resources (67,066,401) Net cash used in operating activities $ (210,666,149) Supplemental schedule of noncash transactions: Contributed capital assets $ 285,432 Acquisition of capital asset through capital lease obligations 34,441 Change in accrued capital asset purchases 4,261,380 Amortization of net bond (premium) / discount 1,483,999 Capital assets paid by the Office of the Chancellor 410,080 Amortization of loss / (gain) on debt refundings 291,481 See accompanying notes to financial statements. 19

22 (1) Organization San Francisco State University (the University), an agency of the State of California, was established as a campus of the California State University under the State of California Education Code to offer undergraduate and graduate instruction for professional and occupational goals emphasizing a broad liberal arts education. As one of the 23 campuses in the California State University System (the System), the University is included in the financial statements of the System. Responsibility for the University is vested in the Trustees of the System (the Trustees) who, in turn, appoint the Chancellor, the chief executive officer of the System, and the University President, the chief executive officer of the University. The University provides instruction for baccalaureate and masters degrees and certificate programs and operates various auxiliary enterprises such as student dormitories, student unions, and parking facilities. In addition, the University administers a variety of financial aid programs, which are funded primarily through state and federal programs, and carries out research and grant administration. (2) Summary of Significant Accounting Policies (a) Financial Reporting Entity In accordance with Governmental Accounting Standards Board (GASB) Statements No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, the accompanying financial statements include the statement of net position, statement of revenues, expenses, and changes in net position, and statement of cash flows of the University and the University s three recognized auxiliary organizations. These auxiliary organizations are legally separate entities that provide services primarily to the University s students and faculty. Separate financial statements are issued for each of the recognized auxiliary organizations and may be obtained from the University. The recognized auxiliary organizations are as follows: The University Corporation, San Francisco State (the University Corporation) San Francisco State University Foundation (the Foundation) Associated Students of San Francisco State University (Associated Students) 20 (Continued)

23 Summary information for the discretely presented components is as follows: The University The Associated Year ended Corporation Foundation Students Total Current assets $ 16,607,694 $ 23,136,518 $ 18,425,156 $ 58,169,368 Capital assets, net 1,174, ,557 1,293,138 Other noncurrent assets 11,294,762 49,239,305 60,534,067 Total assets 29,077,037 72,375,823 18,543, ,996,573 Current liabilities 3,098, ,144 2,067,067 5,334,827 Noncurrent liabilities 185, , ,040 Total liabilities 3,284, ,144 2,403,565 5,856,867 Deferred inflows of resources 70,000 70,000 Invested in capital assets, net of related debt 1,131, ,557 1,250,538 Restricted 16,131,344 71,496,516 4,705,829 92,333,689 Unrestricted 8,459, ,163 11,315,762 20,485,479 Total net position $ 25,722,879 $ 72,206,679 $ 16,140,148 $ 114,069,706 Operating revenues: Student tuition and fees, net $ $ $ 6,652,796 $ 6,652,796 Grants and contracts, noncapital 1,804, ,507 2,706,745 Sales and services of auxiliary enterprises, net 9,949,252 9,949,252 Other 87,482 1,364,592 1,465,621 2,917,695 Total operating revenues 11,840,972 1,364,592 9,020,924 22,226,488 Operating expenses: Instruction 784, ,009 Research 56,728 56,728 Public service 836, ,627 Academic support 2,254,401 2,254,401 Student services 807,588 3,824,423 4,632,011 Institutional support 3,339,577 2,067,153 5,406,730 Operation and maintenance of plant 1,266,460 1,266,460 Student grants and scholarships 1,348, ,000 61,953 1,511,257 Auxiliary enterprise expenses 4,607, ,342 5,324,285 Depreciation and amortization 254, , ,309 Total operating expenses 14,289, ,342 7,568,943 22,675,817 Operating income (loss) $ (2,448,560) $ 547,250 $ 1,451,981 $ (449,329) 21 (Continued)

24 The Other University The auxiliary Year ended Corporation Foundation organizations Total Net nonoperating revenues $ 2,427,938 $ 3,349,959 $ $ 5,777,897 Income (loss) before other additions (20,622) 3,897,209 1,451,981 5,328,568 Additions to permanent endowments 655, ,881 Increase in net position (20,622) 4,553,090 1,451,981 5,984,449 Net position at beginning of year 25,743,501 67,653,589 14,688, ,085,257 Net position at end of year $ 25,722,879 $ 72,206,679 $ 16,140,148 $ 114,069,706 The auxiliary organizations are presented in the accompanying financial statements as component units due to the nature and significance of their relationship with the University. The relationships are such that exclusion of these organizations from the reporting entity would render the financial statements incomplete, primarily due to the activities that the organizations carry out on behalf of the University, such as foodservice, bookstore, and academic support. The auxiliary organizations are discretely presented to allow the financial statement users to distinguish them from the University. The University Corporation and The Foundation use the GASB reporting model and The Associated Students use the FASB reporting model. The financial statements present only the statement of net position, statement of revenues, expenses, and changes in net position, and statement of cash flows of only that portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the State of California that is attributable to the transactions of the University and the financial statements do not purport to, and do not, present fairly the financial position of the State of California or the System as of and the changes in their financial position, or, where applicable, their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. (b) Basis of Presentation The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with U.S. generally accepted accounting principles. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. As a public institution, the University is considered a special-purpose government under the provisions of GASB Statement No. 35. The University records revenue in part from fees and other charges for services to external users and, accordingly, has chosen to present financial statements using the reporting model for special-purpose governments engaged in business-type activities. This 22 (Continued)

25 model allows all financial information for the University to be reported in a single column in each of the financial statements, accompanied by aggregated financial information for the component units, as discussed above. The effect of internal activity between funds or groups of funds has been eliminated from these financial statements. (c) New Accounting Pronouncements In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application, effective for the University s fiscal year beginning July 1, This Statement defines fair value and describes how fair value should be measured, what assets and liabilities should be measured at fair value, and what information about fair value should be disclosed in the notes to the financial statements. For disclosures on fair value measurement and hierarchy, refer to note 3 (b). In June 2015, the GASB issued Statement No. 75, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, effective for the University s fiscal year beginning July 1, This Statement establishes how government employers should measure, recognize, display, and disclose the long-term obligations and annual costs arising from their promises to provide other postemployment benefits to their retired employees. The University has not yet determined the impact of GASB Statement No. 75 on the University s financial statements. In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles (GAAP) for State and Local Governments, effective for the University s fiscal year beginning July 1, 2015, and should be applied retroactively. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The University adopted GASB Statement No. 76 and determined that it did not have a material impact on the University's financial statements. In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain Component Units an amendment of GASB Statement No. 14, effective for the University s fiscal year beginning July 1, This Statement amends the blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The University has not yet determined the impact of GASB Statement No. 80 on the University s financial statements. In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements, effective for the University s fiscal year beginning July 1, This Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interest. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. The University has not yet determined the impact of GASB Statement No. 81 on the University s financial statements. In March 2016, the GASB issued Statement No. 82, Pension Issues An Amendment of GASB Statements No. 67, No. 68, and No. 73, effective for the University s fiscal year beginning July 1, This Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment 23 (Continued)