2009 Bondholders Report - Financefinance.uw.edu/treasury/sites/default/files/09bndholdrrpt.pdf ·...
Transcript of 2009 Bondholders Report - Financefinance.uw.edu/treasury/sites/default/files/09bndholdrrpt.pdf ·...
2009 Bondholders Report
Table of Contents
1 Introduction
2 University of Washington Annual Report 2009
3 Supplemental Bondholder Information
Students & Enrollment Faculty & Other Data Endowment Resources Future Debt Service Capital Expenditures and Funding Sources
Auxiliary Financial Reports
4 General Revenues
5 Housing & Food Service
6 Student Facilities Fees
Revenue & Expense Summary (Unaudited)
7 Parking System
8 Intercollegiate Athletics
9 University of Washington Alumni Association
10 University of Washington Medical Center
11 Harborview Medical Center
12 Metropolitan Tract
AnnuAl RepoRt Discover what’s next. It’s the Washington Way.
StudentS
Autumn enrollment
Undergraduate 33,697 30,888 27,537 Graduate 11,114 10,023 8,385 Professional 1,842 1,797 1,719
totAl 46,653 42,708 37,641
Extension course registrations 62,477 39,263 32,334
number of degrees Awarded
Bachelor’s 8,181 8,427 6,936 Master’s 2,904 2,780 2,072 Doctoral 622 506 520 Professional 504 488 470
totAl 12,211 12,201 9,998
inStructionAl fAculty 3,904 3,553 3,500
fAculty And StAff 1 29,534 26,750 21,781
reSeArch funding – All SourceS (in thousands of dollars) $ 1,150,000 $ 954,000 $ 601,000
Selected revenueS (in thousands of dollars)
Gifts, Grants and Contracts $ 1,123,751 $ 957,863 $ 610,224 Auxiliary Enterprises 2 and Other Revenues 889,871 1,189,453 719,766State Appropriations (Operating) 384,810 309,618 301,812Tuition and Fees 3 458,061 304,189 228,754
Selected expenSeS (in thousands of dollars)
Instruction, Academic Support and Student Services $ 1,207,061 $ 806,749 $ 567,873Research and Public Service 673,322 576,607 415,634 Auxiliary Enterprises 2 949,185 729,003 574,518Institutional Support and Physical Plant 321,020 248,986 157,256
conSolidAted endowment fundS 4 (in thousands of dollars) $ 1,649,000 $ 1,208,000 $ 673,000
SquAre footAge 5 (in thousands of square feet) 18,874 17,500 14,800
2008–2009 2003–2004 1998–1999
tAble of Contents1 MESSAGE FROM ThE PRESIDEnT
2 STORIES OF DISCOvERy
6 FInAnCIAl hIGhlIGhTS
7 MESSAGE FROM ThE SEnIOR vICE PRESIDEnT
12 FInAnCIAl STATEMEnTS AnD REqUIRED SUPPlEMEnTAl InFORMATIOn
BOARD OF REGEnTS AnD ADMInISTRATIvE OFFICERS
InsIDe bACK
CoVeR
unIVeRsIty FACts
1 Full-time equivalents2 Includes uW Medical Center3 net of scholarship allowances of
$82,813,000 in 2008-2009 and $46,519,000 in 2003-2004
4 stated at fair value 5 Gross square footage, all campuses
a n n ua l r e p o rt 2 0 0 9 1
To say that this past year was anything less than challenging would be a tremendous understatement. Faced with a $9 billion
hole in its budget, the state cut over a quarter of its funding to the University of Washington — one of the largest reductions to a university in the nation. This new budget moved us to the point where, for the first time in our history, tuition revenue now exceeds state support. That trend is only likely to continue in the coming years.
With the changing role of state support in our budget, it’s clear that we need to think differently about how we do things. This most emphatically does not mean changing our mission. The UW is now and will always be our state’s public flagship university. We will continue to serve our state through cutting-edge research and economic development, top level health care services, and, most importantly, making sure that all of Washington’s residents have access to an affordable, quality education.
But to ensure that our university continues to move forward, we need to change the funding and operating model that supports our mission. We have developed four strategic approaches that will help us do this.
