USF and DSO/Component Unit Quarterly Financial Reports QUARTER 2 FOR FISCAL YEAR

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1 USF and DSO/Component Unit Quarterly Financial Reports QUARTER 2 FOR FISCAL YEAR Period Ended December 31, 2008

2 FISCAL YEAR QUARTER 2 ENDED DECEMBER 31, 2008 INDEX University of South Florida USF Foundation USF Alumni Association USF Financing Corporation University Medical Service Association, Inc USF Medical Services Support Corporation USF Health Professions Conferencing Corporation USF Research Foundation Sun Dome, Inc Page 2 of 40

3 University of South Florida EXECUTIVE SUMMARY KEY BUSINESS ISSUES The weakness in the state economy is leading to decreases in our state support in the current fiscal year. The weakness in the US economy has put pressure on USF's investment income, however, USF's investment strategy has still yielded positive returns. The transition of USF Health's Division of Interdisciplinary Oncology to Moffitt has affected both Contract & Grants revenue as Moffitt was sending salary support to the University and Salaries & Benefits Expense as USF no longer carries these employees on their books. Balance Sheet - Significant Items Accounts Receivable are up over June 30, 2008 mainly because students have registered for Spring classes and have been assessed fees but have not yet made payment since the payment deadline is after December 31, Accounts Payable are down due in large part to the reduction of June 30, 2008 USF Financing Corp. accounts payable of $18 million which ran through a USF Agency Fund and have since been paid. Income Statement - Significant Items Actual Tuition and Fees are up over last year due to a 6% increase in undergraduate tuition, an implementation of a 9% differential tuition fee, and the implementation of Facility and Equipment fees. State Appropriations are down by $17.4 million for the six months ended December 31, 2008 due to a decrease of State support. Salaries & Benefits are down due to the transition of USF Health's Division of Interdisciplinary Oncology to Moffitt which took place beginning January of Forecast Contract & Grant awards are up, however, due to the transition of the DIO and the timing of expenditures we are forecasting a slight decrease in Contract & Grant revenue. Salaries & Benefits are projected to be down for the year due to the transition of USF Health's Division of Interdisciplinary Oncology as mentioned above which offsets a salary increase provided to the faculty in the latter part of the fiscal year and a one time bonus provided to administration and staff. We expect expenses other than Salaries & Benefits to stay flat as USF institutes expenditure controls due to the state budget situation. Statement of Cash Flows - Significant Items Cash flows from Operations are expected to generate a positive cash flow of $26.1 million Cash for the year is expected to decrease as reductions in construction and agency funds more than offset the operating cash surplus. Page 3 of 40

4 University of South Florida BALANCE SHEET (In thousands) December 31, June 30, $ % ASSETS Current Assets Cash and Cash Equivalents $155 $155 $0 0 % Investments 386, ,828 (4,334) (1)% Receivables 175,066 66, , % Due from Primary Unit and Other Component Units 143, ,344 (14,460) (9)% Inventories (443) (100)% Interest Rate Swap Receivable % Other Current Assets 958 1,969 (1,011) (51)% Total Current Assets $706,557 $617,912 $88, % Noncurrent Assets Restricted Assets Restricted Cash and Cash Equivalents $0 $0 $0 % Restricted Investments 77,720 98,295 (20,575) (21)% Other Noncurrent Assets Loans and Notes Receivable (Net of Allowance for Uncollectibles) 6,639 6, % Other % Capital Assets Depreciables 1,122,324 1,122,553 (229) (0)% Less Accumulated Depreciation (508,093) (483,942) (24,151) (5)% Non-Depreciables 35,939 25,599 10, % Total Noncurrent Assets $735,033 $769,648 $(34,615) (4)% Total Assets $1,441,590 $1,387,560 $54,030 4 % LIABILITIES Current Liabilities Accounts Payable $1,954 $39,564 $(37,610) (95)% Accrued Salaries and Benefits ,216 (23,308) (96)% Due to Primary Unit and Other Component Units 74,485 76,689 (2,204) (3)% Deferred Revenue 79,465 56,367 23, % Interest Rate Swap Payable % Other Current Liabilities 40,181 19,529 20, % Total Current Liabilities $196,993 $216,365 $(19,372) (9)% Noncurrent Liabilities Long Term Debt $71,654 $74,138 $(2,484) (3)% Compensated Absences 48,004 49,190 (1,186) (2)% Other Noncurrent Liabilities 16,884 16, % Total Noncurrent Liabilities $136,542 $140,212 $(3,670) (3)% Total Liabilities $333,535 $356,577 $(23,042) (6)% NET ASSETS $1,108,055 $1,030,983 $77,072 7 % Total Liabilities & Net Assets $1,441,590 $1,387,560 $54,030 4 % Page 4 of 40

