CALIFORNIA STATE UNIVERSITY, CHICO. Financial Statements. June 30, (With Independent Auditors Report Thereon)

Transcription

1 Financial Statements (With Independent Auditors Report Thereon)

2 Table of Contents Page Independent Auditors Report 1 Management s Discussion and Analysis (unaudited) 3 Financial Statements: Statement of Net Assets 14 Statement of Revenues, Expenses, and Changes in Net Assets 15 Statement of Cash Flows 16 18

3 KPMG LLP Suite Capitol Mall Sacramento, CA Independent Auditors Report Dr. Paul J. Zingg President California State University, Chico: We have audited the accompanying financial statements of California State University, Chico (the University), an agency of the State of California, and its aggregate discretely presented component units as of and for the year ended, which collectively comprise the University s financial statements as listed in the table of contents. These financial statements are the responsibility of the University s management. 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 auxiliary organizations of the University. 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 discretely presented auxiliary organizations, 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinions. As discussed in note 2, the financial statements of the University, are intended to present the financial position, the changes in financial position, and 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. They do not purport to, and do not, present fairly the financial position of the State of the California or the California State University System as of, 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. In our opinion, based on our audit 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 of its aggregate discretely presented component units as of, and the respective changes in financial position and, where applicable, cash flows thereof, for the year then ended in conformity with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Management s discussion and analysis on pages 3 through 13 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. January 24,

5 Management s Discussion and Analysis (Unaudited) This section of California State University, Chico s (the University) annual financial report presents our discussion and analysis of the financial position and performance of the University for the fiscal year ended. This discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes, which follow this section. The financial statements of the University for the year ended have been prepared 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, 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 only 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 Assets, the Statement of Revenues, Expenses and Changes in Net Assets, 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 University s three recognized auxiliary organizations are presented in a separate column to enable the reader to distinguish between the University and these separate, but related, not-for profit organizations. The Statement of Net Assets is the University s balance sheet. It presents information on all of the University s assets and liabilities, with the difference between the two reported as net assets (equity). Assets and liabilities are generally reported at their book value, except investments, which are reported at their market value, on an accrual basis, as of the statement date, and classified between current and noncurrent. Over time, increases or decreases in net assets may serve as a useful indicator of the financial position of the University. The University s net assets are classified into three categories: Invested in capital assets, net of related debt Restricted Unrestricted Changes from one year to the next in total net assets as presented on the Statement of Net Assets are based on the activity presented on the Statement of Revenues, Expenses, and Changes in Net Assets. The Statement of Revenues, Expenses, and Changes in Net Assets 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 used to fund current operations, as nonoperating revenue. 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 3 (Continued)

6 Management s Discussion and Analysis (Unaudited) 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 include debt proceeds, state capital appropriations, gifts, and grants, and proceeds from sale of capital assets. Within the capital and related financing activities, uses of funds consist of acquisition of capital assets, and debt repayments. Sales and purchases of investments are part of investing activities. The Statement of Cash Flows for the discretely presented auxiliary organizations is not included in the University s financial statements. Financial Analysis The following sections provide additional details on the University s financial position and activities for fiscal years ending and 2009 and a look ahead at the economic conditions that are expected to affect the University in the future: I. Condensed Schedule of Net Assets II. Condensed Schedule of Revenues, Expenses, and Changes in Net Assets I. Condensed Schedule of Net Assets The University s condensed summary of net assets as of and 2009 is as follows: June Assets: Current assets $ 86,283,232 85,769,435 Capital assets 272,757, ,192,939 Other noncurrent assets 41,995,528 85,274,685 Total assets 401,035, ,237,059 Liabilities: Current liabilities 35,762,114 68,191,345 Long-term debt obligations, net of current portion 145,599, ,683,112 Other noncurrent liabilities 14,619,535 12,804,635 Total liabilities 195,981, ,679,092 Net assets: Invested in capital assets, net of related debt 129,427, ,744,415 Restricted, expendable 6,739,805 7,245,181 Unrestricted 68,887,136 34,568,371 Total net assets $ 205,054, ,557,967 4 (Continued)

