Financial Statements (With Independent Auditors Report Thereon)
Table of Contents Page Independent Auditors Report 1 Management s Discussion and Analysis 3 Financial Statements: Statement of Net Assets 12 Statement of Revenues, Expenses, and Changes in Net Assets 13 Statement of Cash Flows 14 16
Independent Auditors Report Dr. Mohammad H. Qayoumi President California State University, East Bay: We have audited the accompanying financial statements of California State University, East Bay (the University), an agency of the State of California, and its aggregate discretely presented component units as of and for the year ended, which collectively comprise the University s financial statements as listed in the table of contents. These financial statements are the responsibility of the University s management. Our responsibility is to express opinions on these financial statements based upon our audit. We did not audit the financial statements of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinions, insofar as they relate to the amounts included for the aggregate discretely presented component units, are based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinions. As discussed in note 2, the financial statements of the University, an agency of the State of California, are intended to present the financial position, the changes in financial position, and cash flows of only that portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the State of California that is attributable to the transactions of the University. They do not purport to, and do not, present fairly the financial position of the State of the California or the California State University System as of, the changes in their financial position, or, where applicable, their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the University and of its aggregate discretely presented component units as of, and the respective changes in financial position and, where applicable, cash flows thereof, for the year then ended in conformity with U.S. generally accepted accounting principles.
Management s discussion and analysis on pages 3 through 11 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. March 8, 2010 2
Management s Discussion and Analysis This section of California State University, East Bay s (the University) annual financial report presents our discussion and analysis of the financial performance of the University for the fiscal year ended. This discussion has been prepared by management and should be read in conjunction with the financial statements and notes. Introduction to the Financial Statements This annual report consists of a series of financial statements prepared in accordance with the Governmental Accounting Standards Board (GASB) Statements No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. For reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. The financial statements include the statement of net assets; the statement of revenues, expenses, and changes in net assets; and the statement of cash flows. These statements are supported by the notes to the financial statements and this section. All sections must be considered together to obtain a complete understanding of the financial picture of the University. Statement of Net Assets The statement of net assets includes all assets and liabilities. Assets and liabilities are generally reported at their book value, on an accrual basis, as of the statement date, except investments, which are reported at their fair value. It also identifies major categories of restrictions on the net assets of the University. Statement of Revenues, Expenses, and Changes in Net Assets The statement of revenues, expenses, and changes in net assets presents the revenues earned and expenses incurred during the year on an accrual basis. Statement of Cash Flows The statement of cash flows presents the inflows and outflows of cash for the year and is summarized by operating, noncapital financing, capital and related financing, and investing activities. The statement is prepared using the direct method of cash flows and, therefore, presents gross rather than net amounts for the year s activities. The statement of cash flows for the discretely presented component units is not included in the University s financial statements. Analytical Overview Summary The following discussion highlights management s understanding of the key financial aspects of the University s financial activities. Included is an analysis of current year activities and balances; a discussion of restrictions of University net assets; a discussion of capital assets and long-term debt; and factors impacting future reporting periods. 3 (Continued)
Management s Discussion and Analysis The University s condensed summary of net assets as of and 2008 are as follows: Condensed Summary of Net Assets June 30 2009 2008 Assets: Current assets $ 32,982,669 38,077,896 Capital assets 223,531,095 191,714,269 Other noncurrent assets 37,708,875 75,370,205 Total assets 294,222,639 305,162,370 Liabilities: Current liabilities 54,944,074 38,152,317 Long-term debt obligations, net of current portion 99,637,919 93,993,613 Other noncurrent liabilities 10,740,700 20,222,306 Total liabilities 165,322,693 152,368,236 Net assets: Invested in capital assets, net of related debt 127,049,271 102,376,914 Restricted, nonexpendable 453,504 426,826 Restricted, expendable 13,026,352 37,761,784 Unrestricted (11,629,181) 12,228,610 Total net assets $ 128,899,946 152,794,134 Assets Total assets decreased $10.9 million from prior year due to a $5.1 million decrease in current assets, a $31.8 million increase in capital assets, and a $37.7 million decrease in other noncurrent assets. Total current assets decreased $5.1 million primarily due to a decrease in short-term investments of $4.5 million, a decrease in accounts receivable, current, of $0.7 million, an increase in cash and cash equivalents of $0.2 