CALIFORNIA STATE UNIVERSITY, LONG BEACH FOUNDATION. Financial Statements June 30, 2008 and 2007

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1 CALIFORNIA STATE UNIVERSITY, LONG BEACH FOUNDATION Financial Statements June 30, 2008 and 2007

2 CONTENTS Independent Auditors Report 1-2 Management's Discussion and Analysis (Unaudited) 3-16 Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to the Financial Statements Supplementary Information 41

3 ItI Established 1926 WINDES & MCCLAUGHRY ACCOUNTANCY CORPORATION Certified Public Accountants & Consultants Landmark Square 111 West Ocean Boulevard Twenty-Second Floor Long Beach, CA Tel: (562) Fax: (562) Other Offices: Jrviue Torratl ce INDEPENDENT AUDITORS' REPORT To the Board of Directors of California State University, Long Beach Foundation: We have audited the accompanying statement of net assets of the California State University, Long Beach Foundation (the Foundation), a direct support organization and component unit of California State University, Long Beach, as of June 30, 2008 and 2007, and the related statements of revenues, expenses, and changes in net assets, and cash flows for the years then ended. These fmancial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial 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 Foundation's internal control over fmancial 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 fmancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the fmancial statements referred to above present fairly, in all material respects, the fmancial position of the California State University, Long Beach Foundation as of June 30, 2008 and 2007, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 1

4 In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2008 on our consideration of the Foundation's internal control over financial reporting and on our 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 fmancial 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 audits. Management's Discussion and Analysis (MD&A) on pages 3 to 16 is not a required part of the basic fmancial statements but is supplemental 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 supplemental information. However, we did not audit the information and express no opinion on it. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The other information on page 41 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects, in relation to the basic financial statements taken as a whole. j/~ 4r- /J;~t!fln Long Beach, California September 25,

5 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Introduction The following discussion and analysis provides an overview of the financial position and activities of the California State University, Long Beach Foundation (the Foundation) for the years ended June 30, 2008 and The discussion has been prepared by management and should be read in conjunction with the fmancial statements and notes thereto, which follow this section. The Foundation is a nonprofit organization formed to support and advance the mission of California State University, Long Beach (the University). To fulfill this mission, the Foundation pursues a wide range of opportunities in the areas of grants and contracts, campus programs, public-private partnerships, technology transfer, and other entrepreneurial activities to complement and strengthen the University'S teaching, research, scholarly, creative, fund-raising and public service goals. Using the Financial Statements The Foundation's fmancial report includes three statements: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows. These financial statements have been prepared in accordance with Governmental Accounting Standards Board (GASB) principles. The Foundation has adopted GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and GASB No. 35, Basic Financial Statements - and Management's Discussion and Analysis - for Public Colleges and Universities, as amended by GASB Statement No. 37, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, and GASB No. 38, Certain Financial Statement Note Disclosures, and applied those standards on a retroactive basis. These statements establish standards for external financial reporting for public colleges and universities and require that financial statements be presented on a consolidated basis to focus on the reporting entity as a whole, with resources classified for accounting and reporting purposes into the following four net asset categories: Invested in capital assets, net of related debt Restricted, non-expendable Restricted, expendable Unrestricted 3

6 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Restatement of Prior Financial Statements Subsequent to issuance of the fmancial statements for the year ended June 30, 2007, the Foundation determined they were the ultimate benefactor of an estate placed into a trust instrument. Parts of the trust instrument became irrevocable in years prior to As a result, the Foundation has restated its fmancial statements as of and for the year ended June 30, 2006 to record a receivable for the estate, a liability for the discount factor, and an increase in net assets. These adjustments have been reflected in the statements as of July 1, Statement of Net Assets The statement of net assets presents the fmancial position of the Foundation at the end of the fiscal year and includes all assets and liabilities of the Foundation. The difference between total assets and total liabilities - net assets - is one indicator of the current fmancial condition of the Foundation, while the change in net assets is an indicator of whether the overall fmancial condition has improved or worsened during the year. Assets and liabilities are generally measured using current values. One notable exception is capital assets, which are stated at historical costs less an allowance for depreciation. For the purpose of distinguishing between current and noncurrent assets and liabilities, current assets and liabilities are those that can be reasonably expected to either generate or use cash, as part of normal business operations, within one year of the financial statement date. A summary of the Foundation's assets, liabilities, and net assets at June 30, 2008 and 2007 is as follows: June 30, (As Restated) Current assets $ 46,700,000 $ 42,500,000 Noncurrent assets Accounts receivable, net 17,400,000 17,400,000 Pledges receivable, net 1,800, ,000 Endowment investments 36,600,000 36,100,000 Other investments 3,100,000 3,300,000 Capital assets 33,800,000 22,900,000 Total assets 139,400, ,100,000 Current liabilities 12,100,000 11,800,000 Noncurrent liabilities 33,000,000 21,400,000 Total liabilities 45,100,000 33,200,000 Net Assets $ 94,300,000 $ 89,900,000 4

