Languages of the Stage
Languages of the Stage THE 2005
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Marilou Hyatt Jr.
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Date Created: 09/23/15
REPORT NO 2009136 FEBRUARY 2009 UNIVERSITY OF SOUTH FLORIDA Financial Audit For the Fiscal Year Ended June 30 2008 STATE OF FLORIDA AUDITOR GENERAL DAVIDW MARTIN CPA BOARD OF TRUSTEES AND PRESIDENT Members of the Board of Trustees and President who served during the 2007 08 scal year are listed below Rhea F Law Chair John B Rarnil Vice Chair Lee E Arnoldr Dr Michael Barber 1 Richard A Beard III to 1 06 08 Margarita R Cancio MD Gene Engle from 1 07 08 Garin Flowers from 9 11 07 to 4 30 08 2 Sonja Garcia Barclay Harless to 9 10 07 2 Gregory Morgan from 5 01 08 2 Kiran C Patel MD Debbie Nye Sembler Jan E Smith Robert L Soran Sherrill Tomasino Dr Judy L Genshaft President Notes 1 Faculty senate chair 2 Student body president The Auditor General conducts audits of governmental entities to provide the Legislature Florida s citizens public entity management and other stakeholders unbiased timely and relevant information for use in promoting government accountability and stewardship and improving government operations The audit team leader was Alma E Wade CPA and the audit was supervised by Karen Collington CPA Please address inquiries regarding this report to James R Stultz CPA Audit Manager by e mail at jimstultzaudstate us or by telephone at 850 9222263 This report and other audit reports prepared by the Auditor General can be obtained on our Web site wwwmy oridacom audgen by telephone at 850 487 9024 or by mail at G74 Claude Pepper Building 111 West Madison Street Tallahassee Florida 32399 1450 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA TABLE OF CONTENTS PAGE NO EXECUTIVE SUMMARY i INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS 1 MANAGEMENT S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Statement of Net Assets 12 Statement of Revenues Expenses and Changes in Net Assets 14 Statement of Cash Flows 15 Notes to Financial 0 17 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERNMEN TA UDI TING STANDARDS 48 Internal Control Over Financial I 39 48 Compliance and Other Matters 49 FEBRUARY2009 REPORT NO 2009136 EXECUTIVE SUMMARY Summary of Report on Financial Statements Our audit disclosed that the University s basic nancial statements were presented fairly in all material respects in accordance with prescribed financial reporting standards Summary of Report on Internal Control and Compliance Our audit did not identify any de ciencies in internal control over financial reporting that we consider to be material weaknesses The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under GovernmentAudI39tIng Standards issued by the Comptroller General of the United States Audit Objectives and Scope Our audit objectives were to determine whether the University of South Florida and its of cers with 39 and 39r I quot quot39 39 for University operations had gt Presented the University s basic nancial statements in accordance with generally accepted accounting principles gt Established and implemented internal control over nancial reporting and compliance with requirements that could have a direct and material effect on the nancial statements gt Complied with the various provisions oflaws rules regulations contracts and grant agreements that are material to the nancial statements and gt Taken corrective action for a nding included in our report No 2008088 The scope ofthis audit included an examination ofthe University s basic nancial statements as of and for the scal year ended June 30 2008 We obtained an understanding of the University s environment including its internal control and assessed the risk of material misstatement necessary to plan the audit of the nancial statements We also examined various transactions to determine whether they were executed both in manner and in with 39 r 39 39 of laws rules regulations contracts and grant agreements An examination of Federal awards administered by the University is included within the scope of our Statewide audit of Federal awards administered by the State of Florida Audit Methodology The methodology used to develop the ndings in this report included the examination of pertinent University records in connection with the application of procedures required by auditing standards generally accepted in the United States of America and applicable standards contained in Governznent Auditing Standards issued by the Comptroller General ofthe United States FEBRUARY 2009 REPORT NO 2009136 AUDITOR GENERAL STATE OF FLORIDA G74 Claude Pepper Building 1 Wes adison Street Tallahassee Florida 323991450 DAVID W MARTIN CPA AUDITOR GENERAL PHONE 8504885534 FAX 8504886975 The Presrdent of the senate the Speaker of the ouse of Representatwes and the LegIslatIve Audmng commrttee INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS We have audated the accompanying nancial statements of the Umverslty of south FIonda a component umt of the State of Honda and Its aggregate discretely presented component unru as of and for the scal year ended June 30 2008 whrch collechvely compnse the Unwersrtys hasrc fmanclal statemenu as showm on pages 12 through 47 These fmanclal statemenu are the Iespons mhty of Urnverslty management our Iespons mhty Is to express oprmons on these nancral statements hased on our audat We dad not audt the fmanclal statements of the aggregate dscreter presented component umts as descnhed In note 1 to the nancral statements WhIch represent 100 percent of the transacu ons and account balances of the aggregate dscreter presented component urnB co1umns Those fmanclal statemenu were audted by other audamrs whose reporu thereon have been fumshed to us and our oprmon on the nancral statemenu Insofar as It relates to the amounts Included for the aggregate dIscretely presented component um 15 hased solely upon the reports of the other audlmrs We conducted our audt m accordance WIth audmng standards generally accepted m the Umted States of Amenca and the standards apphcahIe to fmanclal audats contamed m GammmAaamg Swami Issued by the comptrouer GeneraI of the Umted States Those standards qumre that we p1an and perform the auth to ohtam reasonahIe assurance about whether the nanclal statemenu are free ofmatenal mlsstatement An audt Includes exammmg on a test hasrs endence supporting the amounts and ddsclosures m the nancral statements An auth also mcIudes assessmg the accountmg pnnanes used and srgm frcant estimates made by management as wen as evaIuatIng the overall fmanclal statement presentation We beheve that our audt and the reports of the other audators promde a reasonahIe hasrs for our oprmons In our oprmon hased on our auth and the reports of the other audtors the fmanclal statements referred to above present faj y In all matenal respecu the respectwe nanclal posmon of the Umverslty of south Honda and ofIts aggregate discretely presented component umts as ofJune 30 2008 and the respectwe changes m fmanclal posmon 1 FEBRUARY 2009 REPORT NO 2009136 and cash ows thereof for the scal year then ended 1n conformrty WJth aeeountmg pnnclples generauy accepted m the Umted States ofAmenca In accordance wlth Govemmem Andztmg ftundamir we have also 1ssued our report on our conslderahon of the Uruverslty of South Flanda s mtema1 contro1 over snaneral reporung and on our tests ofrts comphance wrth certam promsrons of laws rules regulauons contracB and grant agreements and other matters mcluded under the headmg INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNAIENTAUDITING STANDARDS The purpose of that report 15 to descnbe the scope of our tesung of mtemal contro1 over naneral reporung and comphance and the results of that tesung and not to promde an oplruon on mtemal contro1 over nanual repomng or on comphance That report 15 an mtegral part of an auth performed In accordance wrth A and shouldL 4 4 a m the results of our audit The MANAGEMENT S DISCUSSION AND ANALYSIS on pages 3 through 11 15 not a reqmred part of the hasre nancial statements hut 15 nu uuau nrequared hya unun pun rp1 genera yacceptedm the Umbed States ofAmenca We have apphed eertam hmrted procedures whrch eonsrsted pnnerpauy ofmqumes of management regardmg the methods of measurement and presentauon of the requrred supplementary rnformauon However 4 4 ana J p onrt Respectfully suhmrttem azf Damd W Marun CPA February 24 2009 FEBRUARY2009 REPORT NO 2009136 MANAGEMENT S DISCUSSION AND ANALYSIS The management s discussion and analysis MDampA provides an overview of the nancial position and activities of the University for the scal year ended June 30 2008 and should be read in conjunction with the nancial statements and notes thereto This overview is required by Governmental Accounting Standards Board GASB Statement No 35 Basie Finamia Slalemeemiand Managemenl x DiJMJJ iD andAna Jixifer PitHie Colegex and Universities as amended by GASB Statements Nos 37 and 38 The MDampA and nancial statements and notes thereto are the responsibility of University management FINANCIAL HIGHLIGHTS The University s assets totaled 14 billion at June 30 2008 This balance re ects a 669 million or 5 percent increase from the 200607 scal year Liabilities decreased by 674 million or 159 percent totaling 3572 million at June 30 2008 compared to 4246 million at June 30 2007 As a result the University s net assets increased by 1343 million reaching a year end balance of104 billion The University s operating revenues totaled 5385 million for the 200708 scal year representing a 9 percent increase over the 200607 scal year due mainly to increases in student tuition and fees auxiliary enterprises sales and services and other revenue Operating expenses totaled 9462 million for the 200708 scal year representing an increase of 19 percent over the 200607 scal year due mainly to increases in expenditures for compensation and employee bene ts services and supplies utilities and scholarships and fellowships OVERVIEW OF FINANCIAL STATEMENTS Pursuant to GASB Statement No 35 the University s nancial report includes three basic nancial statements the statement of net assets the statement of revenues expenses and changes in net assets and the statement of cash flows The nancial statements and notes thereto encompass the University and its component units These component units include University of South Florida Foundation Inc University of South Florida Alumni Association Inc University of South Florida Medical Services Support Corporation Sun Dome Inc University of South Florida Research Foundation Inc USF Financing Corporation USF Property Corporation USF Health Professions Conferencing Corporation and the University Medical Service Association Inc Information regarding these component units including summaries of their separately issued nancial statements is presented in the notes to the nancial statements This MDampA focuses on the University excluding the component units For those component units reporting under GASB standards MDampA information is included in their separately issued audit reports THE STATEMENT OF NET ASSETS The statement of net assets re ects the assets and liabilities of the University using the accrual basis of accounting and presents the nancial position of the University at a speci ed time The difference between total assets and FEBRUARY2009 REPORT NO 2009136 total liabilities net assets is one indicator of the University s current nancial condition The changes in net assets that occur over time indicate improvement or deterioration in the University s nancial condition The following summarizes the University s assets liabilities and net assets at June 30 Condensed Statement of Net Assets In Thousands 2008 2007 A ets Current Assets 628248 620525 Capital Assets Net 664346 645743 Other Noncurrent Assets 105034 64438 Total Assets 1397628 1330706 Liabilities Current Liabilities 216784 272640 Noncurrent Liabilities 140447 151965 Total Liabilities 357231 424605 Net A ets Invested in Capital Assets Net of Related Debt 477980 460680 Restricted 322762 205385 