First, we need to protect and preserve our existing state funding as much as possible. Second, we must use our existing resources as efficiently as possible. next, we need greater control over our revenue, including undergraduate resident tuition. Finally, we need greater flexibility in our management and business processes.
how we meet the challenges of the next two years will help define what we can become over the next twenty. Already, we are moving forward. We’re implementing innovations in our educational programs, including three-year bachelor degree opportunities, technologies that combine in-class and computer-based instruction and expanded online degree offerings.
But this is just the beginning. While this budget situation has been an enormous challenge, we at the UW also see it as a tremendous opportunity — an opportunity to become more sustainable, more self sufficient and more efficient. And if we are able to make and sustain these changes — and we will — the UW will continue to serve our state and educate our citizens in the exemplary manner we all expect for decades to come.
president’s MessageMark a. EMMErt (’75)
PrEsidEnt
MARk A. EMMERT (‘75) PRESIDEnT
2 u n i v e r s i t y o f W a s h i n g to n2 u n i v e r s i t y o f W a s h i n g to n
3 DR. RODnEy hO 4 lAUREn hAnSOn 5 JIlBERTO SOTO
Stories Stories Stories Stories ofofofof Discovery Discovery Discovery Discoveryofof Discoveryofofofof Discoveryofof
eleanor F. bond, professor of biobehavioral nursing and Health systems in the school of
nursing, teaches acute and critical care nursing to undergraduate and graduate students.
a n n ua l r e p o rt 2 0 0 9 3
Dr. Rodney Ho
K eeping patients safe and making their drugs more effective. That’s the heart of my work at the UW. And after 20 years on the job, I can
say with confidence that I found the best place in the world to get it done.
The shortcoming of a lot of drugs isn’t the drug itself. It’s getting the correct dose to exactly the right place so it’s most effective. Once a drug goes into the body, it’s not unusual for 10 percent or less to actually end up where it needs to go. But if too much is delivered, it can be toxic. So the shortest road to drug safety and effectiveness is to solve that puzzle. how, for instance, do you get a drug into the lymphatic system instead of just into the blood? It’s a complex problem where biology, translational science and drug delivery must intersect — all these disciplines must come together to pinpoint a solution.
There’s a convergence and integration of these specialties — to develop more effective and safer medicine — here at the UW. It doesn’t matter if you’re an established investigator or a young researcher just starting your career. Across campus, people listen and pay attention to great ideas. That’s not surprising given that the northwest is known for its independent
thinking and collaboration. A culture like this allows us all to be creative, look for partnerships and bounce ideas around. We’re thinking outside the box and considering new ideas and approaches to solving tough challenges. Add to this mix the generosity of private, corporate and federal support, and you see why the UW is an exciting place to be.
When I joined the University, it was the up-and-coming research institution. Just last year, federally funded research here totaled more than $1 billion, reaffirming our position as a global research leader. Throughout my long career, I’ve contributed to the school’s growth and helped countless students go on to make significant contributions to healthier lives for those in the community.
To ensure work like this carries on, I am committed to helping younger generations of researchers reach their potential and tackle the next wave of challenges we’ll face. I can’t think of a better way to invest all the resources the UW has to offer.
Milo Gibaldi EndowEd ProfEssor
school of PharMacy
“Across campus, people listen and pay
attention to great ideas. that’s not surprising
given that the northwest is known for its
independent thinking and collaboration.”DR. RoDney Ho
4 u n i v e r s i t y o f W a s h i n g to n
My UW experiences changed me completely. I grew up not far from the UW and I was raised to believe in giving back to
my community. But the UW taught me to think of community in global terms. It’s empowering to see firsthand that wherever you go in the world, people want the same things — better, healthier lives for themselves and their children.
For me, the University is much larger than its campuses. it has literally opened up the whole world as a place to learn and make a difference. As an undergrad, I’ve been given opportunities to work in amazing settings alongside world-class researchers: cancer research at Fred hutch, brain research in Dr. Moody’s neurobiology lab and volunteering at Seattle Children’s hospital in the oncology ward. I’ve joined my peers shadowing rural health care providers in Eastern Washington, traveled to Sierra leone to learn about local health care practices and gone to Mississippi with fellow students to help hurricane katrina victims. As part of Students for Equal health, I’ve participated in all kinds of
health-equality projects, both here in the Puget Sound region and around the world.