7 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Net Assets (Continued) Total assets increased $16.3 million, or 13 %, during fiscal year 2008 and increased $13.2 million, or 13 %, during fiscal year The change in 2008 is attributed to the increase of $500,000, or 1 %, in endowment investments, a $3.8 million increase, or 3% in receivables, and an increase of $11 million for the purchase of the CSULB Residential Learning College property, formerly Brooks College. The increase in current assets of $4.2 million, or 10%, also contributed to the total assets growth in The change in 2007 was attributed to a $7 million increase, or 20%, in current assets. The increase in endowment investments of $5.8 million, or 19 %, also contributed to the total assets growth in Total Assets $160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 - r--- c--, -.~ I j $40,000,000 I-- - -l $20,000,000 -I-- -"- -- _, I l $0! I I I i I Total liabilities increased $11.9 million, or 36 %, during fiscal year This increase is mostly due to the issuance of a bond to purchase the Residential Learning College. Current liabilities consists of accounts payable of $3.8 million, accrued salaries, benefits and compensated absences payable of $2.4 million, and deferred revenues of $5.7 million. In 2007, total liabilities increased $2.8 million, or 12 %. That increase was mostly due to the increase of $2.8 million in current liabilities. The 2007 current liabilities consisted of accounts payable of $2.7 million, accrued salaries, benefits and compensated absences payable of $2.8 million, and deferred revenues of $6 million. 5

8 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Net Assets (Continued) Current deferred revenues represent unexpended cash advances received for sponsored programs. As a result, the overall Foundation's financial position continued to improve during fiscal year Net assets increased $4.4 million, or 4.9%, from $89.9 million in 2007 to $94.3 million in In comparison, in 2007 net assets increased $10.4 million, or 14 %, from $76.8 million in 2006 to $87.2 million. Endowment and Other Investments During fiscal year 2008, endowments increased by $500 thousand, or 1.4%, from $36.1 million to $36.6 million. During fiscal year 2007, endowments increased by $5.8 million, or 19 %, from $30.3 million to $36.1 million. The Foundation's investment policies are designed to maximize long-term return, while its income distribution policies are designed to preserve the value of the endowments and to generate a predictable stream of expendable income. $40,000,000 - $35,000,000 - $30,000,000 - $25,000,000 20,532,933 r-- $20,000,000 $15,000, $10,000, $5,000, $0 2004, Endowment Trends Market Value at 6/30 24,994,895 30,340, ,072,453 r ,~ ~ J! - ~ I 6

9 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Endowment and Other Investments (Continued) Permanent endowments are funds received from donors with the stipulation that the principal remains intact and be invested in perpetuity to produce income, which is to be expended for purposes specified by the donor. In addition, other long-term investments were $3.1 million in 2008 and $3.3 million in These investments consist of funds that have been allocated by the Foundation for long-term investment purposes without donor restrictions. Capital Assets and Long-Term Debt Activities At June 30, 2008, the Foundation had $34 million invested in capital assets, net of accumulated depreciation of $6.3 million. At June 30, 2007, the Foundation had $23 million invested in capital assets, net of accumulated depreciation of $6.1 million. Depreciation and amortization charges for the years ended June 30, 2008 and 2007 totaled $450,000 and $400,000, respectively. A summary of capital assets, net of accumulated depreciation and amortization, is as follows: June 30, Building and improvements $16,300,000 $ 12,000,000 Furniture and fixtures 2,800,000 2,800,000 19,100,000 14,800,000 Less: accumulated depreciation and amortization 6,300,000) ( 6,100,000) 12,800,000 8,700,000 Collection items (works of art) 3,900,000 3,900,000 Land 17,100,000 10,300,000 $33,800,000 $ 22,900,000 Capital assets of $11.5 million and $420,000 were added in 2008 and 2007, respectively. The Foundation purchased the CSULB Residential Learning College, formerly Brooks College, in 2008 for $11.1 million. Long-term debt obligations consist of bonds of $20 million in 2008 and $9.5 million in The bonds issued in prior years to finance the construction of the Foundation's office building were refunded in 2008 with $8.5 million in a new bond. In addition, $11.5 million in bonds were issued in 2008 for the purchase of the Residential Learning College property. 7

10 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) JUNE 30,2008 AND 2007 Net Assets Net assets represent the residual interest in the Foundation's assets after liabilities are deducted. The Foundation's net assets are as follows: June 30, (As Restated) Invested in capital assets, net of related debt $13,800,000 $ 13,500,000 Restricted: N onexpendable 36,000,000 31,800,000 Expendable 42,400,000 42,200,000 Unrestricted 2,100,000 2,400,000 Net Assets $ 94,300,000 $ 89,900,000 Net assets increased $4.4 million, or 4.8% in 2008 and $10.6 million, or 14%, in Net assets invested in capital assets, net of related debt, represent the Foundation's capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of these assets. In 2008, the increase of $4.4 million in restricted net assets was mainly due to increase in nonexpendable restricted assets. Restricted nonexpendable net assets, which primarily include the Foundation's permanent endowment funds, increased by $4.2 million, or 13 %. Restricted expendable net assets increased by $200,000, or.4 %. In 2007, the increase of $9.9 million in restricted net assets was mainly due to increases in nonexpendable and expendable restricted assets. Restricted nonexpendable net assets, which primarily include the Foundation's permanent endowment funds, increased by $2.6 million, or 10%. Restricted expendable net assets increased by $7.3 million, or 21 %. Items included in the restricted expendable net assets are program funds designated to support scholarships and fellowships, research, and other program activities. Restricted nonexpendable net assets include the Foundation's permanent endowment funds. 8

