The State University of New York Website address is www.suny.edu Financial Statements and Management’s Discussion and Analysis June 30, 2007 Management’s Discussion and Analysis Management’s discussion and analysis (MD&A) provides a broad overview of the State University of New York’s (State University) financial condition as of June 30, 2007, the results of its operations for the year then ended, and significant changes from the previous year. Management has prepared the financial statements and related footnote disclosures along with this MD&A. The MD&A should be read in conjunction with the audited financial statements and related footnotes of the State University which directly follows the MD&A. For financial reporting purposes, the State University’s reporting entity consists of all sectors of the State University including the university centers, health science centers (including hospitals), colleges of arts and sciences, colleges of technology and agriculture, specialized colleges, statutory colleges (located at the campuses of Cornell and Alfred Universities), and central services, but excluding community colleges. The financial statements also include the financial activity of The Research Foundation of the State University of New York (Research Foundation), which administers the sponsored program activity of the State University, the State University Construction Fund, (Construction Fund), which administers the capital program of the State University, the auxiliary services corporations and foundations located on its campuses. The foundations meet the criteria under the Governmental Accounting Standards Board (GASB) accounting and financial reporting requirements for inclusion in the State University reporting entity. For financial statement presentation purposes, the combined totals of the foundations are not included in the reported amounts of the State University, but are discretely presented on separate pages in the State University’s financial statements, in accordance with display requirements prescribed by the Financial Accounting Standards Board (FASB) for not-for-profit organizations. The focus of the MD&A is on the State University financial information contained in the balance sheet, the statement of revenues, expenses, and changes in net assets, and the statement of cash flows, which exclude the foundations. Foundation financial statement information is presented separately on pages 16 and 17 of the State University’s financial statements. During 2007, the State University adopted GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes standards for the measurement, recognition, and display of other postemployment benefits (OPEB) expenses, the related assets or liabilities and note disclosures in the financial statements. The OPEB cost during the 2007 fiscal year for the State University’s Plan and Research Foundation Plan was $712.5 million and $35 million, respectively. Financial Highlights At June 30, 2007 and 2006, total assets reported by the State University were $10.4 billion and $9.45 billion and total liabilities were $8.14 billion and $7.37 billion, respectively. Net assets, which total $2.27 billion and $2.08 billion at June 30, 2007 and 2006, experienced an increase of $185 million in 2007 compared to 2006. The net assets at June 30, 2007 and 2006 are summarized in the following categories (in thousands): This table has two columns 2007 and 2006. The Net Assets listed are: Invested in capital assets, net of related debt $596,527 and $312,538 Restricted non expendable $246,393 and $229,583 Restricted expendable $914,172 and $769,568 Unrestricted $510,537 and $770,449 Total net assets $2,267,629 and $2,082,138 The change in net assets during 2007 and 2006 was driven by operating and other supporting revenues over expenses and losses. Revenues, expenses, and the change in net assets for the 2007 and 2006 fiscal years are summarized as follows (in thousands): This table has two columns for figures 2007 and 2006 respectively. Operating revenues $4,748,377 and $4,381,490 Non-operating revenues $3,329,085 and $2,782,245 Other revenues $73,010 and $93,985 Total revenues $8,150,472 and $7,257,720 Operating expenses $7,684,624 and $6,689,647 Non-operating expenses $280,357 and $268,672 Total expenses $7,964,981 and $6,958,319 Increase in net assets $185,491 and $299,401 Total revenues reported in 2007 and 2006 were $8.15 billion and $7.26 billion, respectively. Total revenue in 2007 grew $893 million, or 12 percent, compared to the previous year. Revenue growth in 2007 was driven by increases in state appropriation revenue of $451 million, investment income and net realized and unrealized gains of $163 million, hospital and clinic revenue of $191 million, grants and contracts of $80 million, sales and service activities of auxiliary enterprises of $43 million, net tuition and fees of $38 million, and other sources of $12 million. These increases were offset by decreases in gift revenues of $39 million, other nonoperating revenues of $28 million, capital gifts and grants of $12 million, and capital appropriations of $6 million. Total expenses for 2007 and 2006 were $7.96 billion and $6.96 billion, respectively. State University expense growth in 2007 was slightly over $1.0 billion, or 14 percent. Expense growth in 2007 was primarily the result of increases in instruction activity of $290 million, support services of $279 million, hospital and clinic activity of $226 million, depreciation and amortization expense of $60 million, auxiliary enterprises of $56 million, research of $50 million, public service of $23 million, scholarships of $12 million and other nonoperating expenses of $12 million. Overview of the Financial Statements The financial statements of the State University have been prepared in accordance with U.S. generally accepted accounting principles as prescribed by the GASB. The financial statement presentation consists of a balance sheet, statement of revenues, expenses, and changes in net assets, statement of cash flows, and accompanying notes for the June 30, 2007 fiscal year. These statements provide information on the financial position of the State University and the financial activity and results of its operations for the year. A description of these statements follows: The Balance Sheet presents information on all of the State University’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the State University is improving or deteriorating. The Statement of Revenues, Expenses, and Changes in Net Assets presents information showing the change in the State University’s net assets during the fiscal year. Changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses reported in this statement include items that will result in cash received or disbursed in future fiscal periods (e.g., the receipt of amounts due from students and others for services rendered, or the amount accrued for postemployment benefits earned). The Statement of Cash Flows provides information on the major sources and uses of cash during the year. The cash flow statement portrays net cash provided or used from operating, investing, capital, and noncapital financing activities. Balance Sheet The balance sheet presents the financial position of the State University at the end of its fiscal year. During the 2007 fiscal year, the State University’s total assets increased over the prior year by $953 million, or 10 percent while total liabilities increased $768 million or 10 percent. The following table reflects the financial position at June 30, 2007 and 2006. This table has two columns 2007 and 2006, respectively. The figures will be for these two years, respectively, in thousands. Current assets $2,493,481 and $2,253,725 Capital assets, net $5,233,361 and $4,832,248 Other noncurrent assets $2,677,333 and $2,365,089 Total assets $10,404,175 and $9,451,062 Current liabilities $1,504,132 and $1,516,129 Noncurrent liabilities $6,632,414 and $5,852,795 Total liabilities $8,136,546 and $7,368,924 Net Assets $2,267,629 and $2,082,138 Current Assets Current assets at June 30, 2007 increased $240 million and current liabilities decreased $12 million compared to the previous year. In general, current assets are those assets that are available to satisfy current liabilities (i.e., those that will be paid within one year). Current assets at June 30, 2007 and 2006 consist primarily of cash and cash equivalents of $1.06 billion and $853 million, short-term investments of $196 million and $225 million, and receivables (accounts, interest, appropriations, and grants) of $1.19 billion and $1.13 billion, respectively. During 2007, cash and cash equivalents increased $203 million offset by a decrease in short-term investments of $29 million. Current Liabilities Current liabilities at June 30, 2007 and 2006 consist principally of accounts payable and accrued liabilities of $547 million and $515 million, interest on debt of $232 million and $255 million, deferred revenue of $183 million and $213 million, and the current portion of long-term liabilities of $444 million and $442 million, respectively. The decrease in current liabilities at June 30, 2007 was driven principally by decreases in deferred revenue of $29 million and interest payable of $23 million offset by an increase in accounts payable and accrued expenses of $31 million. Capital Assets, net In the 2007 and 2006 fiscal years, the State University received new multi-year capital funding authorizations intended to cover the five-year period through fiscal year 2008-09. Cumulatively, the multi-year capital plan now totals $3.0 billion for State-operated campus educational facilities and $419 million for the State University hospitals. Under this program, a majority of the funding is designed to support critical maintenance projects to repair, renovate, or rehabilitate existing State University facilities. During the 2007 fiscal year, capital assets (net of depreciation) increased $401 million, or 8 percent, compared to the previous year. The majority of the increase occurred at the State University campuses due to new building construction, renovations, and rehabilitation totaling $449 million during the year. Equipment additions during 2007 of $239 million also contributed to the increase. Significant projects completed and capitalized during the 2007 fiscal year included construction of a new student residential facility at Purchase College, an ambulatory care pavilion and athletic stadium at the University at Stony Brook, a recreation and convocation center at the College at Oswego, an integrated science facility at the College at Geneseo and the rehabilitation of the Basic Sciences building at the Health Science Center at Brooklyn. In addition, the State University purchased the Long Island University campus and facilities. A summary of capital assets, by major classification, and related accumulated depreciation for the 2007 and 2006 fiscal years is as follows (in thousands): This table has two columns 2007 and 2006, respectively. The figures will be given in thousands for these years, respectively. Land $274,846 and $626,774 Infrastructure and land improvements $518,808 and $483,155 Buildings $6,000,197 and $5,572,529 Equipment, library books, and artwork $2,169,505 and $1,998,206 Construction in progress $752,776 and $712,773 Total capital assets $9,716,132 