The State University of New York 2009 Annual Financial Report The State University of New York 2009 Annual Financial Report Board of Trustees: Carl T. Hayden Chairman Aminy I. Audi Robert J. Bellafiore Stephen J. Hunt H. Carl McCall John L. Murad, Jr. Pedro Noguera Michael E. Russell Linda S. Sanford Carl Spielvogel Cary Staller Harvey F. Wachsman Gerri Warren-Merrick Melody Mercedes (Student Trustee) Kenneth P. O’Brien (Faculty Senate). Chancellor Nancy L. Zimpher Senior Management : Michael A. Abbott, University Auditor Johanna Duncan-Poitier, Chancellor’s Deputy for the Education Pipeline Dr. Dennis Golladay, Vice Chancellor for Community Colleges Dr. David K. Lavallee, Interim Provost and Vice Chancellor for Academic Affairs Mitch Leventhal, Vice Chancellor for Global Affairs Jeffrey J. McGrath, Officer-In-Charge, University Controller’s Office John J. O’Connor, Vice Chancellor and Secretary of the University and President of the Research Foundation Monica Rimai , Senior Vice Chancellor and Chief Operating Officer Nicholas Rostow, University Counsel and Vice Chancellor for Legal Affairs Michael C. Trunzo, Vice Chancellor for Government Relations Philip W. Wood, Vice Chancellor for Capital Facilities and Interim Vice Chancellor and Chief Financial Officer Page 1 Message from the Chancellor I am pleased to present this year’s Annual Financial Report of the State University of New York. The report provides an overview of the State University’s finances and operating results for the year ended June 30, 2009. Even in the midst of severe economic pressures, the State University continues to push forward with its mission to enhance educational excellence, affordability, and accessibility for New Yorkers. Enrollment, student retention and sponsored research all remain strong or at record levels. New York’s public higher education system is integral to the economic, cultural and civic well-being of the state. New York’s cities, towns and villages are more robust economically and culturally because of the presence of State University campuses. The State University has the unique ability to educate individuals across a spectrum of interests and career paths – from fashion to forestry, and from medicine to law – and in large numbers. Now serving nearly 465,000 students, the State University is the primary developer of the state's human capital, and a key driver of innovation, economic recovery and quality of life in our communities. The State University continues to attract and educate talented and promising students in record numbers. Total student enrollment has grown every year since 1997 and has been on a record-setting pace since the fall of 2000. Enrollment has increased almost 27 percent from the fall of 1997 to the fall of 2009. In addition, system-wide retention rates, which result in higher graduation rates, are steadily increasing. Retention of first-time, full-time students is 83 percent, which is the highest level in the history of the State University. The retention rates continue to outpace the rates at most public colleges nationally, and are as high as, or approaching, the rates at many of the best private colleges and universities in the United States. Reflecting the State University’s commitment to improved student performances across all cultural backgrounds, recent data show that the State University’s minority student graduation rates exceed the national rates for minority students attending public institutions. The volume of research and other sponsored programs revenue continues to be strong, with more than $1.026 billion reported in fiscal year 2009. Research continues to be an important facet of the State University’s mission, with faculty constantly breaking new ground in diverse fields such as medicine, education, high performance computing and alternative energy. In the 2009 fiscal year, The Research Foundation of State University of New York received 320 invention disclosures, filed 205 patent applications, was awarded 55 U.S. patents, executed 49 licenses and received more than $13 million in royalties. These achievements were the products of more than 7,200 projects that supported more than 17,000 employees statewide. More than ever before, the State University is an excellent investment for students and a critical resource for New York. If the State is to move forward in these tough economic times, then we must look to build a stronger future for the State University, which has provided generations of New Yorkers access to educational and economic opportunities. We take very seriously our responsibility to be good stewards of public dollars and will continue to strive to be as efficient and creative as possible in managing our resources. Nancy L. Zimpher (her signature) Nancy L. Zimpher , Chancellor NEXT PAGE PriceWaterhouseCoopers (Letterhead) 677 Broadway Albany, NY 12207 Telephone (518) 462-2030 Facsimilie (518) 427-4499 Report of Independent Auditors To The Board of Trustees State University of New York In our opinion, based on our audits and the reports of other auditors, the financial statements of the business-type activities and the aggregate discretely presented component units of The State University of New York (the “University”) which collectively comprise the University’s basic financial statements, present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of the University at June 30, 2009 and 2008, and the respective changes in financial position and cash flows, where applicable, thereof for the years the ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the University's management. Our responsibility is to express opinions on these financial statements based on our audits. For the year ended June 30, 2009, we did not audit the financial statements of the State University Construction Fund, the Research Foundation, nor certain auxiliary service corporations, which statements reflect total assets of 7 percent and total net assets of 10 percent of the related totals as of June 30, 2009 and total revenues of 18 percent of the related total revenues for the year ended of the business type activities. For the year ended June 30, 2008, we did not audit the financial statements of the State University Construction Fund, nor certain auxiliary service corporations, which statements reflect total assets of 3 percent and total net assets of 8 percent of the related totals as of June 30, 2008 and total revenues of 8 percent of the related total revenues for the year then ended of business type activities. Additionally, we did not audit the financial statements of the discretely presented component units, which comprise 100% of the total assets, total net assets and total revenue of the discretely presented component units. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the State University Construction Fund, the Research Foundation, certain auxiliary service corporations, and the discretely presented component units is based on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinions. As discussed in Note 1, the University is included in the primary government reporting entity of the State of New York as an enterprise fund. The accompanying financial statements represent only the financial state-ments of the University and do not purport to, and do not, present fairly the financial statements of the State of New York in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 14 to the financial statements, the discretely presented component units are reported in accordance with generally accepted accounting principles promulgated by the Financial Accounting Standards Board ("FASB") and the audits were not performed in accordance with Government Auditing Standards. The Management's Discussion and Analysis on pages 3 through 11 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. PricewaterhouseCoopers, LLP (signature) October 29, 2009 Page 3 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, 2009 and 2008, the results of its operations for the years then ended, and significant changes from the previous years. 