5 University of South Florida INCOME STATEMENT (In thousands) REVENUES 3 Months Ended December 31, 6 Months Ended December 31, Fiscal Year Ended June 30, Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Tuition & Fees $80,307 $66,583 $13, % $148,259 $126,877 $21, % $160,000 $142,206 $17, % State Appropriations 76,464 87,393 (10,929) (13)% 156, ,272 (17,441) (10)% 316, ,129 (49,385) (13)% Contracts & Grants 58,169 72,262 (14,093) (20)% 121, ,597 (17,436) (13)% 295, ,692 (4,692) (2)% Program Revenue / Sales / Services 22,677 21, % 59,062 50,094 8, % 90,000 80,709 9, % Gifts & Donations % % % Rental Revenue % % % Investment Income (Loss) 3,817 10,891 (7,074) (65)% 7,594 13,877 (6,283) (45)% 12,500 22,405 (9,905) (44)% Other: 29,725 18,873 10, % 67,369 53,762 13, % 93,000 86,610 6,390 7 % % % % Total Revenues $271,159 $277,979 $(6,820) (2)% $560,276 $557,479 $2,797 1% $967,244 $997,751 $(30,507) (3)% EXPENSES Salaries & Benefits $164,822 $178,273 $(13,451) (8)% $289,620 $314,273 $(24,653) (8)% $593,000 $605,715 $(12,715) (2)% Scholarships & Fellowships 5,415 1,224 4, % 44,617 37,389 7, % 80,000 71,125 8, % Contractual Services 6,276 6, % 11,453 10,170 1, % 38,000 34,969 3,031 9 % Materials & Supplies 25,195 26,163 (968) (4)% 46,719 47,359 (640) (1)% 126, , % Program Services % % % Utilties / Repairs / Maintenance 8,219 10,302 (2,083) (20)% 17,101 18,257 (1,156) (6)% 43,425 43, % Facilities Rent 3,230 2, % 4,510 4, % 10,113 10, % General & Administrative % % % Interest Paid on Debt 1,139 1, % 952 1,391 (439) (32)% 2,974 4,028 (1,054) (26)% Depreciation & Amortization 12,053 11, % 24,106 22,958 1,148 5 % 48,000 45,917 2,083 5 % Other: 5,064 2,855 2, % 10,273 10, % 21,000 24,957 (3,957) (16)% % % % Total Expenses $231,413 $240,409 $(8,996) (4)% $449,351 $466,434 $(17,083) (4)% $962,973 $966,230 $(3,257) (0)% OPERATING PROFIT BEFORE CHANGES IN MARKET VALUE $39,746 $37,570 $2,176 6% $110,925 $91,045 $19, % $4,271 $31,521 $(27,250) (86)% Non-Cash Changes in Market Value Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Unrealized Investment Gains (Losses) % (116) 0 (116) % 0 (2,141) 2, % Change in Fair Value of Swap(s) (20,359) (5,743) (14,616) (255)% (21,348) (6,278) (15,070) (240)% (13,756) (7,414) (6,342) (86)% Total Non-Cash Items $(20,359) $(5,743) $(14,616) (255)% $(21,464) $(6,278) $(15,186) (242)% $(13,756) $(9,555) $(4,201) (44)% Page 5 of 40

6 University of South Florida STATEMENT OF CASH FLOWS (In thousands) 3 Months Ended December 31, Fiscal Year Ended June 30, Actual FORECAST Actual $ % BEGINNING CASH $489,566 $489,278 $370,079 $119, % Cash Flow from Operations Cash Inflow Tuition & Fees $11,322 $160,000 $144,935 $15, % Contracts and Grants 79, , ,594 (3,594) (1)% Program Revenue / Sales / Services 23,461 88,000 80,412 7,588 9 % Gifts & Donations % Rental Revenue % Other 29,739 75,000 65,960 9, % Cash Outflow Operating Expenses 247, , ,780 11,220 1 % Net Cash Flow from Operations $(103,917) $(295,000) $(311,879) $16,879 5 % Cash Flow from Financing State Appropriations / Capital Transfers $76,464 $316,744 $384,631 $(67,887) (18)% Acquisition / Construction of Capital Asset 144 (34,000) 32,130 (66,130) (206)% Sale of Capital Asset % Debt Proceeds % Principal & Interest Payments (1,704) (8,100) (9,330) 1, % Net Cash Flow from Financing $74,904 $274,644 $407,431 $(132,787) (33)% Cash Flow from Investing Purchase (Sale) of Investments $0 $0 $0 $0 % Investment Income 3,817 12,500 23,648 (11,148) (47)% Net Cash Flow from Investing $3,817 $12,500 $23,648 $(11,148) (47)% ENDING CASH $464,370 $481,422 $489,279 $(7,857) (2)% Page 6 of 40

7 University of South Florida Foundation, Inc. EXECUTIVE SUMMARY KEY BUSINESS ISSUES The USF Foundation is planning a comprehensive campaign to raise funds to attract world-class scholars and students, build state-ofthe-art academic and athletic facilities, and support groundbreaking research activities. Private contributions as a result of the campaign that may be realized for budget and financial reporting purposes were at an all-time high in fiscal year Our forecast for Gifts & Contributions in fiscal year 2009 is more modest as a result of the impact of the downturn economy on significant gift prospects. It is the goal of the USF Foundation to maintain the original purchasing power of donor investments over the long term. The Foundation Board reviews the Endowment Spending Policy annually to assure that funds are managed in a prudent manner in accordance with our responsibilities as good stewards of the funds entrusted to our management. Due to long-term returns exceeding expectations, the dividend distribution increased from 4% in fiscal year 2008 to 4.6% in fiscal year 2009 of the 5 year average market value of the endowment. The administrative fee retained for USF Foundation operations will remain at 2%. The Foundation Board meets in February to review the Spending Policy for fiscal year Adjustments to the Spending Policy will consider the impact of market fluctuations on the endowment and the needs of the University in the current economic environment. The budget reductions experienced by the University will likely translate to additional utilization of USF Foundation funds. Expenditures are projected to increase specifically for operating expenses directly related to the campaign and greater reliance by the schools and colleges on private funds to support faculty salaries and program operations. The Foundation's endowment has not been immune to the recent unprecedented losses in the investment markets. The return from July 1, 2008 through December 31, 2008 was a loss of -23.9%. Despite the market decline over the last year, the Foundation's endowment average performance over the long-term remains strong, with returns since 1990 of 8.7%. These long-term results emphasize the perpetual horizon of the endowment. The Foundation's Investment Committee continues to monitor the performance and liquidity of our asset allocation and investment managers and take appropriate action to maintain the growth and benefit of the endowment to USF over the long-term. Balance Sheet - Significant Items Decrease in noncurrent investments is due to the performance of the market over the past year (see above) offset by gifts added to the endowment. Decrease in the market value of investments has also affected the amounts held for others (in the other noncurrent liabilities line). Increase in current investments is the result of timing of larger calendar year end gifts and the addition of facility gifts during the first six months awaiting release to the University upon receipt of matching funds. Increase in accounts payables is due to the recognition of the Courtelis matching payable being recognized in the second quarter during FY'09 vs the fourth quarter in FY'08. Income Statement - Significant Items Actual Decrease in gifts is due to the overall decline of the economy. In the prior year the Foundation received approximately $10.4 million related to the Courtelis Facility matching gift program. In the current year new gifts for this program were only $2.4 million. Increase in salaries is due to programs within the colleges utilizing their Foundation funds more often to compensate for budget reductions at the university. In the prior year scholarships were recorded after the reconciliation of financial aid information was completed. This reconciliation process was changed in the 4th quarter of the prior year to recognize the expense in the period it was received from financial aid. Approximately $1.2 million in scholarships were recognized in the 3rd & 4th quarter of the prior year that related to the fall semester. In the current year all Fall semester scholarship awards were recognized in the 2nd quarter. Page 7 of 40