million and a decrease in prepaid expense of $0.1 M. The $4.5 million decrease in short-term investments was primarily used to partially offset a $24.2 million reduction in non capital state appropriations. Capital assets, net, increased $31.8 million primarily due to $41.4 million of current year additions partially offset by $9.2 million in current year depreciation expense. The $41.4 million in current year additions is primarily related to the Student Services/Admin Replacement Building ($19.8 million), the expansion of Student Housing Housing Phase III ($13.8 million), Student Recreation and Wellness Center ($2.2 million), Minor Capital Improvement Projects ($1.8 million), Energy and Electrical Infrastructure Improvement Projects ($1.6 million) and numerous smaller projects totaling ($0.8 million). Other noncurrent assets decreased $37.7 million primarily due to a $20.0 million decrease in other long-term investments, as bond proceeds were used to pay for construction of the Student Services/Admin Replacement Building, and an $18.0 million decrease in noncurrent accounts receivable state appropriations also associated with the Student Services Building. 4 (Continued)
Management s Discussion and Analysis Liabilities Total liabilities increased by $13.0 million due to a $16.8 million increase in current liabilities and a $3.9 million decrease to noncurrent liabilities. The $16.8 million increase in current liabilities was primarily composed of a $14.5 million increase in accounts payable associated with the $23.0 million refund of state noncapital appropriations to the State based on the state budget. The remaining balance included a $1.1 million increase in deferred revenue and a $1.4 million increase in long term debt obligations. The $3.9 million decrease in noncurrent liabilities is due to a $10.9 million decrease in capitalized lease obligations offset by a $5.6 million increase in long term debt related to the reclassification of $8.6 million associated with the Energy Management Project, reduced by the retirement of a $2.6 million equipment commercial paper loan. Net Assets Total net assets decreased $23.9 million from the prior year. A significant portion, $127.0 million, of net assets at the end of the year is invested in capital assets, net of related debt. Net assets invested in capital assets, net of related debt increased $24.7 million from prior year primarily due to construction work in progress related to Student Services/Admin Replacement Building and Student Housing Housing Phase III. $13.0 million of net assets at the end of the year is restricted for scholarships and fellowships, loans, capital projects and debt service. There was a $11.6 million deficit of unrestricted net assets at the end of the year. Unrestricted net assets represent all other net resources available to the University for general and educational obligations. Restricted Resources Net assets of the University include funds that are restricted by donor or law. The following table summarizes which funds are restricted, the type of restriction, and the amount: Restricted Net Assets June 30 2009 2008 Expendable: Scholarships and fellowships $ 1,067,437 1,675,058 Loans 497,774 485,249 Capital projects 6,577,160 29,322,079 Debt service 4,883,981 6,279,398 Total restricted net assets expendable $ 13,026,352 37,761,784 Total restricted net assets expendable decreased by $24.7 million. This was primary due to a $22.7 million decrease in restricted expendable capital project assets related to the completion of construction and the addition of the assets in the current year. Debt service decreased by $1.4 million and scholarships and fellowships decreased by $0.6 million. 5 (Continued)
Management s Discussion and Analysis The University s condensed summary of revenues, expenses, and changes in net assets for the years ended and 2008 is as follows: Condensed Summary of Revenues, Expenses, and Changes in Net Assets Year ended June 30 2009 2008 Operating revenues: Student tuition and fees, net $ 61,134,532 54,742,887 Grants and contracts, noncapital 42,052 103,919 Sales and services of educational activities 3,027,000 1,850,794 Sales and services of auxiliary enterprises, net Other operating revenues 8,985,414 5,397,557 8,201,978 2,997,758 Total operating revenues 78,586,555 67,897,336 Operating expenses (197,104,759) (187,693,508) Operating loss (118,518,204) (119,796,172) Nonoperating revenues (expenses): State appropriations, noncapital 67,194,035 91,350,150 Federal financial aid grants, noncapital 13,961,930 10,579,378 State financial aid grants, noncapital Gifts, noncapital 5,111,603 1,692,355 3,096,106 2,788,159 ARRA grants 8,615,200 Investment (loss) income, net (37,765) 1,372,515 Other nonoperating (expenses) revenues, net (4,184,114) 1,404,225 Total nonoperating revenues (expenses) 92,353,244 110,590,533 Loss before other additions (26,164,960) (9,205,639) State appropriations, capital Grants and gifts, capital 1,962,972 307,800 42,196,714 351,000 (Decrease) increase in net assets (23,894,188) 33,342,075 Beginning net assets 152,794,134 119,452,059 Ending net assets $ 128,899,946 152,794,134 A reclassification has been made to the 2008 condensed financial information to conform to the 2009 financial information presented. The change was primarily related to the classification of cost recovery for faculty release time between the University and its auxiliaries and resulted in a decrease in operating expenses and an increase in other operating revenues. There was no impact on the previously reported changes in net assets or total net assets of the University. 6 (Continued)