Unrestricted 239655 240036 Total Net Assets 1040397 906101 The University s assets totaled 14 billion at June 30 2008 This balance re ects a 669 million or 5 percent increase over the 200607 scal year This increase is attributable to an increase in current assets of77 million an increase in capital assets of 186 million and an increase in other noncurrent assets of 406 million Current investments and cash for the University increased a total of 771 million between the two scal years as a result of the University having more working capital available as well as having unspent construction funding provided to the USF Financing Corporation Accounts receivable decreased by a total of 435 million This was mainly attributable to a decrease in contracts and grants receivable of 404 million In addition amounts due from the State decreased by 185 million as a result of construction projects being completed and amounts due from component units decreased by 74 million primarily as a result of funds due from the University of South Florida Research Foundation lnc being collected by the University Net capital assets increased by 186 million due primarily to buildings being completed and capitalized The increase of 406 million in other noncurrent assets is largely attributable to an increase in investments and cash in the construction fund Total liabilities decreased by 674 million which was made up of a decrease in noncurrent liabilities of 115 million and a decrease in current liabilities of 559 million The major decrease in current liabilities was associated with a decrease of42 million in deferred revenue Current liabilities were further decreased by 257 million primarily due 4 FEBRUARY2009 REPORT NO 2009136 to a reduction in amounts due to the USF Financing Corporation Changes to noncurrent liabilities are related to decreases in accrued selfiinsurance claims of 53 million decreases in compensated absences liability of 48 million and the payment of principal of 43 million on outstanding bonds This combination of changes in both total assets of669 million and total liabilities of 674 million resulted in a net increase in total net assets of 1343 million This increase in total net assets is attributable to increases in capital assets net of related debt of 173 million capital projects of 674 million and other restricted net assets of 50 million Net assets are reported in three major categories The first category invested in capital assets net of related debt provides the University s equity in property plant and equipment owned by the University Restricted net assets are another category which may be further broken down into nonexpendable and expendable Restricted nonexpendable net assets represent funds that have been donated to the University that are required to be invested in perpetuity These net assets are primarily maintained within the University of South Florida Foundation lnc a component unit of the University Restricted expendable net assets are available for use by the University but must be spent for purposes as determined by donors or external entities that have placed time or purpose restrictions on the use of the assets The final category is unrestricted net assets Unrestricted net assets are available to the University for any lawful purpose of the University The following graph illustrates the comparative change in net assets by category for the 200708 and 2006707 scal years NET ASSETS In Thousands 600000 477980 460680 322762 300000 7 7 Invested in Capital Restricted Unrestricted Assets Net of Related THE STATEMENT OF REVENUES EXPENSES AND CHANGES IN NET ASSETS The statement of revenues expenses and changes in net assets presents the University s revenue and expense activity categorized as operating and nonoperating Revenues and expenses are recognized when earned or incurred regardless ofwhen cash is received or paid FEBRUARY2009 REPORT NO 2009136 The following summarizes the University s activity for the 200708 and 2006707 fiscal years Condensed Statement of Revenue Expenses and Changes in Net Assets In Thousands 200708 200607 Operating Revenues 538543 533554 Operating Expenses 946241 928190 Operating Loss 407698 394636 Net Nonoperating Revenues 432704 442579 Income Before Other Revenues Expenses Gains or Losses 25006 47943 Other Revenues Expenses Gains or Losses 109290 100329 Net Increase In Net Assets 134296 148272 Net Assets Beginning of Year 906101 757829 Net Assets End of Year 1040397 906101 Operating Revenues GASB Statement No 35 categorizes revenues as either operating or nonoperating Operating revenues generally result from exchange transactions where each of the parties to the transaction either give up or receive something of equal or similar value The following summarizes the operating revenues by source that were used to fund operating activities during the 200708 and 2006707 scal years Operating Revenues In Thousands 200708 200607 Net Tuition and Fees 142201 133962 Grants and Contracts 299692 315719 Sales and Services of Educational Departments 942 1162 Sales and Services of Auxiliary Enterprises 79785 76157 Other 15923 6554 Total Operating Revenues 538543 533554 Total operating revenues increased by 5 million with the change being attributable to three factors Student tuition and fees after tuition scholarship allowance increased by 82 million mainly due to an increase in the inistate undergraduate tuition rate of 5 percent beginning in Spring 2008 and a 17 percent increase in student credit hours with much of the relative increase coming in the Graduate School over the previous fiscal year Grants and contracts revenue decreased by 16 million primarily due to a reduction in Moffitt salary support accounts as a result of the transition of USF s College of Medicine Division of Interdisciplinary Oncology to the Moffitt Cancer Center FEBRUARY2009 REPORT NO 2009136 Auxiliary and other operating revenues increased by 13 million Auxiliary revenues increased 36 million primarily from increases in athletic revenue Other operating revenues increased 94 million primarily from selfiinsurance Operating Expenses Expenses are categorized as operating or nonoperating The majority of the University s expenses are operating expenses as de ned by GASB Statement No 35 GASB gives nancial reporting entities the choice of reporting operating expenses in the functional or natural classi cations The University has chosen to report the expenses in their natural classi cation on the statement of revenues expenses and changes in net assets and has displayed the functional classi cation in the notes to nancial statements The following summarizes the operating expenses by natural classi cations for the 200708 and 2006707 scal years Operating Expenses In Thousands 200708 200607 Compensation and Employee Bene ts 607205 602418 Services and Supplies 191030 178025 Utilities and Communications 26013 23527 Scholarships Fellowships and Waivers 71133 66772 Depreciation 46003 45742 SelfInsurance Claims and Expenses 4857 11706 Total Operating Expenses 946241 928190 Total operating expenses increased by 181 million with the increases mainly attributable to an increase in services and supplies of 13 million an increase in scholarships and fellowships of 44 million and an increase in compensation and employee bene ts of 48 million The services and supplies increase consisted ofincreases in three areas Grant subcontract payments increased by 54 million service patient care costs on contracts and grants increased by 4 million and minor renovations costs increased by 35 million over the previous year These increases were slightly offset by a 68 million decrease in selfiinsurance claims and expenses Nonoperating Revenues and Expenses Certain revenue sources that the University relies on to provide funding for operations including State appropriations certain gifts and grants and investment income are de ned by GASB as nonoperating Nonoperating expenses include capital nancing costs and other costs related to capital assets The following summarizes the University s nonoperating revenues and expenses for the 200708 and 2006707 scal years FEBRUARY2009 REPORT NO 2009136 Nonoperating Revenues Expenses In Thousands 200708 200607 State Appropriations 368555 388392 Federal and State Student Financial Aid 70279 64900 Investment Income 25005 19317 Other Nonoperating Revenues 409 500 Interest on Capital AssetRelated Debt 4028 4081 Other Nonoperating Expenses 27516 26449 Net Nonoperating Revenues 432704 442579 Total nonoperating revenues expenses decreased by 99 million due primarily to a 51 percent decrease in State appropriations of 198 million Other changes included an increase in Federal and State student nancial aid of 54 million and an increase in investment income of 57 million due to an increase in the average investment portfolio balance Other Revenues Expenses Gains or Losses This category is mainly composed of capital appropriations and capital grants contracts and donations The following summarizes the University s other revenues expenses gains or losses for the 200708 and 2006707 scal years Other Revenues Expenses Gains or Losses In Thousands 200708 200607 Capital Appropriations 93386 76110 Capital Grants Contracts Donations and Fees 15904 24219 Total 109290 100329 Total other revenues increased by 9 million The reduction of 83 million in capital grants contracts and donations was primarily from a smaller number of projects funded by the Alec P Courtelis Capital Facility Matching Trust Fund This decrease was offset by an increase in capital appropriations of 173 million from new construction projects being funded by the State Of the 934 million in capital appropriations for the 200708 fiscal year major projects included the Interdisciplinary Science Teaching and Research Facility 354 million in additional funding the Visual and Performing Arts Building 149 million in additional funding and the USFiSt Petersburg Science and Technology Building 9 million THE STATEMENT OF CASH FLOWS The statement of cash flows provides information about the University s financial results by reporting the major sources and uses of cash This statement will assist in evaluating the University s ability to generate net cash flows its ability to meet its financial obligations as they come due and its need for external financing Cash flows from operating activities show the net cash used by the operating activities of the University Cash ows from the capital 8 FEBRUARY2009 REPORT NO 2009136 nancing activities include all plant funds and related longiterm debt activities Cash flows from the investing activities show the net source and use of cash related to purchasing or selling investments and earning income on those investments Cash flows from the noncapital nancing activities include those activities not covered in other sections The following summarizes cash flows for the 200708 and 2006707 scal years Condensed Statement of Cash Flows In Thousands 200708 200607 Cash Provided Used by Operating Activities 365522 328041 Noncapital Financing Activities 415947 392642 Capital and Related Financing Activities 41300 15271 Investing Activities 158687 51042 Net Increase Decrease in Cash and Cash Equivalents 250412 1712 Cash and Cash Equivalents Beginning of Year 1292 3004 Cash and Cash Equivalents End of Year 251704 1292 Major sources of operating activities included net student tuition and fees 1449 million grants and contracts 2966 million and sales and services of auxiliary enterprises 795 million Included in the calculation of net cash used for operating activities are payments to employees 6079 million and payments to suppliers 2143 million These are the two major out ows of operating activities The net cash used for operating activities increased by 375 million The reasons for this change were mainly increases in payments to employees payments to suppliers and payments for scholarships in the amounts of 97 million 179 million and 44 million respectively offset by increases in tuition and fees collections of 142 million sales of auxiliary enterprises of 1 million and a decrease in grant and