8 General & Administrative expenses have increased due to increases in community relations, travel, capital purchases and professional fees. Community Relations have increased approximately $320k for activities related to donor relations, business meals, employee grou activities and public relations. Travel related expenses have increased approximately $100k from the prior year due to the university departments and units increased reliance on Foundation funds as result university budget reductions. Capital purchases includes equipment purchased and transferred to USF which increased approximately $100k from the prior year and gift in kind of equipment and software which increased approximately $600k from the prior year due to significant gifts and bargain purchase option gifts with software vendors. Increase in Other expense for bad debts is due to the write off of prior year's balances that were allowed for. Bad debt expense will be adjusted for when the allowance is recalculated at year end. Increase in Other expense for Courtelis & other transfers is due to establishing the liability Due to USF for the amount certified to the State as eligible matching gifts. Current year new gifts certified for this program were $2.4 million. In the prior year this amount was booked in the fourth quarter, but in the current year it was booked in the second quarter. Also, the University borrowed $1,410,000 in order to purchase a boat, and the transfer flows through this line item. Increase in unrealized investment losses is due to the performance of the market. (see above) Forecast The forecast for gifts and contributions includes significant increases in the last six months of the year. This forecast is based on pending gifts and proposals that are being tracked and reviewed by management; however, the impact of the economic downturn and recovery could significantly affect the timing of when these projected gifts are realized. Increase in salaries is due to programs within the colleges utilizing their Foundation funds more often to compensate for budget reductions. The decrease in scholarship expense is due to the decrease in first generation scholarships support of approximately $500k as compared to the prior year. Decrease in bad debt expense is because in the prior year there was a one time, large write off to bad debt expense that is not expected in the current year. Decrease in other for Courtelis and other transfers expense is primarily due to the decrease in amount raised for the Courtelis Facilities Matching program due to the condition of the economy. In the prior year, the Foundation raised $10,403,964 and in the current year $2,480,274 was raised. Statement of Cash Flows - Significant Items Change in cash balance is due to the fluctuations in receipt of major gifts, dividend distributions and movement between the checking account, operating investment pool and the long-term endowment pool. Page 8 of 40

9 University of South Florida Foundation, Inc. BALANCE SHEET (In thousands) December 31, June 30, $ % ASSETS Current Assets Cash and Cash Equivalents $4,355 $3,842 $ % Investments 64,385 57,075 7, % Receivables 33,987 31,087 2,900 9 % Due from Primary Unit and Other Component Units % Inventories % Interest Rate Swap Receivable % Other Current Assets 6,913 7,845 (932) (12)% Total Current Assets $110,495 $100,137 $10, % Noncurrent Assets Restricted Assets Restricted Cash and Cash Equivalents $0 $0 $0 % Restricted Investments 286, ,114 (99,113) (26)% Other Noncurrent Assets Loans and Notes Receivable (Net of Allowance for Uncollectibles) 11,100 11,660 (560) (5)% Other % Capital Assets Depreciables 1,138 1, % Less Accumulated Depreciation (888) (874) (14) (2)% Non-Depreciables (1) (0)% Total Noncurrent Assets $297,739 $397,427 $(99,688) (25)% Total Assets $408,234 $497,564 $(89,330) (18)% LIABILITIES Current Liabilities Accounts Payable $15,398 $12,061 $3, % Accrued Salaries and Benefits % Due to Primary Unit and Other Component Units % Deferred Revenue % Interest Rate Swap Payable % Other Current Liabilities % Total Current Liabilities $16,253 $12,349 $3, % Noncurrent Liabilities Long Term Debt $11,100 $11,660 $(560) (5)% Compensated Absences % Other Noncurrent Liabilities 17,979 21,876 (3,897) (18)% Total Noncurrent Liabilities $29,079 $33,536 $(4,457) (13)% Total Liabilities $45,332 $45,885 $(553) (1)% NET ASSETS $362,902 $451,679 $(88,777) (20)% Total Liabilities & Net Assets $408,234 $497,564 $(89,330) (18)% Page 9 of 40