7 Management s Discussion and Analysis (Unaudited) Current and Other Noncurrent Assets Current and other noncurrent assets are assets that are used to meet the University s current and noncurrent obligations. These assets consist of cash and cash equivalents, investments, accounts receivable, student loans receivable, prepaid expenses, and other assets totaling $128.3 million and $171.0 million at and 2009, respectively. The net decrease of $42.7 million in current and noncurrent assets is primarily attributable to a decrease of $35.6 million in cash and investments and a decrease of $5.3 million in noncurrent receivables for state capital appropriations. The decrease in cash and investments is primarily a result of Systemwide Revenue Bonds Series 2009A and 2008A expended in the current year for the Sutter Hall student housing project and the Student Union Wildcat Recreation Center project. Noncurrent receivables for state capital appropriation decreased due to the reversion at of $2.9 million of capital renewal and minor capital state appropriations and the $2.4 million liquidation of receivable due to current year spending on the Student Services Center, capital renewal roofing projects and some minor capital projects. Capital Assets The University s capital assets, net of accumulated depreciation at historical cost, as of and 2009 are comprised of the following: June Land and land improvements $ 8,099,711 7,076,129 Works of art and historical treasures 192, ,167 Buildings and building improvements 169,632, ,433,375 Improvements, other than buildings 4,880,824 1,033,943 Infrastructure 19,028,723 14,816,696 Personal property 7,794,858 8,343,260 Intangible assets 236, ,706 Construction work in progress 62,891,872 80,032,663 Total capital assets, net of accumulated depreciation $ 272,757, ,192,939 Major capital asset additions during 2009/2010 include the following projects: Completion of the $61.5 million Student Union Wildcat Recreation Center Construction in progress on the $65.3 million Sutter Hall student housing expansion and dining center project Donation received of the completed $4.6 million Gateway Science Museum Capital construction commitments at totaled $6.1 million. Other Current and Noncurrent Liabilities Other current liabilities (liabilities due within one year) and noncurrent liabilities (liabilities due in more than one year) include accounts payable, accrued salaries and benefits payable, accrued compensated absences, 5 (Continued)

8 Management s Discussion and Analysis (Unaudited) deferred revenue, grants refundable, capitalized lease obligations, depository accounts, other postemployment benefit obligations, and other liabilities. Current liabilities decreased by $32.4 million in fiscal year 2009/2010. The decrease is mainly due to the current year settlement of a refund of state noncapital appropriations owed to the State of California (the State). A payable in the amount of $30.7 million existed at June 30, Other noncurrent liabilities increased $1.8 million primarily due to the fluctuation in noncurrent accrued compensated absences of $1.6 million. This increase is largely attributable to the furlough program for faculty and staff during 2009/2010, which resulted in employees using less of their compensated leave balances. Long-Term Debt As of and 2009, the University s outstanding long-term debt obligations totaled $147.7 million and $149.7 million, respectively, and are summarized below by type of debt instrument: June Systemwide Revenue Bonds: Housing Series N $ 2,230,000 2,380,000 Series 2005C Housing 2,435,000 2,685,000 Series 2007C Union 17,460,000 18,005,000 Series 2008A Union 65,380,000 66,425,000 Series 2009A Housing 60,535,000 60,535,000 Total 148,040, ,030,000 Unamortized bond premium (discount) 258, ,135 Unamortized loss on refunding (618,658) (661,023) Total long-term debt 147,679, ,673,112 Less current portion (2,080,000) (1,990,000) Long-term debt, net of current portion $ 145,599, ,683,112 The University s total long-term debt obligations (net of repayments) decreased by $2.0 million in 2009/2010 due to current year debt service payments. The table above does not include the University s capitalized lease obligations of $29.2 thousand and $49.0 thousand at and 2009, respectively. In addition, the State 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. Total General Obligation Bond debt carried by the State related to the California State University System projects is approximately $2.8 billion and $2.4 billion at and 2009, respectively. Bond Ratings Moody s Investors Service currently provides an intrinsic rating of Aa2, with a stable outlook, for the Systemwide Revenue Bonds. Standard & Poor s Rating Service currently provides an intrinsic rating of A+, with a stable outlook, for the Systemwide Revenue Bonds. With the exception of certain maturities of Series 2005C, 6 (Continued)