Management s Discussion and Analysis Operating Revenues and Expenses Operating revenues and expenses come from sources that are connected directly to the University s primary business function. This includes revenues from categories such as tuition and fees, certain grants and contracts that will be used for noncapital purposes, and sales and services of auxiliary enterprises. Expenses include categories such as salaries, benefits, supplies and other services, scholarships and fellowships, and depreciation and amortization. In this discussion and analysis, expenses are reported by functional program such as instruction, research, public service, academic support, student services, institutional support, operation and maintenance of plant, student grants and scholarships, auxiliary enterprise expenses, and depreciation and amortization. Operating Revenues Total operating revenues increased $10.7 million primarily due to a $6.4 million increase in net student tuition and fees, a $2.4 million increase in other revenue and a $1.2 million increase in sales and services of educational activities. The state university fee increased 10% from the prior year. Student tuition and fees, net, increased $6.4 million or 11.7% from prior year primarily due to the statue university fee increase and increased full-time equivalent. Sales and services of educational activities increased $1.2 million from the prior year primarily due to the change of the International House and meal plan revenue program from the sales and services of auxiliary enterprises. International house students moved from offsite leased space to on campus student housing at the beginning of the academic year. Sales and services of auxiliary enterprises, net of allowances, decreased $0.8 million from the prior year primarily due to the International House s move offset by a $1.7 million increase in dormitory housing revenue, as a result of a 36% rate increase and higher occupancy due to additional housing space being completed and occupied. The following charts present the proportional share that each category of operating revenues contributed to the total for fiscal years 2009 and 2008: Operating Revenues Year ended 6.9% (In thousands) Student tuition and fees, net $ 61,134,532 77.8% Grants and contracts, net 42,052 0.1 Sales and services of educational activities 3,027,000 3.8 Sales and services of auxiliary enterprises, net 8,985,414 11.4 Other operating revenues 5,397,557 6.9 3.8% 0.1% 11.4% Total operating revenues $ 78,586,555 100.0% 77.8% Student tuition and fees, net Grants and contracts, noncapital Sales and services of educational activities Sales and services of auxiliary enterprises, net Other operating revenues 7 (Continued)
Management s Discussion and Analysis Operating Revenues Year ended June 30, 2008 (In thousands) Student tuition and fees, net $ 54,742,887 80.6% Grants and contracts, net 103,919 0.2 Sales and services of educational activities 1,850,794 2.7 Sales and services of auxiliary enterprises, net 8,201,978 12.1 Other operating revenues 2,997,758 4.4 12.1% 2.7% 0.2% 4.4% Total operating revenues $ 67,897,336 100.0% 80.6% Student tuition and fees, net Grants and contracts, noncapital Sales and services of educational activities Sales and services of auxiliary enterprises, net Other operating revenues Operating Expenses Total operating expenses increased by $9.4 million, or 5.0%, primarily due to a $3.9 million increase in student services, a $3.8 million increase in student grants and scholarships, and a $2.0 million increase in institutional support. Salaries and benefits costs, within each of these functions, increased by $9.5 million primarily due to a headcount increase of 6.0%, and a 4.3% health and retirement benefit increase for all employees primarily due to increases in health premiums. Supplies and other services expense, within each of these functions, decreased by $5.1 million due to mandated spending reductions and the elimination of most business travel. Student grants and scholarships increased by $3.8 million directly as a result of the 10% increase in tuition. The increase in depreciation and amortization expense of $1.1 million relates to current year capital asset additions primarily associated with the new student housing opened in September 2008. The instruction function increased $1.5 million primarily due to higher salaries and benefits costs as discussed above. The instructional support function increased $2.0 million due to higher salaries and benefit costs. The student services function increased by $3.9 million as a result of the addition of staff. In addition, approximately $2.0 million of this increase is due to the creation of the Intercollegiate Athletics department, a portion of which represents new spending to support the University s move to Division II athletics. An additional $1.1 million is associated with higher headcount to support a growing student population. The remaining $0.8 million is associated with supplies and other services. 8 (Continued)
Management s Discussion and Analysis The following chart presents the distribution of resources in support of the University s mission for fiscal years 2009 and 2008: 80,000,000 70,000,000 60,000,000 50,000,000 2008-09 2007-08 Dollars 40,000,000 30,000,000 20,000,000 10,000,000 - Instruction Research Public Services Academic Support Student Services Institutional Support Operation and Maintenance of Paint Student Grants and Scholarships Auxiliary Enterprise Expenses Depreciation and Amortization Resource Category Nonoperating Revenues (Expenses) Nonoperating revenues (expenses) come from sources that are not part of the University s primary business functions. Included in this classification are categories such as state appropriations, federal American Recovery and Reinvestment Act (ARRA) grant to restore state appropriations, certain financial aid grants, noncapital, grants and gifts, capital, investment income, and interest expense. Total nonoperating revenues decreased by $18.2 million and total capital from state appropriations decreased by $40.2 million. General (noncapital) appropriation revenues totaled $67.2 million, a decrease of $24.2 million from the prior year primarily due to the $23 million refund of state noncapital appropriation to the State based on the latest revised State budget. As the University is part of the California State University System, which is an agency of the State of California, the University s operations are funded primarily from appropriations of state tax revenues. Appropriations used for purposes of acquisition of capital assets totaled $2.0 million for the fiscal year ended, down 9 (Continued)