10 University of South Florida Foundation, Inc. INCOME STATEMENT (In thousands) REVENUES 3 Months Ended December 31, 6 Months Ended December 31, Fiscal Year Ended June 30, Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Tuition & Fees $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % State Appropriations % % % Contracts & Grants % % % Program Revenue / Sales / Services % 1, % 2,323 2, % Gifts & Donations 12,536 15,856 (3,320) (21)% 16,715 21,295 (4,580) (22)% 58,201 56,228 1,973 4 % Rental Revenue 9 10 (1) (10)% (1) (4)% (1) (2)% Investment Income (Loss) 3,110 3,937 (827) (21)% 5,500 6,411 (911) (14)% 9,261 10,290 (1,029) (10)% Other: Campaign support and other ,650 % 3, ,543 7,702 % 3,839 3, % % % % Total Revenues $16,409 $20,101 $(3,692) (18)% $26,952 $28,611 $(1,659) (6)% $73,684 $72,454 $1,230 2% EXPENSES Salaries & Benefits $6,098 $4,407 $1, % $10,300 $7,543 $2, % $19,866 $15,944 $3, % Scholarships & Fellowships 1, % 1, , % 3,786 4,364 (578) (13)% Contractual Services % 1,246 1, % 2,807 2,838 (31) (1)% Materials & Supplies % 1, % 2,231 2, % Program Services % % % Utilties / Repairs / Maintenance (38) (51)% % (44) (10)% Facilities Rent % % % General & Administrative 2,494 2, % 4,104 2,927 1, % 8,018 7, % Interest Paid on Debt % % % Depreciation & Amortization 7 10 (3) (30)% (6) (30)% (6) (18)% Other: Bad debt expense and other % 1, % 2,171 5,881 (3,710) (63)% Courtelis Match & Other Transfers 3, ,601 1,246 % 4, , % 4,920 10,856 (5,936) (55)% Total Expenses $15,916 $8,649 $7, % $24,058 $14,260 $9, % $44,240 $49,849 $(5,609) (11)% OPERATING PROFIT BEFORE CHANGES IN MARKET VALUE $493 $11,452 $(10,959) (96)% $2,894 $14,351 $(11,457) (80)% $29,444 $22,605 $6, % Non-Cash Changes in Market Value Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Unrealized Investment Gains (Losses) (53,785) (6,875) (46,910) (682)% (91,671) 294 (91,965) (31,281)% (91,671) (33,933) (57,738) (170)% Change in Fair Value of Swap(s) % % % Total Non-Cash Items $(53,785) $(6,875) $(46,910) (682)% $(91,671) $294 $(91,965) (31,281)% $(91,671) $(33,933) $(57,738) (170)% Page 10 of 40

11 University of South Florida Foundation, Inc. STATEMENT OF CASH FLOWS (In thousands) 3 Months Ended December 31, Fiscal Year Ended June 30, Actual FORECAST Actual $ % BEGINNING CASH $6,369 $3,842 $2,063 $1, % Cash Flow from Operations Cash Inflow Tuition & Fees $0 $0 $0 $0 % Contracts and Grants % Program Revenue / Sales / Services 679 2,323 2, % Gifts & Donations 8,664 48,301 49,437 (1,136) (2)% Rental Revenue (1) (2)% Other 744 5,300 4, % Cash Outflow Operating Expenses 15,588 44,240 38,875 5, % Net Cash Flow from Operations $(5,492) $11,744 $17,239 $(5,495) (32)% Cash Flow from Financing State Appropriations / Capital Transfers $0 $0 $0 $0 % Acquisition / Construction of Capital Asset % Sale of Capital Asset % Debt Proceeds % Principal & Interest Payments % Net Cash Flow from Financing $0 $0 $0 $0 % Cash Flow from Investing Purchase (Sale) of Investments $368 $(18,760) $(25,750) $6, % Investment Income 3,110 9,261 10,290 (1,029) (10)% Net Cash Flow from Investing $3,478 $(9,499) $(15,460) $5, % ENDING CASH $4,355 $6,087 $3,842 $2, % Page 11 of 40

12 USF Alumni Association EXECUTIVE SUMMARY KEY BUSINESS ISSUES Although USFAA has experienced an increase in new members due to several intitiatives, we are showing that retention is being affected by the current economic conditions. Although short of our estimates, license plates continue to show growth when compared to prior year. Due to the relationship and marketing focus of USFAA with the University alumni, USFAA does not budget for a surplus and its goal is to break-even. Investments in alumni and student programs are constantly analyzed for cost control and value/benefit. The current credit card royalty contract expires in USFAA continues to monitor the relationship with Bank of America and contract renewal. USFAA is evaluating potential sources of revenue and looking for opportunities for revenue growth. USFAA investments are held in the Foundation Pool. USFAA does nor rely on market gains and losses for operations, instead it relies on the guaranteed dividend provided by the Foundation. Balance Sheet - Significant Items Increase in current investments relates to the monies received from the Foundation and from credit card royalties during the first quarter. These monies are used up by the end of the year to cover salaries and programs. Decrease in non current investments is due to the performance of the market over the past year offset in part by gifts added to the endowments. Increase in Deferred Revenue is driven by the increase in life memberships, these monies are held in endowment. Income Statement - Significant Items Actual During FY09 the University eliminated about $120K of E&G funding used to pay salaries. These salaries are now paid with private dollars. The Alumni is experiencing softer membership revenue year to date due to retention rates declining. Most variances are due to a change in timing of when the Foundation support was received and the timing of the Homecoming event. Timing differences should normalize by the third quarter. Forecast Excluding the effect of the market value decrease of investments, the Alumni is projecting to break even for the year. Increase in salaries is due mainly to the elimination of E&G funding to cover salary expenses. To offset this loss of revenue and softer membership revenue expected certain programs were eliminated. The forecasted unrealized investment loss is based on December 31, 2008 results. Near term results can be discussed at the presentation of these financials. Statement of Cash Flows - Significant Items Change in cash balance for the quarter is due to the movement of funds between the cash and the operating investment pool at the Foundation. Page 12 of 40

13 USF Alumni Association BALANCE SHEET (In thousands) December 31, June 30, $ % ASSETS Current Assets Cash and Cash Equivalents $62 $34 $28 82 % Investments % Receivables % Due from Primary Unit and Other Component Units % Inventories % Interest Rate Swap Receivable % Other Current Assets % Total Current Assets $1,096 $624 $ % Noncurrent Assets Restricted Assets Restricted Cash and Cash Equivalents $0 $0 $0 % Restricted Investments 1,941 2,489 (548) (22)% Other Noncurrent Assets Loans and Notes Receivable (Net of Allowance for Uncollectibles) % Other % Capital Assets Depreciables % Less Accumulated Depreciation % Non-Depreciables % Total Noncurrent Assets $1,941 $2,489 $(548) (22)% Total Assets $3,037 $3,113 $(76) (2)% LIABILITIES Current Liabilities Accounts Payable $48 $100 $(52) (52)% Accrued Salaries and Benefits % Due to Primary Unit and Other Component Units % Deferred Revenue 1, % Interest Rate Swap Payable % Other Current Liabilities % Total Current Liabilities $1,133 $1,085 $48 4 % Noncurrent Liabilities Long Term Debt $0 $0 $0 % Compensated Absences % Other Noncurrent Liabilities % Total Noncurrent Liabilities $0 $0 $0 % Total Liabilities $1,133 $1,085 $48 4 % NET ASSETS $1,904 $2,028 $(124) (6)% Total Liabilities & Net Assets $3,037 $3,113 $(76) (2)% Page 13 of 40