9 Management s Discussion and Analysis (Unaudited) Series 2007A, Series 2008A, Series 2009A and all maturities of Series 2010A and 2010B, all Systemwide Revenue Bonds are insured. Since the middle of fiscal year 2008, some providers of insurance for Systemwide Revenue Bonds have been downgraded to ratings below Aaa/AAA. Those bonds that are uninsured bear the intrinsic ratings of the Systemwide Revenue Bonds, which are Aa2 from the Moody s Investors Service and A+ from the Standard & Poor s Rating Service. See notes 7 and 8 to the financial statements for further information on long-term debt obligations. Net Assets As noted earlier, net assets may serve over time as a useful indicator of the University s financial position. As of and 2009, assets exceeded liabilities by $205.1 million and $175.6 million, respectively, for the University. The increase in net assets occurred mostly in Unrestricted category, as described below in more detail. The net asset category invested in capital assets, net of related debt represents the University s capital assets, net of accumulated depreciation, and also net of outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. The University uses these capital assets in its day-to-day operations. This category is the largest portion of the University s net assets. The University experienced a net decrease of $4.3 million in this net asset category in the current year due to the increase in depreciation expense of $1.5 million and the transfer of expended debt for the noncapitalized demolition and soil remediation costs of the Wildcat Recreation Center and the Sutter Hall projects. The restricted net asset category consists of two subcategories: Restricted nonexpendable and Restricted expendable. The restricted nonexpendable net assets are made up of the permanent endowment funds. The University Foundation, a recognized auxiliary organization, holds the entire amount of the University-related endowments. In the current year, there was no significant change in the University Foundation s restricted nonexpendable net assets. Restricted expendable net assets represent resources that are subject to external restrictions, such as by donor or by law, on how they may be used. Such restrictions are primarily related to scholarships, capital projects, and debt service funds. In the current year, the University experienced a net decrease of $0.5 million in restricted expendable net assets. This decrease was due to the transfer of $3.4 million to net assets Invested in Capital Assets for the interest capitalized in the current year on Wildcat Recreation Center and Housing Sutter Hall projects. This decrease was partially offset by an increase in net assets restricted expendable for capital projects due to the remaining expended debt of $2.6 million transferred in the current year to the Invested in Capital Assets net asset category on the Wildcat Activity Center project that had been held in Restricted expendable for capital projects at June 30, As of June 30, 2009, the debt was recorded within net assets restricted expendable for capital projects, as the University planned to receive reimbursement for costs of remediation that were previously expensed; however, the debt was reclassified to Invested in Capital Assets during the course of the current year when the University completed the capitalization of the project and such reimbursement had not yet been received. 7 (Continued)

10 Management s Discussion and Analysis (Unaudited) The following table summarizes the amount of restricted funds by type of restriction: Restricted Net Assets June Expendable: Capital projects $ 6,173,095 3,539,708 Debt service 566,242 3,669,991 Other ,482 Total restricted net assets expendable $ 6,739,805 7,245,181 Unrestricted net assets represent all other net resources available to the University for general and educational obligations. The University s unrestricted net assets increased by $34.3 million to $68.9 million as of June 30, This increase is due to many factors including the recognition of a nonrecurring American Recovery and Reinvestment Act (ARRA) Grant increase in 2009/2010. Though this grant was recorded in the Other Restricted net assets category, it funded a portion of current year payroll expense previously funded by unrestricted state appropriations, noncapital. A significant portion of the increase in unrestricted net assets was due to a cumulative reduction in operating expenses, primarily due to campus planning for anticipated State budget reductions and the unexpected receipt of the ARRA Grant funding. Increased noncapital appropriations of $5.3 million also contributed to the rise in unrestricted net assets. In addition to these operating fund additions, the Housing and Student Union net assets increased $3.3 million and $1.6 million, respectively, as a result of salary and benefit savings for Housing due to the furloughs and fee rates raised in 2009/2010 to fund increased debt service on the newly constructed facilities. 8 (Continued)

11 Management s Discussion and Analysis (Unaudited) II. Condensed Schedule of Revenues, Expenses, and Changes in Net Assets The University s condensed summary of revenues, expenses, and changes in net assets for the years ended and 2009 is as follows: Year ended June Operating revenues: Student tuition and fees, net $ 64,386,643 50,515,555 Grants and contracts, noncapital 92, ,606 Sales and services of educational activities 248, ,767 Sales and services of auxiliary enterprises, net 12,953,835 13,651,978 Other operating revenues 6,486,223 7,101,292 Total operating revenues 84,166,892 71,727,198 Operating expenses 201,690, ,374,491 Operating loss (117,523,743) (145,647,293) Nonoperating revenues (expenses): State appropriations, noncapital 91,668,410 86,342,461 Federal financial aid grants, noncapital 25,515,612 19,137,451 State financial aid grants, noncapital 8,595,469 6,970,703 Nongovernmental financial aid grants, noncapital 1,596,297 1,607,700 Other federal nonoperating grants, noncapital 19,114,800 11,505,600 Investment income, net 247,150 2,108,721 Other nonoperating revenues (expenses), net (1,271,074) 1,999,720 Total nonoperating revenues 145,466, ,672,356 Income (loss) before other additions 27,942,921 (15,974,937) State appropriations, capital (2,815,635) 2,432,000 Grants and gifts, capital 4,369,319 1,184,480 Increase (decrease) in net assets 29,496,605 (12,358,457) Beginning net assets 175,557, ,916,424 Ending net assets $ 205,054, ,557,967 9 (Continued)