and $9,029,437 Other Noncurrent Assets Other noncurrent assets exclusive of capital assets were $2.68 billion and $2.37 billion at June 30, 2007 and 2006, respectively. Noncurrent assets at June 30, 2007 and 2006 include long-term investments of $1.4 billion and $1.15 billion, deposits with trustees of $920 million and $843 million, restricted cash of $72 million and $57 million, and the noncurrent portion of receivables and deferred financing costs of $283 million and $311 million, respectively. Long-term investments at June 30, 2007 and 2006 of $1.4 billion and $1.15 billion represent endowment and similar funds held in separate and distinct investment pools of the State University campuses of $426 million and $360 million, and the Cornell statutory colleges of $702 million and $564 million, and separately invested funds of $32 million and $28 million, respectively. Long-term investments of the Research Foundation totaled $196 million and $163 million, which includes $75 million and $56 million in investments designated for its post-retirement benefit plan at June 30, 2007 and 2006, respectively. Other long-term investments include investments of the statutory College of Ceramics at Alfred University of $25 million and $21 million and the auxiliary services corporations of $21 million and $17 million at June 30, 2007 and 2006, respectively. During 2007, long-term investments increased by a total of $249 million, or 22 percent, due primarily to net realized and unrealized investment gains of $115 million and investment income of $48 million. Investment gains and reinvested investment income, donations, and other additions were offset by amounts used to meet spending needs. During fiscal year 2007, deposits with trustees increased $77 million, which generally represent funds available from the issuance of bonds by the Dormitory Authority of the State of New York (DASNY) used to finance capital projects and maintain debt service reserves for the State University’s facilities. Restricted cash and cash equivalents at June 30, 2007 increased $15 million compared to 2006. During the normal course of operations, the State University has entered into various capital financing arrangements. The unspent cash on those arrangements at June 30, 2007 and 2006 were $59 million and $45 million, respectively. The noncurrent portion of receivables reported at June 30, 2007 and 2006 consisted of accounts, notes, and loan receivables of $104 million and $103 million, appropriation receivables of $105 million and $116 million, and contribution receivables of $8 million and $28 million, respectively. Noncurrent Liabilities Noncurrent liabilities at June 30, 2007 and 2006 of $6.63 billion and $5.85 billion, respectively, are largely comprised of debt on State University facilities, other long-term liabilities accrued for postemployment and post-retirement benefits, and litigation, as well as an outstanding loan from the State’s short-term investment pool (STIP). The State University capital funding levels and bonding authority are subject to operating and capital appropriations of the State. Funding for capital construction and rehabilitation of educational and residence hall facilities of the State University is provided principally through the issuance of bonds by DASNY. The debt service for the educational facilities is paid by, or provided through a direct appropriation of, the State. The debt service on residence hall bonds is funded primarily from room rents. A summary of the long-term liabilities at June 30, 2007 and 2006 is as follows. This table has two columns 2007 and 2006, respectively. The figures will be given in thousand for the two years respectively. Educational facilities $4,374,709 and $4,302,253 Residence hall facilities $727,950 and $664,770 Postemployment and post retirement obligations and compensated absences $875,583 and $264,290 Loan for State STIP pool $113,196 and $131,608 Other obligations $364,531 and $319,284 Total long-term liabilities $6,455,969 and $5,682,205 During fiscal year 2007, Personal Income Tax Revenue Bonds (PIT) were issued for the purpose of financing capital construction and major rehabilitation for educational facilities in the amount of $473 million. The State University entered into agreements with DASNY during the fiscal year to issue residence hall facility obligations totaling $87.4 million, for the purpose of financing capital construction and major rehabilitation on State University facilities. During fiscal year 2007, the State University’s credit ratings for educational and residence hall bonds were unchanged from the previous year. In 2006, Moody’s upgraded the credit ratings for PIT (from A1 to Aa3), educational (from A2 to A1) and residence hall (from A1 to Aa3) bonds compared to the previous year. Standard & Poor’s also upgraded the credit ratings for PIT bonds (from AA to AAA) in 2006. The credit ratings at June 30, 2007 are as follows. This table has three columns: PIT Bonds, Educational Facilities, and Residence Halls. Moody’s Investors Service Aa3, A1, and Aa3 Standard & Poor’s AAA, AA-, and AA- Fitch IBCA AA-, A+, and A+ Principal payments on educational and residence hall facilities obligations made during 2007 totaled $389.2 million and $22.9 million, and in 2006 totaled $161.7 million and $21 million, respectively. During 2007, as part of the State’s debt reform effort to defease outstanding high cost debt, the State defeased $226.2 million of the State University’s debt obligations. During fiscal year 2007, the long-term portion of the postemployment and post-retirement benefit obligations and compensated absences liabilities increased $611 million. The increase was due primarily to the adoption of GASB Statement No. 45. Under this new standard a liability of $570 million was recognized at June 30, 2007 for the State University’s OPEB Plan. In prior years, the State University experienced operating cash-flow deficits precipitated by cash-flow difficulties experienced by its three hospitals. As a result, the State University borrowed funds with interest from the short-term investment pool of the State. The amount outstanding under this borrowing, including accrued interest, at June 30, 2007 and 2006 was $130.4 million and $148.2 million, respectively. During fiscal years 2007 and 2006, the total amount paid on these loans was $25.6 million and $6.5 million, respectively. Refundable government loan funds at June 30, 2007 and 2006 totaled $141.1 million and $138.9 million, respectively. These revolving loan funds are principally those of the federal Perkins and Nursing Loan Programs established with an initial and continued federal capital contribution. Repayments of principal and interest and new contributions are deposited into a revolving loan fund for continual disbursement to students. Statement of Revenues, Expenses, and Changes in Net Assets The statement of revenues, expenses, and changes in net assets presents the State University’s results of operations. Total operating revenues of the State University for 2007 and 2006 were $4.75 billion and $4.38 billion, respectively. Nonoperating and other revenues, which includes State appropriations, totaled $3.40 billion and $2.88 billion, for fiscal years 2007 and 2006, respectively. Total expenses for 2007 and 2006 were $7.96 billion, and $6.96 billion, respectively. Revenue Overview This table titled Revenue Overview has two columns labeled for the years 2007 and 2006. The figures will be given in that order in thousands. Tuition and fees, net $917,537 and $879,549 Hospitals and clinics $1,621,458 and $1,430,623 Federal grants and contracts $809,788 and $798,086 State, local, private grants and contracts, and other sources $719,741 and $636,291 Auxiliary enterprises $679,853 and $636,941 Operating revenues $4,748,377 and $4,381,490 State appropriations $2,910,145 and $2,458,827 Other nonoperating $491,950 and $417,403 Nonoperating and other revenues $3,402,095 and $2,876,230 Total revenues $8,150,472 and $7,257,720 Tuition and Fees, Net Tuition and fee revenue for the 2007 fiscal year, net of scholarship allowances, was $918 million, an increase of $38 million or 4 percent, compared to the previous year. The increase in 2007 was driven by an increase in enrollment and a slight increase in fee revenue. Annual average full-time equivalent students, including undergraduate and graduate, were approximately 180,200 and 176,800 for the fiscal years ended June 30, 2007, and 2006, respectively. Hospitals and Clinics The State University has three hospitals (each with academic medical centers) under its jurisdiction – the State University hospitals at Brooklyn, Stony Brook, and Syracuse. Hospital and clinic revenue for the 2007, and 2006 fiscal years were $1.62 billion and $1.43 billion, respectively. During the 2007 fiscal year, hospital and clinic revenues increased $191 million compared to the previous year principally due to an increase in outpatient and inpatient revenue along with an increase in Medicaid Disproportionate Share (DSH) Program revenue from the prior year. A supplement to the patient service revenue stream of the hospitals comes from the Medicaid DSH Program. The DSH Program is designed to help support hospitals that serve large numbers of Medicaid and uninsured patients. In the current year, the State University recorded revenue of $310 million under the DSH Program, compared to $205 million in 2006. Sponsored Research, Grant and Contract Revenue During fiscal year 2007, State University increased its volume of sponsored program activity. Total revenue from federal, state, local, private and capital grants and contracts administered by the Research Foundation was $791 million and $710 million, for the fiscal years ended June 30, 2007 and 2006, respectively. Facilities and administrative recoveries earned on grants and contracts administered by the Research Foundation were $124 million and $123 million for the fiscal periods ending June 30, 2007 and 2006, respectively. The volume of research and other sponsored programs reported for 2007 and 2006 by the statutory colleges at Cornell University was $154.3 million and $149.7 million, respectively, and Alfred University was $4.3 million and $4.1 million, respectively. Revenue from projects sponsored by the federal government and administered by the Research Foundation totaled $341 million and $345 million during 2007 and 2006, respectively. Of these federally-sponsored projects, 54 percent and 56 percent of the funding was received from the Public Health Service during 2007 and 2006, respectively. Other major federal sponsors include the National Science Foundation, the Department of Education, the Department of Defense, the Agency for International Development and the Department of Energy. Revenue from non-federal sponsors (including federal flow-through funds) administered by the Research Foundation totaled $450 million and $365 million for the 2007 and 2006 fiscal years, respectively. In fiscal years 2007 and 2006, the largest non-federal support of sponsored research programs was received from the Empire State Development Corporation. Amounts received under the State’s Tuition Assistance Program decreased $3 million from prior year. Federal grants under the Pell and other federal student aid programs increased $11 million from the previous year. Auxiliary