14 USF Alumni Association INCOME STATEMENT (In thousands) REVENUES Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Tuition & Fees $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % State Appropriations % % % Contracts & Grants % % % Program Revenue / Sales / Services (70) (36)% (29) (10)% (18) (3)% Gifts & Donations % % (4) (0)% Rental Revenue % % % Investment Income (Loss) % % % Other: Royalties % (15) (2)% (24) (4)% Foundation Support % % % Total Revenues $343 $346 $(3) (1)% $1,600 $1,180 $ % $2,195 $2,227 $(32) (1)% EXPENSES 3 Months Ended December 31, 6 Months Ended December 31, Fiscal Year Ended June 30, Salaries & Benefits $311 $296 $15 5 % $597 $510 $87 17 % $1,175 $993 $ % Scholarships & Fellowships % % % Contractual Services (7) (13)% (7) (7)% (24) (12)% Materials & Supplies % % % Program Services (172) (45)% (143) (31)% (98) (12)% Utilties / Repairs / Maintenance % % % Facilities Rent % % % General & Administrative % % % Interest Paid on Debt % % % Depreciation & Amortization % % % Other: % % % % % % Total Expenses $594 $749 $(155) (21)% $1,045 $1,090 $(45) (4)% $2,195 $2,095 $100 5% OPERATING PROFIT BEFORE CHANGES IN MARKET VALUE $(251) $(403) $ % $555 $90 $ % $0 $132 $(132) (100)% Non-Cash Changes in Market Value Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Unrealized Investment Gains (Losses) (397) (40) (357) (893)% (679) (40) (639) (1,598)% (679) (336) (343) (102)% Change in Fair Value of Swap(s) % % % Total Non-Cash Items $(397) $(40) $(357) (893)% $(679) $(40) $(639) (1,598)% $(679) $(336) $(343) (102)% Page 14 of 40

15 USF Alumni Association STATEMENT OF CASH FLOWS (In thousands) 3 Months Ended December 31, Fiscal Year Ended June 30, Actual FORECAST Actual $ % BEGINNING CASH $116 $34 $13 $ % Cash Flow from Operations Cash Inflow Tuition & Fees $0 $0 $0 $0 % Contracts and Grants % Program Revenue / Sales / Services % Gifts & Donations % Rental Revenue % Other 197 1,240 1,426 (186) (13)% Cash Outflow Operating Expenses 553 2,195 2, % Net Cash Flow from Operations $(193) $(115) $182 $(297) (163)% Cash Flow from Financing State Appropriations / Capital Transfers $0 $0 $0 $0 % Acquisition / Construction of Capital Asset % Sale of Capital Asset % Debt Proceeds % Principal & Interest Payments % Net Cash Flow from Financing $0 $0 $0 $0 % Cash Flow from Investing Purchase (Sale) of Investments $0 $0 % Investment Income (161) % Net Cash Flow from Investing $139 $115 $(161) $ % ENDING CASH $62 $34 $34 $0 0 % Page 15 of 40

16 USF Financing Corporation EXECUTIVE SUMMARY KEY BUSINESS ISSUES During the first 6 months, the Financing Corporation placed into service the new Marshall Student Center ($64 million) and the Morsani Center for Advanced Healthcare ($65 million). Construction continues on the Magnolia Hall student residence facility ($74 million) and the Medical Faculty Office Building ($23 million). The Financing Corporation has four interest rate swaps, which fix interest rates at 3.45% on its $235 million of variable rate debt. Noncash changes in the fair market value of these swaps equaled a negative $28 million as of December 31, As of January 31, 2009, the change in fair value equaled negative $18 million, a positive change of $10 million. During the first 6 months, the Financing Corporation replaced one of its variable rate debt remarketing agents. Balance Sheet - Significant Items Investments and other Current Assets (construction in process) declined during the 6 months due to construction activity on current projects, which culminated in the $113 million increase in Capital Assets for the Marshall Center and Morsani Center. Accounts Receivable increased $20.5 million which reflects the posting of collateral for 2 interest rate swaps as of December 31, Collateral posted as of January 31, 2009 equaled $14 million. The swap agreements do not contain performance covenants. Income Statement - Significant Items Actual Transfers (to) from Affiliates and the pass-through change in swap fair values reflect the changes in fair values of the swaps at December 31, Forecast The forecasted change in swap fair value has improved $10 million from the December 31 figure reflecting values as of January 31, Revenues and expenses are increasing due to the Marshall Center and Morsani Center being placed in service. Statement of Cash Flows - Significant Items For the year ended June 30, 2008, the Corporation issued bonds for the Magnolia project ($74 million) and for the Medical Faculty Office Building project ($23 million). For 2009 the Corporation forecasts spending $100 million on current construction projects. Page 16 of 40