12 Management s Discussion and Analysis (Unaudited) Revenues (Operating and Nonoperating) The following chart displays the components of the University s Operating Revenues and Nonoperating Revenues for fiscal years ended and ,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 University Operating and Nonoperating Revenues by Source State appropriations, noncapital Student tuition and fees, net Grants, contracts, and gifts Sales and services (educational activities and auxiliary enterprises, net) Investment income (loss), net Other University Operating and Nonoperating Revenues Years ended and 2009 Percentage of Percentage of 2010 total 2009 total State appropriations, noncapital $ 91,668, % $ 86,342, % Student tuition and fees, net 64,386, ,515, Grants and contracts 54,914, ,413, Sales and services (educational activities and auxiliary enterprises, net) 13,201, ,918, Investment income (loss), net 247, ,108, Other operating and nonoperating 5,215, ,101, Total operating and nonoperating revenues $ 229,633, % $ 201,399, % 10 (Continued)

13 Management s Discussion and Analysis (Unaudited) Operating revenues 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. With the exception of capital state appropriations and capital grants and gifts, revenues not categorized as operating revenue are classified as nonoperating revenues, which result from sources that are outside the University s primary functions. Included in nonoperating revenue are state appropriations, noncapital, federal funding received from the ARRA, financial aid grant revenue, and investment income. Revenue from capital state appropriations and capital grants and gifts are considered other additional revenue discussed further on page 13. As the University is part of the California State University System (the System), which is an agency of the State, the University s operations are funded primarily from appropriations of state tax revenues. General (noncapital) appropriation revenues totaled $91.7 million in fiscal year 2009/2010. This is the largest component of revenue, which accounted for nearly 40% of the University s Operating and Nonoperating revenues in the current year. Noncapital appropriations increased $5.3 million, or 6.2%, primarily due to one-time funding received to increase student access to courses offered. Student tuition and fees, net, increased by $13.9 million, or 27.5%, from fiscal year 2008/2009. State University Fees increased for the System by 32%, raising the full-time undergrad rate from $1,524 per term in fiscal year 2008/2009 to $2,013 per term in fiscal year 2009/2010. Additionally, the campus Student Union Fee increased to cover the operations and debt service of the newly constructed Wildcat Recreation Center. These gross student tuition and fee increases were offset by a corresponding increase to scholarship allowances resulting from increased financial aid awards due to the raised fees. The University s grants and contracts revenue includes financial aid grants as well as federal funding received under the ARRA. In fiscal year 2009/2010, Federal financial aid revenue increased $6.4 million primarily due to increased student financial aid awards for PELL grants. State financial aid revenue increased $1.6 million due to an increase in student CAL grant financial aid awards. Increased financial aid awards result when the average student award rises as a result of higher student fees. The University received $19.1 million in federal funding under the ARRA, which was an increase of $7.6 million from the $11.5 million received in fiscal year 2008/2009. The combined two years of ARRA funding was received in an effort to restore funding lost in fiscal year 2008/2009 when state appropriations of approximately $30 million were reduced and returned to the State. Auxiliary enterprises operated by the University mainly consist of parking and student housing operations. Total sales and services of auxiliary enterprise revenue for fiscal year 2009/2010 is $13.2 million, down from $13.9 million recorded in fiscal year 2008/2009, due to one-time revenue recorded in the parking fund in fiscal year 2008/2009 due to a reimbursement for lost revenue resulting from the construction of the Student Union Wildcat Recreation Center. Investment income declined $1.9 million from $2.1 million in fiscal year 2008/2009 to $0.2 million in fiscal year 2009/2010. This is mainly due to lower interest rates combined with the System s strategy of keeping investment maturities shorter than normal. Other operating and nonoperating revenues decreased $3.9 million. This decrease is mainly a result of the Investment Interest Expense increase of $2.9 million. This additional interest expense in 2009/2010 is due to the SRB 2008A debt for the Student Union Wildcat Recreation Center placed in service in August (Continued)