contracts of264 million The net cash provided by noncapital nancing activities consists primarily of 3686 million of State appropriations received during the 200708 scal year Cash flows from capital and related nancing activities increased by 566 million This was mainly due to increases in payments made for the purchase or construction of capital assets in the amount of 66 million increases in capital appropriations in the amount of 102 million decreases in capital grants and contracts of 87 million and an increase in capital subsidies of 787 million Cash ows from investing activities increased by 2097 million The increase was mainly due to an increase in the purchases ofinvestments of 2038 million offset by an increase in investment income of 59 million FEBRUARY2009 REPORT NO 2009136 CAPITAL ASSETS CAPITAL EXPENSES AND COMMITMENTS AND DEBT ADMINISTRATION CAPITAL ASSETS At June 30 2008 the University had 11 billion in capital assets less accumulated depreciation of 4841 million for net capital assets of 6643 million Depreciation charges for the current scal year totaled 46 million The following table summarizes the University s capital assets net of accumulated depreciation at June 30 Capital Assets Net at June 30 In Thousands 2008 2007 Land 11151 11151 Buildings 485195 458039 Construction in Progress 13769 39934 Infrastructure and Other Improvements 39214 24045 Furniture and Equipment 73121 67399 Library Resources 17306 20234 Property UnderCapital Lease 12122 12386 Works of Art and Historical Treasures 679 571 Other Capital Assets 11790 11984 Total Capital Assets Net 664347 645743 Additional information about the University s capital assets is presented in the notes to the nancial statements CAPITAL EXPENSES AND COMMITMENTS Major capital expenses through June 30 2008 were incurred on the following projects Visual and Performing Arts building 11 million USF Healthcare Facilities 19 million and the Lakeland Campus Phase 1 38 million The following table summarizes the University s major capital commitments as ofJune 30 2008 Capital Expense Commitments In Thousands Total Com pleted Com mitted Commitment to Date Balance 165152 13769 151383 Additional information about the University s capital commitments is presented in the notes to the financial statements DEBT ADMINISTRATION As ofJune 30 2008 the University had 798 million in outstanding bonds capital leases and installment purchase agreements representing a decrease of 58 million or 68 percent from the prior scal year The decrease was a result of principal payments on the outstanding debt The following table summarizes the outstanding longiterm debt by type for the scal years endedJune 30 10 FEBRUARY2009 REPORT NO 2009136 LongTerm Debt at June 30 In Thousands 2008 2007 Bonds 66959 71237 Installment Purchases 1215 2204 Capital Leases 11660 12195 Total 79834 85636 Additional information about the University s longiterm debt is presented in the notes to the financial statements ECONOMIC FACTORS THAT WILL AFFECT THE FUTURE The budget that the Florida Legislature adopted for the State University System for the 200809 scal year re ected a 72 percent decrease in the education portion of the budget over the prior year s total appropriations The Universities received a base budget reduction of approximately 1277 million of which the University of South Florida s share was 19 million To offset the base budget adjustment the Legislature allocated to the State University System approximately 68 million of Educational Enhancement Funding Lottery Funds of which the University s share is 101 million The University expects an increase in revenue from student tuition and fees mainly due to increased rates for student tuition and fees There was an increase in total net assets of1343 million and this contributed to the sound financial position of the University The University continues to work on diversifying its revenue base and reducing its dependency on State appropriations Revenues from sources other than State appropriations such as sales and services of auxiliary enterprises and student tuition and fees showed increases in the 200708 fiscal year and are expected to remain strong In addition although contract and grant revenue decreased in 200708 it is expected that contract and grant revenue will rebound in 200809 based on a strong increase in awards REQUESTS FOR INFORMATION Questions concerning information provided in the MDampA and financial statements and notes thereto or requests for additional financial information should be addressed to Nick Trivunovich University Controller 4202 East Fowler Avenue Tampa Florida 3362075800 11 FEBRUARY 2009 REPORT NO 2009136 BASIC FINANCIAL STATEMENTS UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA STATEMENT OF NET ASSETS As ofJune 30 2008 ASSETS Current Assets Cash and Cash Equivalents Investments Accounts Receiwble Net Loans and Notes Receivable Net Due from State Due from University Due from Component Units Inventories Other Current Assets Total Cu rre nt Amt Noncurrent Assets Restricted Cash and Cash Equivalents Restricted Investments Loans and Notes Receivable Net Depreciable Capital Assets Net Nondepreciable Capital Assets Other Noncurrent Assets Total Noncurre nt A ets TOTAL ASSETS LIABILITIES Current Liabilities Accounts Payable Construction Contracts Payable Salaries and Wages Payable Deposits Payable Due to University Due to Component Units Deferred Revenue LongTerm Liabilities Current Portion Bonds Payable Certi cates of Participation Payable Loans and Notes Payable Installment Purchases Payable Capital Leases Payable Estimated Insurance Claims Payable Compensated Absences Payable Total Current Liabilities 12 University 244999545 156269992 64801426 1421437 136505763 21837777 442519 1969046 628247 505 6704005 91187598 6638743 638748191 25598502 504136 769381175 38138580 1748400 24289579 7622534 76688 779 56366 962 4420554 715021 560000 1259151 4974447 216784007 Component Units 33330521 102819013 68700889 76688779 5 91 6057 3471029 290 926 288 303919 460094051 475156 141551456 186866998 11728306 801019886 1091946174 46751212 9 501 276 174 622 21 837 777 5 91 6057 1 442 666 1 170000 3 465 000 1 95 1 96 3183513 93637319 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA STATEMENT OF NET ASSETS Continued As of June 30 2008 University Component Units LIABILITIES Continued Noncurrent Liabilities Bonds Payable 62538080 41730000 Certificates of Participation Payable 331387970 Loans and Notes Payable 1947934 Installment Purchases Payable 500000 Capital Leases Payable 11100000 63743514 Estimated Insurance Claims Payable 12681201 Compensated Absences Payable 49413062 Postemployment Health Care Benefits Payable 4215000 Total Noncurrent Liabilities 140447343 438809418 TOTAL LIABILITIES 357231350 532446737 NET ASSETS Invested in Capital Assets Net of Related Debt 477979896 30243281 Restricted for Nonexpendable Endowment 449190487 Restricted for Expendable Debt Service 7959067 Loans 10944092 Capital Projects 238354761 Other 65504164 Unrestricted 239655350 80065669 TOTAL NET ASSETS 1040397330 559499437 TOTAL LIABILITIES AND NET ASSETS 1397628680 1091946174 The accompanying notes to financial statements are an integral part of this statement 13 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA STATEMENT OF REVENUES EXPENSES AND CHANGES IN NET ASSETS For the Fiscal Year Ended June 30 2008 University Component Units REVENUES Operating Revenues Student Tuition and Fees Net of Scholarship Allowances of 52309326 55 142201469 55 Federal Grants and Contracts 134512130 402494 State and Local Grants and Contracts 52297823 Nongovernmental Grants and Contracts 112881705 33950331 Sales and Services of Educational Departments 942494 Sales and Services of Auxiliary Enterprises 79784885 Sales and Services of Component Units 193739014 Royalties and Licensing Fees 1832897 Gifts and Donations 64290871 Interest on Loans and Notes Receivable 131717 Other Operating Revenues 15790821 21507394 Total Operating Revenues 538543044 315723001 EXPENSES Operating Expenses Compensation and Employee Benefits 607205320 147514318 Services and Supplies 191029700 135070306 Utilities and Communications 26013188 435045 Scholarships Fellowships and Waivers 71133136 4401733 Depreciation 46002564 7892639 SelfInsurance Claims and Expenses 4856793 Total Operating Expenses 946240701 295314041 Operating Income Loss 407697657 NONOPERATING REVENUES EXPENSES State Appropriations 368554534 Federal and State Student Financial Aid 70278801 Investment Income 25004635 498027 Other Nonoperating Revenues 408947 18375991 Interest on Capital AssetRelated Debt 4027698 19962428 Other Nonoperating Expenses 27515613 34567033 Net Nonoperating Revenues Expenses 432703606 35655443 Income Loss Before Other Revenues Expenses Gains or Losses 25005949 15246483 Capital Appropriations 93386400 Capital Grants Contracts Donations and Fees 15903687 Increase Decrease in Net Assets 134296036 15246483 Net Assets Beginning of Year 906101294 574745920 Net Assets End of Year 55 1040397330 55 559499437 The accompanying notes to financial statements are an integral part of this statement 14 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA STATEMENT OF CASH FLOWS For the Fiscal Year Ended June 30 2008 University CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees Net 144935496 Grants and Contracts 296593827 Sales and Services of Educational Departments 940950 Sales and Services of Auxiliary Enterprises 79471154 Interest on Loans and Notes Receivable 121878 Payments to Employees 607873746 Payments to Suppliers for Goods and Services 214322842 Payments to Students for Scholarships and Fellowships 71133135 Net Loans Issued to Students 87519 Payments on SelfInsurance Claims and Expenses 10258160 Other Operating Receipts 16090146 Net Cash Used by Operating Activities 365521951 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 368554534 Federal and State Student Financial Aid 70278801 Net Change in Funds Held for Others 23440200 Operating Subsidies and Transfers 20974962 Other Nonoperating Expenses 25795385 Other Nonoperating Receipts 443947 Net Cash Provided by Noncapital Financing Activities 415947135 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Appropriations 93229376 Capital Grants Contracts Donations and Fees 14057027 Capital Subsidies and Transfers 18500225 Other Receipts for Capital Projects 49344 Purchase or Construction of Capital Assets 75205966 Principal Paid on Capital Debt and Leases 5290677 Interest Paid on Capital Debt and Leases 4039528 Net Cash Provided by Capital and Related Financing Activities 41299801 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Investments Net 134580118 Investment Income 24106585 Net Cash Provided by Investing Activities 158686703 Net Increase in Cash and Cash Equivalents 250411688 Cash and Cash Equivalents Beginning of Year 1291862 Cash and Cash Equivalents End of Year 251703550 15 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA STATEMENT OF CASH FLOWS Continued For the Fiscal Year Ended June 30 2008 University RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss 407697657 Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities Depreciation Expense 46002564 Change in Assets and Liabilities Receivables Net 43074082 Loans and Receivables Net 87519 Interest Receivable 9840 Inventories 157720 Other Assets 52 468 Accounts Payable 2647341 Salaries and Wages Payable 47059 Deposits Payable 1331401 Compensated Absences Payable 5041921 Deferred Revenue 41833040 Estimated Insurance Claims Payable 5401367 Postemployment Health Care Bene ts Payable 4215000 NET CASH USED BY OPERATING ACTIVITIES 365521951 The accompanying notes to nancial statements are an integral part ofthis statement 16 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS JUNE 30 2008 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The University is a separate public instrumentality that is part of the State university system of public universities which is under the general direction and control of the Florida Board of Governors The University is directly governed by a Board of Trustees Trustees