11 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Net Assets (Continued) Net Assets $100,000,000 $90,000,000 -,- $80,000,000 $70,000,000 r $60,000,000, $50,000,000 $40,000,000 $30,000,000 $20,000, I-- I--- I-- -- I- I--- $10,000, I--- $ ,

12 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Revenues, Expenses, and Changes in Net Assets The statement of revenues, expenses, and changes in net assets presents the Foundation's results of operations. A summary of the Foundation's revenues, expenses, and changes in net assets is as follows: For the Year Ended June 30~ (As Restated) Operating revenues: Grants and contracts $ 37,900,000 $ 33,300,000 Other 17,700,000 16,100,000 Total operating revenues 55,600,000 49,400,000 Operating expenses ( 61,900,000) ( 55,100,000) Operating loss ( 6,300,000) ( 5,700,000) Nonoperating revenues (expenses): Gifts 8,500,000 6,800,000 Investment income (loss), net ( 1,500,000) 7,600,000 Endowment income 400, ,000 Other nonoperating expenses ( 400,000) ( 1,000,000) Endowment gifts 3,700,000 2,500,000 Total nonoperating revenues, net 10,700,000 16,300,000 Increase in net assets 4,400,000 10,600,000 Net assets at beginning of year 89,900,000 79,300,000 Net assets at end of year $ 94,300,000 $ 89,900,000 During fiscal year 2008, total nonoperating revenues decreased $5.6 million, or 34 %. This change is attributed to a negative return on investments, causing the investment income to drop $9.1 million from This drop was partially offset by a gain in gifts and endowment gifts of $1.7 million, or 25%, and $1.2 million, or 48%, respectively. Nonoperating expenses decreased by $600,000, or 60 %, during During fiscal year 2007, total nonoperating revenues increased $4.5 million, or 39 %. This change is attributed to the increase in gifts and investment revenues of $4.7 million, or 38 %, and an increase of $200,000, or 25 %, in other nonoperating expenses. 10

13 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Revenues, Expenses, and Changes in Net Assets (Continued) The operating loss is affected by the following three factors. First, although gift revenues are treated as nonoperating revenues, corresponding gift expenditures (i. e., student grants and scholarships) are treated as operating expenditures. Second, restricted net assets report the activities of the grants, contracts, and Foundation programs where the use of funds is restricted for specific purposes. Since Foundation program activities are allowed to use balances from prior years, expenditures in the current year may be more or less than revenues recorded during the same year. Finally, unrestricted net assets of the Foundation, which include operations of the general fund (central office) and the auxiliary fund (Technology Park, Residential Learning College, and Foundation building and parking lot), produced a net surplus during the year. During 2008, grants and contracts revenues consist of federal grants and contracts of $26.4 million, state and local grants and contracts of $8.0 million, and non-governmental grants and contracts of $2.7 million. During 2007, grants and contracts revenues consist of federal grants and contracts of $23.6 million, state and local grants and contracts of $6.7 million, and non-governmental grants and contracts of $3 million. Investment income, net of fees, consists of a decrease in the fair market value of investments, including interest, dividends, and realized and unrealized losses of $1.1 million in 2008 and an increase of $8.0 million in In 2008, operating expenses consist of salaries and fringe benefits of $25.5 million, other expenses including professional and contracted services, participation support, tuition and fees of $27.4 million, materials and supplies of $6.9 million, and travel of $2.7 million. In 2007, operating expenses consist of salaries and fringe benefits of $21. 3 million, other expenses including professional and contracted services, participation support, tuition and fees of $23.4 million, materials and supplies of $7.9 million, and travel of $2.5 million. 11

14 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Revenues, Expenses, and Changes in Net Assets (Continued) In addition to their natural classifications, it is also informative to review operating expenses by function. A summary of the Foundation's expenses by functional classification is as follows: For the Year Ended June 30, Operating Instruction $ 14,500,000 $ 12,000,000 Research 13,900,000 11,900,000 Public service 7,000,000 5,500,000 Academic support 5,000,000 4,000,000 Student services 7,700,000 7,700,000 Institutional support 9,000,000 9,300,000 Student grants and scholarships 2,700,000 2,300,000 Auxiliary enterprise expenses 1,700,000 2,000,000 Depreciation and amortization 400, ,000 Total Operating Expenses $ 61,900,000 $ 55,100,000 12