14 Management s Discussion and Analysis (Unaudited) Operating Expenses Approximately 37% of the University s total operating expenses in fiscal year 2009/2010 directly support the primary function of the University, which is instruction. These direct expenses include only faculty and instructional support staff salaries, benefits, and their direct expenses. When the mission-critical educational support activities of student services, academic support, grants and scholarships, public service, and research are added to direct classroom instruction, total instruction and educational support activities account for 69.3% of the total operating expenses of the University as shown below: Operating Expenses Year ended Instruction $ 74,013, % Research 1,325, Public service 1,666, Academic support 21,291, Student services 17,988, Student grants and scholarships 23,438, % 4.8% 8.8% 9.7% 70.1% Total instruction and educational support activities 139,724, Institutional support 19,881, Operation and maintenance of plant 21,714, Auxiliary enterprises expenses 10,596, Depreciation and amortization 9,773, Instruction and educational support activities Institutional support Operation and maintenance of plant Auxiliary enterprise expenses Depreciation and amortization Total operating expenses $ 201,690, % Total operating expenses for the University decreased $15.7 million. The decrease was due to $18.1 million in salaries and benefits savings resulting primarily from the furlough work schedules for all University employees, except public safety personnel, which was implemented for fiscal year 2009/2010 by the System. This decrease in operating compensation expense was offset by an increase of $3.1 million in student grants and scholarship expense and increased depreciation expense of $1.5 million due to campus capital additions. The increase in student grants and scholarship expense is due to the higher average student financial aid award resulting from raised student fees. 12 (Continued)

15 Management s Discussion and Analysis (Unaudited) The following chart displays the University s operating expenses by functional program for fiscal years 2010 and 2009: $90,000,000 University Operating Expenses by Program $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Instruction Research Public service Academic support Student services Student grants and scholarships Institutional support Operation and maintenance of plant Auxiliary enterprise expenses Depreciation Other Additional Revenues Capital state appropriations in the prior year included one-time appropriations of $2.4 million of group II funding received for the Student Services Center project, which was completed during 2008/2009. The decrease in capital state appropriations was due to the reversion of $2.9 million of capital renewal state appropriations. These funds were re-appropriated in the 2010/2011 budget act. Grants and gifts, capital, increased $3.2 million primarily due to the receipt of the $4.2 million Gateway Science Museum funded mostly by a State grant received by the CSU, Chico Research Foundation and supplemented by donor funds received to the University Foundation, California State University, Chico. Both are recognized auxiliary organizations. Factors Impacting Future Periods The University s state noncapital appropriations budget enacted for fiscal year 2010/2011 approved by the legislative process is $102 million. This increase of $10.3 million over the fiscal year 2009/2010 funding level of $91.7 million marks the first partial restoration of state funding since 2006/2007. However, it is still below the fiscal year 2007/2008 funding level of $120.9 million. Moreover, the University will receive $5.2 million of ARRA funds in fiscal year 2010/

16 Statement of Net Assets Discretely presented component units GASB FASB Auxiliary Auxiliary Assets University Organizations Organizations Total Current assets: Cash and cash equivalents $ 10, , ,753 1,359,558 Short-term investments 81,974,039 5,305,417 16,463, ,743,096 Accounts receivable, net 2,621,769 8,973,363 1,279,814 12,874,946 Notes receivable, current portion 18,658 18,658 Prepaid expenses and other assets 1,676, ,128 2,415,679 4,538,481 Total current assets 86,283,232 15,497,963 20,753, ,534,739 Noncurrent assets: Restricted cash and cash equivalents 100, ,809 Accounts receivable, net 1,613,402 1,613,402 Notes receivable, net of current portion 125, ,000 Student loans receivable, net 6,112, ,407 6,647,312 Pledges receivable, net 1,259,579 1,259,579 Endowment investments 33,685,393 33,685,393 Other long-term investments 34,269,221 55,500 15,611,102 49,935,823 Capital assets, net 272,757,140 16,054,127 2,356, ,167,532 Other assets 453, , ,784 Total noncurrent assets 314,752,668 16,562,835 54,103, ,418,634 Total assets 401,035,900 32,060,798 74,856, ,953,373 Liabilities and Net Assets Current liabilities: Accounts payable 13,063,358 1,707,647 1,249,949 16,020,954 Accrued salaries and benefits payable 10,261, , ,237 11,549,995 Accrued compensated absences current portion 3,950,000 59, ,211 4,300,746 Deferred revenue 4,365,327 9, ,843 4,560,845 Capitalized lease obligations current portion 19,979 54,252 74,231 Long-term debt obligations current portion 2,080, ,300 2,710,300 Depository accounts current portion 535, ,124 Other liabilities 1,486,565 38, ,627 2,194,401 Total current liabilities 35,762,114 3,383,615 2,800,867 41,946,596 Noncurrent liabilities: Accrued compensated absences, net of current portion 3,863,950 13,824 84,063 3,961,837 Deferred revenue 3,630,780 3,630,780 Grants refundable 7,505,489 7,505,489 Capitalized lease obligations, net of current portion 9,209 9,209 Long-term debt obligations, net of current portion 145,599,679 4,473, ,073,650 Depository accounts 684,445 10, ,927 1,408,897 Other postemployment benefits obligation 2,531, , ,573 3,889,714 Other liabilities 25, , ,369 Total noncurrent liabilities 160,219,214 5,488,388 5,204, ,911,945 Total liabilities 195,981,328 8,872,003 8,005, ,858,541 Net assets: Invested in capital assets, net of related debt 129,427,631 11,233,905 2,356, ,017,801 Restricted for: Nonexpendable endowments 33,685,393 33,685,393 Expendable: Scholarships and fellowships 8,457,195 8,457,195 Research 982, ,778 Loans 50, , ,508 Capital projects 6,173, , ,562 6,938,950 Debt service 566, ,242 Other ,448 6,637,149 7,268,065 Unrestricted 68,887,136 10,075,270 14,631,494 93,593,900 Total net assets $ 205,054,572 23,188,795 66,851, ,094,832 See accompanying notes to financial statements. 14