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 sheets, the statements of revenues, expenses, and changes in net assets, and the statements 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. Financial Highlights At June 30, 2009 and 2008, total assets reported by the State University were $10.92 billion and $11.15 billion and total liabilities were $10.03 billion and $9.22 billion, respectively. Net assets, which total $897 million and $1.93 billion at June 30, 2009 and 2008, experienced a decrease of $1.03 billion in 2009 and a decrease of $336 million in 2008. The net assets at June 30, 2009, 2008, and 2007 are summarized in the following categories (in thousands): For years 2009, 2008, and 2007 (respectively): 2009 2008 2007 Net assets: Invested in capital assets, net of related debt $ 606,165 641,283 596,527 Restricted - nonexpendable 249,321 264,380 246,393 Restricted - expendable 328,863 830,009 829,633 Unrestricted (287,146) 195,872 595,076 _______ _________ _________ Total net assets $ 897,203 1,931,544 2,267,629 The decrease in net assets during 2009 and 2008 was driven by net realized and unrealized investment losses of $389 million and $35 million, respectively. In 2009, a $288 million transfer of substantially all of the assets held in the State University Endowment Fund to the State University campus foundations contributed to the decline. Revenues, expenses, and the change in net assets for the 2009, 2008, and 2007 fiscal years are summarized as follows (in thousands): 2009 2008 2007 Operating revenues $ 4,805,384 4,402,658 4,408,393 Nonoperating revenues 3,580,847 3,590,134 3,680,393 Other revenues 69,285 89,119 73,010 _________ _________ _________ Total revenues 8,455,516 8,081,911 8,161,978 Operating expenses 8,505,101 8,066,377 7,696,130 Nonoperating expenses 984,756 351,619 280,357 _________ _________ _________ Total expenses 9,489,857 8,417,996 7,976,487 _________ _________ _________ Change in assets (each total is double underlined)($ 1,034,341) (336,085) 185,491 Total revenues reported in 2009, 2008, and 2007 were $8.46 billion, $8.08 billion, and $8.16 billion, respectively. Total revenue in 2009 increased $374 million while revenue in 2008 decreased $80 million, compared to the previous year. The revenue increase in 2009 was driven by increases of $127 million in hospital and clinic revenue, $111 million in state and local grants and contracts, $92 million in state appropriations, net tuition revenues of $78 million, auxiliary enterprises of $49 million, and federal and state student financial aid grants of $36 million. These increases were offset by decreases of $71 million in investment income and $50 million in private and capital gifts. Page 4 Total expenses for 2009, 2008, and 2007 were $9.49 billion, $8.42 billion, and $7.98 billion, respectively. State University expense growth in 2009 and 2008 was $1.07 billion and $442 million, respectively. Expense growth in 2009 compared to 2008 was primarily the result of increases in investment losses of $354 million, the transfer of assets to the State University campus foundations of $288 million, hospital and clinic activity of $260 million, research activity of $120 million, and instruction activity of $71 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 comparable balance sheets, statements of revenues, expenses, and changes in net assets, statements of cash flows, and accompanying notes for the June 30, 2009 and 2008 fiscal years. These statements provide information on the financial position of the State University and the financial activity and results of its operations during the years presented. Certain amounts displayed for the 2008 and 2007 years have been reclassified to conform to the 2009 presentation. A description of these statements follows: The Balance Sheets present 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 Statements of Revenues, Expenses, and Changes in Net Assets present information showing the change in the State University’s net assets during each fiscal year. All 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 these statements 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 benefit earned). The Statements of Cash Flows provides information on the major sources and uses of cash during the year. The cash flow statements portray net cash provided or used from operating, investing, capital, and noncapital financing activities. Balance Sheets The balance sheets present the financial position of the State University at the end of its fiscal years. During the 2009 and 2008 fiscal years, the State University’s total assets decreased $225 million and increased $745 million over the prior years, while total liabilities increased $810 million and $1.08 billion, respectively. The following table reflects the financial position at June 30, 2009, 2008, and 2007 (in thousands): For years 2009, 2008, and 2007: 2009 2008 2007 Current assets $ 2,828,996 2,756,467 2,470,162 Capital assets, net 6,235,899 5,744,812 5,233,361 Other noncurrent assets 1,859,604 2,647,822 2,700,652 __________ __________ __________ Total assets 10,924,499 11,149,101 10,404,175 __________ __________ __________ Current liabilities 1,674,262 1,719,058 1,504,132 Noncurrent liabilities 8,353,034 7,498,499 6,632,414 __________ __________ __________ Total liabilities 10,027,296 9,217,557 8,136,546 __________ __________ __________ Net assets (each result is double underlined) $ 897,203 1,931,544 2,267,629 Current Assets Current assets at June 30, 2009 increased $73 million while current liabilities decreased $45 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, 2009 and 2008 consist primarily of cash and cash equivalents of $1.23 billion and $1.2 billion, short-term investments of $296 million and $301 million, and receivables (accounts, interest, appropriations, and grants) of $1.24 billion and $1.2 billion, respectively. During 2009, accounts, notes, and loan receivables grew $87 million and cash and cash equivalents increased $32 million. These increases were offset by decreases in appropriations and grant receivable balances totaling $45 million. Page 5 Current Liabilities Current liabilities at June 30, 2009 and 2008 consist principally of accounts payable and accrued expenses of $602 million and $622 million, interest on debt of $162 million and $201 million, deferred revenue of $254 million and $258 million, and the current portion of long-term liabilities of $504 million and $477 million, respectively. The decline in current liabilities at June 30, 2009 was driven principally by a decrease in interest payable of $39 million. Capital Assets, net. Since 2003, the State University has received $5.8 billion in cumulative new multi-year capital funding authorizations for State-operated campus educational facilities and $869 million for the State University hospitals. Under the educational facilities program, a majority of the funding is designed to support critical maintenance projects to repair, renovate, or rehabilitate existing State University facilities. During the 2009 and 2008 fiscal years, capital assets (net of depreciation) increased $491 million and $511 million, respectively. The majority of the increase occurred at the State University campuses due to new building construction, renovations, and rehabilitation totaling $386 million and $395 million for the 2009 and 2008 fiscal years, respectively. Equipment additions during 2009 and 2008 of $173 million and $214 million, respectively, also contributed to the increase. Significant projects completed and capitalized during the 2009 fiscal year included construction of a new art center at Buffalo State College, a new administrative building at Empire State College, modernization and expansion of a library at the College at Purchase, a new residence hall at the College at Geneseo, and the rehabilitation of a science building at the College at Oneonta. A summary of capital assets, by major classification, and related accumulated depreciation for the 2009, 2008, and 2007 fiscal years is as follows (in thousands): For years 2009, 