I’d like to think my UW experiences are unique, but this isn’t just my story. Along with amazing courses, we’ve had remarkable opportunities to participate in important research. I expected to have to search these opportunities out. But the truth is that many people here are very willing — they’re excited — to trust young minds to do important things. I know many students who have tackled equally incredible challenges, but most of us agree it’s the total experience — including experiences outside the classroom — that defines the UW.
What’s next? For a long, long time I’ve known studying medicine was my future. My time at the UW has opened that possibility to include public health, social justice and family practice for underserved communities. I’ve applied to medical schools all over the country, but the UW is my first and most logical choice. There’s nowhere better.
lauren HansonsEnior, nEurobioloGy Major
lEvinson EMErGinG scholar and washinGton rEsEarch foundation fEllowshiP
“for me, the university is much larger
than its campuses. it has literally opened
up the whole world as a place to learn
and make a difference.”lAuRen HAnson
a n n ua l r e p o rt 2 0 0 9 5
I believe that making the world a better place starts with helping one person. The UW has done that for me — and it keeps giving me
opportunities to do the same for others.
My parents came from Jalisco, Mexico to work in the fields in Eastern Washington. And even though they didn’t speak English, they did everything they could to encourage me and my siblings to work hard and get the best possible education. My big brother Antonio paved the way. like me, he did the Running Start program to complete community college and high school at the same time. Then he came to the UW and earned his master’s degree in social work. And now he’s making a difference every day working for Child Protective Services back near our home in Sunnyvale, Wash.
Although I never lacked inspiration from family, I was one of only three latinos who graduated from my high school in yakima. Coming to the UW was a homecoming of sorts; I was surrounded by so many latinos, latinas, and Chicanos who aspire to be
more — to do more. I’ve never been as proud of my culture as I have at the UW. now, I’m getting ready to serve as la Raza commissioner where my job will be to get all the latino organizations on campus to work together as one strong community.
Academically, the UW challenges me beyond belief. I was just admitted to the Foster School of Business, and I’m also taking advantage of so many opportunities to engage and learn outside the classroom. I’ve had two great internships at Boeing through the AlvA program (Alliances for learning and vision for Underrepresented Americans). I’ve also been on the Student Advisory Board, joined Omega Phi fraternity, and participated in the young Executives of Color program.
you couldn’t ask for a better training ground to make an impact on peoples’ lives. Eventually, I plan to study human rights and immigration law and hopefully make an impact on one person’s life. It’s the first step in moving on to bigger things. Thanks to the UW, I’ve gained the know-how to get there.
Jilberto sotojunior, MarkEtinG Major, fostEr school of businEss
daisy and josEPh saxon, jr. scholar
“Academically, the uw challenges me beyond belief.
i was just admitted to the foster School of Business,
and i’m also taking advantage of so many opportunities
to engage and learn outside the classroom.”JIlbeRto soto
6 u n i v e r s i t y o f W a s h i n g to n
7 SEnIOR vICE PRESIDEnT’S MESSAGE 9 DEBT FInAnCInG 10 FUnDInG AnD OPERATIOnS 11 InvESTMEnTS
Financial Highlights Financial Highlights Financial Highlights Financial Highlights
Computer science & engineering graduate students perform a robotics demonstration
in Rajesh Rao’s Humanoid Robotics and brain Computer Interface lab.
a n n ua l r e p o rt 2 0 0 9 7
The 2009 fiscal year presented the University of Washington with unprecedented challenges, which have made it clear that we must
transform the academic business model of the institution. While the active engagement of many stakeholders will be needed in this transformative journey, we are already identifying new ways to do business with fewer resources. here are just a few examples of our collective efforts:
inStruction
Students have a better chance of completing their degree at the UW than at any other public university in the country: 81 percent of our students graduate within six years, up from 71 percent in 2003 (see chart on next page). nearly 75 percent of our students remain in Washington state after graduation, providing the state a well-educated workforce and positively contributing to the state’s economy. Many of these students come from culturally and socioeconomically diverse backgrounds and are first in their families to attend college and complete a degree. In 2009, over 25 percent of our undergraduates were covered by the husky Promise — free tuition for Washington’s academically qualified students who otherwise could not afford to attend.