consisting of 13 members The Governor appoints six citizen members and the Board of Governors appoints ve citizen members These members are con rmed by the Florida Senate and serve staggered terms of ve years The chair of the faculty senate and the president of the student body of the University are also members The Board of Governors establishes the powers and duties of the Trustees The Trustees are responsible for setting policies for the University which provide governance in accordance with State law and Board of Governors Regulations The Board of Governors or the Trustees if designated by the Board of Governors selects the University President The University President serves as the executive of cer and the corporate secretary of the Trustees and is responsible for administering the policies prescribed by the Trustees Criteria for de ning the reporting entity are identi ed and described in the Governmental Accounting Standards Board s Cadz fatz39an of Governmental Arrannling and Finanfz39a Repam39ng Slandardx Sections 2100 and 2600 These criteria were used to evaluate potential component units for which the primary government is nancially accountable and other organizations for which the nature and signi cance of their relationship with the primary government are such that exclusion would cause the primary government s nancial statements to be misleading or incomplete Based on the application of these criteria the University is a component unit of the State of Florida and its nancial balances and activity are reported in the State s Comprehensive Annual Financial Report by discrete presentation Blended Component Unit Based on the application of the criteria for determining component units the Medical Professional Liability Selfilnsurance Program is included within the University reporting entity as a blended component unit The Medical Professional Liability SelfiInsurance Program was created in 1972 and provides medical professional liability comprehensive general liability hospital professional liability and patient s property liability covering faculty staff and students engaged in medical programs at the University Discretelv Presented Units Based on the application of the criteria for determining component units certain af liated organizations are included within the University s reporting entity as discretely presented component units The University further categorizes its component units as Direct Support Organizations and Faculty Practice Plan An annual audit of each discretely presented component unit s nancial statements is conducted by independent certi ed public accountants The annual report is submitted to the Auditor General and University Board of Trustees Additional information on the 17 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 University s discretely presented component units including copies of audit reports is available by contacting the University Controller s Of ce Condensed nancial statements for the University s discretely presented component units are shown in a subsequent note DZ VWLSQEDH Ogam39zaliom The University s direct support organizations are provided for in Section 100428 Florida Statutes and Board of Governors Regulation 6C79011 These legally separate notiforipro t corporations are organized and operated exclusively to assist the University to achieve excellence by providing supplemental resources from private gifts and bequests and valuable education support services The Statute authorizes these organizations to receive hold invest and administer property and to make expenditures to or for the bene t of the University These organizations and their purposes are explained as follows gt The University of South Florida Foundation Inc accepts invests administers and distributes private gifts given for the funding of activities and facilities directly related to the mission role and scope of the University of South Florida gt The University of South Florida Alumni Association Inc fosters the spirit ofloyalty and fraternity among the graduates former students and friends of the University and promotes their continued active interest in and on behalf of the University gt The University of South Florida Medical Services Support Corporation has been developed to provide certain nonphysician personnel in support of the operation of facilities that the University owns or governs and utilized for the education research and patient care programs of the College of Medicine V The Sun Dome Inc operates a multipurpose facility on behalf of the University of South Florida to provide the students faculty and staff of the University as well as the general public an array of cultural athletic and other educational events and activities including a variety of entertainment events gt The University of South Florida Research Foundation Inc has been established to provide a means by which inventions and works may be developed protected applied and utilized so that the results of University research will be made available to the public and funds will be made available from the commercial application ofinventions and works to be dedicated to the bene t of the University and shared with the inventorauthor gt The USF Financing Corporation was organized and operated exclusively to receive hold invest and administer property and to make expenditures to or for the bene t of the University of South Florida gt The USF Property Corporation was formed for the primary purpose of acting as lessor in connection with leaseipurchase nancings in support of the activities and educational purposes of the University of South Florida and of the USF Financing Corporation by assisting in acquiring facilities and constructing facilities on the University campus and in general furthering the University s educational mission 18 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 gt The USF Health Professions F f 39 C m rnh39 n was Lquot J to provide educational i administrative logistical and nancial services to support the USF Health s Office of Continuing Professional Development OCPD The OCPD is committed to sponsoring quality continuing educational activities to meet the needs of USF faculty alumni and health care professionals practicing throughout the State nationally and internationally Pamg Pmm Plan The University Medical Service Association Inc a Faculty Practice Plan as provided for in Board of Governors Regulation 6C79017 provides educationally oriented clinical practice settings and opportunities through which faculty members provide health and medical care to patients as an integral part of their academic activities and their employment as faculty Because these faculty practice activities generate income the University is authorized to regulate fees generated from faculty practice and maintain the Faculty Practice Plan for the orderly collection and distribution of fees Basis of Presentation The University s accounting policies conform with accounting principles generally accepted in the United States of America applicable to public colleges and universities as prescribed by the Governmental Accounting Standards Board GASB The National Association of College and University Business Officers NACUBO also provides the University with recommendations prescribed in accordance with generally accepted accounting principles promulgated by GASB and the Financial Accounting Standards Board FASB GASB allows public universities various reporting options The University has elected to report as an entity engaged in only businessitype activities This election requires the adoption of the accrual basis of accounting and entitywide reporting including the following components gt Management s Discussion and Analysis gt Basic Financial Statements 0 Statement of Net Assets 0 Statement of Revenues Expenses and Changes in Net Assets 0 Statement of Cash Flows 0 Notes to Financial Statements Basis of Accounting Basis of accounting refers to when revenues expenses and related assets and liabilities are recognized in the accounts and reported in the financial statements Specifically it relates to the timing of the measurements made regardless of the measurement focus applied The University s financial statements are presented using the economic resources measurement focus and the accrual basis of accounting Revenues expenses gains losses assets and liabilities resulting from exchange and exchangeilike transactions are recognized when the exchange takes place Revenues expenses gains losses 19 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 assets and liabilities resulting from nonexchange activities are generally recognized when all applicable eligibility requirements including time requirements are met The University s discretely presented component units use the accrual basis of accounting whereby revenues are earned and expenses are recognized when incurred Some follow GASB standards of accounting and nancial reporting and some such as the University of South Florida Foundation Inc follow FASB standards of accounting and nancial reporting for notiforipro t organizations The University follows FASB statements and interpretations issued after November 30 1989 unless those pronouncements con ict with GASB pronouncements Interdepartmental sales between auxiliary service departments and other institutional departments have been accounted for as reductions of expenses and not revenues of those departments The University39s principal operating activities consist ofinstruction research and public service Operating revenues and expenses generally include all scal transactions directly related to these activities as well as administration operation and maintenance of capital assets and depreciation on capital assets Nonoperating revenues include State appropriations Federal and State student nancial aid investment income net of unrealized gains or losses on investments and revenues for capital construction projects Interest on capital assetirelated debt is a nonoperating expense The statement of net assets is presented in a classi ed format to distinguish between current and noncurrent assets and liabilities When both restricted and unrestricted resources are available to fund certain programs it is the University s policy to rst apply the restricted resources to such programs followed by the use of the unrestricted resources The statement of revenues expenses and changes in net assets is presented by major sources and is reported net of tuition scholarship allowances Tuition scholarship allowances are the differences between the stated charge for goods and services provided by the University and the amount that is actually paid by a student or a third party making payment on behalf of the student The University applied The Alternate Method as prescribed in NACUBO Advisory Report 2000705 to determine the reported net tuition scholarship allowances Under this method the University computes these amounts by allocating the cash payments to students excluding payments for services on a ratio of total aid to the aid not considered to be thirdiparty aid The statement of cash flows is presented using the direct method in compliance with GASB Statement No 9 Repom39ng Cam7 Fmwfor Proprielay and N onmpmdube T7715 quir 20 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Capital Assets University capital assets consist ofland buildings construction in progress infrastructure and other improvements furniture and equipment property under capital lease library resources works of art and historical treasures and other capital assets These assets are capitalized and recorded at cost at the date of acquisition or at estimated fair value at the date received in the case of gifts and purchases of State surplus property Additions improvements and other outlays that significantly extend the useful life of an asset are capitalized Other costs incurred for repairs and maintenance are expensed as incurred The University has a capitalization threshold of 1000 for tangible personal property and 100000 for buildings and other improvements Depreciation is computed on the