2008, and 2007 (respectively): 2009 2008 2007 Land $ 313,175 301,862 274,846 Infrastructure and land improvements 664,602 593,877 518,808 Buildings 6,684,860 6,337,676 6,000,197 Equipment, library books, and artwork 2,450,532 2,334,476 2,169,505 Construction in progress 1,125,153 901,084 752,776 __________ __________ _________ Total capital assets $11,238,322 10,468,975 9,716,132 __________ __________ _________ Less accumulated depreciaton: Infrastructure and land improvements 348,464 334,785 327,075 Buildings 2,923,117 2,787,220 2,679,161 Equipment, library books and artwork 1,730,842 1,602,158 1,476,535 __________ __________ _________ Total accumulated depreciation 5,002,423 4,724,163 4,482,771 __________ __________ _________ Capital assets, net (each sum double underlined) $ 6,235,899 5,744,812 5,233,361 Other Noncurrent Assets Other noncurrent assets exclusive of capital assets were $1.86 billion and $2.65 billion at June 30, 2009 and 2008, respectively. Noncurrent assets at June 30, 2009 and 2008 include long-term investments of $584 million and $1.37 billion, deposits with trustees of $803 million and $887 million, restricted cash of $98 million and $92 million, and the noncurrent portion of receivables and deferred financing costs of $374 million and $301 million, respectively. Long-term investments at June 30, 2009 and 2008 of $584 million and $1.37 billion include the Cornell statutory colleges of $482 million and $753 million, Research Foundation of $60 million and $172 million, auxiliary services corporations of $24 million and $28 million, and the statutory College of Ceramics at Alfred University of $16 million and $24 million, respectively. In an effort to reduce duplicative expenses relating to the management and administration of endowment assets, the Board of Trustees authorized the transfer of title to campus foundations of allocable portions of substantially all of the assets held in the State University Endowment Fund. Total long-term investments reported in 2009 were $2 million compared to $390 million in 2008. In June 2009, the Research Foundation established a separate legal trust for their post-retirement benefit plan and the investments held in the plan were transferred to the trust. The investments designated for the plan totaling $76 million were reported as long-term investments in 2008. As a result of these transfers, the downturn in the markets which generated substantial investment losses, and amounts used to meet spending needs, long-term investments decreased by a total of $784 million in 2009 compared to 2008. Page 6 During fiscal year 2009, deposits with trustees, 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, decreased $83 million. Restricted cash and cash equivalents represent unspent funds under various capital financing arrangements, cash held for others, and cash restricted for loan programs. At June 30, 2009 restricted cash balances increased $6 million compared to 2008. The noncurrent portion of receivables reported at June 30, 2009 and 2008 consisted of accounts, notes, and loan receivables of $115 million and $114 million, appropriation receivables of $165 million and $90 million, and contribution receivables of $22 million and $30 million, respectively. Noncurrent Liabilities Noncurrent liabilities at June 30, 2009 and 2008 of $8.4 billion and $7.5 billion, respectively, are largely comprised of debt on State University facilities, other long-term liabilities accrued for postemployment and post-retirement benefits, compensated absences, 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 non-current long-term liabilities at June 30, 2009, 2008, and 2007 is as follows (in thousands): For years 2009, 2008, and 2007 (respectively): 2009 2008 2007 Educational facilities $ 4,907,472 4,591,499 4,374,709 Residence hall facilities 943,590 845,385 727,950 Postemployment and post-retirement obligations and compensated absences 1,765,603 1,375,277 875,583 Loan - State STIP pool 68,754 92,934 113,196 Other obligations 467,778 409,124 364,531 __________ _________ _________ Long-term liabilities (each sum double underlined) $ 8,153,197 7,314,219 6,455,969 During fiscal year 2009, 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 $508.4 million. Also, during the year $34.4 million of PIT bonds were used in order to refinance $34.4 million of the State University’s existing educational facility obligations. The State University entered into agreements with DASNY during fiscal year 2009 to issue residence hall facility obligations totaling $129.4 million for the purpose of financing capital construction and major rehabilitation for residential hall facilities. The State University’s credit ratings for educational and residence hall bonds were unchanged in 2009 and 2008. The credit ratings at June 30, 2009 are as follows: Three columns for credit ratings by each service PIT Bonds Educational Facilities Residence Halls Moody’s Investors Service Aa3 A1 Aa3 Standard & Poor’s AAA AA- AA- Fitch IBCA AA- A+ A+ Principal payments on educational and residence hall facilities obligations made during 2009 totaled $229 million and $28 million, in 2008 totaled $184.4 million and $24.3 million, and in 2007 totaled $389.2 million and $22.9 million, respectively. Page 7 During fiscal years 2009 and 2008, the long-term portion of postemployment and post-retirement benefit obligations and compensated absences liabilities increased $390 million and $500 million, respectively. 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). The State administers NYSHIP and has the authority to establish and amend benefit provisions offered. The State University, as a participant in the plan, recognizes these other postemployment benefits (OPEB) on an accrual basis. The State University’s OPEB plan is financed annually on a pay-as-you-go basis. There are no assets set aside to fund the plan. The actuarial accrued liability (AAL) and the unfunded AAL, utilizing the frozen entry age actuarial cost method, as of April 1, 2008 and April 1, 2006 was $9.56 billion and $7.81 billion, respectively. The State University’s total retirement related payroll during fiscal years 2009 and 2007 was $2.8 billion and $2.4 billion, respectively. The total unfunded actuarial accrued liability as a percentage of covered payroll, based on the 2008 and 2006 actuarial valuation dates, were 341% and 325%, respectively. The Research Foundation sponsors a separate defined benefit OPEB plan. Contributions are made by the Research Foundation pursuant to a funding policy established by its Board of Directors. In 2009, a Voluntary Employee Benefit Association (VEBA) trust was established and legal title to all the assets in the trust is vested in the trust for the benefit of the participants. The Research Foundation’s total retirement related payroll during the 2009, 2008, and 2007 fiscal years was $233.7 million, $224.2 million, and $209.1 million, respectively. The total unfunded actuarial accrued liability as of the June 30, 2009, 2008, and 2007 actuarial valuation was $188.8 million, $233.0 million, and $220.4 million or 81%, 104%, and 105% of the total retirement related payroll expense of the Research Foundation for fiscal years 2009, 2008, and 2007, respectively. 