reSeArch
The UW’s annual budget is over $3 billion and generates an additional $4 billion in economic activity primarily in Washington. That makes our University the third-largest employer in the state, following Boeing
and Microsoft. Research, an important component in that impact, is driven by some of the best and brightest faculty members in the world. Because of their entrepreneurial spirit, our research dollars have increased 232 percent since 1990. Most recently, the UW received the second highest amount of American Recovery and Reinvestment Act (ARRA) funding among university recipients, receiving 369 separate awards totaling more than $184 million as of november, 2009. This additional funding has already broadly impacted over 800 positions in addition to enabling new opportunities for discovery that would not have otherwise been available.
pAtient cAre
UW Medicine excelled in both strategy and operations this year, opening five new programs, integrating and streamlining many services and functions, and saving $16 million through process improvements. One example: all UW neighborhood Clinic referrals for spine care are now managed by a single automated scheduling process. Results were dramatic: hundreds of new patients were accommodated, appointment scheduling speed improved by 25 percent and referrals increased by 75 percent.
AdminiStrAtion
Administrative efficiencies save time and money for students and faculty, allowing them to focus on learning and discovery. For example, our procurement processes continue to gain efficiencies by using electronic tools to buy and pay for goods and services.
senior Vice president’s Message
(continued on page 8)
v’Ella warrEn
sEnior vicE PrEsidEnt
8 u n i v e r s i t y o f W a s h i n g to n
university of washington Six-year graduation rate
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
85%
80%
75%
70%
65%
pe
rc
en
tAg
e o
f S
tu
de
nt
S e
nt
er
ing
AS
fr
eS
hm
en
w
ho
gr
Ad
uA
te
in
Six
or
fe
we
r y
eA
rS
71.7%
68.8%
70.2% 70.6% 70.6%
73.6%74.2%
75.0%75.4%
76.9%
80.7%
This electronic process, in turn, captures spending information for use in negotiating volume-based discounts. The impact on cost savings is staggering. The cost to process a single transaction has decreased by 44 percent since 2001.
UW’s focus on environmental sustainability also helps to save money and reduces emissions as well. We are a nationally ranked leader in reducing utility costs, as evidenced by over $71 million in utility cost avoidance since 2003. Our programs to reduce single-occupancy commuting are nationally recognized, with 79 percent of our faculty, staff and students commuting to the Seattle campus using environmentally friendly transportation options.
These examples are just a few of many efforts demonstrating our commitment to use resources responsibly. however, much remains to be done. In our quest for discovery, we will continue seeking ways to deliver better teaching, research and service outcomes and to streamline administrative support services. Our ultimate goal is to pave the way for our faculty and students to literally change the world, starting with the lives of citizens in Washington state.
v’EllA WARREn SEnIOR vICE PRESIDEnT
a n n ua l r e p o rt 2 0 0 9 9
Debt Financing
•TheUniversity’sgeneralrevenueborrowingplatform,establishedin2003, has been used to fund buildings that support the educational, research and service missions of the institution. For example, a recent $76 million bond issue will partially fund the hospital expansion, tenant improvements at UW Tower and research infrastructure. Moody’s and Standard & Poor’s have both recognized the financial strength of the general revenue platform with their second highest bond rating, Aa1 from Moody’s and AA+ from Standard & Poor’s. These ratings put the UW in elite company; only three other public universities have a higher rating and just five others have the same rating.
•StrongratingscarrysubstantialadvantagesfortheUW:continued and wider access to capital markets when the University issues debt, lower interest rates on bonds and the ability to negotiate favorable bond terms.
•TheUniversitytakesitsroleoffinancialstewardshipseriouslyandworkshard to manage its financial resources effectively. Continued high debt ratings are important indicators of the University’s success in this area.
moody’s fiscal year 2008 public college and university
rating distribution (issued in July 2009)
Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1
70
60
50
40
30
20
10
0
nu
mB
er
of
inS
tit
ut
ion
S
17
26
42
65
9
38
Bond rAting
6
3
the uW had a bond rating of Aa1 in 2009.