15 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Revenues, Expenses, and Changes in Net Assets (Continued) Expense Distribution 2008 Other 23% Instruction Student Sel".1ces & Scholarships 17% Institutional Support 15% rch 22% 13

16 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Revenues, Expenses, and Changes in Net Assets (Continued) Expense Distribution 2007 Other 22% Instruction 21% Student Services & Scholarships 18% Institutional Support 17% earch 22% 14

17 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Revenues, Expense, and Changes in Net Assets (Continued) During fiscal year 2008, total operating expenses increased $6.8 million, or 12.3 %. This change is primarily attributed to the increase in instruction, research, public service and academic support and the decrease in institutional support. During fiscal year 2007, total operating expenses increased $7.2 million, or 15%. This change is primarily attributed to the increase in research and institutional support and the decrease in instruction. Statement of Cash Flows The statement of cash flows provides additional information on the Foundation's financial results by reporting the major sources and uses of cash. A summary of the statement of cash flows is as follows: For the Year Ended June 30, (As Restated) Cash received from operations $ 51,100,000 $ 51,800,000 Cash expended from operations ( 59,800,000) ( 53,700,000) Net cash used in operating activities ( 8,700,000) ( 1,900,000) Net cash provided by noncapital financing activities (gifts and grants) 8,500,000 6,700,000 Net cash used in capital and related financing activities ( 600,000) ( 700,000) Net cash provided by investing activities 4,900,000 ( 3,900,000) Net change in cash and cash equivalents 4,100, ,000 Cash and cash equivalents at beginning of year 1,800,000 1,600,000 Cash and cash equivalents at end of year $ 5,900,000 $ 1,800,000 During fiscal year 2008, the cash position at end of year as compared to the previous year improved $4,100,000, or 226%. This improvement is due primarily to a shift in shortterm investments from bonds to money market funds. During fiscal year 2007, the cash position at end of year as compared to the previous year improved $200,000, or 13 %. This improvement is due primarily to the increase in net cash provided by noncapital financing activities (gifts and grants). 15

18 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) Economic Factors That Will Affect the Future On-campus housing supply at CSULB has not met demand. The Foundation purchased nearby real estate in September 2007 to provide housing for approximately 550 students by Fall The Foundation anticipates that this purchase will have long-term positive fmancial results. While it is not possible to predict the ultimate long-term fmancial results, management believes that the Foundation's fmancial condition is strong enough to weather economic uncertainties. 16

19 STATEMENT OF NET ASSETS ASSETS June 30, (As Restated) CURRENT ASSETS Cash and cash equivalents $ 5,866,838 $ 1,757,152 Short-term investments 27,080,520 30,231,633 Accounts receivable, net 11,510,911 9,132,346 Pledges receivable, net 1,899,453 1,292,993 Prepaid expenses and other assets 325, ,277 46,683,510 42,532,401 NONCURRENT ASSETS Accounts receivable, net 17,394,016 17,394,016 Pledges receivable, net 1,759, ,248 Endowment investments 36,616,440 36,072,453 Other long-term investments 3,121,449 3,304,404 Capital assets, net 33,792,652 22,937,804 92,684,153 80,585,925 TOTAL ASSETS 139,367, ,118,326 LIABILITIES CURRENT LIABILITIES Accounts payable 3,789,235 2,741,290 Accrued salaries and benefits payable 1,543,973 1,908,949 Accrued compensated absences, current portion 924, ,338 Deferred revenue 5,711,361 5,923,446 Long-term debt, current portion 152, ,000 Other liabilities 7,824 7,824 12,129,714 11,796,847 NONCURRENT LIABILITIES Accrued compensated absences 52,932 Deferred revenue 562, ,873 Long-term debt, net of current portion 19,954,940 9,165,000 Other liabilities 12,405,460 11,471,711 32,975,636 21,426,584 TOTAL LIABILITIES 45,105,350 33,223,431 The accompanying notes are an integral part of these financial statements. 17

20 STATEMENT OF NET ASSETS (Continued) NET ASSETS June 30, (As Restated) NET ASSETS Invested in capital assets, net of related debt 13,787,652 13,477,804 Restricted for: Nonexpendable - endowments 35,934,174 31,827,437 Expendable: Scholarships and fellowships 4,207,661 3,969,377 Research 3,891,907 3,995,680 Other 34,256,920 34,245,567 Unrestricted 2,183,999 2,379,030 TOTAL NET ASSETS $ 94,262,313 $ 89,894,895 The accompanying notes are an integral part of these financial statements. 18