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, 2009 and 2008 was $86 million and $110.2 million, respectively. During fiscal years 2009 and 2008, the total amount paid on these loans was $25.6 million in both years. Refundable government loan funds at June 30, 2009 and 2008 totaled $146.3 million and $144.3 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. Statements of Revenues, Expenses, and Changes in Net Assets The statements of revenues, expenses, and changes in net assets present the State University’s results of operations. Total operating revenues of the State University were $4.81 billion in 2009, $4.40 billion in 2008, and $4.41 billion in 2007. Nonoperating and other revenues, which includes State appropriations, totaled $3.65 billion, $3.68 billion, and $3.75 billion, for fiscal years 2009, 2008, and 2007, respectively. Total expenses for 2009, 2008, and 2007 were $9.49 billion, $8.42 billion, and $7.98 billion, respectively. Revenue Overview Revenues (in thousands) for respective years: 2009 2008 2007 Tuition and fees, net $ 1,030,198 952,075 917,537 Hospitals and clinics 1,723,164 1,595,895 1,621,458 Federal grants and contracts 637,222 639,998 649,887 State, local, private grants and contracts and other sources 634,500 483,777 539,658 Auxiliary enterprises 780,300 730,913 679,853 _________ _________ _________ Total operating revenues 4,805,384 4,402,658 4,408,393 _________ _________ _________ State appropriations 3,062,915 2,970,720 2,910,145 Other nonoperating 587,217 708,533 843,440 _________ _________ _________ Nonoperating and other revenues 3,650,132 3,679,253 3,753,585 _________ _________ _________ Total revenues (each total double underlined) $ 8,455,516 8,081,911 8,161,978 Page 8 Visual - Pie Chart of the sources of 2009 revenues (previously listed on prior page in Revenue Overview). Tuition and Fees, Net Tuition and fee revenue for the 2009, 2008, and 2007 fiscal years, net of scholarship allowances, was $1.03 billion, $952 million, and $918 million, an increase of $78 million and $35 million in 2009 and 2008, respectively. The increases in 2009 and 2008 were driven by increases in enrollment. During the 2009 fiscal year there was also a mid-year tuition rate increase effective for the spring semester. Annual average full-time equivalent students, including undergraduate and graduate, were approximately 189,600, 185,700, and 180,200 for the fiscal years ended June 30, 2009, 2008, and 2007, 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 2009, 2008, and 2007 fiscal years were $1.72 billion, $1.60 billion, and $1.62 billion, respectively. During the 2009 fiscal year, hospital and clinic revenues increased $127 million compared to the previous year due to an increase in inpatient and outpatient revenue and a $64 million increase in Medicaid Disproportionate Share (DSH) Program revenue from the prior year. Sponsored Research, Grant and Contract Revenue During fiscal year 2009, 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 $846 million, $794 million, and $791 million for the fiscal years ended June 30, 2009, 2008, and 2007, respectively. Facilities and administrative recoveries earned on grants and contracts administered by the Research Foundation were $125 million, $127 million, and $124 million for the fiscal periods ending June 30, 2009, 2008, and 2007, respectively. The volume of research and other sponsored programs reported for 2009 and 2008 by the statutory colleges at Cornell University was $176.1 million and $147.9 million, and Alfred University was $3.9 million and $4.3 million, respectively. Revenue from projects sponsored by the federal government and administered by the Research Foundation totaled $338 million and $340 million for the 2009 and 2008 fiscal years. Of these federally-sponsored projects, 55 percent and 54 percent of the funding was received from the Department of Health and Human Services during fiscal years 2009 and 2008, 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 $508 million and $454 million for the 2009 and 2008 fiscal years, respectively. In fiscal years 2009 and 2008, 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 increased $13 million from the prior year. Federal grants under the Pell and other federal student aid programs increased $23 million from the previous year. Page 9 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 generally 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 incorp- orated 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 hall. Revenue producing occupancy at the residence halls has risen steadily to 72,741 for the fall of 2008, an increase of 12,159 students since the fall of 2001 and an increase of over 1,136 students compared to the previous year. The overall utilization rate for the fall of 2008 was reported at 96.7 percent. Auxiliary enterprise sales and services revenue totaled $780 million, $731 million, and $680 million in the 2009, 2008, and 2007 fiscal years, respectively. Of these amounts, residence halls operating revenue totaled $354 million, $325 million, and $301 million for 2009, 2008, and 2007, respectively. Increases in revenue were largely due to increases in occupancy levels and modest increases in room rates. Food service operations and other auxiliary services each generated $426 million, $406 million, and $379 million in revenue for fiscal years 2009, 2008, and 2007, 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 $3.06 billion, $2.97 billion, and $2.91 billion and represented approximately 36 percent, 37 percent, and 36 percent of total revenues for fiscal year 2009, 2008, and 2007, respectively. State support (both direct support for operations and indirect support for debt service, litigation, and fringe benefits) for State University campus operations, statutory colleges, and hospitals and clinics increased $92 million in 2009 and $61 million in 2008. In 2009, State support for operating expenses decreased $49 million, while indirect State support for debt service, fringe benefits, and litigation expenses increased $141 million compared to 2008. Nonoperating and Other Revenue Nonoperating and other revenue excluding State appropriations were $587 million and $709 million for the 2009 and 2008 fiscal years, respectively. This decrease was primarily due to decreases of $71 million in investment income, $50 million in private and capital gifts, and $38 million in other non- operating revenues offset by an increase of $36 million in federal and state student financial aid grant programs. Expense Overview Expenses (in thousands) for respective years: 2009 2008 2007 Instruction $ 2,044,597 1,974,050 1,911,300 Research 687,724 567,944 597,301 Public service 298,122 298,233 274,166 Support services 2,090,135 2,150,881 2,017,118 Scholarships and fellowships 125,965 119,123 110,738 Hospitals and clinics 2,082,902 1,822,605 1,723,773 Auxiliary enterprises 775,162 757,902 681,653 Depreciation and amortization 400,494 375,738 380,081 Other nonoperating 984,756 351,619 280,357 _________ _________ _________ Total expenses (year column sums double underlined) $ 9,489,857 8,417,996 7,976,487 Page 10 Visual - Pie Chart of the sources of expense (previously listed on prior page in the Expense overview). The increase in instruction expense of $71 million and $63 million during 2009 and 2008, respectively, is predominately from an increase in personal service and related fringe benefit expenses. Research expenses grew $120 million during 2009 compared to 2008 and decreased $29 million in 2008 compared to 2007. The increase in 2009 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, decreased $61 million during 2009 compared to 2008. Support services expenses increased $134 million in 2008 compared to 2007. Institutional support decreased $27 million during 2009 and increased $42 million in 2008 compared to 2007. Academic support costs grew $13 million and $33 million in the 2009 and 2008 fiscal years, respectively, which was primarily driven by an increase in personal service costs. Operation and maintenance of plant costs decreased $53 million and increased $43 million during 2009 and 2008, respectively. The decrease in 2009 was attributable to lower utility costs and a decline in capital expenses. 