17 USF Financing Corporation BALANCE SHEET (In thousands) December 31, June 30, $ % ASSETS Current Assets Cash and Cash Equivalents $0 $0 $0 % Investments 58,531 88,258 (29,727) (34)% Receivables 20, ,508 16,148 % Due from Primary Unit and Other Component Units 62,964 72,009 (9,045) (13)% Inventories % Interest Rate Swap Receivable % Other Current Assets 58, ,311 (70,763) (55)% Total Current Assets $200,678 $289,705 $(89,027) (31)% Noncurrent Assets Restricted Assets Restricted Cash and Cash Equivalents $0 $0 $0 % Restricted Investments % Other Noncurrent Assets Loans and Notes Receivable (Net of Allowance for Uncollectibles) % Other 2,438 2,490 (52) (2)% Capital Assets Depreciables 171,769 58, , % Less Accumulated Depreciation (4,078) (2,055) (2,023) (98)% Non-Depreciables % Total Noncurrent Assets $170,129 $59,166 $110, % Total Assets $370,807 $348,871 $21,936 6 % LIABILITIES Current Liabilities Accounts Payable $7,385 $10,852 $(3,467) (32)% Accrued Salaries and Benefits % Due to Primary Unit and Other Component Units % Deferred Revenue % Interest Rate Swap Payable 37,449 9,120 28, % Other Current Liabilities 10,326 8,611 1, % Total Current Liabilities $55,160 $28,583 $26, % Noncurrent Liabilities Long Term Debt $315,647 $320,288 $(4,641) (1)% Compensated Absences % Other Noncurrent Liabilities % Total Noncurrent Liabilities $315,647 $320,288 $(4,641) (1)% Total Liabilities $370,807 $348,871 $21,936 6 % NET ASSETS $0 $0 $0 % Total Liabilities & Net Assets $370,807 $348,871 $21,936 6 % Page 17 of 40

18 USF Financing Corporation INCOME STATEMENT (In thousands) REVENUES 3 Months Ended December 31, 6 Months Ended December 31, Fiscal Year Ended June 30, Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Tuition & Fees $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % State Appropriations % % % Contracts & Grants % % % Program Revenue / Sales / Services 6,470 4,685 1, % 17,617 15,241 2, % 32,803 28,473 4, % Gifts & Donations % % % Rental Revenue % % % Investment Income (Loss) (98) (93)% (146) (84)% (238) (83)% Other: Transfers (to) from Affiliates 28,410 9,340 19, % 25,335 4,976 20, % 15,827 6,098 9, % Pass-through change in swap fair value (27,333) (7,924) (19,409) (245)% (28,329) (9,098) (19,231) (211)% (18,211) (10,596) (7,615) (72)% Total Revenues $7,554 $6,206 $1, % $14,650 $11,292 $3, % $30,469 $24,263 $6, % EXPENSES Salaries & Benefits $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % Scholarships & Fellowships % % % Contractual Services % % % Materials & Supplies % % % Program Services 3,702 3, % 7,464 6, % 15,107 13,291 1, % Utilties / Repairs / Maintenance (662) (70)% (662) (70)% (641) (68)% Facilities Rent % % % General & Administrative % % % Interest Paid on Debt 2,203 1, % 4,357 2,872 1, % 9,587 6,252 3, % Depreciation & Amortization 1, % 2, , % 4,525 3,144 1, % Other: % % % % % % Total Expenses $7,554 $6,206 $1, % $14,650 $11,292 $3, % $30,469 $24,263 $6, % OPERATING PROFIT BEFORE CHANGES IN MARKET VALUE $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % Non-Cash Changes in Market Value Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Unrealized Investment Gains (Losses) % % % Change in Fair Value of Swap(s) % % % Total Non-Cash Items $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % Page 18 of 40

19 USF Financing Corporation STATEMENT OF CASH FLOWS (In thousands) 3 Months Ended December 31, Fiscal Year Ended June 30, Actual FORECAST Actual $ % BEGINNING CASH $0 $0 $18 $(18) (100)% Cash Flow from Operations Cash Inflow Tuition & Fees $0 $0 $0 $0 % Contracts and Grants % Program Revenue / Sales / Services 7,547 30,419 23,975 6, % Gifts & Donations % Rental Revenue % Other 22,436 86,758 60,951 25, % Cash Outflow Operating Expenses 7,554 30,469 24,263 6, % Net Cash Flow from Operations $22,429 $86,708 $60,663 $26, % Cash Flow from Financing State Appropriations / Capital Transfers $0 $0 $0 $0 % Acquisition / Construction of Capital Asset (20,990) (100,266) (115,145) 14, % Sale of Capital Asset % Debt Proceeds ,028 (261,028) (100)% Principal & Interest Payments (5,108) (12,492) (174,232) 161, % Net Cash Flow from Financing $(26,098) $(112,758) $(28,349) $(84,409) (298)% Cash Flow from Investing (Purchase) Sale of Investments $3,642 $26,000 $(32,620) $58, % Investment Income (238) (83)% Net Cash Flow from Investing $3,669 $26,050 $(32,332) $58, % ENDING CASH $0 $0 $0 $0 % Page 19 of 40