21 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Year Ended June 30, (As Restated) REVENUES Operating Revenues: Grants and contracts, noncapital: Federal $ 26,431,030 $ 23,598,991 State 5,575,645 4,962,985 Local 2,411,660 1,798,706 Nongovernmental 3,517,168 2,973,917 Sales and services of auxiliary enterprises 2,709,538 2,261,016 Other operating revenues 14,981,514 13,848,095 55,626,555 49,443,710 EXPENSES Operating Expenses: Instruction 14,538,344 11,979,918 Research 13,845,632 11,930,731 Public service 7,003,650 5,547,183 Academic support 5,021,712 3,955,948 Student services 7,697,938 7,749,514 Institutional support 8,999,569 9,277,430 Student grants and scholarships 2,648,432 2,332,924 Auxiliary enterprise expenses 1,702,594 1,959,756 Depreciation and amortization 445, ,190 61,903,734 55,131,594 OPERA TING LOSS ( 6,277,179) ( 5,687,884) NON OPERA TING REVENUES (EXPENSES) Gifts, noncapital 8,494,759 6,813,502 Investment income (loss), net ( 1,501,287) 7,666,708 Endowment income, net 411, ,087 Other nonoperating expense ( 455,612) ( 1,000,933) 6,949,011 13,832,364 The accompanying notes are an integral part of these financial statements. 19

22 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS (Continued) For the Year Ended June 30, (As Restated) INCOME BEFORE ADDITIONS 671,832 8,144,480 ADDITIONS TO PERMANENT ENDOWMENTS 3,695,586 2,461,747 INCREASE IN NET ASSETS 4,367,418 10,606,227 NET ASSETS AT BEGINNING OF YEAR, (AS PREVIOUSLY REPORTED) 89,894,895 76,809,119 PRIOR PERIOD RESTATEMENT 2,479,549 NET ASSETS AT BEGINNING OF YEAR (AS RESTATED) 89,894,895 79,288,668 NET ASSETS AT END OF YEAR (AS RESTATED) $ 94, $ 89,894,895 The accompanying notes are an integral part of these financial statements. 20

23 STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES Federal grants and contracts State grants and contracts Local grants and contracts Nongovernmental grants and contracts Payments to suppliers Payments to employees Payments to students Sales and services of auxiliary enterprises Other receipts Net Cash Used In Operating Activities CASH FLOWS FROM NONCAPIT AL FINANCING ACTIVITIES Gifts and grants received for other than capital purposes Other noncapital fmancing activities Net Cash Provided By Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets Proceeds from issuance of bonds Payments to retire bonds Net Cash Used In Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments Investment income (loss), net Endowment income, net Additions to permanent endowments Purchase of investments Net Cash Provided By (Used In) Investing Activities For the Year Ended June (As Restated) $ 24,315,632 $ 26,169,423 5,575,645 4,962,985 2,411,660 1,798,706 3,517,168 2,973,917 ( 32,402,473) ( 30,934,833) ( 25,201,443) ( 20,889,195) ( 2,194,221) ( 1,885,754) 2,480,314 1,690,968 12,825,735 14,225,085 ( 8,671,983) ( 1,888,698) 8,494,759 6,813,502 45,508) ( 113,615) 8,449,251 6,699,887 ( 11,518,142) ( 422,569) 20,532,806 ( 9,643,300) ( 280,000) ( 628,636) ( 702,569) 31,167,397 23,520,361 ( 1,501,287) 7,666,709 26, ,319 3,695,586 2,461,747 ( 28,426,777) ( 37,777,325) 4,961,054 ( 3,978,189) NET CHANGE IN CASH AND CASH EQUIVALENTS 4,109, ,431 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,757,152 1,626,721 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,866,838 $ 1,757,152 The accompanying notes are an integral part of these financial statements. 21

24 STATEMENT OF CASH FLOWS (Continued) For the Year Ended June 30, (As Restated) RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Operating loss ($ 6,277,179) ($ 5,687,884) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization 445, ,190 Change in assets and liabilities Accounts receivable, net ( 2,378,565) 1,272,626 Pledges receivable, net ( 1,488,808) ( 19,920) Prepaid expenses and other assets ( 207,511) ( 30,457) Accounts payable 1,047, ,901 Accrued salaries and benefits payable ( 364,976) 378,726 Accrued compensated absences 57,153 52,027 Deferred revenue ( 439,654) 1,124,668 Other liabilities 933,749 ( 346,575) Net Cash Used In Operating Activities ($ 8,671,983) ($ 1,888,698) The accompanying notes are an integral part of these financial statements. 22

25 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - Statement of Significant Accounting Policies Organization The California State University, Long Beach Foundation (Foundation) is a nonprofit, taxexempt corporation, incorporated in the State of California on October 3, The Foundation is organized to administer grants from governmental and private agencies for research and other activities related to the programs of California State University, Long Beach (the University), and to accept donations, gifts, and bequests for any Universityrelated use. The Foundation is a direct support organization and component of the University. Basis of Presentation The fmancial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying financial statements have been prepared on the accrual basis. The Foundation reports as a Business Type Activity and, accordingly, has reported its activities within a single column in the basic financial statements, as defined by GASB Statement No. 35, Basic Financial Statements - and Management's Discussion and Analysis - for Public Colleges and Universities. Business Type Activities are those that are financed in whole or in part by fees charged to external parties for goods and services. The Foundation's policy for defining operating activities as reported on the statement of revenues, expenses, and changes in net assets are those that generally result from exchange transactions such as payments received for providing services and payments made for services or goods received. Nearly all of the Foundation's expenses are from exchange transactions. Certain significant revenue streams relied upon for operations are recorded as nonoperating revenues as defmed by GASB Statement No. 35, including gifts and investment income. 23