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 $617 million and $554 million for the fiscal years ended June 30, 2009 and 2008, respectively. Of this amount, $491 million and $435 million were classified as scholarship allowances and $126 million and $119 million was reported as scholarship expense for fiscal years 2009 and 2008, respectively. Major scholarships and grants received include the State Tuition Assistance Program of $183 million and $170 million, and the federal Pell Program of $174 million and $153 million during fiscal years 2009 and 2008, respectively. Expenses at the State University’s hospitals and clinics increased $260 million and $99 million during 2009 and 2008, respectively, largely due to an increase in core operating and personal service costs. Also contributing to the growth in 2009 was an increase of $135 million in litigation expenses. During fiscal years 2009 and 2008, auxiliary enterprise expenses increased $17 million and $76 million, respectively. For the 2009 fiscal year residence halls expenses declined $1 million, compared to an increase of $48 million from 2007 to 2008. Food service expenses increased $9 million and $16 million, respectively, primarily due to an increase in enrolled students. Other auxiliary enterprise expenses for the years ended June 30, 2009 and 2008 increased $9 million and $12 million, respectively. Depreciation and amortization expense recognized in fiscal years 2009 and 2008 totaled $400 million and $376 million, respectively. Other nonoperating expenses were $985 million and $352 million for the years ended June 30, 2009 and 2008, respectively. The significant increase in nonoperating expenses during fiscal year 2009 was due to market conditions resulting in larger investment losses of $354 million year-over-year, and the transfer of assets to the State University campus foundations of $288 million. Page 11 Economic Factors That Will Affect the Future The State University is one of the largest public universities in the nation, with headcount enrollment of nearly 222,000 in the fall 2009, on twenty-nine State-operated campuses and five 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. Full-time equivalent (FTE) enrollment, excluding community colleges, for the fiscal year ended June 30, 2009, is approximately 189,600, an increase of 3,900 FTE compared to June 30, 2008. New York State appropriations remain the largest single source of revenues. The State University's continued operational viability is substantially dependent upon a consistent and proportionate level of ongoing State support. For the most recent fiscal year, State appropriations totaled $3.06 billion which represented 36 percent of the total revenues of the State University. State appropriations consisted of direct support ($1.46 billion), debt service on educational facility and PIT bonds ($427 million), fringe benefits for State employees ($1.04 billion), and litigation ($134 million). Debt service on educational facilities is paid by the State in an amount sufficient to cover annual debt service requirements; pursuant to annual statutory provisions, each of the University’s three teaching hospitals must reimburse the State for their share of debt service costs to finance their capital projects. To maintain budgetary equilibrium in an era of fiscal uncertainty, in anticipation of declining State revenue streams, the State University is taking appropriate measures, such as hiring freezes, travel restrictions, and constraints on the use of energy while seeking to enhance other revenue streams, including philanthropy and sponsored programs. The State University depends on the State to provide appropriations in support of its capital programs. Consistent with the Executive Budget’s request, in 2008 the State University submitted proposals for new five-year capital programs commencing in 2008-09 through 2012-13. As a result, the final enacted 2008-09 State Budget provided a $1.7 billion multi-year appropriation for strategic initiatives and $550 million for the first of five anticipated annual appropriations dedicated to critical maintenance efforts targetedfor preservation or rehabilitation of existing facilities. The 2009-10 State Budget has authorized the second of the $550 million annual critical maintenance appropriations. With the additional annual critical maintenance appropriations, the State University anticipates a total of $2.75 billion in multi-year critical maintenance appropriations over the five year period. Taken together, the cumulative multi-year funding authorizations appropriated since 2003 provide the State University with the basic resources needed to address core critical maintenance needs of its existing buildings and infrastructure, and the means to make additional capital investments in a range of programmatic initiatives, including research and technology development. The State University hospitals, which are all part of larger State University Academic Health 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 and Medicaid reimbursement is critical to their continued viability. Their financial and operational capabilities will also continue to be challenged by unsupported inflationary and contractual cost increases. Page 12 Balance Sheets for June 30, 2009 and 2008 Not included here. Page 13 Statements of Revenues, Expenses, and Changes in Net Assets for years ended June 30, 2009 and 2008 Not included here. Page 14 Statements of Cash Flows for years ended June 30, 2009 and 2008 Not included here. Page 15 Statements of Cash Flows (continued) Not included here. Page 16 State University of New York Foundations Balance Sheet for June 30, 2009, with comparative totals for June 30, 2008 Not included here. Page 17 State University of New York Foundations Statement of Activities for year ended June 30,2009, with comparative totals for June 30, 2008 Not included here. Page 18 (title of second half of publication at top of each page.) Notes to Financial Statements June 30, 2009 and 2008 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 reporting entity is based primarily on the notion of financial accountability, defined in terms of a primary government (State University) that is financially accountable for the organizations that make up its legal entity. The reporting entity includes legally-separate organizations meeting certain financial accountability and fiscal dependency criteria of the State University. Separate legal entities meeting the criteria for inclusion in the blended totals of the State University reporting entity are described below. 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. Legally-separate, tax-exempt, affiliated organizations that receive or hold economic resources that are significant to, that are entirely or almost entirely for the direct benefit of, and that can be accessed by, the primary government, its component units, or its constituents are required to be included in the reporting entity using discrete presentation requirements. As a result, the combined totals of the campus-related foundations and student housing corporations (all referred to as foundations) are separately 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, private, nonprofit educational corporation that administers 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 years ended June 30, 2009 and 2008. Almost all of the State University’s campuses maintain auxiliary services corporations. These corporations are campus-based, nonprofit organizations 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 individual 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 years end of March 31, 2009 and 2008. 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. Page 19 1. Summary of Significant Accounting Policies and Basis of Presentation (continued) The operations of certain related but independent organizations, i.e., clinical practice management plans, alumni associations and student associations, do not meet the criteria for inclusion, and are not included in the accompanying financial statements. The State University administers State financial assistance to the community colleges in connection with its general oversight 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 Governmental Accounting Standards Board (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. 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 classified balance sheets; statements of revenues, expenses, and changes in net assets, that distinguish between operating and nonoperating revenues and expenses; and statements 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. Page 20 1. Summary of Significant Accounting Policies and Basis of Presentation (continued) 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 for 2009 and 2008 were reported net of the following scholarship discount and allowance amounts (in thousands): 2009 2008 Residence halls $ 60,839 54,088 Food service 26,433 24,476 Other auxiliary 26,006 24,410 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 sheets. 