10 u n i v e r s i t y o f W a s h i n g to n
Funding and operations
6% DEPRECIATION
Sources of Funds
Uses of Funds
31% GRANTS AND CONTRACTS
27% PATIENT REVENUE
15% TUITION
10% STATE FUNDINGFOR OPERATIONS
4% EACH: AUXILIARY; GIFTS
3% EACH: SALES AND SERVICES OF EDUCATIONAL DEPTS.; STATE FUNDING
FOR CAPITAL EXPENDITURES; OTHER
26% INSTRUCTION
22% MEDICAL RELATED
18% RESEARCH
8% ACADEMIC SUPPORT
4% EACH: SCHOLARSHIPS AND FELLOWSHIPS; INSTITUTIONAL SUPPORT
2% OTHER
5% EACH: AUXILIARY; OPERATION AND MAINTENANCE OF PLANT
•TheUniversityhasadiversifiedrevenuebase.Nosinglesourcegeneratedmore than 31% of the total fiscal year 2009 revenues of $3.7 billion (excludes the effect of investment losses and scholarship allowances).
•Stateoperatingappropriationswere$385million,or10%of total revenues. The University relies heavily on such funding for instructional activities.
•Grantsandcontracts(31%)generated$1.1billionofcurrentyearrevenue, a 5% increase over fiscal year 2008. These funds provided the opportunity for graduate and undergraduate students to work with nationally recognized faculty in research, as part of their educational experience.
•Incomefromgiftstotaled$143million(4%).Thisisadecreaseof $34 million from the prior year.
•TwoprimaryfunctionsoftheUniversity,instructionandresearch,comprised 44% of total operating expenses. These dollars provided instruction to more than 46,000 students and funded 5,400 research awards.
•TheUniversityprovidedstudentswithscholarshipsandfellowships,(including scholarship allowances of $87 million), totaling $158 million. This represented 4% of operating expenditures.
a n n ua l r e p o rt 2 0 0 9 11
Investments
•Endowedgiftssupplypermanentcapitalandanongoingstreamofcurrentearnings to the University. Most endowments are commingled in the Consolidated Endowment Fund (CEF), a diversified investment fund. As in a mutual fund, each individual endowment maintains a separate identity and owns units in the fund. The CEF has experienced considerable growth over the past 10 years. The number of endowments in the CEF has increased from 1,480 to 3,118 and the market value has increased from $673 million as of June 30, 1999 to $1.6 billion as of June 30, 2009.
•Theimpacttoprogramsupporthasbeensubstantialwith$615milliondistributed over the past 10 years. Programs supported by the endowment include academic support, scholarships, fellowships, professorships, chairs and research activities.
•Forthe10yearsendingJune30,2009,theaverageannualtotalreturnontheCEF was 5.4% compared to the S&P 500 return of -2.2%.
•Duringfiscalyear2009,theeconomiccrisisthatengulfedtheeconomyleft its impact on the CEF. For the year ending June 30, 2009, the CEF returned a negative 23.3%. When global financial markets fell, the University took swift action to defensively reposition the portfolio, actively reduce risk and ensure liquidity.
•Inaddition,theBoardofRegentsproactivelyimplementedaninterimspendingpolicy; reducing distributions to protect the endowment from further erosion while providing reliable funding to the campus. Under the interim spending policy, year-over-year distributions decreased from fiscal year 2008 levels by 25% in fiscal year 2009 and another 25% in fiscal year 2010. Unless market conditions suggest otherwise, distributions will then be held constant until fiscal year 2013 at which time the Board will determine the appropriate next steps.
•AportionoftheUniversity’soperatingfundsareinvestedintheCEF.Asof June 30, 2009 these funds comprise $322 million of the CEF market value.
growth of consolidated endowment fund: fiscal years 2000-2009
$0 $400 $800 $1,200 $1,600 $2,000
in millionS
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
$859
$839
$998
$1,000
$1,208
$1,366
$2,098
$2,161
$1,700
$1,649
Investment returns provide an important source of revenue for the University’s programs. Among the funds invested by the University are endowments, operating cash, life income trusts and annuities,
outright gifts and reserves.