26 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - Statement of Significant Accounting Policies (Continued) Basis of Presentation (Continued) The Foundation has adopted GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and GASB Statement No. 35, as amended by GASB Statements No. 37, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments: Omnibus and GASB Statement No. 38, Certain Financial Statement Note Disclosures. GASB Statement No. 33 requires that unconditional promises to give be recorded as receivables and revenues when the Foundation has met all applicable eligibility requirements. This statement also requires that unspent cash advances received for sponsored programs be recorded as deferred revenue rather than as restricted expendable net assets. GASB Statement No. 35 established standards for external fmancial reporting for public colleges and universities and requires that resources be classified for accounting and reporting purposes into the following four net asset categories: Classification of Current and Noncurrent Assets and Liabilities The Foundation considers assets to be current that can reasonably be expected, as part of its normal business operations, to be converted to cash and be available for liquidation of current liabilities within 12 months of the statement of net assets date. Liabilities that reasonably can be expected, as part of normal Foundation business operations, to be liquidated within 12 months of the statement of net assets date are considered to be current. All other assets and liabilities are considered to be noncurrent. Invested in capital assets, net of related debt Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted Nonexpendable - Net assets subject to externally imposed stipulations that they be maintained permanently by the Foundation. Such assets include the Foundation's permanent endowment funds. Expendable - Net assets whose use by the Foundation is subject to externally imposed stipulations that can be fulfilled by actions of the Foundation pursuant to those stipulations or that expire by the passage of time. 24

27 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - Statement of Significant Accounting Policies (Continued) Unrestricted Unrestricted net assets are those that are not subject to externally imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of management or the Board of Directors or may otherwise be limited by contractual agreements with outside parties. Substantially all unrestricted net assets are designated for any University-related use, which includes academic and research programs and initiatives, and capital programs. Reporting Entity The Foundation is an affiliated organization component unit of the University. As such, the Foundation's [mancial data will be included in the financial statements of the University. Use of Estimates and Assumptions Management uses estimates and assumptions in preparing [mancial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. Cash and Cash Equivalents The Foundation considers all highly liquid, short-term investments purchased with an original maturity of three months or less to be cash equivalents. The Foundation maintains cash with financial institutions in excess of federally insured limits. Investments The Foundation has adopted GASB Statement No. 31, A ccounting and Financial Reporting for Certain Investments andfor External Investment Pools. Under GASB Statement No. 31, investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their fair values using quoted market prices in the statement of net assets. Realized and unrealized gains and losses are included in the accompanying statement of revenues, expenses, and changes in net assets. 25 -'.".. ':...,.. -,...

28 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - Statement of Significant Accounting Policies (Continued) Accounts Receivable Accounts receivable primarily consists of amounts due from the federal government, state and local governments, and private sources in connection with reimbursement of allowable expenditures made pursuant to contracts and grants. Accounts receivable also includes charges for auxiliary enterprises' sales and services. Pledges Receivable The Foundation receives pledges and bequests of fmancial support from corporations, foundations, and individuals. Revenue is recognized when a pledge representing an unconditional promise to pay is received and all eligibility requirements, including time requirements, have been met. In the absence of such promise, revenue is recognized when the gift is received. Endowment pledges do not meet eligibility requirements, as defmed by GASB Statement No. 33, and are not recorded as assets until the related gift is received. An allowance for uncollectible pledges receivable is provided based on management's judgment of potential uncollectible amounts (approximately $595,000 and $195,000 at June 30, 2008 and 2007, respectively). The determination includes such factors as prior collection history, type of gift, and nature of fund-raising. Capital Assets Capital assets of the Foundation are stated at cost or, if acquired by gift, at estimated fair value at the date of donation. Major renewals and betterments are charged to capital assets, while replacements, maintenance and repairs that do not improve or extend the life of the respective assets are currently expensed. Depreciation and amortization is charged on a straight-line basis over the lives of the assets, which range from five to forty years. Collection Items and Works of Art The Foundation's collection items are made up of artifacts of historical significance and art objects that are held for educational research and curatorial purposes. Each of the items is cataloged, preserved and cared for, and activities verifying their existence and assessing their condition are performed continuously. Monies recovered from any collections that are sold must be used to acquire other items for collections. 26