Management s Discussion and Analysis from $42.2 million for the fiscal year ended June 30, 2008. Capital state appropriations in the prior year included one-time appropriations of $41.4 for the Student Services/Admin Replacement Building. The decrease in capital state appropriations was due to the completion of several construction projects on campus. Other nonoperating expenses, net, increased $5.4 million primarily due to $3.8 million one-time adjustment to SMIF balances and a prior year $1.2 million credit was received related to the decentralization of student unions. Federal and State financial aid grants, noncapital, increased $5.4 million due to a $2.0 million increase in Cal Grants, $3.0 million increase in Pell Grants and a $1.3 million increase in State University Grants offset by an increase in scholarship discounts and allowances. Capital Assets and Long-Term Debt Obligations Capital Assets Capital assets, net of accumulated depreciation, are shown below: June 30 2009 2008 Land and land improvements $ 3,253,785 3,253,785 Works of art and historical treasures 648,578 622,578 Buildings and building improvements 144,178,058 101,909,216 Improvements, other than buildings 3,786,612 4,457,818 Infrastructure 29,589,909 19,745,661 Personal property 3,381,832 3,107,816 Intangible assets 786,284 1,605,917 Construction work in progress 37,906,037 57,011,478 Total capital assets, net of accumulated depreciation $ 223,531,095 191,714,269 Capital assets increased $31.8 million primarily due to $41.0 million of current year additions, which was partially offset by $9.2 million in current year depreciation expense. The $41.0 million in current year additions is primarily due to the Student Services/Admin Replacement Building and Student Housing Housing Phase III projects. The projects were funded through private donations, capital state appropriations, and systemwide revenue bonds. Major capital projects additions during fiscal year 2009 are as follows (in millions): Student Services/Admin Replacement Building $ 19.8 Student Housing, Phase III 13.8 Capital assets commitments at totaled $4.6 million. Due to the State s budget crisis and its difficulty issuing bonds in the current financial market, the State suspended all State-funded capital projects, including General Obligation and Lease Revenue Bond projects, and freezing disbursements on these projects starting in December 2008. The State later on lifted the suspension of the General Obligation bond projects in April 2009. The Lease revenue bond projects were without additional funding from the State as of. 10 (Continued)
Management s Discussion and Analysis See note 6 of the notes to the financial statements for further information on capital assets. Long-Term Debt Obligations Debt outstanding at and 2008 is summarized below by type of debt instrument: June 30 2009 2008 Systemwide Revenue Bonds: Series 2002A $ 470,000 570,000 Series 2005A 40,100,000 40,830,000 Series 2005B 2,205,000 2,440,000 Series 2008A 50,220,000 50,220,000 Energy Management Project-Koch Financial 8,111,522 Total 101,106,522 94,060,000 Unamortized bond premium 1,048,801 1,100,411 Unamortized loss on refunding (87,917) (101,798) Total long-term debt 102,067,406 95,058,613 Less current portion 2,429,487 1,065,000 Long-term debt, net of current portion $ 99,637,919 93,993,613 Bond Ratings Moody s Investors Service currently provides an intrinsic rating of Aa3, with a stable outlook, for the Systemwide Revenue Bonds. Standard & Poor s Rating Service currently provides an intrinsic rating of A+, with a stable outlook, for the Systemwide Revenue Bonds. With the exception of certain maturities of Series 2005C, Series 2007A, and Series 2008A, and Series 2009A, all Systemwide Revenue Bonds are insured. Since the middle of fiscal year 2008, some providers of insurance for Systemwide Revenue Bonds have been downgraded to ratings below Aaa/AAA. Those bonds that are uninsured bear the intrinsic ratings of the Systemwide Revenue Bonds, which are Aa3 from the Moody s Investors Service and A+ from the Standard & Poor s Rating Service. See notes 8 and 9 to the financial statements for further information on long-term debt obligations. Factors Impacting Future Periods The University s state noncapital appropriations budget for fiscal year 2010 approved by the legislative process is $67.9 million. Although this is an increase of $0.7 million over the fiscal year 2009 funding level of $67.2 million, it is still $23.5 below the fiscal year 2008 funding level of $91.4 million before the economic downturn. The University will receive $11.9 million of ARRA fund intended to mitigate the impact of the University s 2009 state noncapital appropriation reduction in fiscal year 2009. However, it will not mitigate the impact of the University s state noncapital appropriation reduction. Reductions in operating expenses and an increase in student fees in fiscal year 2010 will partly offset the funding loss from the State. In addition, all University employees, except public safety personnel, will be on furlough work schedules to reduce up to $9.5 million in operating expenses and narrow the budget gap in fiscal year 2010. 11