straight7line basis over the following estimated useful lives gt Buildings 7 15 to 40 years Depending on Construction Property Under Capital Lease 7 50 years Infrastructure and Other Improvements 7 20 years Furniture and Equipment 7 3 to 20 years Library Resources 710 years gt Computer Software 7 3 to 5 years Noncurrent Liabilities Noncurrent liabilities include principal amounts of bonds payable installment purchases payable capital leases payable self7insurance claims payable compensated absences payable and postemployment health care benefits payable that are not scheduled to be paid within the next scal year Bonds payable are reported net of unamortized premium or discount and deferred losses on refunding The University ainortizes bond premiums and discounts over the life of the bonds using the straight7line method Deferred losses on refundings are amortized over the life of the old debt or new debt whichever is shorter using the straight7line method Issuance cost paid from the debt proceeds are reported as deferred charges and are amortized over the life of the bonds using the straight7line method 2 CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand cash in demand accounts and cash in money market accounts University cash deposits are held in banks qualified as public depositories under Florida law All such deposits are insured by Federal depository insurance up to specified limits or collateralized with securities held in Florida39s multiple nancial institution collateral pool required by Chapter 280 Florida Statutes Cash and cash equivalents that are externally restricted to make debt service payments maintain sinking or reserve funds or to purchase or construct capital or other restricted assets are classified as restricted 21 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 3 INVESTMENTS Section 1011426 Florida Statutes authorizes universities to invest funds with the State Treasury and State Board of Administration and requires that universities comply with the statutory requirements governing investment of public funds by local governments Accordingly universities are subject to the requirements of Chapter 218 Part IV Florida Statutes Pursuant to Section 21841516 Florida Statutes the University is authorized to invest in the Local Government Surplus Funds Trust Fund investment pool administered by the State Board of Administration interestibearing time deposits and savings accounts in quali ed public depositories as de ned in Section 28002 Florida Statutes direct obligations of the United States Treasury obligations of Federal agencies and instrumentalities securities of or interests in certain openiend or closediend management type investment companies Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency and other investments approved by the University s Board of Trustees as authorized bylaw Investments set aside to make debt service payments maintain sinking or reserve funds or to purchase or construct capital assets are clas sified as restricted The University s investments at June 30 2008 are reported at fair value as follows Investment Type Amount United States Government Obligations 7535501 Federal Agency Obligations 5678362 Bonds and Notes 5732747 Stocks and Other Equity Securities 3151162 Bond Index Mutual Fund 199682175 Money Market Mutual Funds 25677643 Total Universitylnvestments 247457590 22 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 The University s discretely presented component units investments at June 30 2008 are reported at fair value as follows Investment Type University of University of University of USF University Total Sou h Florida South Florida South Florida Financing Medical Foundation Alumni search Corporation Service Inc Association Foundation Association Inc lnc Inc US Government Obligations 5799464 5799464 Federal Agency Obligations 313 313084 Bonds and Notes 3603883 3603883 Stocks and Other Equity Securities 2390978 2390978 Investment Agreements 45712509 278915 969632 1031141 47992197 Mutual Funds Equi ies 240851657 1648125 5729625 14639108 262868515 136853997 1044128 1887510 2007245 141792880 2959897 18850 5725938 88257863 1189515 98152063 Total Component Units Investments 426378060 2990018 14 705 88257863 30974418 562913064 Bonds Money Market Mutal Funds Other Investments The University s investments which include those ofits blended component unit the Medical Professional Liability SelfAInsurance Program and investments of the University of South Florida Research Foundation Inc Research Foundation a discretely presented component unit consisted of various debt securities and debt equities and money market mutual funds The University s investment policy the Medical Professional Liability SelfAInsurance Program s investment policy and the Research Foundation s investment policy allow investments in cash and cash equivalents equities and fixed income investments The following risks apply to the University Medical Professional Liability SelfAInsurance Program and Research Foundation s investments Inlerm Rule and Credit Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment The University Medical Professional Liability SelfAInsurance Program and the Research Foundation investment policies limit the fixed income portfolio United States Treasury securities United States government agency obligations mortgageibased securities corporate debt State and municipal securities investments to a weighted average duration ofless than five years The University and Research Foundation s investment policies provide for interest rate risk The risk varies depending on the type of investment 23 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Credit risk is the risk that an insurer or other counterparty to an investment will not ful ll its obligations The Medical Professional Liability SelfiInsurance Prograin s investment policy provides that all xed income securities investments shall be rated in the top three rating classi cations as de ned by both Moody s and Standard and Poor s The University and Research Foundation investment policies provides for credit rate risk The risk varies depending on the type ofinvestment The following interest rate and credit risks apply to the University Medical Professional Liability SelfiInsurance Program and Research Foundation s investments in debt securities and mutual funds at June 30 2008 University Debt Investment Maturity and Quality Ratings Investment Type Weighted or Credit Quality Range Fair Effective Average Moodys Standard Value Maturities and Poor39s United States Governmental Obligations 473 Years 2 1 1 7535501 Federal Agency Obligations 558 Years 2 Not Rated Not Rated 403865 Federal Agency Obligations 558 Years 2 Aaa AAA 5274497 Bonds and Notes 306 years 2 Aa2 A3 AA A 5732747 Bond Index Mutual Fund 250 years 2 Not Rated Not Rated 199682175 Money Market Mutual Fund 57 Days 3 Not Rated Not Rated 25174601 Money Market Mutual Fund 1904 Days 3 Aaa AAAm 503042 Total 244306428 Notes 1 Disclosure of credit risk is not required for this investment type 2 Weighted average maturity 3 Effective average maturity University of South Florida Research Foundation Inc Investment Maturity InvestmentType Investment Maturities In Years Fair Less Than 6 10 Value 1 Mutual Funds Equities 5729625 5729625 Bonds 1887510 84677 1802833 Money Market Mutual Funds 5725938 5725938 Total 13343073 11540240 1802833 24 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 University of South Florida Research Foundation Inc Quality Ratings 1 Investment Type Fair AAA AA A Less Than A Value or Not Rated Mutual Funds 1887510 401508 190468 259204 1036330 Money Market Mutual Funds 5725938 5660409 65529 Total 7613448 6061917 190468 259204 1101859 Note 1 Rated by Standard and Poor39s leodz39a Credit Risk Custodial credit risk is the risk that in the event of the failure of the counterparty the value of investments or collateral securities in the possession of an outside party will not be recoverable Expo sure to custodial risk relates to investments that are held by someone other than the University and not registered in their names All investments for the Medical Professional Liability SelfiInsurance Program are held in counterparty accounts as custodian Commlmlz39on ofCredz39l Rz39xe Concentration of credit risk is the risk of loss attributed to the magnitude of the University s investment in a single issuer The University Medical Professional Liability SelfiInsurance Program and the Research Foundation investment policies provide that the maximum amount that may be invested in the securities of an individual issuer not backed by the full faith and credit of the US Government shall not exceed five percent of the assets of the investment portfolio Direct investments in securities of the US Government Government agencies and State of Florida Investment Pools or Pooled Funds comprised solely of US Government Securities are not subject to these restrictions for the University and the Research Foundation 4 RECEIVABLES Accounts Receivable Accounts receivable represent amounts for student tuition and fees contract and grant reimbursements due from third parties various sales and services provided to students and third parties and interest accrued on investments and loans receivable As of June 30 2008 the University reported the following amounts as accounts receivable Description Amount Contracts and Grants 53467998 Student Tuition and Fees 6051848 Other 5281580 Total Accounts Receivable Net 64801426 25 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Loans and Notes Receivable Loans and notes receivable represent all amounts owed on promissory notes from debtors including student loans made under the Federal Perkins Loan Program and other loan programs for IT quot 39 Aquot for quot quot accounts and loans and notes receivable are reported based upon management s best estimate as of scal yeariend considering type age collection history and other factors considered appropriate Accounts receivable and loans and notes receivable are reported net of allowances of8153812 and 2144456 respectively atJune 30 2008 No allowance has been accrued for contracts and grants receivable University management considers these to be fully collectible 5 DUE FROM STATE This amount primarily consists of Public Education Capital Outlay Alec P Courtelis Capital Facility Matching Trust Fund Capital Improvement Fee Trust Fund or other allocations due from the State to the University for construction of University facilities 6 DUE FROM AND TO COMPONENT UNITSUNIVERSITY The 21837777 reported as due from component units represents amounts owed by the University of South Florida Foundation Inc 10115733 for the Alec P Courtelis Facility Matching Gift funds and bond interest rate swap by the Sun Dome Inc 174167 to the University for utilities of the golf course auxiliary and baseball elds and wages for one employee and amounts due from the University of South Florida Research Foundation Inc 11547877 for grant and special projectirelated deferred revenue and administrative overhead rebate The 76688779 reported as due to component units represents amounts owed by the University to the USF Financing Corporation for construction and financing of buildings and pledged revenues 68215757 amounts owed to the University Medical Service Association Inc 1669225 for overpayments of partial funding of faculty salaries and other operating expenses at USF Health and amounts owed to the University of South Florida Medical Support Services Corporation 6803797 for pledged construction funding 7 INVENTORIES Inventories have been categorized into the following two types gt Departmental Inventories 7 Those inventories maintained by departments and not available for resale Departmental inventories are comprised of such items as classroom and laboratory supplies teaching materials and office supply items which are consumed in the teaching and work process 26 FEBRUARY 2009 REPORT NO 2009136 8 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 These inventories are normally expensed when purchased and therefore are not reported on the