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, 2009 and 2008, the State University had $111 million and $715 million available for authorization for expenditure, $56 million and $429 million from restricted funds, and $55 million and $286 million from unrestricted funds, respectively. The State University's Board of Trustees has the responsibility of oversight for the State University’s Endowment and similar funds. In an effort to reduce duplicative expenses relating to the management and administration of endowment assets, the Board of Trustees authorized the transfer of title to campus foundations of allocable portions of substantially all the assets of the State University Endowment Fund and has authorized a separate foundation to manage the investment of the remaining assets of the State University campuses totaling $1.9 million at June 30, 2009, title to which is not transferred to campus foundations. The assets were transferred during the 2009 fiscal year. In 2008, the expenditure of available endowment income was subject to New York State appropriation and the State University’s spending policy. 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. Page 21 1. Summary of Significant Accounting Policies and Basis of Presentation (continued) Capital Assets Capital assets are stated at cost, or in the case of gifts, fair value at the date of receipt. Building reno vations and additions costing over $100,000 and equipment items with a unit cost of $5,000 or more 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 $12.4 million and $7.9 million in the 2009 and 2008 fiscal years, respectively. 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. 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. 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. Fringe Benefits Employee fringe benefit costs (e.g., health insurance, worker’s compensation, and pension 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. Postemployment Benefits Postemployment benefits other than pensions are recognized on an actuarially determined basis as employees earn benefits that are expected to be used in the future. The amounts earned include employee sick leave credits expected to be used to pay for a share of post-retirement health insurance. 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 nonprofit organizations 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 a mount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts displayed in the 2008 financial statements have been reclassified to conform to the 2009 presentation. Page 22 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; (b) collateralized with securities held by a pledging financial institution; 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 at June 30, 2009 and 2008, is as follows (in thousands): Category a Category b Category c 2009 $ 69,489 20,083 8,724 2008 59,238 24,868 4,639 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 $258 million and $53.9 million at June 30, 2009 and 2008, respectively. The market value of investments held and maturity are displayed in the table below (in thousands). Chart comparing Values for Fiscal year 2009 and 2008. Here we will list the types of investments for three periods of time committed to investment and the rating, if there is one, for 2009. Then we will repeat for 2008. For 2009: Type of investments Fair Value Less than 1 year 1-5 years Rating US Treasury notes or bonds $ 75,404 68,989 6,415 no rating US Treasury bills 233,330 233,330 none no rating US Treasury strips 4,060 4,060 none no rating Federal Natiional Mortgage Assoc. 86,631 86,631 none AAA Federal Home LOan Bank 145,897 145,897 none AAA ________ _______ _____ Totals (double underlined) $545,322 538,907 6,415 Now for 2008: Type of investments Fair Value Less than 1 year 1-5 years Rating US Treasury notes or bonds $206,887 185,647 21,240 no rating US Treasury bills 360,903 360,903 none no rating US Treasury strips 246,328 243,777 2,551 no rating Federal Natiional Mortgage Assoc. 4,062 4,062 none AAA Federal Home LOan Bank 14,635 14,635 none AAA ________ _______ ______ Totals (double underlined) $832,815 809,024 23,791 Page 23 4. Investments Investments of the State University are recorded at fair value. Investment income is reported net of investment fees of $3 million and $4.4 million for 2009 and 2008, respectively. Investments are comprised of the statutory colleges at Cornell University and Alfred University (Alfred Ceramics), the Research Foundation, the Construction Fund, the auxiliary services corporations, and certain State University campuses. Investments of the endowment and similar funds of the Cornell statutory colleges, except for separately invested funds with a fair value of $23 million and $42.7 million at June 30, 2009 and 2008, respectively, 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 investments of the State University campuses are well diversified to achieve return objectives. During 2009, the Board of Trustees authorized the transfer of title to campus foundations of allocable portions of substantially all of the assets held in the State University Endowment Fund. Total investments reported in 2009 were $2 million compared to $401 million in 2008. 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. During 2009, the Research Foundation transferred investment assets to a separate legal trust designated for their post-retirement benefit plan. These assets were valued at $66.3 million at June 30, 2009. 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 and consisted primarily of obligations of the United States government and its agencies. These investments are held by the State’s agent in the State University Construction Fund’s name. Investments of the auxiliary services corporations and Alfred Ceramics were derived from each entity’s individual financial statements. The State University’s financial position may be impacted through its market risk positions and by changes in economic conditions. The composition of investments is as follows (in thousands) for years 2009 and 2008: 2009 2008 Cash and money market funds $ 153,695 43,304 Non-equities 218,034 415,458 Domestic and international equities 58,684 639,232 Equity partnerships 294,906 483,221 Hedge funds 125,616 54,618 Other investments 28,925 33,438 _______ _________ Total investments (double underlined) 879,860 1,669,271 Classified as short-term (double underlined) 295,947 301,093 __________________________________________________________________________________ State Universit Campuses 1,960 400,966 Cornell Stutory Colleges 542,076 764,151 Alfred Ceramics 16,252 23,987 Research Foundation 239,041 388,219 Auxiliary Services Corporation 50,015 62,803 State University Construction Fund 30,516 29,145 _______ _________ Total investments (double underlined) $ 879,860 1,669,271 __________________________________________________________________________________ Page 24 4. Investments (continued) At June 30, 2009 and 2008, the State University had the following non-equity investments and maturities as summarized in Table A. Generally, individual investment securities must be of investment grade. 