Statement of Net Assets Discretely presented component units GASB Auxiliary Assets University Organizations Total Current assets: Cash and cash equivalents $ 187,884 2,048,825 2,236,709 Short-term investments 26,729,366 19,336,190 46,065,556 Accounts receivable, net 4,728,907 3,268,803 7,997,710 Pledges receivable, net 154,765 154,765 Prepaid expenses and other assets 1,336,512 444,266 1,780,778 Total current assets 32,982,669 25,252,849 58,235,518 Noncurrent assets: Restricted cash and cash equivalents 428,226 428,226 Accounts receivable, net 22,877,170 22,877,170 Student loans receivable, net 4,682,129 4,682,129 Pledges receivable, net 47,230 47,230 Endowment investments 453,504 3,700,294 4,153,798 Other long-term investments 9,696,072 9,696,072 Capital assets, net 223,531,095 6,982,492 230,513,587 Total noncurrent assets 261,239,970 11,158,242 272,398,212 Total assets $ 294,222,639 36,411,091 330,633,730 Liabilities and Net Assets Current liabilities: Accounts payable $ 32,506,186 1,314,923 33,821,109 Accrued salaries and benefits payable 9,336,667 423,601 9,760,268 Accrued compensated absences current portion 4,107,946 126,783 4,234,729 Deferred revenue 5,390,025 1,858,264 7,248,289 Capitalized lease obligations current portion 229,967 229,967 Long-term debt obligations current portion 2,429,487 170,000 2,599,487 Other liabilities 943,796 127,801 1,071,597 Total current liabilities 54,944,074 4,021,372 58,965,446 Noncurrent liabilities: Accrued compensated absences, net of current portion 2,099,685 2,099,685 Grants refundable 4,636,225 4,636,225 Capitalized lease obligations, net of current portion 2,413,347 2,413,347 Long-term debt obligations, net of current portion 99,637,919 4,230,000 103,867,919 Depository accounts 1,193,697 6,992,844 8,186,541 Other postemployment benefits obligation 397,746 2,931,815 3,329,561 Total noncurrent liabilities 110,378,619 14,154,659 124,533,278 Total liabilities 165,322,693 18,176,031 183,498,724 Net assets: Invested in capital assets, net of related debt 127,049,271 2,582,492 129,631,763 Restricted for: Nonexpendable endowments 453,504 3,700,294 4,153,798 Expendable: Scholarships and fellowships 1,067,437 2,467,330 3,534,767 Loans 497,774 497,774 Capital projects 6,577,160 25,045 6,602,205 Debt service 4,883,981 4,883,981 Other 1,904,404 1,904,404 Unrestricted (11,629,181) 7,555,495 (4,073,686) Total net assets $ 128,899,946 18,235,060 147,135,006 See accompanying notes to financial statements. 12
Statement of Revenues, Expenses, and Changes in Net Assets Year ended Discretely presented component units GASB Auxiliary University Organizations Eliminations Total Revenues: Operating revenues: Student tuition and fees (net of scholarship allowances of $10,828,766) $ 61,134,532 3,116,971 64,251,503 Grants and contracts, noncapital: Federal 7,435,841 7,435,841 State 30,000 1,668,383 1,698,383 Local 12,052 12,052 Nongovernmental 1,498,447 1,498,447 Sales and services of educational activities 3,027,000 3,027,000 Sales and services of auxiliary enterprises 8,985,414 2,363,820 11,349,234 Other operating revenues 5,397,557 115,974 5,513,531 Total operating revenues 78,586,555 16,199,436 94,785,991 Expenses: Operating expenses: Instruction 75,023,364 75,023,364 Research 35,712 9,699,064 9,734,776 Public service 105,425 105,425 Academic support 22,906,414 22,906,414 Student services 22,042,004 22,042,004 Institutional support 23,170,458 23,170,458 Operation and maintenance of plant 22,501,035 22,501,035 Student grants and scholarships 18,900,153 308,165 19,208,318 Auxiliary enterprise expenses 3,186,157 4,667,170 (901,040) 6,952,287 Depreciation and amortization 9,234,037 323,135 9,557,172 Total operating expenses 197,104,759 14,997,534 (901,040) 211,201,253 Operating (loss) income (118,518,204) 1,201,902 901,040 (116,415,262) Nonoperating revenues (expenses): State appropriations, noncapital 67,194,035 67,194,035 Federal financial aid grants, noncapital 13,961,930 13,961,930 State financial aid grants, noncapital 5,111,603 5,111,603 Federal ARRA grants 8,615,200 8,615,200 Gifts, noncapital 1,666,180 (110,618) (655,040) 900,522 Investment income, net (38,268) (687,191) (725,459) Endowment income 26,678 (579,554) (552,876) Interest expense (2,299,046) (411,268) (2,710,314) Other nonoperating expenses, net (1,885,068) (1,885,068) Net nonoperating revenues (expenses) 92,353,244 (1,788,631) (655,040) 89,909,573 (Loss) Income before other additions (26,164,960) (586,729) 246,000 (26,505,689) State appropriations, capital 1,962,972 1,962,972 Grants and gifts, capital 307,800 (246,000) 61,800 Additions to permanent endowments 206,799 206,799 Decrease in net assets (23,894,188) (379,930) (24,274,118) Net assets: Net assets at beginning of year 152,794,134 18,614,990 171,409,124 Net assets at end of year $ 128,899,946 18,235,060 147,135,006 See accompanying notes to financial statements. 13
Statement of Cash Flows Year ended University Cash flows from operating activities: Student tuition and fees $ 61,856,695 Federal grants and contracts 245,193 State grants and contracts 151,047 Local grants and contracts 12,052 Payments to suppliers (32,781,720) Payments to employees (134,381,452) Payments to students (19,162,311) Collections of student loans 286,159 Sales and services of auxiliary enterprises 3,520,909 Sales and services of educational activities 8,969,593 Other receipts 5,488,531 Net cash used in operating activities (105,795,304) Cash flows from noncapital financing activities: State appropriations 90,217,108 Federal financial aid grants 13,961,930 State financial aid grants 5,111,603 Federal ARRA grants 8,615,200 Gifts and grants received for other than capital purposes 1,938,355 Federal loan program receipts 548,195 Federal loan program disbursements (986,120) Monies received on behalf of others 2,045,661 Monies disbursed on behalf of others (1,042,376) Other 1,708,810 Net cash provided by noncapital financing activities 122,118,366 Cash flows from capital and related financing activities: State appropriations 19,862,693 Acquisition of capital assets (47,319,029) Interest paid on capital debt and leases (4,522,557) Principal paid on capital debt and leases (4,752,667) Net cash used in capital and related financing activities (36,731,560) Cash flows from investing activities: Proceeds from sales and maturities of investments 175,845,649 Purchases of investments (155,218,951) Investment loss (37,765) Net cash provided by investing activities 20,588,933 Net increase in cash and cash equivalents 180,435 Cash and cash equivalents at beginning of year 7,449 Cash and cash equivalents at end of year $ 187,884 14 (Continued)
