UTAH STATE UNIVERSITY 2009 Annual Financial Repor t. A Component Unit of the State of Utah

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1 UTAH STATE UNIVERSITY 2009 Annual Financial Repor t A Component Unit of the State of Utah

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4 1 TABLE OF CONTENTS

5 2 CONTENTS >> MESSAGE FROM THE PRESIDENT >> INDEPENDENT STATE AUDITOR S REPORT MANAGEMENT S DISCUSSION AND ANALYSIS 20FINANCIAL STATEMENTS >> STATEMENT OF NET ASSETS >> STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS >> STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS >> EXECUTIVE OFFICERS AND BOARD OF TRUSTEES

6 3 FY 2009 MESSAGE FROM THE PRESIDENT FROM THE PRESIDENT As a major research institution, Utah State University strives to engage minds and create endless opportunities for its students, faculty, and staff. Although the University has faced enormously difficult financial times in the past year, I believe we have an extraordinarily bright future. As you know, Utah State University, like many other public entities in the State of Utah, is experiencing significant impacts on its budget due to the overall economic downturn. There is absolutely no question that this downturn has had, and will continue to have, lasting effects on our institution. Our charge is to find ways to deal with this new reality while we position our university for continued success. The University is treating the economic downturn as a time for thoughtful self-reflection, a time to rethink organization structures, financial models, and curriculum and delivery systems. We are focusing on strategies that allow us to remain an active, forward thinking institution and have attempted to treat this as an opportunity to define the type of university that we will be for the next generation. Over the past few years, we have become a very good university, and I firmly believe that we are on track to become an even greater one. We are proud of our research excellence, our student engagement, our stellar academic and creative arts programs, and our outreach efforts throughout the state. As we move forward, the University will continue to focus on these strengths and work creatively and effectively to position us for an exciting future. I would like you to know that each day I feel a great sense of humility and honor for the privilege of being at Utah State University, and yes, I feel that even during these difficult times. Together, we will continue to build the kind of university that we aspire for this one to become. The financial statements that follow are prepared according to generally accepted accounting principles established by the Governmental Accounting Standards Board. These principles are recommended by the American Institute of Certified Public Accountants and the National Association of College and University Business Officers. The Utah State Auditor s Office has audited the financial statements for the year ending June 30, Their definitive opinion is included with this report. The financial highlights and statements are intended to establish the University s financial position as of June 30, They are also intended to reflect the flow of financial resources to the University during the fiscal year , while disclosing how these resources are applied in accomplishing our mission. We are pleased to share this report with you. Stan L. Albrecht President Utah State University

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8 5 FY 2009 AUDITOR S REPORT Auston G. Johnson, CPA UTAH STATE AUDITOR STATE OF UTAH Office of the State Auditor UTAH STATE CAPITOL COMPLEX EAST OFFICE BUILDING, SUITE E310 P.O. BOX SALT LAKE CITY, UTAH (801) FAX (801) DEPUTY STATE AUDITOR: Joe Christensen, CPA FINANCIAL AUDIT DIRECTORS: H. Dean Eborn, CPA Deborah A. Empey, CPA Stan Godfrey, CPA Jon T. Johnson, CPA Independent State Auditor s Report To the Board of Trustees, Audit Committee and Stan L. Albrecht, President Utah State University We have audited the accompanying basic financial statements of Utah State University (hereinafter referred to as the University ), a component unit of the State of Utah, as of and for the year ended June 30, 2009, as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the Utah State University Research Foundation, which represents approximately 4% of total assets and 11% of total revenues of the University. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Utah State University Research Foundation, is based on the report of the other auditors. The prior year partial comparative information has been derived from the University s 2008 financial statements and, in our report dated November 11, 2008, we expressed an unqualified opinion on the basic financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2009, and the changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 19, 2009 on our consideration of the University's internal control over financial reporting and on our

9 6 tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The accompanying management s discussion and analysis, as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. 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. Auston G. Johnson, CPA Utah State Auditor November 19, 2009

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11 MANAGEMENT S DISCUSSION AND ANALYSIS This section provides an overview of the University s financial activities in the current year compared to the prior year. Total assets and liabilities are presented, as well as the change in net assets from the prior year. Revenues, expenses, appropriations from the state, contributions, etc. are analyzed and discussed. The cash activity is also summarized to show the change in cash from the prior year to the current year. Dedicated in 2006, USU s Merrill-Cazier Library ranked #1 in the nation in the Smart Classroom Category, just above Harvard University (Campus Technology, 2006).

12 9 FY 2009 MANAGEMENT S DISCUSSION AND ANALYSIS INTRODUCTION The following unaudited Management s Discussion and Analysis (MD&A) includes an analysis of the financial condition and results of activities of Utah State University (University) for the fiscal year (FY) ended June 30, The analysis includes the University s condensed and comparative Statement of Net Assets; Statement of Revenues, Expenses, and Changes in Net Assets; and Statement of Cash Flows along with related graphs and comparative data. Also included is management s perspective of the University s economic outlook. The University is a component unit of the State of Utah. The financial statements include the accounts of Utah State University Agricultural Experiment Station, Utah State University Water Research Laboratory, Utah State University Cooperative Extension Service, Utah State University Uintah Basin Regional Campus, Utah State University Southeast Region, Utah State University Tooele Regional Campus, and Utah State University Brigham City Regional Campus, which are entities separately funded by state appropriations. The Utah State University Research Foundation and the Utah State University Development Foundation, component units of the University, have also been consolidated in these financial statements. The Utah State University Research Foundation is governed by a Board of Trustees appointed by the President of Utah State University, under the direction of the University s Board of Trustees. The Utah State University Research Foundation is a dependent foundation of Utah State University. It is reported as a part of the University because its primary purpose is to support the mission of Utah State University in regards to research. The Utah State University Development Foundation is also governed by a Board of Trustees appointed by the President of the University. The Utah State University Development Foundation is a dependent foundation of Utah State University and serves as the main fundraising arm of the University. The Utah State University Research Foundation annually publishes audited financial statements. A copy of the audited financial statements can be obtained from the Utah State University Research Foundation, 1695 North Research Parkway, North Logan, Utah OVERVIEW OF FINANCIAL STATEMENTS AND FINANCIAL ANALYSIS The Management s Discussion and Analysis is designed to provide an easily readable analysis of the University s financial activities based on facts, decisions, and conditions known at the date of the auditor s report. The University s financial statements for fiscal year 2009, with fiscal year 2008 prior year data presented for comparative purposes, are presented beginning on page 21. The financial statements, footnotes, and this discussion are the responsibility of management. This annual report consists of a series of financial statements, prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. These financial statements focus on the financial condition of the University, the results of operations and cash flows of the University as a whole. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and the Statement of Cash Flows. STATEMENT OF NET ASSETS The Statement of Net Assets outlines the University s financial condition at fiscal year end. This statement reflects the various assets, liabilities, and net assets of the University as of the fiscal year ended June 30, From the data presented, readers of the Statement of Net Assets have the information to determine the assets available to continue the operations of the University. They may also be able to determine how much the University owes vendors, investors, and lending institutions. Finally, the Statement of Net Assets outlines the net assets (assets minus liabilities) available to the University and defines what that availability is. Net assets are divided into three major categories. The first category, Invested in capital assets, net of debt, reflects the University s equity in property, plant, and equipment owned by the University. The second category, Restricted net assets, is further divided into two sub-categories: Non-expendable and Expendable. The corpus of non-expendable restricted resources as it pertains to endowments is only available for investment purposes. Donors have primarily restricted income derived from these investments to fund scholarships and fellowships. The corpus of non-expendable restricted resources as it pertains to loan funds is only available for

13 10 the purpose of issuing loans to students under the terms of the various donor and federal government agreements. Expendable restricted net assets are available for expenditure by the University but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The last category, Unrestricted net assets, discloses the net assets available to the University to be used for any lawful purpose of the University. CONDENSED STATEMENT OF NET ASSETS June 30, 2009 June 30, 2008 Change % Change Assets Current assets $154,942,142 $110,827,533 $44,114, % Non-current assets Capital assets net 490,662, ,251,698 17,410, % Other 238,466, ,530,875 (43,064,872) % Total assets 884,070, ,610,106 18,460, % Liabilities Current liabilities 79,064,122 76,318,508 2,745, % Non-current liabilities 145,574, ,792,317 29,782, % Total liabilities 224,638, ,110,825 32,527, % Net assets Invested in capital assets, net of debt 383,603, ,976,770 17,626, % Restricted non-expendable Primarily scholarships and fellowships 65,657,240 62,758,503 2,898, % Loans 13,011,190 12,887, , % Restricted expendable 171,455, ,858,919 (19,402,977) % Unrestricted 25,704,557 41,017,802 (15,313,245) % Total net assets $659,432,002 $673,499,281 ($14,067,279) -2.09% In fiscal year 2009, the University s total net assets decreased $14,067,279 (2.09%). The decrease in total net assets is the result of moderate increases in the categories Invested in capital assets, net of debt and restricted non-expendable net assets; less significant decreases in expendable net assets both restricted and unrestricted. Expendable net assets decreased as budget cuts were worked out and funds were expended to bridge the cuts. The decrease in unrestricted net assets was primarily due to the impact of recognizing the cost and related liability of the University s Voluntary Separation Incentive Program (VSIP). The change in this liability for FY 2009 was $15,717,022. The VSIP provided employees who met certain qualifications an incentive to terminate from the University. Early terminations were approved if over the long term, the University would realize a savings. The long-term savings in reduced salary and employee benefit costs will be used to meet the University s budget cuts in state-appropriated funds over the next two or three fiscal years.