20 UNIVERSITY MEDICAL SERVICE ASSOCIATION, INC. EXECUTIVE SUMMARY KEY BUSINESS ISSUES UMSA is aggressively exploring ways to reduce operating costs and increase productivity in an effort to increase revenues and offset the losses currently being experienced by the investment portfolio. UMSA is aggressively marketing the opening of their new business in the Morsani Center (Ambulatory Surgical Center and Imaging Center) in an effort to increase revenues and operating profit and offset the increased operating costs associated with the organization's three new buildings. Ramp up of the Ambulatory Surgery Center has been impacted by certification issues, as well as a delay in shifting certain specialities from their current facilities to that new facility. UMSA is working to rectify those issues and minimize their impact on current year operations. Balance Sheet - Significant Items Investments have decreased approximately $4.8M primarily due to unrealized losses experienced on the organization's investment portfolio due to declining market conditions. The unrealized losses on the Trusco and Foundation portfolios are approximately $2.3M and $2.5M, respectively. Receivables have decreased approximately $4.1M primarily due to the receipt of excess FICA refunds and related interest for (approx $5.8M). This decrease is partially offset by an accrual for Orthopedic support from the USF Foundation ($500K) and an accrual for resident benefit funding from affiliated hospitals ($700K) Accounts Payable has decreased approximately $3.8M primarily due to an abbreviated month end accrual process when compared to year end, resulting in a $1.7M variance, combined with a reduction in accrued expenses associated with the pay-out in November 2008 of $1.6M of accrued bonuses. Decrease in net assets from prior year is primarily due to a decline in the market value of the organization's investment portfolio. Income Statement - Significant Items Actual Decrease in total revenues for the 6 months ended December 31, 2008 when compared with prior year is primarily due to a reduction in patient service and contract revenue realized as a result of the separation of the DIO from the Practice Plan effective December 31, Decrease in total expenses for the 6 months ended December 31, 2008 when compared with prior year is primarily due to a reduction in faculty and staff salaries and benefits as a result of the separation of the DIO from the Practice Plan effective December 31, Forecast Decrease in forecasted FY total revenues when compared with prior year is primarily due to a reduction in contract revenue realized as a result of the separation of the DIO from the Practice Plan effective December 31, 2007 coupled with a reduction of other revenue due to realizing 4 years of excess FICA refunds in FY versus realizing 1 year in FY 08-09, which results in a decrease of approximately $4.5M. In addition, the planned liquidation of the organization's investment portfolio results in the realization of the current portfolio losses as an item from operations. Decrease in forecasted FY total expenses when compared with prior year is primarily due to a reduction in faculty and staff salaries and benefits as a result of the separation of the DIO from the Practice Plan effective December 31, This decrease in expenses is partially offset by an increase in equipment lease and bond costs related to the opening of the Morsani Center and Faculty Office Building. Statement of Cash Flows - Significant Items An increase in cash is expected by the end of the FY due mainly to non-operational funding sources. Excess FICA refunds of Page 20 of 40

21 UNIVERSITY MEDICAL SERVICE ASSOCIATION, INC. BALANCE SHEET (In thousands) December 31, June 30, $ % ASSETS Current Assets Cash and Cash Equivalents $15,766 $15,673 $93 1 % Investments 26,161 30,974 (4,813) (16)% Receivables 27,150 31,251 (4,101) (13)% Due from Primary Unit and Other Component Units 696 1,669 (974) (58)% Inventories % Interest Rate Swap Receivable % Other Current Assets 1, , % Total Current Assets $70,994 $79,774 $(8,780) (11)% Noncurrent Assets Restricted Assets Restricted Cash and Cash Equivalents $0 $0 $0 % Restricted Investments % Other Noncurrent Assets Loans and Notes Receivable (Net of Allowance for Uncollectibles) % Other % Capital Assets Depreciables 28,862 28, % Less Accumulated Depreciation (21,440) (19,944) (1,496) (7)% Non-Depreciables % Total Noncurrent Assets $7,574 $8,838 $(1,264) (14)% Total Assets $78,569 $88,613 $(10,044) (11)% LIABILITIES Current Liabilities Accounts Payable $1,059 $4,929 $(3,870) (79)% Accrued Salaries and Benefits 1,506 1, % Due to Primary Unit and Other Component Units 1,710 2,220 (510) (23)% Deferred Revenue (144) (75)% Interest Rate Swap Payable % Other Current Liabilities (94) (21)% Total Current Liabilities $4,685 $9,200 $(4,515) (49)% Noncurrent Liabilities Long Term Debt $264 $264 $0 0 % Compensated Absences % Other Noncurrent Liabilities % Total Noncurrent Liabilities $439 $439 $0 0 % Total Liabilities $5,125 $9,639 $(4,515) (47)% NET ASSETS $73,444 $78,973 $(5,529) (7)% Total Liabilities & Net Assets $78,569 $88,613 $(10,044) (11)% Page 21 of 40

22 UNIVERSITY MEDICAL SERVICE ASSOCIATION, INC. INCOME STATEMENT (In thousands) REVENUES 3 Months Ended December 31, 6 Months Ended December 31, Fiscal Year Ended June 30, Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Tuition & Fees $0 $0 $0 % $0 $0 $0 % $0 $0 $0 % State Appropriations % % % Contracts & Grants 8,691 13,442 (4,751) (35)% 15,800 25,159 (9,359) (37)% 31,599 41,118 (9,518) (23)% Program Revenue / Sales / Services 27,572 26, % 56,486 63,959 (7,473) (12)% 112, ,364 (392) (0)% Gifts & Donations % % % Rental Revenue % % % Investment Income (Loss) 418 1,833 (1,414) (77)% 154 3,521 (3,367) (96)% (5,718) 6,595 (12,314) (187)% Other: 3,122 3, % 5,344 4,120 1, % 13,887 19,918 (6,031) (30)% % % % Total Revenues $39,803 $45,087 $(5,284) (12)% $77,783 $96,758 $(18,975) (20)% $152,739 $180,995 $(28,256) (16)% EXPENSES Salaries & Benefits $28,624 $42,916 $(14,292) (33)% $56,069 $80,026 $(23,958) (30)% $112,138 $134,366 $(22,229) (17)% Scholarships & Fellowships % % % Contractual Services 1,024 (160) 1, % 1,601 1,723 (122) (7)% 3,203 4,384 (1,181) (27)% Materials & Supplies 1,736 1, % 3,133 2, % 6,266 6,521 (255) (4)% Program Services % % % Utilties / Repairs / Maintenance % 1, % 2,586 1, % Facilities Rent 1, % 3,043 1,459 1, % 6,086 4,354 1, % General & Administrative % % % Interest Paid on Debt ,909 % ,423 % % Depreciation & Amortization (7) (1)% 1,535 1,557 (22) (1)% 3,070 3,098 (28) (1)% Other: 4,548 1,237 3, % 11,662 7,972 3, % 23,325 17,390 5, % % % % Total Expenses $39,014 $47,118 $(8,104) (17)% $78,535 $96,353 $(17,818) (18)% $157,070 $172,234 $(15,164) (9)% OPERATING PROFIT BEFORE CHANGES IN MARKET VALUE $789 $(2,031) $2, % $(752) $405 $(1,157) (286)% $(4,331) $8,761 $(13,092) (149)% Non-Cash Changes in Market Value Actual Actual $ % Actual Actual $ % FORECAST Actual $ % Unrealized Investment Gains (Losses) (4,134) (1,764) (2,370) (134)% (4,777) (2,490) (2,287) (92)% 0 (6,595) 6, % Change in Fair Value of Swap(s) % % % Total Non-Cash Items $(4,134) $(1,764) $(2,370) (134)% $(4,777) $(2,490) $(2,287) (92)% $0 $(6,595) $6, % Page 22 of 40