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, 2009 and 2008 are summarized in Table B. The rest of the page has two extensive charts. Chart A compares fiscal years 2009 and 2008, categorizing types of investments by Market Value, Less than one year, one to five years, six to ten years and more than ten years. Then there is Chart B, again comparing the investments for 2009 and 2008, the amounts of investments by category under the ratings of AAA, AA, A, BBB, BB, B, CCC, and Not Rated, which show the values invested corresponding with rating of those investments. Page 25 4. Investments (continued) The State University’s exposure to foreign currency risk for investments, held at June 30, 2009 and 2008, was as follows (fair value in thousands): Here is the list of international currencies comparing the dollar values invested in each for 2009 and 2008, respecitively. Japanese yen $ 4,377 $ 29,717 Euro 4,154 37,805 British pound 2,306 21,083 Hong Kong dollar 1,924 8,876 Taiwan dollar 826 8,090 South Korean won 795 10,398 Brazil real cruzeiro 538 9,278 Malaysian ringgit 522 1,900 Singapore dollar 513 3,514 Turkish lira 353 1,695 South African rand 344 2,880 Canadian dollar 307 3,495 Thailand baht 291 2,106 Australian dollar 276 8,458 Norwegian krone 257 2,285 Swedish krona 224 3,719 Swiss franc 191 8,827 5. Accounts, Notes, and Loans Receivable At June 30, accounts, notes, and loans receivable were summarized as follows (in thousands) for years 2009 and 2008, respectively: 2009 2008 Tuition and fees $ 31,864 30,116 Allowance for uncollectible (7,604) (7,419) _______ _______ Net tuition and fees 24,260 22,697 _______ _______ Room rent 7,780 7,528 Allowance for uncollectible (1,805) (1,748) _______ _______ Net room rent 5,975 5,780 Patient fees, net of contractual allowances 631,746 566,565 Allowance for uncollectible (194,787) (172,466) _______ _______ Net patient fees 436,959 394,099 _______ _______ Other, net 176,233 131,914 Total accounts and notes receivable 643,427 554,490 _______ _______ Student loans 162,257 163,190 Allowance for uncollectible (22,427) (21,999) _______ _______ Total student loans receivable 139,830 141,191 _______ _______ Total, net (each total is double underlined) $ 783,257 695,681 6. Capital Assets Capital assets, net of accumulated depreciation, totaled $6.24 billion and $5.74 billion at fiscal year end 2009 and 2008, respectively. Capital asset activity for fiscal years 2009 and 2008 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. Table C (in thousands) lists categories of Assets, comparing the values for each for the year ending June 30, 2007, followed by two columns titled Additions and Closed Projects and Retirements, then column June 30, 2008, then again two columns titled Additions and Closed Projects and Retirements, and finally the last column titled June 30, 2009. Asset categories are: 1. Land 2. Infrastructure and land improvements 3. Buildings 4. Equipment, library books, and artwork 5. Construction in progress Total capital assets Less Accumulated depreciations of the following: 1. Infrastructure and land improvements 2. Buildings 3. Equipment and library books Total accumlated depreciation Lastly, listed is the accounting results for the Capital Assets, net for each column. Page 26 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, 2009 and 2008, other than facilities obligations, which are included as of March 31, 2009 and 2008, total obligations are summarized in Table D, which is at the bottom of this page and continued to the top of the next page. 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 $508.4 million. Also, during the year $34.4 million of PIT bonds were used in order to refinance $34.4 million of the State University’s existing educational facilities obligations. 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 $129.4 million for the purpose of financing capital construction and major rehabilitation for residential hall facilities. Table D (in thousands) for fiscal year 2009 First section titled Long-Term Debt is comparing Long-term debts for the following areas: Educational facilities, Residence halls, Capital lease arrangements, and Other long-term debt for the columns of July 2008, Additions, Reductions, June 30, 2009, and Current portion. Second section titled Other Long-Term Debt is comparing the Other long-term debts which are listed with values for each of the same columns shown in first section; itemized as follows: Postemployment and postretirement obligations and compensated absences, Loan from State, Litigation, and Other long-term liabilities. Followed with the accounting figures for totals in each column. Lastly, is the sums for each column, adding the totals of the first section to the totals of the second section. Those final amounts in thousands are: July 2008 $7,791,374 Additions $1,705,891 Reductions $839,749 June 30, 2009 $8,657,516 and Current Portion $504,319. Page 27 Table D is continued on this following page with similar setup for 2008 fiscal year 2008 The final values for the columns are: July 2007 $6,899,608 Additions $1,601,8657 Reductions $709,891 June 30, 2009 $7,791,374 and Current Portion $477,155. 7. Long-term Liabilities (continued) 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 a nd liabilities for the defeased obligations are not included in the State University’s financial statements. As of March 31, 2009, $1.01 billion and $327.4 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 From State 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, 2009 was $86 million. During the year, $25.6 million was paid on these loans. The State University incurred an interest cost of $1.4 million at an average interest rate of 1.3 percent. At the bottom of this page is a chart of the Debt service of long-term debt obligations as of June 30, 2009 (in thousands) for fiscal years 2010, 2011, 2012, 2013, 2014, followed by the five year intervals of 2015-19, 2020-2024, 2025-29, 203-34, nd 2035-39. For these years amounts are listed for the areas of Educational Facilities, Residential Facilities, Other, and Totals for each Year(s). Each area is divided with amounts for principal and interest for each of those year(s). For the Educational Facilities area the interest rate ranges from 2.0% to 7.5%; for Residential Facilites area the interest ranges from 3.0% to 6.0%; for Other area the interest ranges from .54% to 9.78%. Page 28 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. Employer contributions are actuarially determined for 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 income option selected. All benefits generally vest after the completion of one year of service if the employee is retained thereafter. Employees who joined TIAA/CREF after July 27, 1976, and have less than ten years of service or membership are required to 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 $2.8 billion and $2.5 billion for the June 30, 2009 and 2008 fiscal years, respectively. The payroll for 2009 and 2008 for State University employees covered by TIAA/CREF was $1.73 billion and $1.57 billion, ERS was $993 million and $874 million, and TRS was $109 million and $84 million, respectively. Employer and employee contributions under each of the plans were as follows (in millions) for years 2009 2008, and 2007, respectively: 2009 2008 2007 Employer contributions: TIAA-CREF $194.6 167.8 161.0 ERS 47.1 48.6 50.7 TRS 8.3 8.3 6.7 Employee contributions: TIAA-CREF $ 40.6 43.6 43.9 ERS 13.7 11.5 10.7 TRS 1.1 1.0 0.9 The employer contributions are equal to 100 percent of the required contributions under each of the respective plans. Page 29 8. Retirement Plans (continued) 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. Contributions 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 ended June 30, 2009 and 2008 was $350 million and $337.7 million, respectively. The Research Foundation pension contributions for fiscal years 2009 and 2008 were $28.2 million and $27.5 million, respectively. 