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements andandandand RRequired Supplemental Informationequired Supplemental Informationequired Supplemental Informationequired Supplemental Information
13 MAnAGEMEnT’S DISCUSSIOn AnD AnAlySIS 19 InDEPEnDEnT AUDITORS’ REPORT 20 BAlAnCE ShEETS
21 STATEMEnTS OF REvEnUES, ExPEnSES AnD ChAnGES In nET ASSETS 22 STATEMEnTS OF CASh FlOWS 23 nOTES TO FInAnCIAl STATEMEnTS
undergraduates at uW bothell enjoy the benefits of a small campus
with the resources and prestige of a world-renowned university.
12 u n i v e r s i t y o f W a s h i n g to n
a n n ua l r e p o rt 2 0 0 9 13
Management’s Discussion and Analysis
The discussion and analysis below provides an overview of the financial position and activities of the University of Washington (“University”) for the years ended June 30, 2009 and 2008. This discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes which follow this section.
Financial Highlights for Fiscal Year 2009The University recorded a “bottom line” loss of $375 million in fiscal year 2009, primarily due to an investment loss of $469 million, as a result of market value declines in fiscal year 2009. The University adjusts the carrying value of investments to market value each year with the change recorded as investment income or loss.
Other significant factors in the 2009 financial performance included a $34 million decline in donor support, offset by strong funding for research, an increase in tuition revenues and a strong performance by the UW Medical Center.
Key financial results for fy 2009 compared to 2008:
(in millions) 2009 2008
total operating revenues $ 2,902 $ 2,730operating expenses 3,429 3,284 operating loss (527) (554)state appropriations 385 388Investment income (loss) (469) 77Gifts 143 177other non-operating revenue, net 94 75Increase (decrease) in net assets (374) 163net assets, beginning of year 5,137 4,974
net assets, end of year $ 4,763 $ 5,137
Operating revenues minus operating expenses typically result in a loss, and nonoperating items including state support, investment income and gifts have in the past brought each year’s results to a modest increase in the net assets, or “equity” of the University. This surplus has been reinvested within the University to add a margin of educational excellence, upgrade the University’s facilities and provide a prudent reserve for contingencies such as the current economic downturn.
Economic Factors Affecting the FutureA number of contingencies face the University over the next few years. Overarching is the continuing economic downturn, which has already impacted the University directly through the decline in the market value of investments and a decline in support from donors.
The decline in the market values of the University’s endowment portfolio during fiscal year 2009 will result in lower levels of investment earnings distributions available to campus departments.
The state of Washington, which provided 10% of the University’s revenues in fiscal year 2009, continues to face declining tax revenues. As a result, the state’s budget for funding of higher education has eroded for fiscal years 2010 and 2011. Planned state operating appropriations, including $24.7 million of federal educational stimulus support under the American Recovery and Reinvestment Act (ARRA), are $294 million for fiscal year 2010 and $297 million for fiscal year 2011, compared to $385 million for fiscal year 2009.
To help alleviate the effects of this shortfall, the legislature has granted the University the flexibility to increase tuition rates up to 14% per year through fiscal year 2011.
Funding for research activities has been boosted recently by Federal ARRA funding for basic research and activities in the health sciences. ARRA support is ramping up now, and is slated to continue into 2011. As of November, 2009, the University has received approximately $184 million in ARRA funding for research, in addition to $24.7 million in ARRA educational stimulus support funding noted above.
Rising fringe benefit costs, particularly for health care and pensions, continue to impact the University.
Using the Financial StatementsThe University’s financial statements include the Balance Sheets, the Statements of Revenues, Expenses, and Changes in Net Assets, the Statements of Cash Flows and the Notes to the Financial Statements. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles, which establish standards for external financial reporting for public colleges and universities. GASB standards require that financial statements be presented on a consolidated basis in order to focus on the University as a whole.