17 Statement of Revenues, Expenses, and Changes in Net Assets Year ended Discretely presented component units GASB FASB Auxiliary Auxiliary University Organizations Organizations Eliminations Total Revenues: Operating revenues: Student tuition and fees (net of scholarship allowances of $31,287,419) $ 64,386, ,816 6,072,814 70,684,273 Grants and contracts, noncapital: Federal 18,153,101 76,127 18,229,228 State 14,759 4,026, ,909 4,505,277 Local 1,354,550 2,432 1,356,982 Nongovernmental 77,342 3,514,732 3,592,074 Sales and services of educational activities 248,090 1,846, ,158 2,619,035 Sales and services of auxiliary enterprises (net of scholarship allowances of $1,701,820) 12,953,835 3,326,156 21,377,622 37,657,613 Other operating revenues 6,486,223 5,612,898 1,882,901 (64,187) 13,917,835 Total operating revenues 84,166,892 38,059,649 30,399,963 (64,187) 152,562,317 Expenses: Operating expenses: Instruction 74,013,635 3,717,041 3,263 (18,938) 77,715,001 Research 1,325,506 2,557,239 24,294 3,907,039 Public service 1,666,617 19,010,196 1,248,637 (45,000) 21,880,450 Academic support 21,291,355 4,009,845 1,409,353 (49,510) 26,661,043 Student services 17,988,930 2,002,443 3,906,547 (64,187) 23,833,733 Institutional support 19,881,867 3,153,820 5,310,414 (4,404,037) 23,942,064 Operation and maintenance of plant 21,714, ,272 2,012,781 24,455,882 Student grants and scholarships 23,438, ,169 1,261,023 (1,433,882) 23,627,578 Auxiliary enterprise expenses 10,596,258 1,738,739 20,035,707 32,370,704 Depreciation and amortization 9,773, , ,467 11,127,182 Total operating expenses 201,690,635 38,182,109 35,663,486 (6,015,554) 269,520,676 Operating loss (117,523,743) (122,460) (5,263,523) 5,951,367 (116,958,359) Nonoperating revenues (expenses): State appropriations, noncapital 91,668,410 91,668,410 Federal financial aid grants, noncapital 25,515,612 25,515,612 State financial aid grants, noncapital 8,595,469 8,595,469 Nongovernmental and other financial aid grants, noncapital 1,596,297 (1,516,190) 80,107 Other federal nonoperating grants, noncapital 19,114,800 19,114,800 Gifts, noncapital 530,578 4,293,635 (126,705) 4,697,508 Investment income, net 247, , ,223 1,473,508 Endowment income 1,850,374 1,850,374 Interest expense (3,987,701) (217,771) (4,205,472) Other nonoperating revenues (expenses), net 2,186,049 (2,365,627) 419, ,156 Net nonoperating revenues (expenses) 145,466,664 (1,983,263) 7,189,966 (1,642,895) 149,030,472 Income (loss) before other additions 27,942,921 (2,105,723) 1,926,443 4,308,472 32,072,113 State appropriations, capital (reversion) (2,815,635) (2,815,635) Grants and gifts, capital 4,369, ,434 8,870 (4,308,472) 289,151 Additions to permanent endowments 1,688,925 1,688,925 Increase (decrease) in net assets 29,496,605 (1,886,289) 3,624,238 31,234,554 Net assets: Net assets at beginning of year 175,557,967 25,075,084 63,227, ,860,278 Net assets at end of year $ 205,054,572 23,188,795 66,851, ,094,832 See accompanying notes to financial statements. 15