Enterprises The State University’s auxiliary enterprise activity is comprised of sales and services for residence halls, food services, campus store operations, intercollegiate athletics, student health services, parking, and other activities. The residence halls are owned, operated and managed by the State University and its campuses. Generally, food services, campus store operations and other services are operated and managed by separately incorporated not-for-profit organizations, commonly referred to as auxiliary services corporations. The residence hall operations and capital programs are financially self-sufficient. Each campus is responsible for the operation of its residence halls program including setting room rates and covering operating, maintenance, capital and debt service costs. Any excess funds generated by residence halls operating activities are separately maintained for improvements and maintenance of the residence halls. Occupancy at the residence halls has risen steadily to 70,354 for the fall of 2006, an increase of nearly 10,000 students since the fall of 2001 and an increase of over 1,700 students compared to the previous year. The overall utilization rate for the fall of 2006 was reported at 96.8 percent. Auxiliary enterprise sales and services revenue totaled $680 million and $637 million in the 2007 and 2006 fiscal years, respectively. Of these amounts, residence halls operating revenue totaled $301 million and $280 million for 2007 and 2006, respectively. Increases in revenue were largely due to increases in occupancy levels and modest increases in room rates. Food service operations generated $189 million and $179 million in revenue for fiscal years 2007 and 2006, respectively. In addition to residence halls and food service activities, other auxiliary revenues totaled $189 million and $178 million for fiscal years 2007 and 2006, respectively. State Appropriations The State University’s single largest source of revenues are State appropriations, which for financial reporting purposes is classified as non-operating revenues. State appropriations totaled $2.91 billion and represented approximately 36 percent of total revenues for fiscal year 2007. State support (both direct support for operations and indirect support for debt service and fringe benefits) for State University campus operations, statutory colleges, and hospitals and clinics increased $451 million in 2007. State support for operating expenses increased $123 million, while indirect State support for debt service, fringe benefits, and litigation expenses increased $328 million compared to 2006, driven principally by the State’s defeasance of $226.2 million of the State University’s debt. Nonoperating and Other Revenue Nonoperating and other revenue excluding State appropriations were $492 million and $417 million for the 2007 and 2006 fiscal years, respectively. This increase was primarily due to an increase of $163 million in investment income and gains offset by a decline in gifts of $39 million and other non-operating revenues of $49 million. Expense Overview This table is titled expense overview with two columns for the years 2007 and 2006, in that order. The figures will be given for the two years, respectively, in the thousands. Instruction $1,908,992 and $1,619,085 Rsearch $591,662 and $542,157 Public service $273,125 and $250,352 Support services $2,014,667 and $1,735,314 Scholarships and fellowships $110,680 and $98,789 Hospitals and clinics $1,723,774 and $1,497,997 Auxiliary enterprises $681,643 and $625,499 Depreciation and amortization $380,081 and $320,454 Other nonoperating $280,357 and $268,672 Total expenses $7,964,981 and $6,958,319 Following this table is the pie shaped chart with the categories just mentioned for each slice of pie to give a visual relationship to the size of the amount to the total pie. Expense Overview The increase in instruction expense during 2007 of $290 million is predominantly from an increase of $196 million in postemployment benefits costs due to the adoption of GASB Statement No. 45. There was also growth in personal service and related fringe benefit expenses. The fringe benefit rate applied to personal service costs increased from 45.24 percent in 2006 to 45.81 percent in 2007. Research expenses increased $50 million during 2007. This growth was due to increased sponsored research expenditure activity at the Research Foundation and Cornell statutory colleges. Support services, which includes expenses for academic support, student services, institutional support, and operation and maintenance of plant, increased $279 million compared to the previous year. Institutional support increased $119 million and academic support $47 million in the 2007 fiscal year, driven by an increase in personal service and postemployment benefit costs. Operation and maintenance of plant costs increased $73 million during 2007 attributable to an increase in personal service and construction costs. In the State University’s financial statements, scholarships used to satisfy student tuition and fees (residence hall, food service, etc.) are reported as an allowance (offset) to the respective revenue classification up to the amount of the student charges. The amount reported as expense represents amounts provided to the student in excess of State University charges. Total scholarships and fellowships, including federal and state grant programs were $531 million for the fiscal year ended June 30, 2007. Of this amount, $420 million were classified as scholarship allowances and $111 million was reported as scholarship expense for the 2007 fiscal year. Major scholarships and grants received include the State Tuition Assistance Program of $176 million and $179 million, and $138.7 million and $136.5 million from the federal Pell Program during fiscal years 2007 and 2006, respectively. Expenses at the State University’s hospitals and clinics increased $226 million during the year, largely due to an increase in core operating and personal service costs. Also contributing to the growth in expenses was an increase in postemployment benefit costs of $148 million. During fiscal year 2007, auxiliary enterprise expenses increased $56 million compared to the previous year. For the 2007 fiscal year, residence halls expenses increased $17 million and food service expenses increased $12 million, primarily due to an increase in occupancy and rates. Other auxiliary enterprise expenses for the year ended June 30, 2007 increased $27 million. Depreciation and amortization expense recognized in fiscal years 2007 and 2006 totaled $380 million and $320 million, respectively. Other nonoperating expenses were $280 million and $269 million for the years ended June 30, 2007 and 2006, respectively. Economic Factors That Will Affect the Future The State University is one of the largest public universities in the nation, with a headcount enrollment of nearly 212,000 in the fall 2007, at its 29 State-operated campuses and 5 contract/statutory colleges. The State University’s student population is directly influenced by State demographics as the majority of students attending the State University are New York residents. The enrollment outlook remains strong for the State University based on its continued ability to attract quality students for its academic programs coupled with a larger expected number of high school graduates in New York State over the next few years. Full-time equivalent (FTE) enrollment, excluding community colleges, for the fiscal year ended June 30, 2007, is approximately 180,200, an increase of 3,400 FTE compared to June 30, 2006. New York State appropriations remain the largest single source of revenues. State appropriation revenues are expected to increase in fiscal year 2007-08 to support the rising costs of personal service, utilities, health care, and other fringe benefits. The State University’s continued operational viability is substantially dependent upon this level of ongoing State support. For the most recent fiscal year, State appropriations represented 36 percent of the total revenues of the State University. Continued emphasis will be placed on University-wide efforts to control operating costs and enhance other revenue streams, including philanthropy, sponsored programs, and auxiliary revenues. Debt service on educational facilities is paid by the State in an amount sufficient to cover annual debt service requirements. In previous fiscal years, the State University received new multi-year capital funding authorizations intended to cover the five-year period through fiscal year 2008-09. Cumulatively, the multi-year capital plan now totals $3 billion for State-operated campus educational facilities and $419 million for State University hospitals. Taken together, the sizeable new multi-year funding authorizations provide the State University with both the basic resources needed to make steady progress in addressing core critical maintenance needs of its existing infrastructure, and the means to make additional capital investments in a wide range of areas, including research and technology development. The State University hospitals, each with academic medical centers, at Brooklyn, Stony Brook and Syracuse serve large numbers of Medicaid and uninsured patients and, as a result, their dependency on the Medicaid DSH Program revenue stream is critical to their continued viability. Their financial and operational capabilities will also continue to be challenged by structural changes in the health care environment, changes to Medicaid and Medicare programs, and local competition. Balance Sheet Table as of June 30, 2007 Assets Current Assets listed are: Cash and cash equivalents $1,056,763 Short-term investments $196,108 Accounts, notes, and loans receivable, net $611,491 Interest receivable $8,218 Appropriations receivable $406,306 Grants receivable $164,014 Inventories $36,629 Other assets $13,952 Total current assets for this year are $2,493,481 Noncurrent Assets listed are: Restricted cash and cash equivalents $71,728 Deposits with trustees $920,255 Accounts, notes, and loans receivable, net $103,904 Contributions receivable $8,135 Appropriations receivable $104,774 Deferred financing costs $65,692 Long-term investments $1,402,845 Capital assets, net $5,233,361 Total noncurrent assets for this year is $7,910,694 Which gives Grand Total assets for this year is $10,404,175 Liabilities and Net Assets Current Liabilities followed by amounts in thousands: Accounts payable and accrued liabilities $546,812 Interest payable $232,214 Student deposits $10,041 Deposits held in custody for others $33,298 Deferred revenue $183,345 Long-term liabilities - current portion $443,639 Other liabilities $54,783 Total current liabilities $1,504,132 Noncurrent Liabilities followed by amounts in thousands: Long-term liabilities $6,455,969 Refundable government loan funds $141,085 Other noncurrent liabilities $35,360 Total noncurrent liabilities $6,632,414 Total liabilities $8,136,546 Net Assets: Invested in capital assets, net of related debt $596,527 Restricted - nonexpendable: Instruction and departmental research $91,344 Scholarships and fellowships $72,356 General operations and other $82,693 Restricted - expendable: Instruction and departmental research $441,576 Scholarships and fellowships $115,357 Capital projects $86,901 Loans $23,138 General operations and other $247,200 Unrestricted $510,537 Total net assets $2,267,629 Total liabilities and net assets $ 10,404,175 Statement of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, 2007 Amounts in thousands. Operating revenues: Tuition and fees $1,244,601 Less scholarship allowances -$327,064 Net tuition and fees $917,537 Federal grants and contracts $809,788 State grants and contracts $325,584 Local grants and contracts $16,599 Private grants and contracts $269,842 Sales and services: University hospitals and clinics $1,621,458 Educational activities $48,411 Sales and services of auxiliary enterprises: Residence halls, net $301,452 Food service, net $189,386 Other, net $189,015 Other sources $59,305 Total operating revenues $4,748,377 Operating expenses: Instruction $1,908,992 Research $591,662 Public service $273,125 Academic support $387,273 Student services $237,126 Institutional support $790,900 Operation and maintenance of plant $587,999 Scholarships and fellowships $110,680 Hospitals and clinics $1,723,774 Auxiliary enterprises: Residence halls $261,387 Food service $190,711 Other $229,545 Depreciation and amortization expense $380,081 Other operating expenses $11,369 Total operating expenses $7,684,624 Operating loss -$2,936,247 Nonoperating revenues (expenses): State appropriations: University operations $2,736,114 Hospitals and clinics $174,031 Federal appropriations $16,767 Investment income, net of investment fees $126,603 Net realized and unrealized gains $224,214 Gifts $47,567 Interest expense on capital related debt -$266,086 Loss on disposal of plant assets -$14,271 Other nonoperating revenues, net $3,789 Net nonoperating revenues $3,048,728 Income before other revenues and gains $112,481 Capital appropriations $3,314 Capital gifts and grants $60,882 Additions to permanent endowments $8,814 Increase in net assets $185,491 Net assets at the beginning of year (restated) $2,082,138 Net assets at the end of year $2,267,629 Statement of Cash Flows For the Year Ended June 30, 2007 The following figures given are in thousands. Cash flows from operating activities: Tuition and fees $922,388 Grants and contracts: Federal $796,985 State and local $302,978 Private $264,622 Hospital and clinics $1,526,450 Personal service payments -$3,191,197 Other than personal service payments -$1,965,681 Payments for fringe benefits -$364,843 Payments for scholarships and fellowships -$55,244 Loans issued to students -$35,551 Collection of loans to students $29,443 Auxiliary enterprise charges: Residence halls $302,918 Food service $190,962 Other (intercollegiate athletics, bookstore, fees, and vending) $175,531 Sales and service of educational activities $40,173 Other receipts $16,152 Net cash used by operating activities -$1,043,914 Cash flows from noncapital financing activities: State appropriations: Operations $1,312,409 Debt service $649,592 Federal appropriations $15,748 Private gifts and grants $67,058 Proceeds from short-term loans $127,471 Repayment of short-term loans -$128,043 Direct loan receipts $264,059 Direct loan disbursements -$264,059 Other receipts $14,418 Net cash provided by noncapital financing activities $2,058,653 Cash flows from capital and related financing activities: Proceeds from capital debt $603,496 Capital appropriations $3,578 Capital grants and gifts received $67,513 Proceeds from sale of capital assets $172 Purchases of capital assets -$272,249 Payments to contractors -$522,827 Principal paid on capital debt and leases -$475,329 Interest paid on capital debt and leases -$301,508 Other receipts $685 Net cash used by capital and related financing activities -$896,469 Cash flows from investing activities: Proceeds from sales and maturities of investments $3,530,269 Interest, dividends, and realized gains on investments $182,798 Purchases of investments -$3,613,235 Net cash provided by investing activities $99,832 Net change in cash $218,102 Cash - beginning of year $910,389 Cash - end of year $1,128,491 End of year cash comprised of: -$65,554 Cash and cash equivalents $1,056,763 Restricted cash and cash equivalents $71,728 Reconciliation of net operating loss to net cash used by operating activities: Operating loss -$2,936,247 Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation and amortization expense $380,081 Fringe benefits provided by State $929,878 Litigation costs provided by State $25,567 Change in assets and liabilities: Receivables, net -$99,415 Inventories -$1,578 Other assets -$5,055 Accounts payable and other accrued liabilities $687,033 Deferred revenue -$26,294 Student deposits -$2,065 Deposits held in custody for others $4,181 Net cash used by operating activities -$1,043,914 Supplemental disclosures for noncash transactions: New capital leases / debt agreements $166,157 Fringe benefits provided by the State $929,878 Litigation costs provided by the State $25,567 Noncash gifts $2,896 State University of New York Foundations Balance Sheet as of June 30, 2007 Figures are given in thousands. Assets Cash and cash equivalents $64,062 Accounts and notes receivable, net $15,347 Pledges receivable, net $49,596 Investments $899,975 Other assets $50,419 Capital assets, net $321,752 Total assets $1,401,151 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $23,808 Current portion of long-term debt $9,163 Deferred revenue $1,713 Deposits held in custody for others $43,002 Other liabilities $32,679 Long-term debt $257,975 Total liabilities $368,340 Net Assets: Unrestricted Net Assets: Board designated for: Fixed assets $79,888 Campus programs $112,519 Investments $77,528 Other $23,852 Undesignated $36,930 Temporarily restricted Net Assets: Scholarships and fellowships $81,295 Campus programs $140,839 Research $17,963 General operations and other $66,711 Permanently restricted: Scholarships and fellowships $187,976 Campus programs $148,243 Research $13,072 General operations and other $45,995 Total net assets $1,032,811 Total liabilities and net assets $1,401,151 State University of New York Foundations Statement of Activities For the Year Ended June 30, 2007 Figures given in thousands This table has three columns labeled Unrestricted, Temporarily Restricted, Permanently Restriced and Total. The series of figures will reflect these columns respectively. Revenues: Contributions, gifts, and grants $32,705, $51,975, $29,567, and $114,247 Investment income, net $8,653, $16,992, $2,120, and $ 27,765 Net realized and unrealized gains $42,579, $40,047, $9,755, and $92,381 Rental income $42,210, $399, nothing for third column, and $42,609 total Sales and services $15,407, $27, $48, and $15,482 Program income and special events $38,384, $7,206, $555, and $46,145 Other sources $1,455, $600, $3,139, and $5,194 Endowment earnings transferred nothing in unrestricted column, $2,277 for temporarily restricted, -$2,277 for Permanently Restricted, and no Total Net assets released from restrictions $75,327, -$75,327, no Permanently Restricted, and no Total Total revenues $256,720, $44,196, $42,907, and $343,823 Expenses: No amounts shown for the Temporarily Restricted and Permanently Restricted columns. Program expenses $91,008 in Unrestricted and Total of $91,008 Payments to the State University: Scholarships and fellowships $20,959 and $20,959 Other $22,803 and $22,803 Real estate expenses $16,403 and $16,403 Depreciation and amortization expense $12,620 and $12,620 Interest expense on capital-related debt $11,705 and $11,705 Management and general $17,106 and $17,106 Fundraising $13,317 and $13,317 Other expenses $2,239 and $2,239 Total expenses $208,160 and $208,160 Change in net assets $48,560, $44,196, $42,907, and $135,663 Net assets, beginning of year $282,157, $262,612, $352,379, and $897,148 Net assets, end of year $330,717, $306,808, $395,286, and $1,032,811 Notes to Financial Statements June 30, 2007 1. Summary of Significant Accounting Policies and Basis of Presentation Reporting Entity For financial reporting purposes, the State University of New York (State University) consists of all sectors of the State University including the university centers, health science centers (including hospitals), colleges of arts and sciences, colleges of technology and agriculture, specialized colleges, and statutory colleges (located at the campuses of Cornell and Alfred universities), central services and other affiliated entities determined to be includable in the State University’s financial reporting entity. Inclusion in the entity is based primarily on the notion of financial accountability. Governmental Accounting Standards Board (GASB) Statement No. 14, as amended by GASB Statement No. 39, defines financial accountability in terms of a primary government (State University) that is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally-separate organizations if its officers appoint a voting majority of an organization’s governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. A primary government may also be financially accountable for governmental organizations that are fiscally dependent on it. The State University is included in the financial statements of the State of New York (State) as an enterprise fund as the State is the primary government of the State University. Inclusion in the reporting entity is also required for legally-separate, tax-exempt, affiliated organizations that (a) receive or hold economic resources that are significant to, and entirely or almost entirely for the direct benefit of, the primary government, its component units, or its constituents and (b) the primary government, or its component units, is entitled to, or can otherwise access, a majority of the economic resources received or held by the separate organization. As a result, the campus-related foundations and student housing corporations (all referred to as foundations) are included in the State University reporting entity. The combined totals of the foundations are presented as an aggregate component unit on financial statement pages 16 and 17 in the State University’s financial statements in accordance with display requirements prescribed by the Financial Accounting Standards Board (FASB). The Research Foundation of State University of New York (Research Foundation) is a separate not-for-profit educational corporation that operates as the fiscal administrator for the majority of the State University’s sponsored programs. The programs include research, training, and public service activities of the State-operated campuses supported by sponsored funds other than State appropriations. The activity of the Research Foundation has been included in these financial statements using GASB measurements and recognition standards. The financial activity was derived from audited financial statements of the Research Foundation for the year ended June 30, 2007. Almost all of the State University’s campuses maintain auxiliary services corporations. These corporations are campus-based, not-for-profit corporations, which as independent contractors, operate, manage, and promote educationally related services for the benefit of the campus community. Although separate and independent legal entities, these corporations carry out operations which are integrally related to the State University and, therefore, are included in the financial statements of the State University. All of