14 u n i v e r s i t y o f W a s h i n g to n
Management’s Discussion and Analysis (continued)
Financial Health
BAlAnce SheetS
The Balance Sheets present the financial condition of the University at the end of the last two fiscal years and report all assets and liabilities of the University. A summarized comparison of the University’s assets, liabilities and net assets as of June 30, 2009, 2008 and 2007, follows:
(in millions) 2009 2008 2007
Current assets $ 907 $ 1,406 $ 1,188noncurrent assets: Capital assets, net 2,840 2,714 2,609 other 2,788 3,323 3,312 total assets 6,535 7,443 7,109
Current liabilities 579 1,170 995noncurrent liabilities 1,193 1,136 1,140 total liabilities 1,772 2,306 2,135
net assets $ 4,763 $ 5,137 $ 4,974
The excess of current assets over current liabilities of $328 million in 2009 reflects the continuing ability of the University to meet its short-term obligations. Current assets consist primarily of cash, short-term investments, collateral from securities lending and accounts receivable. Total current assets decreased by $499 million, to $907 million at June 30, 2009, primarily due to the discontinuance of the University’s securities lending program during the year. The June 30, 2008 balance of $1.4 billion was an increase of $218 million from 2007, due to changes in cash, the securities lending collateral and short-term investments. The short-term portion of the University’s investment portfolio can fluctuate based upon changes in investment mix and the expected short-term needs for University funds.
Long-term investments as of June 30, 2009 decreased by $542 million from 2008, due to significant market declines during the year in the value of the University’s investments. Realized and unrealized losses in fiscal year 2009 totaled $544 million, and were partially offset by $74 million in interest income and dividends.
The difference between total assets and total liabilities — net assets, or “equity” — is one indicator of the current financial condition of the University. The change in net assets measures whether the overall financial condition has improved or deteriorated during the year.
The University reports its “equity” in four categories:
•InvestedinCapitalAssets(netofrelateddebt)–Thisis the University’s total investment in property, plant, equipment and infrastructure, net of accumulated depreciation and outstanding debt obligations related to those capital assets;
•RestrictedNetAssets:–Nonexpendablenetassets,primarilyendowments,
consist of funds on which the donor or external party has imposed the restriction that the corpus is not available for expenditures but rather for investment purposes only;
–ExpendablenetassetsareresourceswhichtheUniversity is legally or contractually obligated to spend in accordance with time or purpose restrictions placed by donors and/or other external parties;
•UnrestrictedNetAssets–Allotherfundsavailableto the institution for any purpose associated with its mission. Unrestricted assets are often internally designated for specific purposes.
The University’s net assets at June 30, 2009, 2008 and 2007 are summarized as follows:
(in millions) 2009 2008 2007
Invested in capital assets, net of related debt $ 1,944 $ 1,816 $ 1,736Restricted: nonexpendable 884 902 812 expendable 1,005 1,396 1,465unrestricted 930 1,023 961
total net assets $ 4,763 $ 5,137 $ 4,974
Net investment in capital assets increased $128 million, or 7%, in 2009 and increased $80 million, or 5%, in 2008. This balance increases as debt is paid off or when the University funds fixed asset purchases without financing. This balance decreases as assets are depreciated.
Restricted nonexpendable net assets decreased $18 million, or 2% in 2009, due to declines in the value of investments, partially offset by donor support. The 2008 increase of $90 million, or 11%, was a result of new endowment gifts.
Restricted expendable net assets decreased $391 million, or 28%, in 2009, and decreased $69 million, or 5% in 2008. This category is primarily affected by new operating and capital gifts, and earnings or losses in restricted investments, including endowments. The sharp decline in the market value of investments, which began in fiscal year 2008, had a significant effect in 2009.
Unrestricted net assets decreased in 2009 by $93 million, or 9%, primarily due to the decline in the market value of investments related to unrestricted funds, offset by increases in the tuition revenue and patient service margins. The unrestricted net asset growth in 2008 of $62 million, or 6%, was driven by increases in tuition revenues, patient service margins, offset by capital expenditures.
a n n ua l r e p o rt 2 0 0 9 15
The ratio of expendable financial resources to operations (as defined by Moody’s) measures the strength of net assets. This ratio, illustrated in the chart below, shows that in 2009 the University had enough expendable resources from various sources to fund operations for a period of 6.8 months. This ratio decreased from 8.9 months in 2008 primarily due to the decrease in Restricted Expendable Net Assets, reflecting lower carrying values for the University’s restricted investments.
capital improvements and related debt During 2009, capital expenditures included $47 million for renovation of Clark and Savery Halls, $22 million on Phase 1 of PACCAR Hall for the new business school, $17 million for upgrade of the Computing and Communications Data Center and $14 million for an expansion of the Medical Center.