Statement of Cash Flows Year ended University Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (118,518,204) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation and amortization 9,234,037 Change in assets and liabilities: Accounts receivable, net 939,009 Student loans receivable, net 14,396 Prepaid expenses and other assets 158,441 Accounts payable (58,032) Accrued salaries and benefits 613,043 Accrued compensated absences 266,926 Deferred revenue 1,147,728 Other postemployment benefits obligation 397,746 Other liabilities 9,606 Net cash used in operating activities $ (105,795,304) Supplemental schedule of noncash transactions: Contributed capital assets $ 61,800 Change in accrued capital asset costs (purchased but unpaid at year-end) (8,531,095) See accompanying notes to financial statements. 15
(1) Organization California State University, East Bay (the University), an agency of the State of California, was established as a campus of the California State University under the State of California Education Code to offer undergraduate and graduate instruction for professional and occupational goals emphasizing a broad liberal arts education. As one of 23 campuses in the California State University System (the System), the University is included in the financial statements of the System. Responsibility for the University is vested in the Trustees of the System (the Trustees) who, in turn, appoint the Chancellor, the chief executive officer of the System, and the University president, the chief executive officer of the University. The University provides instruction for baccalaureate and masters degrees and certificate programs and operates various auxiliary enterprises such as student dormitories, student unions, and parking facilities. In addition, the University administers a variety of financial aid programs, which are funded primarily through state and federal programs. (2) Summary of Significant Accounting Policies (a) Financial Reporting Entity In accordance with Governmental Accounting Standards Board (GASB) Statements No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, the accompanying financial statements include the accounts of the University and the University s three recognized auxiliary organizations. These auxiliary organizations are legally separate entities that provide services primarily to the University s students and faculty. Separate financial statements are issued for each of the recognized auxiliary organizations and may be obtained from the University. The recognized auxiliary organizations are as follows: California State University, East Bay Foundation, Inc. Associated Students Inc. of California State University, East Bay Cal State, East Bay Educational Foundation, Inc. 16 (Continued)
Summary information for the discretely presented component units is as follows: California Associated State Students Inc. Cal State University, of California East Bay East Bay State Educational Foundation University Foundation, Inc. East Bay Inc. Total Current assets $ 18,704,816 964,223 5,583,810 25,252,849 Capital assets, net 5,806,351 1,110,808 65,333 6,982,492 Other noncurrent assets 428,226 3,747,524 4,175,750 Total assets $ 24,939,393 2,075,031 9,396,667 36,411,091 Current liabilities $ 3,418,181 556,468 46,723 4,021,372 Noncurrent liabilities 13,479,290 220,787 454,582 14,154,659 Total liabilities $ 16,897,471 777,255 501,305 18,176,031 Invested in capital assets, net of related debt $ 1,406,351 1,110,808 65,333 2,582,492 Restricted 8,097,073 8,097,073 Unrestricted 6,635,571 186,968 732,956 7,555,495 Total net assets $ 8,041,922 1,297,776 8,895,362 18,235,060 Year ended Operating revenues: Student tuition and fees, net $ 3,116,971 3,116,971 Grants and contracts, noncapital 10,602,671 10,602,671 Sales and services of auxiliary enterprises, net 1,878,701 485,119 2,363,820 Other 65,198 50,776 115,974 Total operating revenues 12,481,372 3,667,288 50,776 16,199,436 17 (Continued)
California Associated State Students Inc. Cal State University, of California East Bay East Bay State Educational Foundation University Foundation, Inc. East Bay Inc. Total Operating expenses: Research $ 9,699,064 9,699,064 Student grants and scholarships 127,109 181,056 308,165 Auxiliary enterprise expenses 1,048,289 3,249,031 369,850 4,667,170 Depreciation and amortization 144,915 140,886 37,334 323,135 Total operating expenses 10,892,268 3,517,026 588,240 14,997,534 Operating income (loss) 1,589,104 150,262 (537,464) 1,201,902 Net nonoperating (expenses) revenues (537,664) 7,255 (1,258,222) (1,788,631) Income (loss) before other additions 1,051,440 157,517 (1,795,686) (586,729) Additions to permanent endowments 206,799 206,799 Increase (decrease) in net assets 1,051,440 157,517 (1,588,887) (379,930) Beginning net assets 6,990,482 1,140,259 10,484,249 18,614,990 Ending net assets, $ 8,041,922 1,297,776 8,895,362 18,235,060 The auxiliary organizations are presented in the accompanying financial statements as component units due to the nature and significance of their relationship with the University. The relationships are such that exclusion of these organizations from the reporting entity would render the financial statements incomplete, primarily due to the activities that the organizations carry out on behalf of the University, such as research, grant administration, foodservice, and academic support. The auxiliary organizations are discretely presented to allow the financial statement users to distinguish them from the University. The financial statements present only the statement of net assets, statement of revenues, expenses, and changes in net assets, and statement of cash flows of only that portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund 18 (Continued)