23 UNIVERSITY MEDICAL SERVICE ASSOCIATION, INC. STATEMENT OF CASH FLOWS (In thousands) 3 Months Ended December 31, Fiscal Year Ended June 30, Actual FORECAST Actual $ % BEGINNING CASH $17,442 $15,673 $3,732 $11, % Cash Flow from Operations Cash Inflow Tuition & Fees $0 $0 $0 $0 % Contracts and Grants 7,764 25,000 30,290 (5,290) (17)% Program Revenue / Sales / Services 26, , ,222 (14,222) (12)% Gifts & Donations % Rental Revenue % Other 8,067 40,000 45,764 (5,764) (13)% Cash Outflow Operating Expenses 43, , ,524 (15,524) (9)% Net Cash Flow from Operations $(1,485) $3,000 $12,751 $(9,751) (76)% Cash Flow from Financing State Appropriations / Capital Transfers $0 $0 $0 $0 % Acquisition / Construction of Capital Asset (256) (1,400) (1,038) (362) (35)% Sale of Capital Asset % Debt Proceeds % Principal & Interest Payments (12) (48) (42) (6) (14)% Net Cash Flow from Financing $(268) $(1,448) $(1,080) $(368) (34)% Cash Flow from Investing Purchase (Sale) of Investments $0 $0 $0 $0 % Investment Income % Net Cash Flow from Investing $77 $350 $270 $80 30 % ENDING CASH $15,766 $17,575 $15,673 $1, % Page 23 of 40

24 USF MEDICAL SERVICES SUPPORT CORPORATION EXECUTIVE SUMMARY KEY BUSINESS ISSUES MSSC is currently structured as a break-even organization, with all payroll-related and operating expenses being funded by UMSA. However, non-cash expenses such as capital lease depreciation and depreciation on the two clinic facilities and the medical office building are not funded by UMSA. This treatment could potentially lead to the recognition of an operating loss by MSSC. Any residual revenue resulting from support funding from UMSA for capital lease payments/purchases, nondepreciable purchases, and long term debt and interest payments will mitigate this potential loss, as the cash transfer recorded on the income statement related to these asset/liability items is not fully offset by a corresponding expense in that fiscal year. With the ramp up of operations at the Morsani Center and the Ambulatory Surgery Center, medical and drug supply inventories continue to grow. MSSC needs to ensure adequate safeguards are in place to protect inventory balances, including the utilization of secure areas, the performance of periodic physical counts, and barcoding of items to facilitate tracking and monitoring. As MSSC is fully funded by UMSA, all key business issues of UMSA have the potential for impacting MSSC as well. Balance Sheet - Significant Items The Morsani Center became operational in July 2008 thereby decreasing construction in progress (nondepreciables) and increasing capital assets (depreciables) and accumulated depreciation. Also, as the construction of the Medical Office Building (MOB) progresses, long term debt associated with the buildings increases. Anticipated opening date for the MOB is January The decrease in accounts payable and due from primary unit and other component units when compared to 6/30/08 is primarily due to payments made for capital purchases funded by the University as part of the Centers for Advanced Healthcare project. The funds owed to MSSC as well as the expenses relating to these purchases were accrued at 6/30/08; however, settlement of those invoices did not take place until this fiscal year. Amounts were not capitalized on the books of MSSC, as MSSC merely served as a conduit for these purchases. The increase in due to primary unit and other component units when compared to 6/30/08 is primarily due to the signifcant obligation to the USF Financing Corporation as a result of the impact of the interest rate swap at 12/31/08. Income Statement - Significant Items Actual Increase in revenues when compared to prior year is primarily due to support funding from UMSA for capital lease payments/purchases, nondepreciable purchases, and long term debt and interest payments. These amounts are journalized to the respective asset or liability account on balance sheet on the books of MSSC; thus the revenue from the cash transfer recorded on the income statement is not fully offset by a corresponding expense. The decrease in toal expenses when compared to prior year is primarily due to lower salaries and benefits. This decrease is due to the separation of the DIO staff from the Practice Plan and transition of Pediatrics staff to USF in conjunction with federal contracts transferred from the Practice Plan to the Divsion of Sponsored Research. Increases in depreciation expense, material and supplies, and operating expenses are primarily due to the opening of the Morsani Center in July of 2008 and the corresponding ramp up of building operations throughout the first two quarters. Decrease in facilities rent when compared to prior year is a result of a shift in occupancy to facilities secured by bond debt coupled with the prescribed accounting treatment of the buildings as "owned" vs. "leased" assets. Forecast An increase in interest paid on debt, depreciation expense and operating expenses are forecasted due to the opening of the Morsani Center in FY 08/09. Interest paid on debt is projected to increase due to the depletion of capitalized interest, which results in an increase in monthly interest payments. A projected increase in operating expenses is primarily due to an increase in equipment rental and lease expenses associated with equipment secured for the Morsani Center. In addition, financing costs associated with the bond debt are projected to increase as well. Page 24 of 40

25 Statement of Cash Flows - Significant Items MSSC's cash balance should be miminal, representing a small buffer established for payroll and operating expenses; however, December's ending cash balance was significantly higher due to a wire transfer for January payroll which actually took place in December. The wire transfer had to be made early due to the mandated closing of UMSA's administrative offices during the last week of December. Increase in total cash used for financing is attributable to increased principal payments on the bond debt for the Centers for Advanced Healthcare and an increase in interest payments due to the depletion of capitalized interest. Page 25 of 40