the financial data for these corporations was derived from each entity’s individually audited financial statements. The majority of which have a May 31 or June 30 fiscal year end. The State University Construction Fund (Construction Fund) is a public benefit corporation that designs, constructs, reconstructs and rehabilitates facilities of the State University pursuant to an approved master plan. Although the Construction Fund is a separate legal entity, it carries out operations which are integrally related to the State University and, therefore, the financial activity related to the Construction Fund is included in the State University’s financial statements as of the Construction Fund’s fiscal year end of March 31, 2007. The State statutory colleges at Cornell University and Alfred University are an integral part of, and are administered by, those universities. The statutory colleges are fiscally dependent on State appropriations through the State University. The financial statement information of the statutory colleges of Cornell University and Alfred University, have been included in the accompanying financial statements. The operations of certain related but independent organizations, i.e., clinical practice management plans, alumni associations and student associations, are not included in the accompanying financial statements as such organizations do not meet the definition for inclusion under GASB Statement Nos. 14 or 39. The State University administers State financial assistance to the community colleges in connection with its general supervision responsibilities pursuant to State Education Law. However, since these community colleges are sponsored by local governmental entities and are included in their financial statements, the community colleges are not considered part of the State University’s financial reporting entity and, therefore, are not included in the accompanying financial statements. The accompanying financial statements of the State University have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with U.S. generally accepted accounting principles as prescribed by the GASB. The State University applies all applicable pronouncements of the FASB issued on or before November 30, 1989 that do not conflict or contradict GASB pronouncements. The State University has elected not to apply FASB pronouncements issued after November 30, 1989. During 2007, the State University adopted GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes standards for the measurement, recognition, and display of other postemployment benefits (OPEB) expenses, the related assets or liabilities and note disclosures in the financial statements. The objective of this statement is to improve the relevance and usefulness of financial reporting by requiring systematic, accrual-basis measurement and recognition of OPEB expenses over a period that approximates the employees’ years of service and provides information about actuarial accrued assets or liabilities associated with OPEB and whether and to what extent funding progress is being made. The State University reports its financial statements as a special purpose government engaged in business-type activities, as defined by GASB. Business-type activities are those that are financed in whole or in part by fees charged to external parties for goods or services. The financial statements of the State University consist of a classified balance sheet; statement of revenues, expenses, and changes in net assets, that distinguish between operating and nonoperating revenues and expenses; and statement of cash flows, using the direct method of presenting cash flows from operations and other sources. The State University’s policy for defining operating activities in the statement of revenues, expenses, and changes in net assets are those that generally result from exchange transactions, i.e., the payments received for services and payments made for the purchase of goods and services. Certain other transactions are reported as nonoperating activities and include the State University’s operating and capital appropriations from the State, federal appropriations, nonexchange receipts, net investment income, gifts, and interest expense. Resources are classified for accounting and financial reporting purposes into the following four net asset categories: Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and amortization and outstanding principal balances of debt attributable to the acquisition, construction, repair or improvement of those assets. Restricted – nonexpendable: Net assets subject to externally imposed conditions that require the State University retain in perpetuity. Restricted – expendable: Net assets whose use is subject to externally imposed conditions that can be fulfilled by the actions of the State University or by the passage of time. Unrestricted, all other categories of net assets: Included in unrestricted net assets are amounts provided for specific use by the State University’s colleges and universities, hospitals and clinics, and separate legal entities included in the State University’s reporting entity that are designated for those entities and, therefore, not available for other purposes. The State University has adopted a policy of generally utilizing restricted - expendable funds, when available, prior to unrestricted funds. Revenues Revenues are recognized in the accounting period when earned. State appropriations are recognized when they are made legally available for expenditure. Revenues and expenditures arising from nonexchange transactions are recognized when all eligibility requirements, including time requirements, are met. Promises of private donations are recognized at fair value. Net patient service revenue for the hospitals is reported at the estimated net realizable amounts from patients, third party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third party payors. Tuition and fees and auxiliary sales and service revenues are reported net of scholarship discounts and allowances. Auxiliary sales and service revenue classifications were reported net of the following scholarship discount and allowance amounts for the fiscal year (in thousands): Residence halls $49,010 Food service $22,000 Other auxiliary $21,945 Cash and Cash Equivalents Cash and cash equivalents are defined as current operating assets that include investments with original maturities of less than 90 days, except for cash and cash equivalents held in investment pools which are included in short-term and long-term investments in the accompanying balance sheet. Investments Investments in marketable securities are stated at fair value based upon quoted market prices. Investment income is recorded on the accrual basis, and purchases and sales of investment securities are reflected on a trade date basis. Any net earnings not expended are included as increases in restricted - nonexpendable net assets if the terms of the gift require that such earnings be added to the principal of a permanent endowment fund, or as increases in restricted - expendable net assets as provided for under the terms of the gift, or as unrestricted. At June 30, 2007, the State University had $761 million available for authorization for expenditure, $459 million from restricted funds, and $302 million from unrestricted funds. The State University’s Board of Trustees has the responsibility of oversight for the State University’s endowment and similar funds, including the establishment of investment objectives and guidelines. The primary investment objective is to preserve the purchasing power of fund assets while providing a relatively predictable, stable, and constant stream of earnings in line with spending needs. The expenditure of available endowment and similar funds income is subject to State appropriation and may be spent at an annual rate of 5 percent increase per unit value per year, subject to certain minimum and maximum spending parameters. The State University is currently authorized by its Board of Trustees to invest in domestic and international equity and fixed income securities, real estate and commodity investments, and a limited use of an alternative investment strategy under a fund-of-funds approach. The State University’s investment strategies are subject to asset allocation parameters established in the State University’s investment objectives and guidelines. The Investment Committee of the Cornell Board of Trustees establishes the investment policy of the Cornell statutory colleges. Distributions from the pool are approved by the Cornell Board of Trustees and are provided for program support independent of the cash yield and appreciation of investments in that year. Investments in the pool are stated at fair value and include limited use of derivative instruments, including leverage futures, options and other similar vehicles to manage market exposure and to enhance the total return. Alternative investments are valued using current estimates of fair value obtained from the investment manager in the absence of readily determinable public market values. The estimated fair value of these investments is based on the most recent valuations provided by the external investment managers. Because of the inherent uncertainty of valuation for these investments, the investment manager’s estimate may differ from the values that would have been used had a ready market existed. Capital Assets Capital assets are stated at cost, or in the case of gifts, fair value at the date of receipt. Building renovations and additions costing over $100,000 and equipment items with a unit cost of more than $5,000 are capitalized. Equipment under capital leases are stated at the present value of minimum lease payments at the inception of the lease. Generally, the net interest cost on debt during the construction period related to capital projects, is capitalized and totaled $9.2 million during the fiscal year. Library materials are capitalized and amortized over a ten-year period. Works of art or historical treasures that are held for public exhibition, education, or research in furtherance of public service are capitalized. Capital assets, with the exception of land, construction in progress, and inexhaustible works of art, are depreciated on a straight-line basis over their estimated useful lives, using historical and industry experience, ranging from 3 to 50 years. Deferred Financing Costs Deferred financing costs represent costs incurred for the issuance of bonds that are capitalized and amortized over the life of the related debt. Compensated Absences Employees accrue annual leave based primarily on the number of years employed up to a maximum rate of 21 days per year up to a maximum of 40 days. The compensated absences liability at June 30, 2007 was $230 million. Inventories Inventories held by the State University are primarily stated at the lower of cost or market value on a first-in, first-out basis. Fringe Benefits Employee fringe benefit costs (e.g., health insurance, worker’s compensation, retirement and post-retirement benefits) are paid by the State on behalf of the State University (except for the State University hospitals, which pay their own fringe benefit costs) at a fringe benefit rate determined by the State. The State University records an expense and corresponding State appropriation revenue for fringe benefit costs based on the fringe benefit rate applied to total eligible personal service costs incurred. Tax Status The State University and the Construction Fund are political subdivisions of the State and are, therefore, generally exempt from federal and state income taxes under applicable federal and state statutes and regulations. The Research Foundation and campus auxiliary services corporations are not-for-profit corporations as described in Section 501(c)(3) of the Internal Revenue Service Code and are tax-exempt on related income, pursuant to Section 501(a) of the code. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Cash and Cash Equivalents Cash and cash equivalents represent State University funds held in the State treasury, in the short-term investment pool (STIP), or local depositories, and cash held by affiliated organizations. Cash held in the State treasury beyond immediate need is pooled with other State funds for short-term investment purposes. The pooled balances are limited to legally-stipulated investments which include obligations of, or are guaranteed by, the United States, obligations of the State and its political subdivisions, and repurchase agreements. These investments are reported at cost (which approximates fair value) and are held by the State’s agent in its name on behalf of the State University. The New York State Comprehensive Annual Financial Report contains the GASB No. 40 risk disclosures for deposits held in the State treasury. Deposits not held in the State treasury that are not covered by depository insurance and are: (a) uncollateralized were $54 million; (b) collater-alized with securities held by a pledging financial institution were $20.8 million; or (c) collateralized with securities held by a pledging financial institution’s trust department or agency, but not in the State University or affiliates name were $2.6 million at June 30, 2007. 3. Deposits with Trustees Deposits with trustees primarily represent Dormitory Authority of the State of New York (DASNY) bond proceeds needed to finance capital projects and to establish required building and equipment replacement and debt service reserves. Pursuant to financing agreements with DASNY, bond proceeds, including interest income, are restricted for capital projects or debt service. Also included are non-bond proceeds which have been designated for capital projects and equipment. The State University’s cash and investments which comprise deposits with trustees are registered in the State University’s name held by an agent or in trust accounts in the State University’s name. Cash and short-term investments held in the State treasury and money market accounts were approximately $53.3 million at June 30, 2007. The market value of investments held and maturity are displayed in the table below (in thousands). Types of Investments are US Treasury notes or bonds with Fair Value of $305,757, Less than one year valued at $305,456 and 1 to 5 years valued at $301; US Treasury bills with Fair Value of $303,591, Less than one year valued at $303,591 and none for 1 to 5 years; US Treasury strips with Fair Value of $257,570, Less than one year valued at $257,570, and none for 1 to 5 years. That gives a total of investments at Fair Value of $866,918, Less than one year of $866,617, and 1 to 5 years of $301. 4. Investments Investments of the State University are recorded at fair value. Investment income is reported net of investment fees of $4.2 million. Investments are comprised of investments of the State University’s endowment and similar funds, the statutory colleges at Cornell University and Alfred University (Alfred Ceramics), the Research Foundation, the Construction Fund, and the auxiliary services corporations. Pooled investments are held in two separate and distinct investment pools - the State University’s investment pool and Cornell’s long-term investment pool. The investments of the State University’s investment pool are held by the State University’s agent in the State University’s name. The Research Foundation maintains a diverse investment portfolio and with respect to debt instruments, has a policy of investing in primarily high quality securities. Investments are held with the investment custodian in the Research Foundation’s name. Investments include $80.0 million of investments designated for their post-retirement benefit plan. Investments of the Construction Fund have been made in accordance with the applicable provisions of the laws of the State and the Construction Fund’s investment policy. Investments are limited to certificates of deposit purchased from banks and trust companies located within New York State, commercial paper with maturity of ninety days or less, and obligations of, or guaranteed by, the United States and obligations of the State and its political subdivisions. The investments of the Construction Fund are as of March 31, 2007 and consisted of United States government obligations of approximately $29.8 million. These investments are held by the State’s agent in the State University’s name. Investments of the auxiliary services corporations and Alfred Ceramics were derived from each entity’s individual financial statements. The composition of investments at fiscal year end is as follows (in thousands): State University Campuses Pooled funds: Non-equities $81,458 Equities - domestic $241,349 Equities - international $109,667 Total pooled funds $432,474 Separately invested funds- Non-Equities $80 Total invested funds $432,554 Cornell Statutory Colleges Pooled funds: Non-equities $380,547 Equities - domestic $192,704 Equities - international $128,809 Total pooled funds $702,060 Short-term and separately invested funds: Non-equities $17,611 Equities $21,401 Total short-term and separately invested funds $39,012 Total invested funds $741,072 Alfred Ceramics Non-equities $13,127 Equities $11,438 Total invested funds $24,565 Research Foundation Non-equities $113,792 Equities $195,925 Total invested funds $309,717 Auxiliary Services Corporations Non-equities $43,111 Equities $18,171 Total invested funds $61,282 State University Construction Fund Total invested funds - non-equities $29,763 Total investments $1,598,953 Classified as short-term $196,108 Pooled investments of the State University and Cornell statutory colleges are described in the following paragraphs. The fair values per unit for the respective pools are not comparable, as initial unit values were determined at the inception of each pool based on the number of units. Substantially, all of the investments of the State University’s endowment and similar funds are pooled on a fair value basis. Individual funds subscribe to or dispose of units on the basis of the market value per unit at the beginning of the month within which the transaction takes place. The following summarizes changes in the relationship between cost and fair value of the pooled investments of the State University’s endowment and similar funds and fair value per unit (in thousands): Table with Columns for figures are labeled: Fair Value, Cost, Gains (Losses), and Unit Value. End of year figures for the columns are $432,474, $368,995, $63,479, and $12.45 Beginning of year figures for the columns are $377,569, $335,156, $42,413, and $10.75 Unrealized net gain figures for the column of Gains (Losses) are $21,066 Realized net gain is $36,459 Total net gain is $57,525 Investments of the endowment and similar funds of the Cornell statutory colleges, except for separately invested funds with a fair value of $39.0 million, are pooled on a fair value basis in Cornell’s long-term investment pool and living trust fund. Individual funds enter or withdraw from the pool based on each fund’s share of the fair value of the pool’s investments. The following summarizes changes in the relationship between cost and fair value of the portion of Cornell’s statutory colleges long term investment pool and fair value per unit (in thousands): Again, the columns for this table are: Fair Value, Cost, Gains (Losses), and Unit Value. End of year figures for the columns are: $702,060,$512,816, $189,244, and $66.62 Beginning of year figures for the columns are: $564,300, $462,484, $101,816, and $55.42 Unrealized net gain $87,428 Realized net gain $48,398 Total net gain $135,826 Generally, individual investment securities must be of investment grade. The State University maintains a portfolio which possesses an overall weighted average rating by Moody’s and Standard and Poor’s (S&P) of at least A. Private placement securities must be rated A3 or higher by Moody’s or A- or higher by S&P. Parameters exist that allow some limited investments in non-investment grade; however, investments rated below B3 by Moody’s or B- by S&P are prohibited. Policies are in place that limit fixed income investment duration within certain benchmarks and a highly diversified portfolio is maintained which limits interest rate risk exposure. At June 30, 2007, the State University had the following investments and maturities as summarized in Table A. Credit quality ratings of the State University’s investments in debt securities, as described by Moody’s, S&P, and Fitch IBCA as of June 30, 2007 are summarized in Table B. The State University’s exposure to foreign currency risk for investments, held at June 30, 2007, was as follows (fair value in thousands): Currency Denomination is followed with the Fair Value. Euro $47,764 Japanese yen $34,157 British pound $29,777 Swiss franc $8,958 Australian dollar $8,790 South Korean won $7,999 Taiwan dollar $7,974 Hong Kong dollar $7,033 Brazil real cruzeiro $4,879 Swedish krona $4,068 Canadian dolloar $3,080 South African rand $3,069 Singapore dollar $2,460 Turkish lira $2,221 Malaysian ringgit $2,132 Norwegian krone $1,976 Mexican nuevo peso $1,862 Danish krone $1,206 Indian rupee $676 New Zealand dollar $549 Other $7,253 All totals to $187,883 5. Accounts, Notes, and Loans Receivable At June 30, accounts, notes, and loans receivable were summarized as follows (in thousands): Tuition and fees $33,171 Allowance for uncollectible -$7,425 Net tuition and fees $25,746 Room Rent $7,052 Allowance for uncollectible -$1,690 Net room rent $5,362 Patient fees, net of contractual allowances $590,498 Allowance for uncollectible -$162,192 Net patient fees $428,306 Other, net $122,501 Total accounts and notes receivable $581,915 Student loans $154,507 Allowance for uncollectible -$21,027 Total student loans receivable $133,480 Total, net $715,395 6. Capital Assets Capital assets, net of accumulated depreciation, totaled $5.23 billion. Capital asset activity during the year is reflected in Table C. In the table, closed projects and retirements represent capital assets retired and assets transferred from construction in progress for projects completed and the related capital assets placed in service. 