14 11 FY 2009 MANAGEMENT S DISCUSSION AND ANALYSIS The University s total assets increased $18,460,542 (2.13%). Current assets increased $44,114,609 (39.80%). This increase in current assets reflects the University s shift to shorter-term investments and an increase in cash and cash equivalents from capital project financing. Short-term investments increased $22,402,197 and cash equivalents increased $25,728,098. Other non-current assets decreased $43,064,872 (15.30%). This was primarily due to the reduction in investments reflecting the shift from investments to short-term investments and declining market values. Non-current liabilities increased $29,782,207 (25.72%). This increase was due to the issuance of the Series 2009 Research Revenue bonds, $22,000,000, and the non-current portion of the VSIP liability, $12,836,188, offset by the normal annual payment of principal on existing debt. The composition of the University s net assets is displayed in the following graph: NET ASSETS FISCAL YEAR ENDED JUNE Net assets Invested in capital assets, net of debt $383,603,073 $365,976,770 Restricted Non-expendable 78,668,430 75,645,790 Expendable 171,455, ,858,919 Unrestricted 25,704,557 41,017,802 Total net assets $659,432,002 $673,499,281

15 12 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS Changes in total net assets as presented in the Statement of Net Assets are based on the activity presented in the Statement of Revenues, Expenses, and Changes in Net Assets. The purpose of this statement is to present the revenues received by the University, both operating and non-operating, and the expenses paid by the University, operating and non-operating, and any other revenues, expenses, gains, and losses received or expended by the University. Operating revenues are received for providing goods and services to the various customers and constituencies of the University. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the University. Non-operating revenues are revenues received for which goods and services are not provided. For example, state appropriations are non-operating revenues because they are provided by the Legislature to the University without the Legislature directly receiving commensurate goods and services in return for those revenues. As noted below, without the non-operating revenues, in particular the state appropriations and private gifts, the University would not be able to cover its costs of operations. These sources are critical to the University s financial stability and directly impact the quality of its programs. In fiscal year 2009, funding from both the state appropriations and private gifts were inadequate to cover all of the University s costs of operations. CONDENSED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS Fiscal Year 2009 Fiscal Year 2008 Change % Change Operating revenues Tuition and fees (net of scholarship allowances: 2009 $34,707,874; 2008 $31,375,161) $73,575,906 $67,072,029 $6,503, % Contracts, grants, and federal appropriations 131,228, ,648,717 (2,419,942) -1.81% Auxiliary enterprises 33,406,121 31,953,390 1,452, % Other 29,798,475 32,940,959 (3,142,484) -9.54% Total operating revenues 268,009, ,615,095 2,394, % Operating expenses Salaries and wages 222,774, ,832,891 10,941, % Employee benefits 96,799,960 76,518,914 20,281, % Other operating expenses 111,242, ,292,179 (8,049,369) -6.75% Scholarships and fellowships 24,120,941 23,911, , % Depreciation 31,746,087 28,602,378 3,143, % Total operating expenses 486,684, ,157,572 26,526, % Operating loss (218,674,745) (194,542,477) (24,132,268) % continued on next page...

16 13 FY 2009 MANAGEMENT S DISCUSSION AND ANALYSIS CONDENSED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS (continued) Fiscal Year 2009 Fiscal Year 2008 Change % Change Non-operating revenues/(expenses) State appropriations $148,256,183 $160,245,542 ($11,989,359) -7.48% Private gifts 3,074,281 55,244,735 (52,170,454) % Financial aid grants and contracts 21,291,844 19,767,335 1,524, % Other 10,669,811 14,181,615 (3,511,804) % Net non-operating revenues/(expenses) 183,292, ,439,227 (66,147,108) % Income/(loss) before other revenues/(expenses) (35,382,626) 54,896,750 (90,279,376) % Other revenues/(expenses) State appropriations for capital purposes 15,793,979 11,722,777 4,071, % Grants, contracts, and gifts for capital purposes 4,625,690 17,263,096 (12,637,406) % Additions to permanent endowments 5,510,394 5,861,235 (350,841) -5.99% Other net (4,614,716) (1,893,745) (2,720,971) % Total other revenues/(expenses) 21,315,347 32,953,363 (11,638,016) % Increase/(decrease) in net assets (14,067,279) 87,850,113 (101,917,392) % Net assets beginning of year 673,499, ,649,168 87,850, % Net assets end of year $659,432,002 $673,499,281 ($14,067,279) -2.09% The Statement of Revenues, Expenses, and Changes in Net Assets (SRECNA) reflects a $14,067,279 decrease in net assets for the fiscal year ended June 30, The University experienced a net operating loss in fiscal year 2009 of $218,674,745. This operating loss highlights the University s dependency on non-operating revenues, state appropriations, and private gifts to meet its cost of operations and provide funds for the acquisition of capital equipment. State appropriations and private gifts were not sufficient to cover all of the University s operating loss in fiscal year State appropriations were down $11,989,359 (7.48%) reflecting the budget reductions imposed by the Legislature during its special session in September 2008 and during the early stages, January 2009, of the regular session. It was anticipated that revenues from private gifts would be down coming off the peak of the University s capital campaign; however, the recession reduced this source of funding even further as economic conditions reduced available resources. Private gifts were down $52,170,454 (94.44%). Tuition and fee revenues were up $6,503,877 (9.70%) reflecting the stabilization of enrollment and increases in tuition to meet budget needs.

17 14 The increase in auxiliary enterprises revenue, $1,452,731 (4.55%), is largely due to improved occupancy rates in student housing. Total operating expenses were up $26,526,450 (5.76%) as funds were expended to strategically position the University to deal with ongoing budget cuts. The expenditures for the VSIP are reflected in the increased cost of employee benefits. Expenditures for the VSIP in FY 2009 will yield savings over the next several years that will assist the University in meeting the ongoing budget reductions. The following graph reflects the University s sources of revenue available to meet current operating costs: Revenues Used for Operating Expenses Fiscal Year Ended June Operating revenues Contracts, grants, and federal appropriations $131,228,775 $133,648,717 Net tuition and fees 73,575,906 67,072,029 Auxiliary enterprises 33,406,121 31,953,390 Other 29,798,475 32,940,959 Total operating revenues 268,009, ,615,095 Non-operating revenues State appropriations 148,256, ,245,542 Private gifts 3,074,281 55,244,735 Financial aid grants and contracts 21,291,844 19,767,335 Other 10,669,811 14,181,615 Total non-operating revenues 183,292, ,439,227 Total revenues used for operations $451,301,396 $515,054,322

18 15 FY 2009 MANAGEMENT S DISCUSSION AND ANALYSIS The graph below outlines the University s operating expenses by object: Operating Expensess Fiscal Year Ended June Operating expenses Employee compensation $319,574,184 $288,351,805 Other operating expenses 111,242, ,292,179 Depreciation 31,746,087 28,602,378 Scholarships and fellowships 24,120,941 23,911,210 Total operating expenses $486,684,022 $460,157,572 STATEMENT OF CASH FLOWS The final statement presented by Utah State University is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the University during the fiscal year. The statement is divided into five sections. The first section deals with operating cash flows and shows the net cash used by operating activities. The second section includes cash flows from non-capital financing activities. This section includes the cash received and spent for non-operating, non-investing, and noncapital financing purposes. The third section includes cash flows from capital and related financing activities. This section includes the cash used for the acquisition and construction of capital and related items. The fourth section includes the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. A condensed version of these first four sections is provided on the following page. The fifth section of the Statement of Cash Flows is not included in the Condensed

19 16 Statement of Cash Flows. The fifth section reconciles the net cash used for operations to the operating income or loss reflected on the Statement of Revenues, Expenses, and Changes in Net Assets. This reconciliation is available for review in the Statement of Cash Flows on page 23. CONDENSED STATEMENT OF CASH FLOWS Fiscal Year 2009 Fiscal Year 2008 Change % Change Cash provided/(used) by: (1) Operating activities ($165,937,477) ($165,227,350) ($710,127) -0.43% (2) Non-capital financing activities 195,623, ,401,414 (6,778,122) -3.35% (3) Capital and related financing activities (12,997,109) (24,874,647) 11,877, % (4) Investing activities 10,451,499 (20,395,257) 30,846, % Net increase/(decrease) in cash and cash equivalents 27,140,205 (8,095,840) 35,236, % Cash and cash equivalents, beginning of year 16,362,932 24,458,772 (8,095,840) % Cash and cash equivalents, end of year $43,503,137 $16,362,932 $27,140, % The University s cash and cash equivalents increased by $27,140,205 to a total of $43,503,137. This increase was primarily due to an increase of cash flows from investing activities. CAPITAL ASSET AND DEBT ADMINISTRATION The University completed the final phase of the three-story, 69,000-square-foot Jim and Carol Laub Athletics-Academics Complex in September The state-of-the-art facility includes the 11,000-square-foot Dale Mildenberger Sports Medicine Complex and the Dr. John Worley Sports Medicine Research Center along with a 7,000-square-foot equipment room. The first floor is home to the Steve Mothersell Hall of Fame, along with locker rooms for football, women s track and field, softball, and women s soccer. Conference rooms and coaches offices are on the second floor and the academic center is on the third floor with classrooms, computer labs, and tutoring rooms for all 325 Utah State student athletes. The facility was completed at a total cost of $13.7 million. The David G. Sant Engineering Innovation Building was substantially completed in September This new facility consists of three floors totaling 34,000 square feet of space. The building provides the facilities to help develop and demonstrate the innovative engineering skills of the University s faculty and students. This state-of-the-art engineering innovation laboratory building is used to explore and develop technology ideas and prototypes. Final cost of construction will be approximately $11.8 million. In May 2009 the University issued the Research Revenue Bonds, Series 2009 to fund the Emma Eccles Jones Early Childhood Education and Research Center and the Dolores Doré Eccles Center for Early Care and Education facility and the Marc C. Bingham Entrepreneurship and Energy Research facility. The net proceeds of the bonds were $22.6 million. Approximately $15.8 million has been committed to the Emma Eccles Jones Early Childhood Education and Research Center and the Dolores Doré Eccles Center for Early Care and Education facility. Approximately $3.8 million has been committed to the Marc C. Bingham Entrepreneurship and Energy Research facility. Remaining funds were used to establish a debt service reserve fund in the amount of $1.7 million, fund the capitalized interest