29 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - Statement of Significant Accounting Policies (Continued) Collection Items and Works of Art (Continued) Collection items acquired on or after July 1, 1996 are capitalized at cost, if the items were purchased, or at their appraised or fair market value on the accession date, if the items were contributed. The fair market value of donated collection items was approximately $42,000 and $2,000 for the years ended June 30, 2008 and 2007, respectively. Deferred Revenue Deferred revenue consists primarily of amounts received from grant and contract sponsors which have not yet been earned under the terms of the agreement, and lease payments received in advance from lessees on long-term leases. Compensated Absences Foundation employees accrue annual leave at rates based on length of service and job classification. Classification of Revenues and Expenses The Foundation considers operating revenues and expenses in the statement of revenues, expenses, and changes in net assets to be those revenues and expenses that result from exchange transactions or from other activities that are connected directly to the Foundation's primary functions. Exchange transactions include charges for services rendered and the acquisition of goods and services. Certain other transactions are reported as nonoperating revenues and expenses in accordance with GASB Statement No. 35. These nonoperating activities include net investment income, gifts (noncapital), endowments and interest expense. Income Taxes The Foundation is tax-exempt under Internal Revenue Code Section 501(c)(3) for federal income taxes, as well as the related provisions for state income tax purposes. 27

30 NOTES TO THE FINANCIAL STATEMENTS NOTE 2 - Accounts Receivable The composition of accounts receivable is summarized as follows: June 30, (As Restated) Grants and contracts $10,911,390 $ 8,906,249 Other 18,167,580 17,788,156 29,078,970 26,694,405 Less allowance for uncollectible accounts ( 174,043) ( 168,043) 28,904,927 26,526,362 Less current portion ( 11,510,911) ( 9,132,346) Noncurrent portion $17,394,016 $17,394,016 NOTE 3 - Pledges Receivable Pledges receivable are recorded in the balance sheet at estimated net realizable value in accordance with GASB Statement No. 33. Pledges receivable were discounted using a risk-free interest rate ranging from 1.89% to 4.95% as of June 30, Pledges receivable as of June 30, 2008 are summarized as follows: Due in the Year Ending June 30, 2009 $ 3,304, , , , ,000 4,340,496 Less allowance for uncollectible pledges ( 594,648) Less present value discounts ( 86,799) 3,659,049 Less current portion of pledges receivable ( 1,899,453) Long-term portion of pledges receivable $ 1,759,596 28

31 NOTES TO THE FINANCIAL STATEMENTS NOTE 4 - Investments At June 30, 2008, the Foundation's investment portfolio consists primarily of investments held in the investment pool, as well as interest-bearing accounts. Separate accounting is maintained as to the amounts allocable to the various funds and programs. Investment Policy The primary objective of the Foundation's investment policy is to safeguard the principal. The secondary objective is to meet the liquidity needs of the Foundation. The third objective is to return an acceptable yield. In general, the Foundation's investment policy permits investments in obligations of the federal and state governments, equities, corporate bonds, and certain other investment instruments. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The following is a summary of investments: June 30, Investments at fair value as determined by quoted market price or estimated fair value: Common stock $ 73,094 $ 74,200 Mutual funds 52,322,686 54,895,272 Bonds 1,355,470 5,497,778 LAIF 11,967,950 9,116,240 Other 1,099,209 25,000 $66, $ 69,

32 NOTES TO THE FINANCIAL STATEMENTS JUNE 30,2008 AND 2007 NOTE 4 - Investments (Continued) Credit Risk (Continued) June 30, Investments by classification: Current portion $27,080,520 $ 30,231,633 Endowment investments 36,616,440 36,072,453 Noncurrent portion 3,121,449 3,304,404 $ 66, $ 69, Investments are valued at quoted market price if available, otherwise they are recorded at estimated fair value. Other investments consists of annuity contracts with underlying assets that are valued at fair value based on market prices. Investment income (loss) is summarized as follows: For the Year Ended June 30, Interest and dividend income $ 2,819,308 $ 4,394,246 Net unrealized gains (losses) ( 7,254,325) 3,194,417 Net realized gains 2,933,730 78,045 ($ 1,501,287) $ 7,666,708 Investment fees totaled $660,173 and $629,749 for the years ended June 30,2008 and 2007, respectively, and are included in other nonoperating expense of the accompanying statement of revenues, expenses, and changes in net assets. 30

33 NOTES TO THE FINANCIAL STATEMENTS NOTE 5 - Capital Assets Capital assets activity for the year ended June 30, 2008 is summarized below: Beginning Ending Balance Additions Deletions Balance Land $ 10,334,253 $ 6,721,453 $17,055,706 Building and improvements 12,061,984 4,758,442 ($ 504,302) 16,316,124 Furniture and fixtures 2,807,277 38,247 2,845,524 Collections items 3,876,062 41,700 3,917,762 29,079,576 11,559,842 ( 504,302) 40,135,116 Less accumulated depreciation and amortization ( 6,141,772) ( 418,752) 218,060 ( 6,342,464) $ 22,937,804 $ 11, 141,090 ($ 286,242) $ 33,792,652 Capital assets activity for the year ended June 30, 2007 is summarized below: Beginning Ending Balance Additions Deletions Balance Land $10,334,253 $10,334,253 Building and improvements 11,810,499 $ 251,485 12,061,984 Furniture and fixtures 2,744,593 62,684 2,807,277 Collections items 3,767, ,400 3,876,062 28,657, ,569 29,079,576 Less accumulated depreciation and amortization ( 5,743,582) ( 398,190) ( 6,141,772) $22,913,425 $ 24,379 None $22,937,804 31