information of the State of California that is attributable to the transactions of the University and the financial statements do not purport to, and do not, present fairly the financial position of the State of California or the California State University System as of and the changes in their financial position, or, where applicable, their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. (b) Basis of Presentation The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with U.S. generally accepted accounting principles, as prescribed by the GASB. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. The financial statements required by GASB Statement Nos. 34 and 35 include a statement of net assets, a statement of revenues, expenses, and changes in net assets, and a statement of cash flows. As a public institution, the University is considered a special-purpose government under the provisions of GASB Statement No. 35. The University records revenue in part from fees and other charges for services to external users and, accordingly, has chosen to present its financial statements using the reporting model for special-purpose governments engaged only in business-type activities. This model allows all financial information for the University to be reported in a single column in each of the financial statements, accompanied by aggregated financial information for the auxiliary organizations. In accordance with the business-type activities reporting model, the University prepares its statement of cash flows using the direct method. The auxiliary organizations included in these financial statements apply the accounting and reporting standards promulgated by the GASB. (c) (d) Election of Applicable FASB Statements The University has elected to follow standards of accounting and financial reporting issued by the FASB prior to November 30, 1989, unless those standards conflict with or contradict guidance of the GASB. The University also has the option of following subsequent private-sector guidance subject to the same limitation. The University has elected not to adopt the pronouncements issued by the FASB after November 30, 1989. Classification of Current and Noncurrent Assets (Other than Investments) and Liabilities The University considers assets to be current that can reasonably be expected, as part of its normal business operations, to be converted to cash and be available for liquidation of current liabilities within 12 months of the statement of net assets date. Liabilities that reasonably can be expected, as part of normal University business operations, to be liquidated within 12 months of the statement of net assets date are considered to be current. All other assets and liabilities are considered to be noncurrent. For classification of current and noncurrent investments, refer to note 2(f). 19 (Continued)
(e) (f) Cash and Cash Equivalents The University considers all highly liquid investments with an original maturity date of three months or less to be cash and cash equivalents. The University considers amounts included in the California State University Investment Pool to be investments. The statement of cash flows does not include the cash flows of the discretely presented component units. Investments Investments are reflected at fair value using quoted market prices, except, which are reflected at cost. Realized and unrealized gains and losses are included in the accompanying statement of revenues, expenses, and changes in net assets as investment income, net. Investments that are used for current operations are classified as short-term investments. Investments that are restricted for withdrawal or use for other than current operations, designated or restricted for the acquisition or construction of noncurrent assets, designated or restricted for the liquidation of the noncurrent portion of long-term debt, and restricted as to the liquidity of the investments are classified as other long-term investment. (g) Capital Assets Capital assets are stated at cost or estimated historical cost if purchased, or if donated, at estimated fair value at date of donation. Capital assets, including infrastructure, with a value of $5,000 or more and with a useful life of one year or more are capitalized. Such costs include, where applicable, interest capitalized as part of the cost of constructed capital assets. Title to all assets, whether purchased, constructed, or donated, is held by the State of California (the State). Although title is not with the University for land and buildings, the University has exclusive use of these assets and is responsible for the maintenance of these assets and thus has recorded the cost of these assets on the accompanying financial statements. Capital assets, with the exception of land and land improvements, works of art and historical treasures, and construction work in progress, are depreciated on a straight-line basis over their estimated useful lives, which range from 3 to 45 years. Library books, unless considered rare collections, are capitalized and depreciated over a 10-year period. Periodicals and subscriptions are expensed as purchased. Works of art and historical treasures are valued at cost if purchased or the fair market value at the date of donation if contributed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are expensed as incurred. Depreciation expense is shown separately in the statement of revenues, expenses, and changes in net assets rather than being allocated among other categories of operating expenses. (h) (i) Deferred Revenue Deferred revenue consists primarily of fees collected in advance for summer and fall terms and continuing education programs. Compensated Absences University employees accrue annual leave at rates based on length of service and job classification. 20 (Continued)