20 17 FY 2009 MANAGEMENT S DISCUSSION AND ANALYSIS fund in the amount of $0.8 million, and pay for the cost of issuance in the amount of $0.5 million. The Emma Eccles Jones Early Childhood Education and Research Center and the Dolores Doré Eccles Center for Early Care and Education facility is scheduled for completion in October 2010 at a total cost of approximately $17 million. This 60,000-square-foot facility will be located adjacent to the existing Emma Eccles Jones Education Building on campus. Although the revenue bonds issued to fund this project are secured by a pledge of Facilities and Administration cost recovery (Indirect Cost Recovery) revenue, it is anticipated that the debt service of the bonds will be covered by private donations over a period of 10 years. The Marc C. Bingham Entrepreneurship and Energy Research facility is scheduled for completion in December 2010 at a total cost of approximately $23.4 million. This 62,000-squarefoot facility will be located in Vernal, Utah. This building will provide employees with the facilities required to focus on energy research and teaching initiatives that are important to the Uintah Basin area as well as the State and is intended to capitalize on the opportunities that currently exist within the local community. On October 6, 2009, the University issued its Student Fee and Housing System Revenue Refunding Bonds Series 2009 in the amount of $8.13 million for the purpose of refunding in advance of their maturity the Series 1999A Student Fee and Housing System Revenue Refunding Bonds that were previously issued. This refunding resulted in an increase of $57,276 in the net carrying amount of the refunded debt, a reduction in the future debt service payments of $629,792, and an economic gain (difference between the present value of the old and new debt service payments) of $603,442. ECONOMIC OUTLOOK During FY 2009, the State Legislature imposed two rounds of budget cuts in order to re-balance the state budget in response to the dramatic downturn in revenues that occurred during the early stages of the economic recession. Round one imposed an ongoing budget reduction of $6.5 million or 4.0% of the original FY 2009 base state appropriated budget. Round two imposed a one-time budget cut of the FY 2009 base budget equal to $11.3 million that was backfilled by one-time state funds in the amount of $5.65 million. The net one-time reduction was equivalent to 3.5% of the base budget. Total budget cuts for FY 2009 amounted to $12.15 million or 7.5% of the FY 2009 base budget. Utah State University addressed rounds one and two of the budget cuts by eliminating positions, making modest reductions in unit operating budgets, imposing a campus-wide, five-day furlough, and using centrally held funds. Although the actual reductions in force were held to a minimum (just over 22 positions), the reduction in the University s workforce was significant because of the loss of open positions that extended virtually across the entire campus community. During FY 2009, the University prepared for round three of the state budget cuts. Round three added an additional $21 million to the original ongoing budget cut of $6.5 million, making the total budget cut $27.5 million or 17% of the FY 2009 base state appropriated budget. Fortunately, the State was able to partially backfill this budget cut with $13 million of federal stimulus package funding, leaving the University with an additional $8.0 million to reduce in FY In FY 2009, the University developed a campus-wide Voluntary Separation Incentive Program (VSIP). The goal of this program was to provide a one-time incentive to employees who were willing to accept early retirement or otherwise voluntarily separate from the University in order to generate ongoing salary savings that could be used to meet unit budget reductions. Voluntary separation requests were accepted where financial savings could be achieved. The VSIP resulted in nearly 220 individuals agreeing to voluntary separation. This program positioned the University for savings in FY 2010 and ongoing. The University has taken a total of $14.5 million (8.9%) in ongoing budget cuts through FY Personnel reductions account for a majority of the cuts, $11.1 million or 76% of the total budget reduction. The remaining $3.4 million in cuts has been addressed by $2.0 million in new tuition revenues and $1.4 million in reduced operating expense budgets. Looking forward to FY 2011, it is anticipated that the University will need to address additional budget cuts in the amount of $13.0 million. This is the amount of federal stimulus funds that the State used to backfill the FY 2010 budget. This additional amount of budget reductions will be addressed using a combination of new revenues and budget

21 18 cuts. It is inevitable that the University will be forced to absorb still further personnel reductions in the future. The University views the economic downturn as a time to rethink organizational structures, develop new financial models, strategically assess existing programs and future opportunities, and position the University for continued success. The University has a diverse source of revenues, including those from the State of Utah, student tuition and fees, sponsored research programs, private support, and self-supporting enterprises. This diversity of revenues will provide significant protection against the difficult economic times the University is currently facing. Management believes that USU s financial position will continue to enable the University to move forward and accomplish its mission of being one of the nation s premier student-centered, land-grant, and space-grant universities. David T. Cowley Sr. Associate Vice President for Business and Finance Utah State University Aldo Nicolas Gomera Cruz Management Information Systems, MS Dating back to 1889, USU s Jon M.. Huntsman School of Business is the oldest university business school west of the Mississippi. Its alumni include the president of Nike Brand, the president/coo of Overstock.com, and numerous other industry leaders.

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23 FINANCIAL STATEMENTS The financial statements consist of the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and the Statement of Cash Flows. Each statement presents a different financial perspective of the University for the fiscal year ended June 30, In March, USU s Space Dynamics Laboratory celebrated 50 years. Utah State holds the world record for sending the most student experiments into space.

24 21 FY 2009 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS June 30, Comparative Only Assets Current assets Cash and cash equivalents (Notes A, B, and D) $40,260,836 $14,532,738 Short-term investments (Notes B and D) 48,343,672 25,941,475 Accounts receivable net of allowances $776,547 (Note E) From primary government 5,035,388 6,118,845 From others 53,395,265 56,276,293 Credits receivable (Note E) 398,106 1,046,727 Notes receivable net of allowances $43,843 (Note E) 1,200,187 1,352,398 Inventories (Note A) 4,371,833 4,361,470 Prepaid expenses 1,936,855 1,197,587 Total current assets 154,942, ,827,533 Non-current assets Restricted Cash and cash equivalents (Notes A, B, and D) 3,242,301 1,830,194 Short-term investments (Notes B and D) 5,613,218 2,584,402 Investments (Notes C and D) 55,288,678 64,549,635 Accounts receivable (Note E) 916, ,908 Real estate held for resale 1,144,530 1,144,530 Accounts receivable (Note E) 30,797,274 39,700,779 Notes receivable net of allowances $235,241 (Note E) 11,259,772 11,858,958 Investments (Notes C and D) 130,203, ,382,469 Property, plant, and equipment - net (Note F) 490,662, ,251,698 Total non-current assets 729,128, ,782,573 Total assets 884,070, ,610,106 Liabilities Current liabilities Accounts payable and accrued liabilities (Note G) To primary government 4,046,386 3,593,732 To others 36,336,662 38,544,199 Liability for compensated absences (Note H) 9,348,661 9,052,010 Liability for early retirement (Note H) 6,623,080 3,742,246 Deferred revenues and deposits (Note H) 16,051,422 15,258,354 Funds held for others 471, ,726 Bonds, notes, and contracts payable (Notes H and I) 6,186,503 5,691,241 Total current liabilities 79,064,122 76,318,508 Non-current liabilities Liability for compensated absences (Note H) 5,498,370 5,952,712 Liability for early retirement (Note H) 18,909,053 6,072,865 Deferred revenues and deposits (Note H) 540, ,000 Bonds, notes, and contracts payable (Notes H and I) 120,627, ,226,740 Total non-current liabilities 145,574, ,792,317 Total liabilities 224,638, ,110,825 Net assets Invested in capital assets net of debt 383,603, ,976,770 Restricted for Non-expendable Primarily scholarships and fellowships 65,657,240 62,758,503 Loans 13,011,190 12,887,287 Expendable Research, instruction, and public service 153,365, ,825,038 Capital projects 18,090,097 25,033,881 Unrestricted 25,704,557 41,017,802 Total net assets $659,432,002 $673,499,281 SEE NOTES TO FINANCIAL STATEMENTS

25 22 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Year Ended June 30, Comparative Only Operating revenues Tuition and fees (Net of scholarship allowance of $34,707,874) $73,575,906 $67,072,029 Federal appropriations 4,603,659 5,371,060 Federal grants and contracts 102,054, ,371,373 State grants and contracts 7,549,631 7,927,539 Local grants and contracts 2,146,996 2,079,890 Private grants and contracts 14,874,253 13,898,855 Sales and services of educational departments 10,401,322 10,907,585 Conferences and institutes (non-credit) 3,881,641 5,801,971 Service departments 2,540,407 3,105,180 Auxiliary enterprises 33,406,121 31,953,390 Other 12,975,105 13,126,223 Total operating revenues 268,009, ,615,095 Operating expenses Salaries and wages 222,774, ,832,891 Employee benefits 96,799,960 76,518,914 Other operating expenses 111,242, ,292,179 Scholarships and fellowships 24,120,941 23,911,210 Depreciation 31,746,087 28,602,378 Total operating expenses 486,684, ,157,572 Operating loss (218,674,745) (194,542,477) Non-operating revenues/(expenses) State appropriations 148,256, ,245,542 State grants 6,082,178 7,517,287 State land grant revenues 275, ,710 Federal grants (ARRA) 5,889,000 - Financial aid grants and contracts 21,291,844 19,767,335 Private gifts 3,074,281 55,244,735 Investment income (1,443,025) 6,314,152 Other (133,346) (48,534) Non-operating revenues net 183,292, ,439,227 Income/(loss) before other revenues/(expenses) (35,382,626) 54,896,750 Other revenues/(expenses) State appropriations for capital purposes 15,793,979 11,722,777 Private grants and gifts for capital purposes 4,625,690 17,263,096 Interest on capital asset related debt (4,536,105) (4,153,839) Additions to permanent endowments 5,510,394 5,861,235 Other net (78,611) 2,260,094 Net other revenues 21,315,347 32,953,363 Increase/(decrease) in net assets (14,067,279) 87,850,113 Net assets beginning of year 673,499, ,649,168 Net assets end of year $659,432,002 $673,499,281 SEE NOTES TO FINANCIAL STATEMENTS