statement of net assets gt Merchandise Inventory 7 Those inventories maintained which are available for resale to individuals and other University departments and are not expensed at the time of purchase These inventories are reported on the statement of net assets and are valued at cost using either the moving average method or the firstein firsteout metho CAPITAL ASSETS Capital assets activity for the scal year endedJune 30 2008 is shown below Description Beginning Additions Reductions Ending Balance Balance Nondepreciable Capital Assets Land 11150534 11150534 Construction in Progress 39934115 35398125 61563376 13768864 Works of Art and Historical Treasures 571358 107746 679104 Total Nondepreciable Capital Assets 51656007 35505871 61563376 25598502 Depreciable Capital Assets d Buil IngS 706901735 47212763 122416 753992082 Infrastructure and Other Improvements 47514642 17921748 65436390 Furniture and Equipment 214321199 26269830 17852727 222738302 Library Resources 35767082 659311 36426393 Property Under Capital Lease 13200000 13200 000 Other Capital Assets 29445708 1717955 70514 31093149 Total Depreciable Capital Assets 1047150366 93781607 18045657 1122886316 Less Accumulated Depreciation Buildings 248862470 19983747 49731 268796486 Infrastructure and Other Improvements 23469408 2752942 26222350 Furniture and Equipment 146922161 17555105 14859486 149617780 Library Resources 15532998 3587085 19120083 Property Under Capital Lease 814000 264000 1078000 Other Capital Assets 17461952 1859685 18211 19303426 Total quot I 39 quot 453062989 46002564 14927428 484138125 Total Depreciable Capital Amt Net 594087377 47779043 3118229 638748191 DEFERRED REVENUE Deferred revenue includes Public Education Capital Outlay and Alec P Courtelis Matching Trust Fund appropriations for which the University had not yet received approval from the Florida Department of Education as of June 30 2008 to spend the funds and amounts received from contracts and grants and student tuition and fees received prior to fiscal year end related to subsequent accounting periods As of June 30 2008 the University reported the following amounts as deferred revenue 27 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Description Amount Contracts and Grants 41528333 Capital Appropriations 10403964 Student Tuition and Fees 4434665 Total Deferred Revenue 56366962 10 L0 NGTERM LIABILITIES Longeterm liabilities of the University at June 30 2008 include bonds installment purchases capital leases selfeinsurance claims compensated absences and postemployment health care bene ts payable Longeterm liabilities activity for the scal year endedJune 30 2008 is shown below Description Beginning Additions Reductions Ending Current Balance Balance Portion Bonds Payable 71236866 4278232 66958634 4420554 Installment Purchases Payable 2204296 989275 1215021 715021 Capital Leases Payable 12195000 535000 11660000 560000 Estimated Insurance Claims 19341719 5401367 13940352 1259151 Compensated Absences Payable 59429430 405462 5447383 54387509 4974447 Postemployment Health Care Bene ts Payable 4215000 4215000 Total LongTerm Liabilities 164407311 4620462 16651257 152376516 11929173 Bonds Payable Auxiliary revenue bonds were issued to construct student parking garages and a bookstore Auxiliary bonds outstanding which include both term and serial bonds are secured by a pledge of traf c and parking fees and bookstore revenues State University System bonds were issued to acquire and construct various University facilities These bonds are secured by and payable from capital improvement and building fees which are remitted to the State Board of Education to be used to retire the bonds The State Board of Education and the State Board of Administration administer the principal and interest payments investments of sinking fund resources and compliance with reserve requirements 28 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 The University had the following bonds payable outstanding atJune 30 2008 Bond Type and Series Amount Amount Interest Maturity of Original Outstanding Rates Date Issue 1 Percent To Auxiliary Revenue Bonds 1994 Bookstore 8090000 4371108 590 600 2016 2002 Parking 12700000 10247496 310 475 2023 2004A Parking 16000000 13187715 300 500 2024 2006A Parking 17020000 15944098 410 500 2026 Total Auxiliary Revenue Bonds 53810000 43750417 State University System Revenue Bonds 1997A Series 9949528 7393316 463 500 2016 1998 Series 1753378 1249087 440 500 2023 2001 Series 488037 398674 400 500 2026 2003A Series 9390370 4934645 500 2013 2005A Series 5656690 4938743 3625 4125 2022 2006A Series 4371625 4293752 400 500 2030 Subtotal 31609628 23208217 Total State University System Revenue Bonds 85419628 66958634 Note 1 Amount outstanding includes unamortized bond discounts and premiums and deferred losses on refunding issues Annual requirements to amortize all bonded debt outstanding as ofJune 30 2008 are as follows Fiscal Year Ending June 30 Principal Interest Total 2009 4420554 2974452 7395006 2010 4614946 2789339 7404285 2011 4822416 2592703 7415119 2012 5032748 2385358 7418106 2013 5269494 2165988 7435482 20142018 20098349 7556956 27655305 20192023 16537469 3659896 20197365 20242027 5781160 704689 6485849 20282030 582834 44065 626899 Subtotal 67159970 24873446 92033416 Less Net Bond Discounts Premiums and Losses on Bond Refundings 201336 201336 Total 66958634 24873446 91832080 29 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Installment Purchases Payable The University has entered into several installment purchase agreements for the purchase of equipment reported at 1810043 and a conference membership of 2500000 The stated interest rates ranged from zero percent to 28 percent Future minimum payments remaining under installment purchase agreements and the present value of the minimum payments as ofJune 30 2008 are as follows Fiscal Year Ending June 30 Amount 2009 715392 2010 500000 Total Minimum Payments 1215392 Less Amount Representing Interest 371 Present Value of Minimum Payments 1215021 Capital Lease Payable The Athletic Facility building in the amount of 132 million is being acquired under a capital lease agreement The stated interest rate is 45 percent Future minimum payments under the capital lease agreement and the present value of the minimum payments as ofJune 30 2008 are as follows Fiscal Year Ending June 30 Amount 2009 1072100 2010 1071337 2011 1069450 2012 1071325 2013 1071850 20142018 5348300 20192023 5320188 Total Minimum Payments 16024550 Less Amount Representing Interest 4364550 Present Value of Minimum Payments 11660000 Absences PaVable F r earn the right to be compensated during absences for annual leave vacation and sick leave earned pursuant to Board of Governors Regulation 6C75920 and USF Rules USF710104 and USF710203 and pursuant to union bargaining agreements Leave earned is accrued to the credit of the employee and records are kept on each employee39s unpaid unused leave balance The University reports a liability for the accrued leave however State appropriations fund only the portion of accrued leave that is used or paid in the current scal year Although the University expects the liability to be funded primarily from future appropriations generally accepted accounting principles do not permit the recording of a receivable in anticipation of future appropriations At June 30 2008 the estimated liability for 30 FEBRUARY 2009 REPORT NO 2009136 H H UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 compensated absences which includes the University s share of the Florida Retirement System and FICA contributions totaled 54387509 The current portion of the compensated absences liability is based on actual payouts over the last three years calculated as a percentage of those years total compensated absences liability POSTEMPLOYMENT HEALTH CARE BENEFITS Effective for the 200708 scal year the University implemented Governmental Accounting Standards Board Statement No 45 Awaimlz39ng and Finamz39a Repom39ng by Empojemfor Poxlemplojmml Bem lx Olliequot Tim Pensions for certain postemployment health care bene ts administered by the State Group Health Insurance Program The requirements of this Statement are being implemented prospectively with the actuarially determined liability of 109667000 at the July 1 2007 date of transition amortized over 30 years Accordingly for nancial reporting purposes no liability is reported for the postemployment health care bene ts liability at the date of transition Plan Descrigtion Pursuant to the provisions of Section 1120801 Florida Statutes all employees who retire from the University are eligible to participate in the State Group Health Insurance Program an agent multipleiemployer de nedibene t plan The University subsidizes the premium rates paid by retirees by allowing them to participate in the plan at reduced or blended group implicitly subsidized premium rates for both active and retired employees These rates provide an implicit subsidy for retirees because on an actuarial basis their current and future claims are expected to result in higher costs to the plan on average than those of active employees A standialone report is not issued and the Plan information is not included in the report ofa public employee retirement system or another entity Retirees are required to enroll in the Federal Medicare program for their primary coverage as soon as they are eligible Funding Policy Bene ts provisions are pursuant to Section 1120801 Florida Statutes and bene ts and contributions can be amended by the Florida Legislature The University has not advanceifunded or established a funding methodology for the annual Other Postemployment Bene t OPEB costs or the net OPEB obligation For the 200708 scal year 721 retirees received postemployment health care bene ts The University provided required contributions of 3268000 toward the annual OPEB cost comprised of bene t payments made on behalf of retirees for claims expenses net of reinsurance administrative expenses and reinsurance premiums Retiree contributions totaled 4843000 Annual OPEB Cost and Net OPEB Obligation The University s annual OPEB cost expense is calculated based on the annual required contribution ARC an amount actuarially determined in accordance with the 1 of C A Standards No 45 Awaimlz39ng and Finamz39a Repom39ng by 31 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Emplyerxfor Poilemplojmml Bem lx Other Than Pensions 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 over a period not to exceed 30 years The following table shows the University s annual OPEB cost for the year the amount actually contributed to the plan and changes in the University s net OPEB obligation Description Amount Normal Cost Service Cost for One Year 3413000 Amortization of Unfunded Actuarial Accrued Liability 3782000 Interest on Normal Cost and Amortization 288000 Annual Required Contribution 7483000 Interest on Net OPEB Obligation Adjustment to Annual Required Contribution Annual OPEB Cost Expense 7483000 Contribution Toward the OPEB Cost 3268000 Increase in Net OPEB Obligation 4215000 Net OPEB Obligation Beginning of Year Net OPEB Obligation End of Year 4215000 The University s annual OPEB cost the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation as ofJune 30 2008 first year ofimplementation was as follows Fiscal Year Annual Percentage of Net OPEB OPEB Cost Annual Obligation OPEB Cost Contributed Beginning Balance July 1 2007 200708 7483000 437 4215000 Funded Status and Funding Progress As ofJuly 1 2007 the most recent actuarial valuation date the actuarial accrued liability for benefits was 109667000 and the actuarial value of assets was 0 resulting in an unfunded actuarial accrued liability of 109667000 The covered payroll annual payroll of active participating employees was 393844424 for the 200708 fiscal year and the ratio of the unfunded actuarial accrued liability to the covered payroll was 278 percent Actuarial Methods and Assumgtions 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 and termination mortality and health care cost trends Amounts determined regarding the funded status