(j) (k) Grants Refundable The University periodically receives contributions from the federal government in support of its operation of the Federal Perkins and Nursing Loan programs, approved Title IV loan programs. The federal government has the ability to terminate its support of these programs at any time and to request the University to return those contributions that it has made on a cumulative basis. Accordingly, the federal contributions received and retained by the University at year-end are considered to be liabilities of the University, and are reflected as such in the accompanying statement of net assets. Net Assets The University s net assets are classified into the following net asset categories: 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 conditions that the University retains them in perpetuity. Net assets in this category consist of endowments held by the University or its related auxiliaries. Restricted expendable Net assets subject to externally imposed conditions that can be fulfilled by the actions of the University or by the passage of time. Unrestricted All other categories of net assets. In addition, unrestricted net assets may be designated for use by management of the University or have legislative requirements associated with their use. These requirements limit the area of operations for which expenditures of net assets may be made and require that unrestricted net assets be designated to support future operations in these areas. Campus housing programs are a primary example of operations that have unrestricted net assets with designated uses. (l) Classification of Revenues and Expenses The University 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 University s primary functions. Exchange transactions include charges for services rendered and the acquisition of goods and services. Moreover, the Office of the Chancellor administers and charges campuses for centralized expenses such as State pro rata and management of capital projects and pooled investments, which are included in operating expenses by function in the accompanying statement of revenues, expenses, and changes in net assets. Certain other transactions are reported as nonoperating revenues and expenses or capital contributions in accordance with GASB Statement No. 35. These nonoperating activities include the University s capital and noncapital appropriations from the State, financial aid and ARRA grants, noncapital, net investment income, gifts, interest expense, and capital contributions. 21 (Continued)
The State appropriates funds to the System on an annual basis. The appropriations are, in turn, allocated among the campuses by the Office of the Chancellor. Appropriations are recognized as revenue when authorization is received, and are reported as either noncapital appropriations when used to support general operations or capital appropriations when used for capital projects. In fiscal year 2009, the State of California (the State) received Federal education grants that were passed on to school districts and the state s universities to restore state appropriations. The Governor had filed an application with the Federal government to receive California s share of the Education Stabilization Fund that was created as part of the federal stimulus bill under the American Recovery and Reinvestment Act (ARRA). The Federal education grants have been appropriated to the System by the State as an allocation to the general operation and reported separately as nonoperating revenues and expenses. Student tuition and fee revenue, and sales and services of auxiliary enterprises, including revenues from student housing programs, are presented net of scholarships and fellowships applied to student accounts. Certain other scholarship amounts are paid directly to, or refunded to, the student and are reflected as expenses. (m) (n) (o) Internal Services Activities Certain institutional internal service providers offer goods and services to University departments, as well as to their external customers. These include activities such as copy centers, postal services, and telecommunications. All internal services activities to University departments have been eliminated in the accompanying financial statements. These eliminations are recorded by removing the revenue and expense in the internal service sales and service units and, if significant, allocating any residual balances to those departments receiving the goods and services during the year. Income Taxes The System was established under the State of California Education Code as an agency of the State. As a campus of the System, the University is generally not subject to federal or state income taxes. However, the University remains subject to income taxes on any net income that is derived from a trade or business, regularly carried on and not in furtherance of the purpose for which it was granted exemption. No income tax provision has been recorded as the net income, if any, from any unrelated trade or business, in the opinion of management, is not material to the financial statements taken as a whole. New Accounting Pronouncements On July 1, 2008, the University adopted GASB Statement 49, Accounting and Financial Reporting for Pollution Remediation Obligations. To provide governments with better accounting guidance and consistency, GASB Statement 49 identifies the circumstances under which a governmental entity would be required to report a liability related to pollution remediation. The adoption of the statement did not have a material impact on the University s financial statements. On July 1, 2008, the University adopted GASB Statement No. 52, Land and Other Real Estate Held as Investments by Endowments. This Statement requires endowments to report their land and other 22 (Continued)