26 23 FY 2009 FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS For the Year Ended June 30, 2009 Cash flows from operating activities Comparative Only Tuition and fees $74,478,491 $69,185,802 Federal appropriations 4,603,659 5,371,060 Contracts and grants 131,835, ,996,835 Sales and services of educational departments 10,401,322 10,907,585 Conferences and institutes (non-credit) 3,881,641 5,801,971 Service departments 2,859,036 2,754,945 Auxiliary enterprises 34,048,175 31,360,909 Other operating receipts 12,873,481 13,394,999 Payments to employees for salaries and benefits (303,086,477) (286,332,608) Payments to suppliers (114,057,101) (120,905,902) Payments for scholarships and fellowships (24,120,941) (23,911,210) Loans issued to students (985,972) (2,445,273) Loan payments received from students 1,331,672 1,593,537 Net cash used by operating activities (165,937,477) (165,227,350) Cash flows from non-capital financing activities State appropriations 147,335, ,363,979 State grants 6,882,926 7,478,907 State land grant revenues 383, ,342 Federal grant revenue (ARRA) 5,889,000 - Financial aid 21,170,366 19,692,980 Private gifts 13,930,579 14,550,682 Other additions/(deductions) 31,058 (24,476) Net cash provided by non-capital financing activities 195,623, ,401,414 Cash flows from capital and related financing activities State appropriations for capital purposes 10,014,258 11,169,148 Private grants and gifts for capital purposes 6,228,343 2,565,319 Proceeds from capital debt 23,764,300 6,880,705 Other additions 173,274 3,454,337 Cash paid for capital assets (42,859,740) (39,229,486) Repayment of capital debt and leases (5,951,047) (5,864,924) Interest paid on capital asset related debt (4,366,497) (3,849,746) Net cash used by capital and related financing activities (12,997,109) (24,874,647) Cash flows from investing activities Purchases of investments (145,098,311) (232,207,234) Proceeds from sale of investments 149,461, ,587,894 Interest and dividends received from investments 6,088,023 12,224,083 Net cash provided/(used) by investing activities 10,451,499 (20,395,257) Net increase/(decrease) in cash and cash equivalents 27,140,205 (8,095,840) Cash and cash equivalents, beginning of year 16,362,932 24,458,772 Cash and cash equivalents, end of year $43,503,137 $16,362,932

27 24 << STATEMENT OF CASH FLOWS (continued) For the Year Ended June 30, Comparative Only Reconciliation of operating loss to net cash used by operating activities Operating loss ($218,674,745) ($194,542,477) Adjustments to reconcile operating loss to net cash used by operating activities Depreciation expense 31,746,087 28,602,378 Gifts-in-kind and transfers reducing payments to suppliers 846, ,516 Changes in assets and liabilities Accounts receivable 6,056,315 3,645,316 Inventories (10,363) (20,429) Prepaid expenses (737,120) 117,928 Accounts payable and accrued expenses (1,984,685) 827,154 Deferred revenues and deposits 777,126 (2,456,783) Compensated absences and early retirement 15,559,331 (1,095,140) Net student loan activity 484,322 (577,813) Net cash used by operating activities ($165,937,477) ($165,227,350) Non-cash investing, capital, and financing activities Fixed assets acquired by incurring capital lease obligations $1,167,661 $20,918,678 Completed construction projects transferred from State of Utah 6,213, ,811 Change in fair value of investments recognized as a component of investment income (11,754,603) (6,700,207) Amortization of original issue discount, reoffering premium, and net loss on refunding of bonds (10,821) (4,869) Additions to pledges receivable for non-capital financing activities 983,726 28,751,000 Additions to pledges receivable for capital and related financing activities 12,500 28,130,000 Gifts of capital assets 254, ,777 Total non-cash investing, capital, and financing activities ($3,133,532) $72,320,190 SEE NOTES TO FINANCIAL STATEMENTS

28

29 NOTES TO FINANCIAL STATEMENTS The notes to the financial statements communicate information essential for fair presentation of the basic financial statements that is not displayed on the face of the financial statements. As such, the notes form an integral part of the basic financial statements as they present more detailed information about the University s investments, bonds outstanding, capital assets, etc. Dedicated in November 2008, USU s Wetland Discovery Point building is Platinum LEED certified, the highest ranking awarded by the U.S. Green Building Council.

30 27 FY 2009 NOTES TO FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by Utah State University are described below. BASIS OF PRESENTATION The University is a component unit of the State of Utah. The financial statements include the accounts of Utah State University Agricultural Experiment Station, Utah State University Water Research Laboratory, Utah State University Cooperative Extension Service, Utah State University Uintah Basin Regional Campus, Utah State University Southeast Region, Utah State University Tooele Regional Campus, and Utah State University Brigham City Regional Campus, which are entities separately funded by state appropriations. The Utah State University Research Foundation (USURF) and the Utah State University Development Foundation, component units of the University, have also been consolidated in these financial statements. USURF is governed by a Board of Trustees appointed by the President of Utah State University, under the direction of the University Board of Trustees. USURF is a dependent foundation of Utah State University and is reported as a part of the University because its primary purpose is to support the mission of Utah State University in regards to research. The Utah State University Development Foundation is also governed by a Board of Trustees. The Utah State University Development Foundation is a dependant foundation of Utah State University and serves as the main fund-raising arm of the University. USURF annually publishes audited financial statements. A copy of the audited financial statements can be obtained from USURF at 1695 North Research Parkway, North Logan, Utah BASIS OF ACCOUNTING For financial reporting purposes, the University is considered a special purpose government engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been eliminated. When both restricted and unrestricted resources are available, such resources are spent and tracked at the discretion of the department within the guidelines of donor restrictions. The University has the option to apply all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with Government Accounting Standards Board (GASB). The University has elected to not apply FASB pronouncements issued after the applicable date. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and deposits with an original maturity of three months or less. (See Note B.) INVESTMENTS The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain/(loss) on the carrying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses, and Changes in Net Assets. INVENTORIES The value of the University Bookstore inventory is recorded at average cost determined using the retail inventory method while all other inventory values are essentially lower of cost (first-in, first-out) or market. Obsolete or unusable items are reduced to net realizable values. NON-CURRENT ASSETS Assets that are externally restricted to make debt service payments, maintain sinking or reserve funds or that represent assets of the University s endowments are classified as noncurrent restricted assets. Other non-current assets include those receivables that will not be realized within the next year, investments and real estate held for resale and the University s property, plant, and equipment net of depreciation. PROPERTY, PLANT, AND EQUIPMENT The University componentizes certain research facilities to accommodate the different useful lives of components for depreciation purposes. All buildings are carried on an estimated historical cost basis, at cost at date of acquisition, or at fair value at date of donation in the case of gifts. All other physical plant and equipment are stated at cost when purchased or constructed, or fair value at date of donation in the case of gifts.

31 28 The University capitalizes all equipment with a unit cost of $5,000 or more and an estimated useful life greater than one year. Buildings costing $50,000 or more are capitalized, as are improvements to buildings costing $50,000 or more that extend the useful life of the building. Improvements other than buildings costing $50,000 or more are also capitalized. All library books inventoried in the University s recognized libraries are capitalized regardless of cost. Interest is capitalized when incurred in connection with the financing of construction projects. For the year ended June 30, 2009, the University capitalized $173,821 of interest in connection with construction projects. The University computes depreciation using the straight-line composite method over the estimated useful life of the assets. The estimated useful lives are as follows: Buildings Improvements other than buildings Equipment Library collections years 5-20 years 3-15 years 20 years The University provides repair and replacement reserves for certain properties as required by the related bond indentures. Routine repairs and maintenance are charged to operating expense in the period in which the expense was incurred. DEFERRED REVENUES Deferred revenues consist primarily of amounts received from contract and grant sponsors that have not yet been earned, amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. (See Note H.) COMPENSATED ABSENCES Sick leave is not accrued but is reported in the period of actual expenditure. Sick leave does not vest to the employee but is allowed on an earned-time basis. At the end of each calendar year, employees who have earned 48 days of sick leave may convert up to four days of sick leave to annual leave subject to other restrictions of the University. Annual leave, including converted sick leave, is accrued and reported as earned. Employees are allowed to carry a maximum of 34 days annual leave. The 34 days is variable depending on the number of sick leave days the employee is allowed to convert at calendar year end. GIFTS The University received $740,315 of gifts-in-kind, which were recorded as revenue and expense, during the fiscal year ended June 30, NON-CURRENT LIABILITIES Non-current liabilities include principal amounts of revenue bonds payable, notes payable, and contracts payable that are due beyond the next fiscal year, estimated amounts for accrued compensated absences, early retirement, and long-term deposits. NET ASSETS The University s net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred, but not yet expended for capital assets, such amounts are not included as a component of, Invested in capital assets, net of related debt. Restricted net assets non-expendable: Non-expendable restricted net assets consist of endowment and similar-type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. Also included in this category are funds received from donors with the restriction that the funds will be used to provide short- and long-term loans to students with all collections, both principal and interest, also being restricted for this purpose. Restricted net assets expendable: Restricted expendable net assets include resources in which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments. These resources are used for transactions relating to the educational and general operations of the University and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources also include Auxiliary enterprises, which are substantially self-supporting activities that provide services primarily for students.