34 NOTES TO THE FINANCIAL STATEMENTS NOTE 6 - Long-Term Debt Long-term debt consists of: June 30, Bonds payable with interest at rates ranging from 4.05% to 6.75%, due semi-annually, principal payments due annually, final installment due January 2023, refunded during the year ended June 30, 2008 $ 9,460,000 Bonds payable with interest at rates ranging from 3.50% to 5.00%, due semi-annually, principal payments due annually, final settlement due May 2033 $ 8,485,000 Bonds payable with interest at rates ranging from 3.50% to 5.00%, due semi-annually, principal payments due annually, final settlement due May ,520,000 20,005,000 9,460,000 Unamortized Bond Premium 527,806 Unamortized loss on refundings ( 425,104) Less current portion ( 152,762) ( 295,000) Noncurrent portion $ 19,954,940 $ 9,165,000 Long-tenn debt activity for the year ended June 30, 2008 is summarized as follows : Beginning Principal Ending Balance Borrowings Repayment Balance Bonds payable $ 9.460,000 $ 20,005,000 ($ 9.460,000) $20,005,000 32

35 NOTES TO THE FINANCIAL STATEMENTS NOTE 6 - Long-Term Debt (Continued) Long-term debt activity for the year ended June 30, 2007 is summarized as follows: Beginning Principal Ending Balance Repayment Balance Bonds payable $ 9,740,000 ($ 280,000) $ 9.460,000 Future maturities of long-term debt are as follows: Year Ending June 30, 2009 $ 165, , , , , ,010, ,790, ,845, ,215,000 $ 20,005,000 In May 2008, the Foundation issued $8,485,000 in Systemwide Revenue Bonds with interest rates ranging from 3.50% to 5.00% to advance refund $9,460,000 of outstanding Revenue Bonds with interest rates ranging from 4.05 % to 6.75 %. Refunding of the bond caused a prepayment penalty, which the Foundation has included in unamortized loss on refunding and is amortizing over the remaining life of the refunded bond. In addition, unamortized bond issuance costs of the refunded bond have also been included in unamortized loss on refunding. The advance refunding resulted in an overall accounting loss of approximately $430,000 and the Foundation in effect increased its aggregate debt service payment by approximately $2,129,000 over the next 30 years, but was able to obtain an economic gain (difference between the present values of the old and new debt service payments) of approximately $50,

36 NOTES TO THE FINANCIAL STATEMENTS NOTE 6 - Long-Term Debt (Continued) The bonds contain certain covenants with respect to a minimum debt service coverage ratio and minimum unrestricted net assets for which the Foundation is in compliance at June 30, Included in invested in capital assets, net of related debt, are unrestricted net assets of approximately $12,700,000 and $12,150,000 for the years ended 2008 and 2007, respectively. NOTE 7 - Pension Plan and Postemployment Health Care Plan Pension Plan The Foundation has a defmed contribution retirement plan (the Plan) which covers all regular full-time employees and part-time employees who have provided services of at least 1,000 hours during the year. There is a two-year waiting period to enter the Plan. The basic plan contribution rate is equal to 10% of gross earnings. Pension expense was approximately $643,000 and $604,000 for the years ended June 30, 2008 and 2007, respectively. Postemployment Health Care Plan Plan Description. CSULB Foundation's defined benefit postemployment healthcare plan, California Public Employees Retirement System (CaIPERS), provides medical benefits to eligible retired Foundation employees and their beneficiaries. Funding Policy. The contribution requirements of plan members and the Foundation are established and may be amended by the Foundation board of directors. CSULB Foundation is required to contribute the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The current ARC rate is percent of annual covered payroll. 34

37 NOTES TO THE FINANCIAL STATEMENTS NOTE 7 - Pension Plan and Postemployment Health Care Plan (Continued) AnnualOPEB Cost. For 2008, the Foundation's annual OPEB (expense) of $1,670,817 for CalPERS was equal to the ARC. The Foundation's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2008 and the two preceding years were as follows: Fiscal Percentage of Net Year Annual AnnualOPEB OPEB Ended OPEB Cost Cost Contributed Obligation 6/30/06 $0 0% $0 6/30/07 $0 0% $0 6/30/08 $1,670, % $1,515,727 Funded Status and Funding Progress. The funded status of the plan as of June 30, 2008, was follows: Actuarial accrued liability (AAL) $ 11,264,777 Actuarial value of plan assets 0 Unfunded actuarial accrued liability (UAAL) $ 11,264,777 Funded ratio (actuarial value of plan assets/ AAL) 0% Covered payroll (active plan members) $ 8,001,330 UAAL as a percentage of covered payroll % Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 35