18 Statement of Cash Flows Year ended University Cash flows from operating activities: Student tuition and fees $ 64,601,115 Federal grants and contracts 124,269 State grants and contracts 14,759 Nongovernmental grants and contracts 123,000 Payments to suppliers (29,700,811) Payments to employees (139,051,931) Payments to students (23,526,617) Sales and services of auxiliary enterprises 12,698,132 Sales and services of educational activities 248,089 Other receipts 6,238,850 Net cash used in operating activities (108,231,145) Cash flows from noncapital financing activities: State appropriations 60,981,310 Federal financial aid grants 25,479,063 State financial aid grants 8,503,652 Nongovernmental and other financial aid grants 1,596,297 Other federal nonoperating grants 19,114,800 Federal loan program receipts 46,908,174 Federal loan program disbursements (46,627,058) Monies received on behalf of others 10,157,128 Monies disbursed on behalf of others (10,686,852) Other 2,421,360 Net cash provided by noncapital financing activities 117,847,874 Cash flows from capital and related financing activities: State appropriations 2,387,714 Proceeds from sale of capital assets 6,687 Acquisition of capital assets (38,641,713) Principal paid on capital debt and leases (2,009,780) Interest paid on capital debt and leases (7,724,791) Net cash used in capital and related financing activities (45,981,883) Cash flows from investing activities: Proceeds from sales and maturities of investments 355,416,238 Purchases of investments (319,943,318) Investment income received 891,634 Net cash provided by investing activities 36,364,554 Net decrease in cash and cash equivalents (600) Cash and cash equivalents at beginning of year 11,350 Cash and cash equivalents at end of year $ 10, (Continued)

19 Statement of Cash Flows Year ended University Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (117,523,743) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization 9,773,370 Change in assets and liabilities: Accounts receivable, net (49,221) Prepaid expenses and other assets 888,605 Accounts payable (1,215,143) Accrued salaries and benefits (1,927,871) Accrued compensated absences 1,040,737 Deferred revenue 577,232 Other postemployment benefits obligation 469,094 Other liabilities (264,205) Net cash used in operating activities $ (108,231,145) Supplemental schedule of noncash transactions: Contributed capital assets $ 4,369,319 Construction work in progress acquired from the Office of the Chancellor 119,534 Change in accrued capital asset costs (purchased but unpaid at year-end) 3,029,771 Gifts in kind 530,578 Amortization of bond premium 45,798 Amortization of loss on refunding 42,365 See accompanying notes to financial statements. 17

20 (1) Organization California State University, Chico (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 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 residence halls, 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. (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 accounts 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 CSU, Chico Research Foundation The University Foundation, California State University, Chico Associated Students, California State University, Chico 18 (Continued)

21 Summary information for the discretely presented auxiliary organizations is as follows: The University Associated Foundation, Students, The CSU, California California Chico State State Research University, University, Foundation Chico Chico Total Current assets $ 15,497,963 8,325,105 12,428,439 36,251,507 Capital assets, net 16,054, ,636 2,126,629 18,410,392 Other noncurrent assets 508,708 51,536, ,865 52,255,574 Total assets 32,060,798 60,090,742 14,765, ,917,473 Current liabilities 3,383, ,316 2,290,551 6,184,482 Noncurrent liabilities 5,488,388 3,630,780 1,573,563 10,692,731 Total liabilities 8,872,003 4,141,096 3,864,114 16,877,213 Invested in capital assets, net of related debt 11,233, ,636 2,126,629 13,590,170 Restricted 1,879,620 49,863,706 51,743,326 Unrestricted 10,075,270 5,856,304 8,775,190 24,706,764 Total net assets 23,188,795 55,949,646 10,901,819 90,040,260 Year ended Operating revenues: Student tuition and fees, net $ 224,816 6,072,814 6,297,630 Grants and contracts, noncapital 27,048, ,468 27,591,460 Sales and services of auxiliary enterprises, net 3,326, ,473 20,803,149 24,703,778 Other 7,459, ,422 1,597,637 9,866,744 Total operating revenues 38,059,649 1,383,895 29,016,068 68,459, (Continued)