32 29 FY 2009 NOTES TO FINANCIAL STATEMENTS INCOME TAXES The University is excluded from income taxes under Section 115(1) of the Internal Revenue Code. The University is also considered a Section 501(c)(3) corporation. CLASSIFICATION OF REVENUES AND EXPENSES Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions such as: (1) student tuition and fees, net of scholarship allowances, (2) sales and services of Auxiliary enterprises and other departments, (3) most federal, state, and local contracts and grants and federal appropriations, and (4) interest on institutional student loans. Non-operating revenues: Non-operating revenues include activities that have the characteristics of non-exchange transactions, such as gifts and contributions, and other revenue sources that are defined as non-operating revenues by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Non-expendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting and GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments. Examples of nonoperating revenues would include state appropriations and investment income. Operating/Non-operating expenses: With the exception of interest expense and losses on the disposal of capital assets, all expense transactions are classified as operating expenses. SCHOLARSHIP ALLOWANCES Student tuition and fee revenues are reported net of scholarship allowances in the Statement of Revenue, Expenses, and Changes in Net Assets. Scholarship allowances are the difference between the stated charge for goods and services provided by the University, and the amount that is paid by students and/or third parties making payments on the students behalf. To the extent that revenues from other sources are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship allowance to eliminate overstating total revenues to the University and properly record the revenues at the original source. SEGMENT REPORTING The University, through the Utah State Board of Regents, issues revenue bonds to finance certain activities. The University has deemed it not necessary to report segments on these bond issues, based upon the criteria provided in GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments and GASB Statement No. 38, Certain Financial Statement Note Disclosures. RECLASSIFICATION Certain reclassifications have been made to the prior year comparative information to conform with the current year presentation. The reclassification had no effect on the change in net assets reported for the year ended June 30, PRIOR YEAR S PRESENTATION Summary totals and other specific dollar amounts for the prior fiscal year (2008) are presented for comparison purposes only. B CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS Cash and cash equivalents consist of cash and investments with an original maturity of three months or less. Short-term investments consist of investments with an original maturity greater than three months that will mature within one year or less. Cash, depending on source of receipts, is pooled except when legal requirements dictate the use of separate accounts. The cash balances and cash float from outstanding checks are invested principally in shortterm investments that conform to the provisions of the Utah Code. It is the practice of the University that the investments ordinarily be held to maturity at which time the par value of the investments will be realized. The Utah State Treasurer s Office operates the Utah Public Treasurer s Investment Fund (PTIF) which is invested in accordance with the State Money Management Act. The State Money Management Council provides regulatory oversight for the PTIF. The PTIF is available for investment of funds administered by any Utah Public Treasurer. At June 30, 2009, cash and cash equivalents, and short-term investments consisted of: CASH AND CASH EQUIVALENTS Cash $5,295,806 Money market funds 30,242,169 Repurchase agreements 3,483,526 Utah Public Treasurer's Investment Fund 4,481,636 Total $43,503,137

33 30 C SHORT-TERM INVESTMENTS Commercial paper and corporate notes $53,956,890 Total $53,956,890 INVESTMENTS Funds available for investment are pooled to maximize return and minimize administrative cost, except for funds that are authorized by the University administration to be separately invested or which are separately invested to meet legal or donor requirements. Investments received as gifts are recorded at market or appraised value on the date of receipt. If no market or appraised value is available, investments received as gifts are recorded at a nominal value. Other investments are also recorded at fair value. University personnel manage certain portfolios, while other portfolios are managed by banks, investment advisors, or through trust agreements. According to the University s Investment Policy, the governing board may appropriate for expenditure as much of the net appreciation, realized and unrealized, of an endowment s corpus as is prudent under the facts and circumstances prevailing at the time of the action or decision. The appropriation must be for the purposes for which the endowment is established. The endowment income spending policy at June 30, 2009, is 4 percent of the 12 quarter moving average of the market value of the endowment pool. The spending policy is reviewed periodically and any necessary changes are made. The amount of net appreciation on investments of donor-restricted endowments that were available for authorization for expenditure at June 30, 2009, was ($2,696,971). The net appreciation is a component of restricted expendable net assets. At June 30, 2009, the investment portfolio composition was as follows: Alternatives $847,224 Commercial paper and corporate notes 37,851,692 Common and preferred stocks 3,447,149 Municipal bonds 1,728,073 Mutual funds $42,876,826 Obligations of the U.S. Government and its agencies 741,288 Time certificates of deposit 98,000,000 D Total investments (fair value) $185,492,252 DEPOSITS AND INVESTMENTS The Utah State Money Management Act defines the types of securities authorized as appropriate investments for the University s non-endowment funds and the conditions for making investment transactions. Investment transactions may be conducted only through qualified depositories, certified dealers, or directly with issuers of the investment securities. Statutes authorize the University to invest in negotiable or nonnegotiable deposits of qualified depositories and permitted negotiable depositories; repurchase and reverse repurchase agreements; commercial paper that is classified as first tier by two nationally recognized statistical rating organizations, one of which must be Moody s Investors Service or Standard & Poor s; bankers acceptances; obligations of the United States Treasury including bills, notes, and bonds; bonds, notes, and other evidence of indebtedness of political subdivisions of the State; fixed rate corporate obligations and variable rate securities rated A or higher, or the equivalent of A or higher, by two nationally recognized statistical rating organizations; shares of certificates in a money market mutual fund as defined in the Act; and the Utah State Public Treasurer s Investment Fund (PTIF). The PTIF is not registered with the SEC as an investment company. The PTIF is authorized and regulated by the State Money Management Act, Section 51-7, Utah Code Annotated, 1953, as amended. The Act established the State Money Management Council, which oversees the activities of the State Treasurer and the PTIF and details the types of authorized investments. Deposits in the PTIF are not insured or otherwise guaranteed by the State of Utah, and participants share proportionally in any realized gains or losses on investments. The PTIF operates and reports to participants on an amortized cost basis. The income, gains and losses net of administration fees, of the PTIF are allocated based upon the participant s average daily balance. The fair value of the PTIF investment pool is approximately equal to the value of the pool shares.

34 31 FY 2009 NOTES TO FINANCIAL STATEMENTS State law allows endowment funds of higher education institutions to be invested in accordance with the Utah State Board of Regents (Board of Regents) default investment guidelines or in accordance with policies adopted by the institution s Board of Trustees and approved by the Board of Regents. The University invests endowment funds in accordance with policies adopted by the Board of Trustees and approved by the Board of Regents. The University s Investment Policy allows the University to invest endowment funds in investments authorized by the Utah State Money Management Act or any of the following investments: readily marketable equities, which are diversified across a spectrum of market capitalizations, multiple regions, by issue, industry, and sector; readily marketable fixed income investments diversified by country, issue, sector, coupon, and quality; bonds having a minimum quality of A or better; non-investment grade securities, limited to 15 percent of a manager s portfolio; foreign securities, limited to 15 percent of a manager s portfolio and alternative investments that derive returns primarily from high-yield and distressed debt, natural resources, private capital, commodities, private real-estate assets, or absolute return and long/short hedge funds. In addition, endowment funds may be invested as specifically directed by donor agreement. DEPOSITS At June 30, 2009, the carrying amounts of the University s deposits and bank balances were $113,300,329 and $117,291,455, respectively. The bank balances of the University were insured for $906,184 by the Federal Deposit Insurance Corporation. The bank balances in excess of $906,184 were uninsured and uncollateralized, leaving $116,385,271 exposed to custodial credit risk. All deposits were held by a qualified depository as defined by the State Money Management Act. The State of Utah does not require collateral on deposits. Custodial credit risk for deposits is the risk that, in the event of a bank failure, the University s deposits may not be returned to the University. The University does not have a formal deposit policy for custodial credit risk. INVESTMENTS At June 30, 2009, the University had investments and maturities as shown below in Figure 1. Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The University s policy for managing its exposure to fair value loss arising from increasing interest rates is to comply with the Figure 1 As of June 30, 2009, the University had the following investments and maturities: Investment Maturities (in years) Investment Type Fair Value Less than Greater than 10 Money market funds $20,042,169 $20,042, Repurchase agreements 3,483,526 3,483, Utah Public Treasurer's Investment Fund 4,481,636 4,481, Commercial paper and corporate notes 91,808,582 53,956,890 $37,844,142 - $7,550 Government National Mortgage Association 8, ,654 Municipal bonds 1,728, ,728,073 Mutual funds - bonds 3,863, ,385 $3,548,445 - U.S. agencies 328, , U.S. treasury securities 404, , ,969 Totals 126,149,104 $81,964,221 $38,754,192 $3,548,445 $1,882,246 Common and preferred stock 3,447,149 Mutual funds - equities 39,012,997 Alternatives 847,224 Total $169,456,474