of the plan and the annual required contributions 32 FEBRUARY 2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future Projections of bene ts for nancial reporting purposes are based on the substantive plan provisions as understood by the employer and participating members and include the types of bene ts provided at the time of each valuation and the historical pattern of sharing of bene t costs between the employer and participating members The actuarial methods and assumptions used include techniques that are designed to reduce the effects of shortiterm volatility in actuarial accrued liabilities and the actuarial value of assets consistent with the longiterm perspective of the calculations The University s initial OPEB actuarial valuation as ofJuly 1 2007 used the entry age cost actuarial method to estimate the unfunded actuarial liability as ofJune 30 2008 and the estimated 2007708 scal year annual required contribution This method was selected because it is the same method used for the valuation of the Florida Retirement System Because the OPEB liability is currently unfunded the actuarial assumptions included a 4 percent rate of return on invested assets The actuarial assumptions also included a payroll growth rate of 4 percent per year Initial health care cost trend rates for employees not covered by Medicare of 96 percent grading to 55 percent in half percent steps after nine years and for employees covered by Medicare of 91 percent grading to 55 percent in half percent steps after eight years were used The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis The remaining amortization period at June 30 2008 was 29 years CERTIFICATES OF PARTICIPATION COMPONENT UNITS On May 25 2005 the USF Financing Corporation issued 47995000 Certi cates of Participation Series 2005A and 92250000 Certi cates of Participation Series 2005B The proceeds derived from the issuance of the certi cates were used to 1 nance the acquisition and construction of a housing and parking facility at the University of South Florida St Petersburg campus 2 pay certain expenses related to the issuance and sale of the 2005 Certi cates including the nancial guaranty insurance policy premium and 3 redeem the outstanding principal for the University s prior housing facilities OnJanuary 19 2006 the USF Financing Corporation issued 41610000 Certi cates of Participation Series 2005C The proceeds derived from the issuance of the certi cates were used to 1 nance the construction of a new Marshall Center a student center and 2 pay certain expenses related to the issuance and sale of the Series 2005C Certi cates including the nancial guaranty insurance policy premium On March 16 2006 the USF Financing Corporation issued 47315000 Certi cates of Participation Series 2006A The proceeds derived from the issuance of the certi cates were used to 1 nance the acquisition and construction of two fullyiequipped medical of ce buildings consisting of the North Clinic Facility and 33 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 the South Clinic Facility and 2 pay certain expenses related to the issuance and sale of the Series 2006A Certi cates On September 25 2007 the USF Financing Corporation issued 73700000 Certi cates of Participation Series 2007 Housing The proceeds derived from the issuance of the certi cates were used to 1 nance the costs of acquisition construction and installation of the 2007 Housing Project 2 fund a Capitalized Interest Account and 3 pay certain expenses related to the issuance and sale of the 2007 Certi cates including the nancial guaranty insurance policy premium On November 19 2007 the USF Financing Corporation issued 22830000 Certi cates of Participation Series 2007 Health The proceeds derived from the issuance of the certi cates were used to 1 provide funds for the purpose of nancing the acquisition construction installation and equipping of a medical of ce building located on the University s Tampa Campus 2 fund a Capitalized Interest Account and 3 pay certain expenses related to the issuance and sale of the 2007 Certi cates The Series 2005A and 2005B Certi cates were issued pursuant to a Master Trust Agreement dated as of May 1 2005 as supplemented by the Series 2005 Supplemental Trust Agreement dated as of May 1 2005 by and among a Trustee the USF Property Corporation as lessor and the USF Financing Corporation as lessee The Series 2005C Certi cates were issued pursuant to a Master Trust Agreement dated as of May 1 2005 as supplemented by the Series 2005C Supplemental Trust Agreement dated as of December 12005 by and among a Trustee the USF Property Corporation as lessor and the USF Financing Corporation as lessee The Series 2006A Certi cates were issued pursuant to a Master Trust Agreement dated as of March 1 2006 as supplemented by the Series 2006 Supplemental Trust Agreement dated as of March 1 2006 by and among a Trustee the USF Property Corporation as lessor and the USF Financing Corporation as lessee The Series 2007 Certi cates Housing were issued pursuant to a Master Trust Agreement dated May 1 2005 as supplemented by the Series 2007 Supplemental Trust Agreement dated as of September 1 2007 by and among a Trustee the USF Property Corporation as lessor and the USF Financing Corporation as lessee The Series 2007 Certi cates Health were issued pursuant to a Master Trust Agreement dated March 1 2006 as supplemented by the Series 2007 Supplemental Trust Agreement dated as of November 1 2007 by and among a Trustee the USF Property Corporation as lessor and the USF Financing Corporation as lessee For the Series 2005A and Series 2005B Certi cates the USF Property Corporation has entered into a Ground Lease Agreement dated as of May 1 2005 with the University Board of Trustees whereby the 34 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 University has leased to the USF Property Corporation the land on which the housing and parking facilities are located All of the right title and interest of the USF Property Corporation in the Ground Lease Agreement including the right of the USF Property Corporation to receive lease payments to use sell and relet properties and to exercise remedies thereunder have been irrevocably assigned by the USF Property Corporation to the Trustee For the Series 2005C Certi cates the USF Property Corporation has entered into a First Ground Lease Supplement dated as of December 1 2005 with the University Board of Trustees whereby the University has leased to the USF Property Corporation the land on which the Marshall Center is located All of the right title and interest of the USF Property Corporation in the Ground Lease Agreement including the right of the USF Property Corporation to receive lease payments to use sell and relet properties and to exercise remedies thereunder have been irrevocably assigned by the USF Property Corporation to the Trustee For the Series 2006A Certi cates the USF Property Corporation has entered into a Ground Lease Agreement dated as of March 1 2006 with the University Board of Trustees whereby the University has leased to the USF Property Corporation interest in the lands on which the North Clinic Facility and the South Clinic Facility were constructed With respect to the South Clinic Facility site the University Board of Trustees possesses sublease interest in the site pursuant to a sublease dated March 15 2006 between the University and Florida Health Science Center Inc dba Tampa General Hospital whereby Tampa General Hospital has subleased to the University the land on which the South Clinic Facility was constructed The USF Financing Corporation has subleased both the North Clinic Facility and the South Clinic Facility to the University of South Florida Medical Services Support Corporation MSSC a directisupport organization of the University pursuant to individual of ce building lease agreements each dated March 1 2006 The University Medical Service Association Inc UMSA a directisupport organization of the University has guaranteed all payments due from MSSC to the USF Financing Corporation under both Facility Lease Agreements pursuant to a Lease Guaranty dated March 1 2006 between UMSA and the USF Financing Corporation The USF Financing Corporation s right to receive all payments received from MSSC under the Facility Lease Agreements and any payments required to be made by UMSA under the Lease Guaranty are collaterally assigned to the Trustee pursuant to one or more separate assignments All of the right title and interest of the USF Property Corporation in the Ground Lease Agreement including the right of the USF 3 5 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Property Corporation to receive lease payments to use sell and relet properties and to exercise remedies thereunder have been irrevocably assigned by the USF Property Corporation to the Trustee To provide credit enhancement for the Series 2006A Certi cates a counterparty has issued and delivered to the Trustee two separate irrevocable directipay Letters of Credit pursuant to a Reimbursement Agreement by and among the counterparty the USF Financing Corporation and the USF Property Corporation dated March 1 2006 Under each of the Letters of Credit the Trustee will be entitled to draw up to an amount suf cient to pay 100 percent of the principal amount of the Series 2006A Certi cates plus interest as applicable The USF Financing Corporation and the USF Property Corporation agree in the Reimbursement Agreement to reimburse the counterparty for drawings made on either of the Letters of Credit and to make certain other payments to the counterparty For the Series 2007 Certi cates Housing the USF Property Corporation has entered into a Ground Lease Agreement dated as of September 1 2007 with the University Board of Trustees whereby the University has leased to the USF Property Corporation the land on which the Magnolia Residence Hall is located All of the right title and interest of the USF Property Corporation in the Ground Lease Agreement including the right of the USF Property Corporation to receive lease payments to use sell and relet properties and to exercise remedies thereunder have been irrevocably assigned by the USF Property Corporation to the Trustee Until March 20 2008 the payment of regularly scheduled principal and interest on the Series 2007 Certi cates were guaranteed under the terms of a nancial guaranty policy The certi cates are now secured pursuant to a Letter of Credit issued by a counterparty For the Series 2007 Certi cates Health the USF Property Corporation has entered into a Ground Lease Agreement dated as of November 1 2007 with the University Board ofTrustees whereby the University has leased to the USF Property Corporation interest in the lands on which the Medical Of ce Building is being constructed The USF Financing Corporation has subleased the Medical Of ce Building to MSSC pursuant to a facility lease agreement dated November 1 2007 To provide credit enhancement for the Series 2007 Certi cates Health a counterparty has issued and delivered to the Trustee an irrevocable directipay Letter of Credit pursuant to a Letter of Credit Agreement by and among the counterparty the USF Financing Corporation and the USF Property Corporation dated November 1 2007 Under the Letter of Credit the Trustee is entitled to draw up to an amount suf cient to pay 100 percent of the principal amount of the Series 2007 Certi cates plus interest as applicable The USF Financing Corporation and the USF Property Corporation agree in the Letter of Credit Agreement to 36 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 reimburse the counterparty for drawings made under the Letter of Credit and to make certain other payments to the counterparty The Series 2005A xed rate Certi cates bear a true interest cost to maturity of 4196 percent The Series 2005B variable rate Certi cates will initially bear interest at auction rates for generally successive seveniday auction periods The Series 2005C xed rate Certi cates bear a true interest cost to maturity of 4557 percent The Series 2006A variable rate Certi cates the Series 