7. Long-term Liabilities The State University has entered into capital leases and other financing agreements with DASNY to finance most of its capital facilities. The State University has also entered into financing arrangements with the New York Power Authority under the statewide energy services program. Equipment purchases are also made through DASNY’s Tax-exempt Equipment Leasing Program (TELP), various state sponsored equipment leasing programs, or private financing arrangements. At June 30, 2007, other than facilities obligations, which are included as of March 31, 2007, total obligations are summarized in Table D. During 2007, as part of the State’s debt reform effort to defease outstanding high cost debt, the State defeased $226.2 million of the State University’s debt obligations. Educational Facilities The State University, through DASNY, has entered into financing agreements to finance various educational facilities which have a maximum 30-year life. Athletic facility debt is aggregated with educational facility debt. Debt service is paid by, or from specific appropriations of, the State. During the year, Personal Income Tax Revenue Bonds (PIT) were issued for the purpose of financing capital construction and major rehabilitation for educational facilities in the amount of $473 million. Residence Hall Facilities The State University has entered into capital lease agreements for residence hall facilities. DASNY bonds for residence hall facilities, which have a maximum 30-year life, are repaid from room rentals and other residence hall revenues. Upon repayment of the bonds, including interest thereon, and the satisfaction of all other obligations under the lease agreements, DASNY shall convey to the State University all rights, title, and interest in the assets financed by the capital lease agreements. Residence hall facilities revenue realized during the year from facilities from which there are bonds outstanding is pledged as a security for debt service and is assigned to DASNY to the extent required for debt service purposes. Any excess funds pledged to DASNY are available for residence hall capital and operating purposes. During the year, the State University entered into agreements with DASNY to issue residential hall facility obligations totaling $87.4 million for the purpose of financing capital construction and major rehabilitation for residential hall facilities. In prior years, the State University defeased various obligations, whereby proceeds of new obligations were placed in an irrevocable trust to provide for all future debt service payments on the defeased obligations. Accordingly, the trust account assets and liabilities for the defeased obligations are not included in the State University’s financial statements. As of March 31, 2007, $1.31 billion and $346.9 million of outstanding educational and residence hall facility obligations, respectively, were considered defeased. Capital Lease Arrangements The State University leases equipment under DASNY TELP, New York State Personal Income Tax Revenue Bonds, certificates of participation (COPs), vendor financing, or through statewide lease purchase agreements. The State University is responsible for lease debt service payments sufficient to cover the interest and principal amounts due under these arrangements. Loan - State STIP Pool In prior years, the State University experienced operating cash-flow deficits precipitated by cash-flow difficulties experienced by its hospitals. In connection with these cash-flow deficits, as authorized by State Finance Law, the State University borrowed funds with interest from the short-term investment pool of the State. The amount outstanding under this borrowing from the State at June 30, 2007 was $130.4 million. During the year, $25.6 million was paid on these loans. The State University incurred an interest cost of $7.8 million at an average interest rate of 5.3 percent. 8. Retirement Plans Retirement Benefits There are three major retirement plans for State University employees. The New York State and Local Employees' Retirement System (ERS), the New York State Teachers' Retirement System (TRS), and the Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA/CREF). ERS is a cost-sharing, multiple-employer, defined benefit public plan administered by the State Comptroller. TRS is a cost-sharing, multiple-employer, defined benefit public plan separately administered by a nine-member board. TIAA/CREF is a multiple-employer, defined contribution plan administered by separate boards of trustees. Substantially all full-time employees participate in the plans. Obligations of employers and employees to contribute, and related benefits, are governed by the New York State Retirement and Social Security Law (NYSRSSL) and Education Law. These plans offer a wide range of programs and benefits. ERS and TRS benefits are related to years of credited service and final average salary, vesting of retirement benefits, death and disability benefits, and optional methods of benefit payments. TIAA/CREF is a State University Optional Retirement Program (ORP) and offers benefits through annuity contracts. ERS and TRS provide retirement benefits as well as death and disability benefits. Benefits generally vest after five years of credited service. The NYSRSSL provides that all participants in ERS and TRS are jointly and severally liable for any actuarial unfunded amounts. Such amounts are collected through annual billings to all participating employers. Employees who joined ERS and TRS after July 27, 1976, and have less than ten years of service or membership are required to contribute 3 percent of their salary. Employee contributions are deducted from their salaries and remitted on a current basis to ERS and TRS. TIAA/CREF provides benefits through annuity contracts and provides retirement and death benefits to those employees who elected to participate in the ORP. Benefits are determined by the amount of individual accumulations and the retirement in come option selected. All benefits generally vest after the completion of one year of service if the employee is retained thereafter. TIAA/CREF is contributory for employees who joined after July 27, 1976, who contribute 3 percent of their salary. Employer contributions range from 8 percent to 15 percent depending upon when the employee was hired. Employee contributions are deducted from their salaries and remitted on a current basis to TIAA/CREF. The State University's total retirement-related payroll was $2.4 billion for the year. The payroll for the fiscal year for State University employees covered by TIAA/CREF was $1.52 billion, ERS was $845 million, and TRS was $84 million. Employer and employee contributions under each of the plans were as follows. This table has three columns: 2007, 2006, and 2005 Employer contributions for each of the retirement plans is followed by the amounts in millions for those years in descending order. TIAA- CREF $157.1, $149.4, and $147.3 ERS $50.7, $52.5, and $54.7 TRS $6.7, $6.4, and $5.5 Employee contributions for each of the retirement plans is follwed by the amounts in millions for those years in descending order. TIAA- CREF $ 49.6, $40.9, and $39.1 ERS $10.7, $9.5, and $8.1 TRS $0.9, $0.9, and $0.9 The employer contributions are equal to 100 percent of the required contributions under each of the respective plans. The Research Foundation maintains a separate non-contributory plan through TIAA/CREF for substantially all of its employees. Employees become fully vested in contributions made by the Research Foundation after three years of service which are allocated to individual employee accounts. Employer contributions are based on a percentage of regular salary and range from 8 percent to 15 percent. The payroll for Research Foundation employees covered by TIAA/CREF for its fiscal year was $323.5 million. The Research Foundation pension contributions for the fiscal year were $25.6 million. These contributions are equal to 100 percent of the required contributions for each year. Each retirement system issues a publicly available financial report that includes financial statements and supplementary information. The reports may be obtained by writing to: New York State and Local Employees' Retirement System 110 State Street Albany, New York 12244 New York State Teachers' Retirement System 10 Corporate Woods Drive Albany, New York 12211 Teachers Insurance and Annuity Association/ College Retirement Equities Fund 730 Third Avenue New York, New York 10017 Postemployment and Post-retirement Benefits The State, on behalf of the State University, provides health insurance coverage for eligible retired State University employees and their spouses as part of the New York State Health Insurance Plan (NYSHIP). NYSHIP offers comprehensive benefits through various providers consisting of hospital, medical, mental health, substance abuse and prescription drug programs. The State administers NYSHIP and has the authority to establish and amend the benefit provisions offered. NYSHIP is considered an agent multiple-employer defined benefit plan, is not a separate entity or trust, and does not issue stand-alone financial statements. The State University, as a participant in the plan, recognizes OPEB expenses on an accrual basis. Employee contribution rates for NYSHIP are established by the State and are generally 10 percent for enrollee coverage and 25 percent for dependent coverage. NYSHIP premiums are being financed on a pay-as-you-go basis. During the fiscal year, the State, on behalf of the State University, paid health insurance premiums of $142.4 million. The State University’s annual OPEB cost and increase in the OPEB obligation for the year ended June 30, 2007 is as follows. Annual required contribution and annual OPEB cost $712,551 Benefits paid during year -$142,399 Increase in OPEB Obligation $570,152 Net obligation at beginning of year nil Net obligation at end of year $570,152 The unfunded actuarial accrued liability, totaled $8.26 billion as of the July 1, 2006 actuarial valuation date. The initial unfunded actuarial accrued liability is being amortized over an open period of thirty years using the level percentage of projected payroll amortization method. The State University total retirement related payroll for the June 30, 2007 fiscal year was $2.4 billion. The actuarial valuation utilizes a frozen entry age actuarial cost method. The actuarial assumptions include a 4.2 percent discount rate, payroll growth rate of 3.5 percent, and an annual healthcare cost trend rate for medical coverage of 10 percent initially, reduced by decrements to a rate of 5 percent after 6 years. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Acutarially determined results are subject to continual revision as actual results are compared to past expectations and new estimates are made in the future. The actuarial methods and assumptions used are designed to reduce short-term volatility in reported amounts and reflect a long-term perspective. The Research Foundation sponsors a separate single employer defined benefit post-retirement plan (“Plan”) that provides health insurance and medical benefits that covers substantially all non-student Research Foundation employees. The Research Foundation Board of Directors administers the plan and has the authority to establish and amend the benefit provisions offered. Contribution rates for employees hired after 1985 are 10 percent for employee coverage, and 25 percent for dependent coverage. Contributions by the Research Foundation are made pursuant to a funding policy established by its Board of Directors and during the year totaled $11.7 million, $7.7 million to increase designated plan assets and $4.0 million for the payment of benefits. Plan assets are held in an unrestricted investment account designated by the Research Foundation Board of Directors and are not considered plan assets in determining the funded status or funding progress of the plan under GASB reporting and measurement standards. Amounts recognized in the financial statements include $80 million in investments designated for the Plan and an actuarial accrued liability of $220.4 million. The payroll for employees covered by the Plan for the year was $209.1 million. The Plan does not issue stand-alone financial statements. The OPEB obligation and annual OPEB cost for the Research Foundation Plan have been calculated retrospectively using an open transition period of 17 years, at the beginning of the 1991 fiscal year. The Research Foundation’s annual cost and increase in the OPEB obligation for the year ended June 30, 2007 is as follows (in thousands): Annual OPEB cost $34,995 Benefits paid during year -$3,994 Increase in OPEB Obligation $31,001 Net obligation at beginning of year $189,369 Net obligation at end of year $220,370 The components of the Research Foundation OPEB obligation include the total annual required contribution (ARC) of $224.4 million, ARC reduction of $201.3 million, and interest costs of $11.9 million. The cost of the benefits provided under this plan is recognized on an actuarial-determined basis using the projected unit cost method. Under this method, actuarial assumptions are made based on employee demographics and medical trend rates to calculate the accrued benefit cost. The actuarial assumptions include a 6.3 percent discount rate, and an initial healthcare cost trend rate range of 8.0 percent trending to 6.5 percent. A blended discount rate was utilized using the expected investment return of designated plan assets and the one year U.S. treasury note rate for available cash equivalents expected to be used to fund future OPEB obligations. 9. Commitments The State University has entered into contracts for the construction and improvement of various projects. At March 31, 2007, these outstanding contract commitments totaled approximately $575.3 million. The State University is also committed under numerous operating leases covering real property and equipment. Rental expenditures reported for the year under such operating leases were approximately $29.3 million. The following is a summary of the future minimum rental commitments under non-cancelable real property and equipment leases with terms exceeding one year. This table gives the Year or years ending June 30, and followed by the amount in thousands. 2008 $26,226 2009 $24,679 2010 $20,731 2011 $15,863 2012 $11,876 2013-17 $22,256 2018-22 $42,369 2023-27 $2,086 Total $126,086 10. Contingencies The State is contingently liable in connection with claims and other legal actions involving the State University, including those currently in litigation arising in the normal course of State University activities. The State University does not carry malpractice insurance and, instead, administers these types of cases in the same manner as all other claims against the State involving State University activities in that any settlements of judgments and claims are paid by the State from an account established for this purpose. With respect to pending and threatened litigation, the State University has recorded a liability and a corresponding appropriation receivable of approximately $131.7 million at June 30, 2007 ($130.2 million related to hospitals and clinics) for unfavorable judgments, both anticipated and awarded but not yet paid. The State University is exposed to various risks of loss related to damage and destruction of assets, injuries to employees, damage to the environment or noncompliance with environmental requirements, and natural and other unforeseen disasters. The State University has insurance coverage for its residence hall facilities. However, in general, the State University does not insure its educational buildings, contents or related risks and does not insure its vehicles and equipment for claims and assessments arising from bodily injury, property damages, and other perils. Unfavorable judgments, claims, or losses incurred by the State University are covered by the State on a self-insured basis. The State does have fidelity insurance on State employees. 11. Related Parties The State University's single largest source of revenue is State appropriations, which represents approximately 36 percent of total revenues for the fiscal year. The State University is dependent on this appropriation to carry on its operations. 12. Federal Grants and Contracts and Third-Party Reimbursement Substantially all federal grants and contracts are subject to financial and compliance audits by the grantor agencies of the federal government. Disallowances, if any, as a result of these audits may become liabilities of the State University. State University management believes that no material disallowances will result from audits by the grantor agencies. The State University hospitals have agreements with third-party payors, which provide for reimbursement to the hospitals at amounts different from their established charges. Contractual service allowances and discounts (reflected through State University hospitals and clinics sales and services) represent the difference between the hospitals established rates and amounts reimbursed by third-party payors. The State University has made provision in the accompanying financial statements for estimated retroactive adjustments relating to third-party payors cost reimbursement items. 13. Subsequent Events In July and August 2007, the State University entered into agreements with the DASNY to issue obligations totaling $406.6 million for the construction and rehabilitation of educational facilities and $145.4 million, respectively, for the construction and rehabilitation of residential facilities. 14. Restatement The provisions of GASB Statement No. 45 has been applied to the beginning net assets. The following is a reconciliation of the total net asset as previously reported as of June 30, 2006 to the beginning net asset balances (amounts in thousands). The table starts with the Total at June 30, 2006 $1,716,862 Change to compensated absences accrual $437,683 Research Foundation Post-retirement Plan -$72,407 Total net assets at July 1, 2006 $2,082,138 As a result of adopting GASB Statement No. 45, the State University changed its policy on accounting for employee sick leave credits expected to be used to pay for a share of post-retirement health insurance. The measurement and recognition of the estimated cost of these credits is actuarially determined as required under GASB No. 45. In addition, the accounting and measurement requirements under GASB 45 have been retroactively applied to the Research Foundation’s post-retirement benefit plan resulting in a decrease in opening net assets at July 1, 2006. 15. Foundations Discretely presented component unit information is comprised principally of the campus-related foundations. These foundations are not-for- profit organizations responsible for the fiscal administration of revenues and support received for the promotion, development and advancement of the welfare of its campus, the State University, its students, faculty, staff and alumni. The foundations receive the majority of their support and revenues through contributions, gifts and grants and provide benefits to their campus, students, faculty, staff and alumni. In addition, the reported amounts include foundation student housing corporations, not-for-profit organizations that operate and administer certain housing and related services for students. All the foundations are exempt from federal income taxes on related income pursuant to Section 501(a) of the Internal Revenue Code. All of the financial data for these organizations was derived from each entity's individual financial statements, reported in accordance with generally accepted accounting principles promulgated by FASB, the majority of which have a June 30 fiscal year end. During the year, the foundations distributed $43.8 million to the State University principally for scholarships and support of campus program activities. Separately issued financial statements of the foundations and other related entities may be obtained in writing to: State University of New York System Administration Office of the University Controller University Plaza, S-421 Albany, New York 12246 Net Asset Classifications Unrestricted net assets represent resources whose uses are not restricted by donor-imposed stipulations and are generally available for the support of the State University campus and foundation programs and activities. Temporarily restricted net assets represent resources whose use is limited by donor-imposed stipulations that either expire by the passage of time or are removed by specific actions. Permanently restricted net assets represent resources that donors have stipulated must be maintained permanently. The income derived from the permanently restricted net assets is permitted to be spent in part or in whole, restricted only by the donors’ wishes. The beginning net asset amounts have been revised from those previously reported to reclassify amounts to conform with donor intentions. As a result, permanently restricted net assets were increased $24.3 million and temporarily restricted and unrestricted net assets were decreased by $17.5 million and $6.8 million, respectively. Investments All investments with readily determinable fair values have been reported in the financial statements at fair value. Realized and unrealized gains and losses are recognized in the statement of activities. Gains or losses on investments are recognized as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law. Investments of the State University foundations were $900 million as of June 30, 2007. The composition of investments is as follows. This table lists the investments followed by the amounts in thousands. Equities - domestic $376,375 Equities - international $157,981 Non-equities $256,279 Other investments $109,340 Total investments $899,975 Capital Assets Capital assets are stated at cost, if purchased, or fair value at date of receipt, if acquired by gift. Land improvements, buildings, and equipment are depreciated over their estimated useful lives using the straight-line method. Capital assets, net of accumulated depreciation, totaled $321.8 million as of June 30, 2007. Capital asset classifications are summarized as follows. This table lists the assets followed by the amounts for that category in thousands. Land and land improvements $15,403 Buildings $327,507 Equipment $32,006 Artwork and library books $16,541 Construction in progress $9,728 Total capital assets $401,185 Less accumulated depreciation $79,433 Capital assets, net $321,752 Long-term Debt The Foundations have entered into various financing arrangements, principally through the issuance of Industrial Development Agency bonds and Housing Authority bonds for the construction of student residence hall facilities. The following is a summary of the future minimum annual debt service requirements for the next five years and thereafter. This table gives the years ending June 30 followed by the amounts of long-term debt for that year in thousands. 2008 $9,163 2009 $8,796 2010 $7,434 2011 $7,062 2012 $7,483 Thereafter $227,200 The total is $267,138