35 32 State s Money Management Act or the University s Investment Policy, as applicable. For non-endowment funds, Section of the Money Management Act requires that the remaining term to maturity of investments may not exceed the period of availability of the funds to be invested. The Act further limits the remaining term to maturity on all investments in commercial paper, bankers acceptances, fixed-rate, negotiable deposits, and fixed-rate, corporate obligations to days or less. In addition, variable-rate, negotiable deposits and variable-rate securities may not have a remaining term to final maturity exceeding two years. For endowment funds, the University s Investment Policy requires only that investments be made as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the endowments and by exercising reasonable care, skill, and caution. Credit Risk: Credit risk is the risk that an issuer or other counter party to an investment will not fulfill its obligation. The University s policy for reducing its exposure to credit risk is to comply with the State s Money Management Act and the University s Investment Policy, as previously discussed. At June 30, 2009, the University had investments with quality ratings as shown below in Figure 2: Figure 2 As of June 30, 2009, the University had the following investments with quality ratings: Quality Rating Investment Type Fair Value AAA AA A BBB Money market funds $20,042,169 $18,783, Repurchase agreements 3,483, Utah Public Treasurer's Investment Fund 4,481, Commercial paper and corporate notes 91,808,582 - $14,491,050 $65,885,902 $11,405,580 Government National Mortgage Association 8, Municipal bonds 1,728,073-1,728, Mutual funds - bonds 3,863,830 33, U.S. agencies 328, , U.S. treasury securities 404, Totals $126,149,104 $19,145,217 $16,219,123 $65,885,902 $11,405,580 Quality Rating Investment Type BB B CC Unrated No Risk Money market funds $1,258,846 - Repurchase agreements ,483,526 - Utah Public Treasurer's Investment Fund ,481,636 - Commercial paper and corporate notes $7,550 - $18, Government National Mortgage Association $8,654 Municipal bonds Mutual funds - bonds 20,581 $294,803-3,514,615 - U.S. agencies U.S. treasury securities ,571 Totals $28,131 $294,803 $18,500 $12,738,623 $413,225

36 33 FY 2009 NOTES TO FINANCIAL STATEMENTS Custodial Credit Risk: Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty, the University will not be able to recover the value of the investments that are in the possession of an outside party. The University does not have a formal investment policy for custodial credit risk. At June 30, 2009, the University had $3,483,526 in repurchase agreements where the underlying securities were uninsured and held by the investment s counterparty, but not in the University s name. At June 30, 2009, the University also had $3,447,149 in common and preferred stock and $137,969 in U.S. treasuries, which were held by the investment s counterparty and $328,063 in U.S. agencies, $91,808,582 in commercial paper and corporate notes, and $266,602 in U.S. treasuries, which were held by the counterparty s trust depar tment but not in the University s name. Concentration of Credit Risk: Concentration of credit risk is the risk of loss attributed to the magnitude of a government s investment in a single issuer. For endowment funds, the University policy requires diversification of investments across a broad spectrum and specific limits to concentration of securities within categories of equities, fixed income, and alternatives. Rule 17 of the State Money Management Council limits non-endowment fund investments in a single issuer of commercial paper and corporate obligations to 5 percent. The Money Management Council limitations do not apply to securities issued by the U.S. Government and its agencies. At June 30, 2009, the University did not hold more than 5 percent of total investments in a single issuer of commercial paper or corporate obligations. Under the terms of various limited partnership agreements approved by the Board of Trustees or by University officers, the University is obligated to make periodic payments for advance commitments to venture capital, natural resource, and private equity investments. As of June 30, 2009, the University had committed, but not paid, a total of $2,447,846 in funding for these alternative investments. E ACCOUNTS, CREDITS, AND STUDENT LOANS RECEIVABLE Accounts receivable consist of the following at June 30, 2009: (Fig. 3) Figure 3 Current Non-Current Total Due from Primary Government: State contracts and grants $1,393,169 - $1,393,169 State appropriations 1,914,014-1,914,014 State grant - USTAR 868, ,922 Land Grant revenue 76,141-76,141 Due from State Treasurer 783, ,142 Due from Others: Contracts and grants 28,510,861-28,510,861 Pledges receivable 15,188,707 $30,797,274 45,985,981 Auxiliary and service enterprises 1,417,415-1,417,415 Other activities 9,054, ,656 9,971,485 Total accounts receivable 59,207,200 31,713,930 90,921,130 Less allowance for doubtful accounts (776,547) - (776,547) Net accounts receivable $58,430,653 $31,713,930 $90,144,583

37 34 Credits receivable, $398,106, reflect amounts due from vendors doing business primarily with the University s Bookstore. Student loans receivable are comprised primarily of loans issued through the Federal Perkins Loan Program (FPLP) and short-term loans issued from funds set aside by the University for that purpose. The FPLP loans provide for cancelation of a loan at rates of 10 percent to 30 percent per year up to a maximum of 100 percent if the participant complies with certain provisions. The FPLP loans are payable after completion of academic degrees or termination as a student, with a term of 10 years and an interest rate of 5 percent. In the event the University should withdraw from the FPLP or the government were to cancel the program, the amount the University would be liable to the federal government for, as of June 30, 2009, is $10,274,205. As the University determines that loans are uncollectible and not eligible for reimbursement by the federal government, the loans are written off and assigned to the U.S. Department of Education. Other University short-term loans have a term of two to four months and carry an interest rate of 7 percent to 12 percent. The 12 percent rate applies if the loan becomes delinquent. Notes receivable are as follows: Current Non-Current Total Federal Perkins Loan Program $469,480 $11,495,013 $11,964,493 Other 774, ,550 Total notes receivable 1,244,030 11,495,013 12,739,043 Less allowance for doubtful accounts (43,843) (235,241) (279,084) Net notes receivable $1,200,187 $11,259,772 $12,459,959 USU s Manon Caine Russell Kathryn Caine Wanlass Performance Hall has received four state and regional awards that honor the design and architecture of the building. PHOTO

38 35 FY 2009 NOTES TO FINANCIAL STATEMENTS F PROPERTY, PLANT, AND EQUIPMENT The University s investment in property, plant, and equipment consists of the following: Property, plant, and equipment not depreciated Balance June 30, 2008 Additions Transfers Disposals Balance June 30, 2009 Land $17,065,828 $26, $17,092,416 Construction in progress Buildings 19,303,563 28,462,029 ($37,478,391) - 10,287,201 Improvements other than buildings 1,706,770 4,915,720 (5,796,558) - 825,932 Equipment 1,464,225 1,474, ,938,487 Total property, plant, and equipment not depreciated $39,540,386 $34,878,599 ($43,274,949) $0 $31,144,036 Other property, plant, and equipment Buildings $503,900,111 $145,423 $37,478,391 ($10,055) $541,513,870 Improvements other than buildings 63,748,273 5,796,558 (121,357) 69,423,474 Equipment 117,162,404 11,874,849 - (4,072,214) 124,965,039 Library collections 67,292,450 2,509, ,802,356 Total other property, plant, and equipment 752,103,238 14,530,178 43,274,949 (4,203,626) 805,704,739 Less accumulated depreciation Buildings (175,471,468) (16,020,279) - 5,799 (191,485,948) Improvements other than buildings (35,040,643) (2,458,150) - 121,357 (37,377,436) Equipment (70,198,006) (10,574,814) - 3,812,437 (76,960,383) Library collections (37,681,809) (2,680,696) - - (40,362,505) Total accumulated depreciation (318,391,926) (31,733,939) 0 3,939,593 (346,186,272) Other capital assets net $433,711,312 ($17,203,761) $43,274,949 ($264,033) $459,518,467 Capital assets summary Capital assets not depreciated $39,540,386 $34,878,599 ($43,274,949) - $31,144,036 Other capital assets at cost 752,103,238 14,530,178 43,274,949 ($4,203,626) 805,704,739 Total cost of capital assets 791,643,624 49,408,777 0 (4,203,626) 836,848,775 Less accumulated depreciation (318,391,926) (31,733,939) - 3,939,593 (346,186,272) Capital assets net of depreciation $473,251,698 $17,674,838 $0 ($264,033) $490,662,503

39 36 G ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable consisted of the following at June 30, 2009: Salaries and benefits payable ($ $1,392,614 due to primary government) $26,129,600 Due to primary government 2,653,772 Suppliers payable 10,687,945 Interest payable 845,945 Other 65,786 H BONDS, NOTES, CONTRACTS, AND OTHER NON-CURRENT LIABILITIES Assets pledged for payment of bonds and contracts include the net revenue of Auxiliary enterprises, land-grant funds, specific student fees, and reimbursed facilities and administrative costs. The gross amount of capital assets purchased under capital lease as of June 30, 2009 was $33,399,877. Bonds, notes, and contracts outstanding at June 30, 2009 and 2008 are as shown in Figure 4.a and 4.b: Total accounts payable and accrued liabilities $40,383,048 Figure 4.a June 30, 2009 June 30, 2008 Bonds payable Stadium/Spectrum and Student Recreation Bonds Series A (2004) 2.00%-5.00%, , $11,065,000 $9,585,000 $9,925,000 Student Housing System Revenue Bonds Series A (1999) 3.80%-4.75%, , $15,010,000 9,575,000 10,925,000 Series %-5.00%, , $39,155,000 39,155,000 39,155,000 Total Student Housing System Revenue Bonds 48,730,000 50,080,000 Research Revenue Bonds Series A (2002) 2.50%-5.25%, , $23,735,000 17,580,000 19,135,000 Series %-4.40%, , $705, , ,000 Series %-5.00%, , $22,000,000 22,000,000 - Total Research Revenue Bonds 40,000,000 19,606,000 Total bonds payable 98,315,000 79,611,000 continued on next page...