2007 variable rate Certi cates Housing and the Series 2007 variable rate Certi cates Health which have been hedged to limit the effect of changes in interest rates bear a true interest cost to maturity of 3918 percent 3582 percent and 3714 percent respectively The Series 2005A Certi cates mature in 2023 the Series 2005B Certi cates mature in 2035 the Series 2005C Certi cates and Series 2006A Certi cates mature in 2036 and the Series 2007 Certi cates Housing and the Series 2007 Certi cates Health mature in 2037 Principal and interest payments requirements on the Certi cates of Participation outstanding as of June 30 2008 are as follows Fiscal Year Ending June 30 Principal Interest Total 2009 2905000 12352297 15257297 2010 4590000 12238574 16828574 2011 6730000 12053848 18783848 2012 6960000 11821855 18781855 2013 7195000 11559744 18754744 20142018 40710000 53110865 93820865 20192023 49910000 43947030 93857030 20242028 60960000 32967297 93927297 20292033 74105000 20 236 200 94341200 20342038 67850000 5419910 73269910 Subtotal 321915000 215707620 537622620 Add Net Premiums and Discounts 1277970 1277970 Total 1 323192970 215707620 538900590 Note 1 This total plus 11660000 of Certi cates of Participation Payable for the University of South Florida Foundation Inc comprise the total 334852970 of Certi cates of Participation Payable reported under the component units column on the Statement of Net Assets To reduce the USF Financing Corporation s risk ofinterest rate changes with respect to the Series 2005B Certi cates on May 18 2005 the USF Financing Corporation entered into an interest rate swap agreement with a counterparty with a total notional amount of 80000000 The effect of the agreement is to limit the 37 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 interest expense to 32195 percent on 80000000 of the total 92250000 principal in variable rate Series 2005B Certi cates The swap agreement expires July 1 2015 On March 8 2006 the USF Financing Corporation entered into an interest rate swap agreement with a counterparty to limit the effects of changes in interest rates on the Series 2006A Certi cates The initial notional amount of the swap agreement is 47315000 The effect of the agreement is to limit the interest expense to 3578 percent on the total 47315000 principal in variable rate Series 2006A Certificates The swap agreement expiresJuly 1 2016 On September 13 2007 the USF Financing Corporation entered into an interest rate swap agreement with a counterparty to limit the effects of changes in interest rates on the Series 2007 Certificates Housing The initial notional amount of the swap agreement is 73700000 The effect of the agreement is to limit the interest expense to 3537 percent on the total 73700000 principal in variable Series 2007 Certificates Housing The swap agreement expires July 1 2037 On March 24 2008 the USF Financing Corporation and the counterparty amended the interest rate swap agreement increasing the fixed rate to 3552 percent on the Series 2007 Certificates Housing through the remaining term of the swap agreement On November 1 2007 the USF Financing Corporation entered into an interest rate swap agreement with a counterparty to limit the effects of changes in interest rates on the Series 2007 Certificates Health The initial notional amount of the swap agreement is 22830000 The effect of the agreement is to limit the interest expense to 3397 percent on the total 22830000 principal in variable Series 2007 Certificates Health The swap agreement expires July 1 2018 The fair value of the swap agreements is the estimated amount the USF Financing Corporation would receive or pay to terminate the agreement at the reporting date taking into account the current interest rates and the current creditworthiness of the counterparties The USF Financing Corporation swap agreements had a cumulative negative fair value of 9119898 which represents the amount to be paid to terminate the agreements at the reporting date As ofJune 30 2008 the USF Financing Corporation was not exposed to credit risk on its outstanding swap agreements because the swap agreements had a negative fair value However should interest rates change and the fair value of the swap agreements become positive the USF Financing Corporation would be exposed to credit risk in the amount of the derivative s fair value The USF Financing Corporation is exposed to the risk basis risk that a mismatch occurs between the interest cost of the underlying variable rate certificates and the variable rate payment received on the 38 FEBRUARY 2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 associated interest rate swap agreement The USF Financing Corporation mitigates this risk by analyzing potential debt and swap interest rate index structures to ensure an effective hedge of the cash flows and tracks the spread of certificate rates paid to the hedged rates typically a few basis points The USF Financing Corporation is exposed to the risk rollover risk that the interest rate swap agreements or letters of credit mature prior to the termination of the variable rate debt The USF Financing Corporation mitigates this risk by assessing years in advance of the maturity of these items the amount of variable rate debt then outstanding and makes provisions for extending these items Maintaining strong credit ratings for the USF Financing Corporation and the underlying bond system plays an important role in this process Mitigation is also provided with annual extensions of the termination date of the letters of credit The USF Financing Corporation is exposed to the risk termination risk that the interest rate swap agreements could be terminated by the counterparty The USF Financing Corporation mitigates this risk with interest rate swap agreements that restrict termination by the counterparty and if terminated posted collateral assets would provide a liquid offset The USF Financing Corporation has an option to terminate the swap agreement and in the case of the USF Financing Corporation owing a termination payment to the counterparty the University would use cash balances or funds provided by the refinanced transaction RETIREMENT PROGRAMS Florida Retirement System The Florida Retirement System FRS is primarily a Stateiadministered costisharing multipleiemployer defined benefit retirement plan Plan FRS provisions are established by Chapters 121 and 122 Florida Statutes Chapter 112 Part IV Florida Statutes Chapter 238 Florida Statutes and Florida Retirement System Rules Chapter 60S Florida Administrative Code wherein eligibility contributions and benefits are defined and described in detail Essentially all regular employees of participating employers are eligible to enroll as members of the FRS Benefits in the Plan vest at 6 years of service All members are eligible for normal retirement benefits at age 62 or at any age after 30 years of service which may include up to 4 years of credit for military service The Plan also includes an early retirement provision but imposes a penalty for each year a member retires before his or her normal retirement date The Plan provides retirement disability and death benefits and annual costiofiliving adjustments A Deferred Retirement Option Program DROP subject to provisions of Section 121091 Florida Statutes permits employees eligible for normal retirement under the Plan to defer receipt of monthly benefit payments while continuing employment with an FRS employer An employee may participate in the DROP 39 FEBRUARY2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 for a period not to exceed 60 months after electing to participate During the period of DROP participation deferred monthly bene ts are held in the FRS Trust Fund and accrue interest The State of Florida establishes contribution rates for participating employers Contribution rates during the 200708 scal year were as follows Class or Plan Percent of Gross Salary Employee Employer A Florida Retirement System Regular 000 985 Florida Retirement System Senior Management Service 000 1312 Florida Retirement System Special Risk 000 2092 Teacher39s Retirement System Plan E 625 1135 Deferred Retirement Option Program Applicable to Members from All of the Above Classes or Plan 000 1091 Florida Retirement System Reemployed Retiree B B Notes A Employer rates include 111 percent for the postemployment health insurance subsidy Also employer rates other than for DROP participants include 05 percent for administrative costs of the Public Employee Optional Retirement Program B Contribution rates are dependent upon retirement class or plan in which reemployed The University39s liability for participation is limited to the payment of the required contribution at the rates and frequencies established by law on future payrolls of the University The University39s contributions including employee contributions for the fiscal years ended June 30 2006 June 30 2007 and June 30 2008 totaled 11279324 14209099 and 14003575 respectively which were equal to the required contributions for each fiscal year Section 1214501 Florida Statutes provides for a Public Employee Optional Retirement Program PEORP The PEORP is a defined contribution plan alternative available to all FRS members in lieu of the FRS defined benefit plan University employees already participating in the State University System Optional Retirement Program or the DROP are not eligible to participate in this program Employer contributions are defined by law but the ultimate benefit depends in part on the performance ofinvestment funds The PEORP is funded by employer contributions that are based on salary and membership class Regular Class Special Risk Class etc Contributions are directed to individual member accounts and the individual members allocate contributions and account balances among various approved investment choices There were 744 University participants during the 200708 fiscal year Required contributions made to the PEORP totaled 2589320 40 FEBRUARY 2009 REPORT NO 2009136 UNIVERSITY OF SOUTH FLORIDA A COMPONENT UNIT OF THE STATE OF FLORIDA NOTES TO FINANCIAL STATEMENTS CONTINUED JUNE 30 2008 Financial statements and other supplementary information of the FRS are included in the State s Comprehensive Annual Financial Report which is available from the Florida Department of Financial Services An annual report on the FRS which includes its nancial statements required supplementary information actuarial report and other relevant information is available from the Florida Department of Management Services Division of Retirement State Univerqitv Svstem Optional Program Section 12135 Florida Statutes provides for an Optional Retirement Program Program for eligible university instructors and administrators The Program is designed to aid State universities in recruiting employees by offering more portability to employees not expected to remain in the FRS for six or more years The Program is a defined contribution plan which provides full and immediate vesting of all contributions submitted to the participating companies on behalf of the participant Employees in eligible positions can make an irrevocable election to participate in the Program rather than the FRS and purchase retirement and death benefits through contracts provided by certain insurance carriers The employing university contributes on behalf of the participant 1043 percent of the participant s salary less a small amount used to cover administrative costs The remaining contribution is invested in the company or companies selected by the participant to create a fund for the purchase of annuities at retirement The participant may contribute by payroll deduction an amount not to exceed the percentage contributed by the university to the participant s annuity account There were 3346 University participants during the 200708 scal year Required employer contributions made to the Program totaled 22873619 and employee contributions totaled 10957947 CONSTRUCTION COMMITMENTS The University s major construction commitments atJune 30 2008 are as follows 41
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