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 these other postemployment benefit (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. There are no assets set aside to fund the plan. During the fiscal year, the State, on behalf of the State University, paid health insurance premiums of $201.9 million. The State University’s annual OPEB cost and increase in the OPEB obligation for the years ended June 30 2009, 2008, and 2007 were as follows (in thousands): 009 2008 2007 Annual OPEB cost $ 625,691 749,962 712,551 Benefits paid (201,894) (234,293) (142,399) _______ _______ _______ Incease in OPEB Obligation 433,797 515,669 570,152 Net obligation at beginning of Year 1,085,821 570,152 zero _______ _______ _______ Net obligation at end of year (double underlined sums) $1,509,618 1,085,821 570,152 The components of the State University’s OPEB obligation include the total annual required contribution (ARC) of $621.4 million (comprised of service costs of $239.0 million, amortization of unfunded actuarial liability of $357.1 million, and interest costs of $25.3 million), ARC reduction of $41.8 million, and interest costs of $46.1 million. The unfunded actuarial accrued liability totaled $9.56 billion as of the April 1, 2008 actuarial valuation date and 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, 2009 fiscal year was $2.8 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. Page 30 Retirement Plans (continued) Projections of benefits are based on the plan and include the types of benefits provided at the time of each valuation. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of future events and actual results are considered for future valuations. 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 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 were $13.3 million and $12.3 million during the 2009 and 2008 fiscal years, respectively. In 2009, a separate legal trust was established and the assets held in the trust of $66.3 million at June 30, 2009 are considered plan assets in determining the funded status of the plan. In 2008, assets were held in a designated investment account and were not considered plan assets in determining the funded status of the plan. The actuarial accrued liability at June 30, 2009 and 2008 was $188.8 million and $233.0 million, respectively. The payroll for employees covered by the plan for the 2009 fiscal year was $233.7 million. The plan did not issue stand-alone financial statements. The plan will issue stand-alone financial statements for the 2009 calendar year. The Research Foundation’s annual cost and increase in the OPEB obligation for the years ended June 30, 2009, 2008, and 2007, respectively were as follows (in thousands): 2009 2008 2007 Annual OPEB cost $ 27,598 17,227 34,995 Benefits paid (5,542) (4,580) (3,994) Contribution to plan (66,296) zero zero _______ _______ _______ Change in OPEB Obligation (44,240) 12,647 31,994 Net Obligation at beginning of year 233,017 220,370 189,369 _______ _______ _______ Net Obligation at end of year (double underlined) $188,777 233,017 220,370 The components of the Research Foundation OPEB obligation at June 30, 2009 include the total annual required contribution (ARC) of $260.6 million (comprised of service cost of $11.3 million and amortization of unfunded actuarial accrued liability of $249.3 million), ARC reduction of $249.3 million, and interest costs of $16.3 million. The unfunded actuarial accrued liability is amortized over one year. 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 7 percent discount rate, and an initial healthcare cost trend rate range of 7 to 9 percent grading down to 5 percent. A blended discount rate was utilized using the expected investment return on investments of the plan and investments held in the operational pool 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, 2009, these outstanding contract commitments totaled approximately $894 million. The State University is also committed under numerous operating leases covering real property and equipment. Rental expenditures reported for the years ended June 30, 2009 and 2008 under such operating leases were $32.3 million for both fiscal years. The following is a summary of the future minimum rental commitments under non-cancelable real property and equipment leases with terms exceeding one year (in thousands): Year ending June 30, 2010 $ 31,014 2011 27,042 2012 23,478 2013 18,769 2014 13,671 2015-19 25,615 2020-24 1,989 2025-39 1,219 ______ ________ Total $142,797 Page 31 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 approp- riation receivable of approximately $204.6 million at June 30, 2009 ($197.2 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. State appropriations take the form of direct assistance, debt service on educational facility and PIT bonds, fringe benefits for State employees, and litigation expenses for which the State is responsible. State appropriations totaled $3.06 billion and $2.97 billion and represented approximately 36 and 37 percent of total revenues for the 2009 and 2008 fiscal years, respectively. The State University’s continued operational viability is substantially dependent upon a consistent and proportionate level of ongoing State support. 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 The State University entered into agreements with DASNY to issue obligations totaling $570 million for the construction and major rehabilitation of educational facilities in August 2009. In September 2009, the State University entered into agreements with DASNY to issue obligations totaling $368.1 million to refinance the State University’s existing educational and athletic facilities obligations. In October 2009, the State of New York reduced the 2009-10 State appropriated support to the State-operated campuses by $90 million. The State University’s financial position may be affected by this reduction. Page 32 14. Foundations Discretely presented component unit information is comprised principally of the campus-related foundations. These foundations are nonprofit 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 and its sstudents, 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, nonprofit 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 years ended June 30, 2009 and 2008, the foundations distributed $43.1 million and $42.8 million, respectively, 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 by writing to: The State University of New York System Administration Office of the University Controller State University Plaza, S-421 Albany, New York 12246 Transfer to the Foundations During 2009, the State University Board of Trustees authorized the transfer of title of substantially all of the assets held in the State University Endowment Fund to the campus foundations. As a result, the foundations recognized $234.9 million in revenue in the statement of activities for the year ended June 30, 2009. Three foundations which received their allocable share of the endowment fund have a year-end other than June 30, 2009 and the transfer occurred after their year-end. As a result, the transfer for these foundations is not recognized in the 2009 statement of activities. 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, temporarily restricted net assets were increased $12.1 million and permanently restricted and unrestricted net assets were decreased by $2.5 million and $9.6 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 $982.8 million and $895 million as of June 30, 2009 and 2008, respectively. The composition of investments is as follows (in thousands): 2009 2008 Equities - domestic $ 266,670 317,949 Equities - international 213,668 156,472 Non-equities 352,420 304,110 Other investments 150,075 116,522 _______ _______ Total investments $ 982,833 895,053 these totals are double underlined. Page 33 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 $361.2 million and $334 million at fiscal year end 2009 and 2008, respectively. Capital asset classifications are summarized as follows (in thousands): 2009 2008 Land and land improvements $ 32,627 24,525 Buildings 358,377 342,331 Equipment 21,167 30,501 Artwork and libaray books 21,761 18,831 Construction in progress 22,240 9,503 _______ _______ Total capital assets $ 456,172 425,691 Less accumulated deprecitation 95,004 91,666 _______ _______ Capital assets, net $ 361,168 334,025 these totals are double underlined. 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 (in thousands): Year ending June 30: 2010 $ 8,248 2011 10,949 2012 10,946 2013 8,964 2014 15,570 Thereafter 221,215 _______ $275,892 this total is double underlined. This concludes the 2009 Annual Financial Report of the State University of New York.