40 37 FY 2009 NOTES TO FINANCIAL STATEMENTS (H. continued) Figure 4.b June 30, 2009 June 30, 2008 Notes and capital leases payable Zions Mortgage, 3%, $112,500 $202,500 Logan Park, LLC, 7.75%, , ,100 Zions Bank, 4.70%, , ,069 Caterpillar Financial Services, 3.95%, ,002,652 12,573,732 Zions Bank, 2.5%, ,982 Caterpillar Financial Services, 4.65%, , ,477 Key Municipal Finance, 4.59%, , ,683 Bank of America, 4.017%, , ,738 Bank of America, 3.58%, , ,098 Bank of America, 4.017%, ,463,351 1,638,453 Bank of America, 4.18%, , ,461 SunTrust Leasing Corp., 3.97%, , ,631 Bank of America, 4.18%, ,753,017 1,857,925 SunTrust Leasing Corp., 4.05%, , ,787 SunTrust Leasing Corp., 4.67%, ,748,176 3,916,129 SunTrust Leasing Corp., 3.75%, , ,864 SunTrust Leasing Corp., 4.5%, , ,339 SunTrust Leasing Corp., 4.6%, , ,995 Zions Credit Corp., 5.15%, ,704 - Zions Credit Corp., 4.54% ,688 - Total notes and capital leases payable 24,276,296 25,316,963 Equipment contracts payable, ,490,787 1,764,647 Total bonds, notes, and equipment contracts payable 124,082, ,692,610 Unamortized original issue discounts (OID), reoffering premiums (RP), and refunding losses on bonds 1995A Bonds - refunding loss (58,017) (96,696) 2002A Bonds - RP 323, , A/B Bonds - RP 27,131 28, Bonds - refunding loss (1,769,415) (1,838,129) 2007 Bonds - RP 3,622,864 3,763, Bonds - RP 585,355 - Total unamortized OID, RP, and refunding loss on bonds 2,731,521 2,225,371 Total bonds, notes, and equipment contracts payable net of unamortized OID, RP, and refunding loss on bonds $126,813,604 $108,917,981

41 38 (H. continued) Below is a summary of the changes in bonds, notes, and equipment contracts payable for the fiscal year ended June 30, 2009: Bonds Notes and Capital Leases Equipment Contracts Total Payable Unamortized OID, RP, and Refunding Loss Total Net of OID, RP, and Refunding Loss Balance at June 30, 2008 $79,611,000 $25,316,963 $1,764,647 $106,692,610 $2,225,371 $108,917,981 Additions 22,000, , ,143 23,175, ,518 23,764,300 Deletions (3,296,000) (1,789,306) (701,003) (5,786,309) (82,368) (5,868,677) Balance at June 30, 2009 $98,315,000 $24,276,296 $1,490,787 $124,082,083 $2,731,521 $126,813,604 The University has complied with the restrictive covenants of its bond agreements. Amounts due on bonds and contracts payable in future years are as follows: Bonds Bond Interest Notes and Capital Leases Notes and Capital Leases Interest Equipment Contracts Contracts Interest Total Amount Required FY 2010 $3,573,000 $4,547,573 $1,947,060 $973,744 $666,443 $53,423 $11,761,243 FY ,755,000 4,391,637 1,937, , ,703 26,950 11,614,014 FY ,557,000 4,218,793 1,899, , ,868 3,000 11,684,895 FY ,725,000 4,028,863 1,987, ,063 5, ,471,523 FY ,937,000 3,829,926 1,806, ,595 5, ,222,427 FY's ,748,000 15,835,469 9,361,068 2,015, ,959,628 FY's ,835,000 11,350,904 5,247, , ,956,938 FY's ,620,000 6,925,015 88, ,633,711 FY's ,575,000 2,706, ,281,544 FY's ,990, , ,102,125 Total $98,315,000 $57,946,849 $24,276,296 $6,575,445 $1,490,787 $83,671 $188,688,048 The outstanding balance of bonds defeased and refunded in prior years totaled $40,640,000 at June 30, The bond liabilities of the defeased and refunded bonds are not included on the balance sheet.

42 39 FY 2009 NOTES TO FINANCIAL STATEMENTS (H. continued) Deferred revenues and deposits consisted of the following at June 30, 2009: Current Non-current Total Tuition and fees $6,095,140 - $6,095,140 Contract and grant revenue 8,784,085 $540,000 9,324,085 Auxiliary and service enterprises 1,031,593-1,031,593 Non-operating 140, ,604 Total $16,051,422 $540,000 $16,591,422 Summary of changes in liabilities for the year ended June 30, 2009: Beginning Balance June 30, 2008 Additions Reductions Ending Balance June 30, 2009 Amounts Due Within One Year Bonds, notes, and contracts payable Bonds payable $81,836,371 $22,588,518 ($3,378,368) $101,046,521 $3,573,000 Notes payable 25,316, ,639 (1,789,306) 24,276,296 1,947,060 Contracts payable 1,764, ,143 (701,003) 1,490, ,443 Total bonds, notes, and contracts payable 108,917,981 23,764,300 (5,868,677) 126,813,604 6,186,503 Other liabilities Liability for compensated absences 15,004,722 10,170,831 (10,328,522) 14,847,031 9,348,661 Liability for early retirement 9,815,111 19,538,916 (3,821,894) 25,532,133 6,623,080 Deferred revenue and deposits 15,798,354 15,976,422 (15,183,354) 16,591,422 16,051,422 Total other liabilities 40,618,187 45,686,169 (29,333,770) 56,970,586 32,023,163 Total non-current liabilities $149,536,168 $69,450,469 ($35,202,447) $183,784,190 $38,209,666 I PLEDGED BOND REVENUE The University issues revenue bonds to provide funds for the construction and renovation of major capital facilities. Investors in these bonds rely solely on the net revenue pledged by the following activities for the retirement of outstanding bonds payable. Student Fee and Housing System is comprised of the net revenue from specific Auxiliary enterprises and student building fee assessments. The Student Fee and Housing System includes all University housing except the Student Living Center, Parking Services, all of University Dining Services, the net revenues of the Taggart Student Center, Student Building Fees specifically indentified in the bond resolution, and land-grant revenues. The University has pledged future net revenues of the Student Fee and Housing System to repay $15,010,000 and $39,155,000 in bonds issued in February 1999 and May 2007 respectively. Proceeds from the 1999 and 2007 bonds were used to refund bonds issued in 1994 and 2004 originally issued to finance the construction and renovation of the Student Fee and Housing System facilities. Student Fee and Housing System annual net revenues are projected to produce at least 110 percent of the annual debt service requirements over the life of the bonds. The total principal and interest remaining to be paid on the bonds is $85,066,659. The bonds are payable solely from the Student Fee and Housing System and are payable through 2035.

43 40 Student Fee Stadium/Spectrum Recreation Facilities System is comprised of those student fees specifically identified in the bond resolution and paid by students for the use and availability of the facilities. The University has pledged future revenues of the specifically identified student fees to repay $11,065,000 in bonds issued in June Proceeds from the bonds provided financing for the renovating and remodeling of the University s football stadium and a student recreation center. Student fee revenues are projected to produce at least 110 percent of the annual debt service requirements over the life of the bonds. The total principal and interest remaining to be paid on the bonds is $14,392,034. The bonds are payable solely from Student Fee Stadium/Spectrum Recreation Facilities System and are payable through Research Revenue System is comprised of the revenue generated from the recovery of allocated facilities and administration costs to contracts and grants based on federally approved negotiated rate agreements. The University has pledged future revenues of the Research Revenue System to repay $23,735,000; $705,000; and $22,000,000 in bonds issued in July 2002, March 2003, and May 2009 respectively. Proceeds from the 2002 bonds provided financing for the cost of acquiring, constructing, furnishing, and equipping three buildings as office and research facilities on the USU Innovation Campus. Proceeds from the 2003 bonds provided for the acquisition of 550 acres of farmland approximately 12 miles northwest of Logan to replace University farmland now assigned to the USU Innovation Campus. Proceeds from the 2009 bonds provided financing for the cost of acquiring, constructing, and equipping two research facilities located at the University s main campus and the Vernal, Utah, campus. Annual principal and interest payments on the bonds are expected to require less than 20 percent of revenues. The total principal and interest remaining to be paid on the bonds is $56,803,155. The bonds are payable solely from the Research Revenue System and are payable through The following schedule presents the net revenue pledged to the applicable bond system and the principal and interest paid for the year ended June 30, 2009: Student Fee and Housing System Student Fee Stadium/Spectrum Recreation Facilities System Research Revenue System Revenue Operating revenue/gross profit $19,421,338 $975,526 $21,064,388 Non-operating revenue 289, Total revenue 19,710, ,526 21,064,388 Expenses Operating expenses 15,413, Total expenses 15,413, Net pledged revenue $4,297,229 $975,526 $21,064,388 Principal paid and interest expense $3,778,541 $819,138 $2,586,645 Debt service ratio 1.14X 1.19X 8.14X J PENSION PLANS AND RETIREMENT BENEFITS As required by state law, eligible non-exempt employees of the University (as defined by the U.S. Fair Labor Standards Act) are covered by the Utah Retirement Systems. Eligible exempt employees (as defined by the U.S. Fair Labor Standards Act) are covered by the Teachers Insurance and Annuity Association (TIAA) and/or College Retirement Equities Fund (CREF) and/or Fidelity Investments (Fidelity). The total employee compensation and the total contribution for each pension plan for the year ending June 30, 2009, and the two previous years were as follows:

44 41 FY 2009 NOTES TO FINANCIAL STATEMENTS (J. continued) Contributions Year Compensation Defined Benefit Plans Defined Contribution Plans 401(k) Utah Retirement Systems State and School System 2009 $786,170 $123,664 - $123,664 Contributory , , ,327 Total , , ,425 State and School System ,431,694 5,180,298 $603,655 5,783,953 Non-contributory (includes ,780,342 5,090, ,738 5,668,049 amounts (see note below) ,467,648 4,898, ,262 5,449,380 contributed to a 401(k) plan with Educators Mutual Association (EMIA)) Public Safety with Social Security , , ,212 System Non-contributory , , , ,879 95,465-95,465 TIAA and/or CREF and/or Fidelity ,827,223-20,281,467 20,281, ,230,908-19,348,204 19,348, ,615,591-18,124,442 18,124,442 Non-eligible employees ,473, ,314, ,271, Utah Retirement Systems plans include multiple-employer, cost sharing, defined benefit plans, and defined contribution plans consisting of 401(k) and 457 plans. The defined benefit plans provide defined benefits based on years of service and highest average salaries. The defined contribution plans provide benefits based on total contributions and the accumulated earnings. The plans are administered by the State of Utah. These systems cover substantially all eligible public employees of the State of Utah, educational employees, and employees of participating local governmental entities. The pension benefit is vested at the end of four years under all Utah Retirement Systems plans in which University employees are participating. The amount credited as the individual s contribution is vested at the time the contribution is made. For employees in the contributory plan, the University contributes at a rate of percent of gross earnings. Of this, 6 percent is credited as the individual s contribution and 9.73 percent is considered the University s matching contribution. For employees in the State and School System Non-contributory plan, the University contributes percent of gross earnings. Of this, l.5 percent is contributed to a 401(k) plan and percent is credited as the University s contribution. For the employees in the Utah Public Safety with Social Security System Non-contributory plan, the University contributes percent of gross earnings. Employer contributions to the 401(k) for the years ended June 30, 2009, 2008, and 2007 were $579,458; $553,162; and $526,540 respectively. During the fiscal years ended June 30, 2009, 2008, and 2007, the University s contributions to all other Utah retirement plans were $5,406,174; $5,327,208; and $5,128,008 respectively. The University has no further liability once contributions are made. Employee contributions to the 401(k) plan for the same years were $1,151,754; $1,187,728; and $1,155,288 respectively. Employee contributions to the 457 plan were $101,893; $137,463; and $131,960 respectively.