22 The University Associated Foundation, Students, The CSU, California California Chico State State Research University, University, Foundation Chico Chico Total Operating expenses: Instruction $ 3,717,041 3,263 3,720,304 Research 2,557,239 24,294 2,581,533 Public service 19,010, , ,430 20,258,833 Academic support 4,009,845 1,409,353 5,419,198 Student services 2,002, ,837 3,344,710 5,908,990 Institutional support 3,153,820 3,396,075 1,914,339 8,464,234 Operation and maintenance of plant 728, ,624 1,886,157 2,741,053 Student grants and scholarships 362,169 1,261,023 1,623,192 Auxiliary enterprise expenses 1,738,739 20,035,707 21,774,446 Depreciation and amortization 902,345 91, ,663 1,353,812 Total operating expenses 38,182,109 7,695,480 27,968,006 73,845,595 Operating income (loss) (122,460) (6,311,585) 1,048,062 (5,385,983) Net nonoperating revenues (expenses) (1,983,263) 7,120,599 69,367 5,206,703 Income (loss) before other additions (2,105,723) 809,014 1,117,429 (179,280) Grants and gifts, capital 219,434 8, ,304 Additions to permanent endowments 1,688,925 1,688,925 Increase (decrease) in net assets (1,886,289) 2,506,809 1,117,429 1,737,949 Beginning net assets, July 1, ,075,084 53,442,837 9,784,390 88,302,311 Ending net assets, $ 23,188,795 55,949,646 10,901,819 90,040,260 The auxiliary organizations are presented in the accompanying financial statements as discretely presented 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 20 (Continued)

23 would render the financial statements incomplete, primarily due to the activities that the organizations carry out on behalf of the University, such as research, grant administration, foodservice, bookstore operations, student union operations, and academic support. The auxiliary organizations are discretely presented to allow the financial statement users to distinguish them from the University. The financial statements present only the statement of net assets, statement of revenues, expenses, and changes in net assets, 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 California State University 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, as prescribed by the GASB. 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. The financial statements required by GASB Statement Nos. 34 and 35 include a statement of net assets, a statement of revenues, expenses, and changes in net assets, and a statement of cash flows. 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 its financial statements using the reporting model for special-purpose governments engaged only in business-type activities. This 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 auxiliary organizations. In accordance with the business-type activities reporting model, the University prepares its statement of cash flows using the direct method. The University Foundation, California State University, Chico and Associated Students, California State University, Chico, included in these financial statements, apply the accounting and reporting standards promulgated by the Financial Accounting Standards Board (FASB), while the CSU, Chico Research Foundation applies the accounting and reporting standards promulgated by the GASB. (c) Election of Applicable FASB Statements The University follows standards of accounting and financial reporting issued by the FASB prior to November 30, 1989, unless those standards conflict with or contradict guidance of the GASB. The University also has the option of following subsequent private-sector guidance subject to the same limitation. The University has elected not to adopt the pronouncements issued by the FASB after November 30, (Continued)

24 (d) (e) (f) Classification of Current and Noncurrent Assets (Other than Investments) and Liabilities The University considers assets to be current that can reasonably be expected, as part of its normal business operations, to be converted to cash and be available for liquidation of current liabilities within 12 months of the statement of net assets date. Liabilities that reasonably can be expected, as part of normal University business operations, to be liquidated within 12 months of the statement of net assets date are considered to be current. All other assets and liabilities are considered to be noncurrent. For classification of current and noncurrent investments, refer to note 2(f). Cash and Cash Equivalents The University considers all highly liquid investments with an original maturity date of three months or less to be cash and cash equivalents. The University considers amounts included in the California State University Investment Pool to be investments. The statement of cash flows does not include the cash flows of the discretely presented auxiliary organizations. Investments Investments are reflected at fair value using quoted market prices. Realized and unrealized gains and losses are included in the accompanying statement of revenues, expenses, and changes in net assets as investment income, net. Investments that are used for current operations are classified as short-term investments. Investments that are restricted for withdrawal or use for other than current operations, designated or restricted for the acquisition or construction of noncurrent assets, designated or restricted for the liquidation of the noncurrent portion of long-term debt, and restricted as to the liquidity of the investments are classified as other long-term investment. (g) Capital Assets Capital assets are stated at cost or estimated historical cost if purchased, or if donated, at estimated fair value at date of donation. Capital assets, including infrastructure and intangible assets, with a value of $5,000 or more and with a useful life of one year or more are capitalized. Such costs include, where applicable, interest capitalized as part of the cost of constructed capital assets. Title to all assets, whether purchased, constructed, or donated, is held by the State of California (the State). Although title is not with the University for land and buildings, the University has exclusive use of these assets and is responsible for the maintenance of these assets and thus has recorded the cost of these assets on the accompanying financial statements. Capital assets, with the exception of land and land improvements, works of art and historical treasures, construction work in progress, and certain intangible assets, are depreciated or amortized on a straight-line basis over their estimated useful lives, which range from 3 to 40 years. Library books, unless considered rare collections, are capitalized and depreciated over a 10-year period. Periodicals and subscriptions are expensed as purchased. Works of art and historical treasures are valued at cost if purchased or the fair market value at the date of donation if contributed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are expensed as incurred. Depreciation and amortization expense is shown separately in the statement of revenues, expenses, and changes in net assets rather than being allocated among other categories of operating expenses. 22 (Continued)