45 42 The Utah Retirement Systems are established and governed by the respective sections of Chapter 49 of the Utah Code Annotated 1953 as amended. The Utah State Retirement Office Act in Chapter 49 provides for the administration of the Utah Retirement Systems and Plans under the direction of the Utah State Retirement Board, whose members are appointed by the governor. The Utah Retirement Systems issues a publicly available financial report that includes financial statements and required supplementary information for the State and School System Contributory Retirement plan, State and School System Noncontributory Retirement plan, and Public Safety Retirement System plan. A copy of the report may be obtained by writing to the Utah Retirement Systems, 540 East 200 South, Salt Lake City, UT 84102, or by calling EMIA provides a 401(k) defined contribution plan that can be utilized by employees on the Utah Retirement State and School System Non-contributory plan. This contribution is in lieu of the 1.5 percent that would have been contributed to the Utah Retirement System s 401(k) plan. The contribution made by the University is at 1.5 percent of gross earnings. Contributions by the University become vested at the time the contribution is made. During the fiscal years ended June 30, 2009, 2008, and 2007, the University s contribution to this 401(k) plan was $24,197; $24,576; and $24,722 respectively. The University has no further liability once contributions are made. Employee contributions for the same years were $42,426; $60,319; and $69,441 respectively. TIAA and/or CREF and/or Fidelity provide individual defined contribution retirement fund contracts with each participating employee. Employees may allocate contributions by the University to any or all of the providers and the contract(s) become vested at the time the contribution is made. Employees are eligible to participate from the date of employment and are not required to contribute to the fund. Benefits provided to retired employees are based on the value of individual contracts and the estimated life expectancy of the employee at retirement. For the years ended June 30, 2009, 2008, and 2007, the University s contribution to this multiple employer defined contribution plan was 14.2 percent of the employees annual salary or $20,281,467; $19,348,204; and $18,124,442 respectively. The University has no further liability once annual contributions are made. Employee contributions for the same years were $5,319,248; $5,082,017; and $5,149,857 respectively. The University provides an early retirement option to employees who qualify and are approved by administration in accordance with University policy. This option is available to all employees whose accumulated age and years of service are equal to or greater than 75, that have met the minimum age requirements and where the early retirement is in the mutual best interest of the employee and the University. The policy provides two mutually exclusive early retirement options for eligible employees; either six years (16.67 percent of base salary per year) or five years (20 percent of base salary per year). The six-year option requires a minimum age of 56 and the five-year option requires a minimum age of 57. Benefits include a monthly stipend equal to the agreed upon percent of the retiree s salary at the time of active employment along with medical and dental insurance. The projected future cost of these stipends and the medical and dental insurance benefits have been calculated based on the known amount to be paid out in the next fiscal year plus projected increases of 1.7 percent (University), 4.0 percent (USURF) for stipends and 9.15 percent (University), 9.0 percent (USURF) for medical and dental premiums. These increases are based on historical data. The premiums for medical and dental benefits have also been increased by an age-adjusted factor of The net present value of the total projected costs is calculated using the estimated yield (4.272 percent) for University investments in the Cash Management Investment Pool and (5 percent) for USURF. The net present value is the amount recognized on the financial statements as the liability for early retirement. At June 30, 2009, there were 229 participants in the earlyretirement program. The program is funded on a pay-as-you-go basis from current funds. Payments for the stipend in the years ended June 30, 2009, 2008, and 2007 were $1,651,058; $1,718,943; and $1,450,275 respectively. Payments for the health care and life insurance benefits for the years ended June 30, 2009, 2008, and 2007 were $1,157,477; $1,315,122; and $1,016,452 respectively. K DEFERRED COMPENSATION PLAN Employees of the University may participate in several deferred compensation plans adopted under the provisions of Internal Revenue Code (IRC) Section 457 (Deferred Compensation Plans with Respect to Service for State and Local Governments). The deferred compensation plans are available to all employees of the University. Under the plans, employees may elect to defer a portion of their salaries and avoid paying taxes on the deferred portion until the withdrawal date. The deferred compensation amount is not

46 43 FY 2009 NOTES TO FINANCIAL STATEMENTS available for withdrawal by employees until termination, retirement, death, or unforeseeable emergency. The deferred compensation plans are administered by an unrelated financial institution. As part of its fiduciary role, the University has an obligation of due care in selecting the third party administrators. In the opinion of the University administrators, the University has acted in a prudent manner and is not liable for losses that may arise from the administration of the plans. The University is in compliance with the requirements of subsection (g) of IRC Section 457. All assets for IRC Section 457 plans are externally held in trust for the exclusive benefit of the participants or their beneficiaries rather than as assets of the University. L RISK MANAGEMENT GENERAL LIABILITY INSURANCE The University maintains insurance coverage for general, automobile, personal injury, errors and omissions, employee dishonesty, and malpractice liability up to $10 million per occurrence through policies administered by the Utah State Risk Management Fund. The University also insures its buildings, including those under construction, and contents against all insurable risks of direct physical loss or damage with the Utah State Risk Management Fund. This all-risk insurance coverage provides for repair or replacement of damaged property at a replacement cost basis subject to a deductible of $1,000 per occurrence. All revenues from University operations, rental income for its residence halls, and tuition are insured against loss due to business interruption caused by fire or other insurable perils with the Utah State Risk Management Fund. All University employees are covered by worker s compensation insurance, including employer s liability coverage by the Worker s Compensation Fund of Utah. SELF-INSURANCE FOR EMPLOYEE HEALTH AND DENTAL CARE On July 1, 1995, the University established a self-insurance fund for employee health and dental care. GASB Statement No. 10 requires a liability for claims be reported if information prior to the issuance of the financial statements indicates it is probable a liability has been incurred at the date of the financial statements. The University s estimated self-insurance claims liability at June 30, 2009 and June 30, 2008 are as follows: Current year claims and changes in estimates $35,488,247 $31,666,594 Claim payments, including related legal and administrative expenses (35,179,849) (30,824,127) Estimated claims liability at end of year $4,170,708 $3,862,310 The University has recorded the investment of the health and dental care funds at June 30, 2009, and the estimated liability for self-insurance claims at that date in the Statement of Net Assets. The income on fund investments, the expenses related to the administration of the self insurance, and the estimated provision for the claims liabilities for the year then ended are recorded in the Statement of Revenues, Expenses, and Changes in Net Assets and the Statement of Net Assets. CONTINGENCIES The University has been named in several lawsuits where litigation is pending. It is unlikely that any judgments against the University will be established or would otherwise be material in nature. The lawsuits are such that any financial settlement would be covered primarily by insurance held by the University. At June 30, 2009, the University had outstanding commitments for the construction and remodeling of University buildings of approximately $30,228,000. M SUBSEQUENT EVENTS SUBSEQUENT EVENTS Certain events occurred after the close of the fiscal year ended June 30, 2009, but before this report was published that affected the reported bonds outstanding. On October 6, 2009, the University s $8,130,000 Series 2009 Student Fee and Housing System Revenue Bonds were issued for the purpose of refunding in advance of their maturity the Series 1999A Student Fee and Housing System Revenue Refunding Bonds that were previously issued. This refunding resulted in an increase of $57,276 in the net carrying amount of the refunded debt, a reduction in the future debt service payments of $628,792, and an economic gain (difference between the present value of the old and new debt service payments) of $603,442. Estimated claims liability at beginning of year $3,862,310 $3,019,843

47 EXECUTIVE OFFICERS STAN L. ALBRECHT President RAYMOND T. COWARD Executive Vice President and Provost FRED R. HUNSAKER Vice President for Business and Finance NOELLE E. COCKETT Vice President for Extension and Agriculture M.K. JEPPESEN Vice President for Information Technology BRENT C. MILLER Vice President for Research NED M. WEINSHENKER Vice President for Strategic Ventures and Economic Development JAMES MORALES Vice President for Student Services F. ROSS PETERSON Vice President for University Advancement BOARD OF TRUSTEES SUZANNE PIERCE-MOORE Chair RONALD W. JIBSON Vice Chair DAVID P. COOK ROBERT L. FOLEY DOUGLAS S. FOXLEY DAVID JOHNSON III PAUL D. PARKINSON RICHARD L. SHIPLEY TYLER L. TOLSON SCOTT R. WATTERSON SYDNEY M. PETERSON Secretary

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