The Clark and Savery renovations are State supported, part of the “Restore the Core” initiative. PACCAR Hall costs to date have been funded by donor gifts, with UW bond financing available for the project. The Communications Data Center has both State and UW financing, and the Medical Center expansion is funded through UW bond issuances.
In 2008, capital expenditures included $65 million to complete the construction of a medical research facility started in 2006, and $24 million to finish the seismic bracing, infrastructure upgrades and renovation at the Health Science Center. Additional expenditures in 2008 included $20 million for renovation of Clark and Savery Halls, and the Playhouse Theatre, as part of the “Restore the Core” plan.
The medical research facility was funded by proceeds from debt issued in a prior year. State funding and University sources funded the Health Science Center improvements, and the “Restore the Core” plan was supported by state appropriations.
The 2009 ratio of expendable financial resources to debt (as defined by Moody’s) shows that the University has sufficient expendable resources to pay its long-term debt obligations 1.9 times over.
1 The sum of Unrestricted Net Assets and Restricted Expendable Net Assets, divided by Total Operating Expenses (Operating Expenses plus interest expense). The result is multiplied by 12 to arrive at months of coverage.2 The sum of Unrestricted Net Assets and Restricted Expendable Net Assets, divided by total capital leases, bonds and notes payable outstanding.
8.0 10.0 12.06.04.02.00
MONTHS OF COVERAGE
Expendable Financial Resourcesto Operations1
2.52.01.51.00.50
RATIO
Expendable Financial Resources to Direct Debt2
1 20
PERCENTAGE
9.5
8.9
6.8 1.9
2.5
2.4
2009
2008
2007
1.12%
1.69%
1.11%
2009
2008
2007
2009
2008
2007
Operating Margin Percentage3
8.0 10.0 12.06.04.02.00
MONTHS OF COVERAGE
Expendable Financial Resourcesto Operations1
2.52.01.51.00.50
RATIO
Expendable Financial Resources to Direct Debt2
1 20
PERCENTAGE
9.5
8.9
6.8 1.9
2.5
2.4
2009
2008
2007
1.12%
1.69%
1.11%
2009
2008
2007
2009
2008
2007
Operating Margin Percentage3
endowment and other investmentsThe Consolidated Endowment Fund (CEF) returned a negative 23.3%, ending the year at $1.6 billion, compared to a return of 1.9% in the prior year. Over the past ten years, the CEF averaged a 5.4% annual return.
The Invested Funds (IF), or operating monies of the University, returned a negative 5.0% and a positive 7.0% in fiscal years 2009 and 2008, respectively. The market value of the invested funds was $885 million at June 30, 2009.
StAtementS of revenueS, expenSeS And chAngeS in net ASSetS
The Statements of Revenues, Expenses and Changes in Net Assets present the University’s results of operations and nonoperating items that result in the changes in Net Assets for the year. In accordance with GASB reporting principles, revenues and expenses are classified as either operating or nonoperating. A condensed comparison of the University’s revenues, expenses and changes in net assets for the years ended June 30, 2009, 2008 and 2007 follows:
(in millions) 2009 2008 2007
total operating revenues $ 2,902 $ 2,730 $2,573operating expenses 3,429 3,284 3,071 operating loss (527) (554) (498)
nonoperating revenues, net of expenses (62) 523 924other revenues 215 194 170Increase (decrease) in net assets (374) 163 596
net assets, beginning of year 5,137 4,974 4,378net assets, end of year $ 4,763 $ 5,137 $ 4,974
16 u n i v e r s i t y o f W a s h i n g to n
Management’s Discussion and Analysis (continued)
The University has a diversified revenue base. The following table summarizes revenues from all sources for the years ended June 30, 2009, 2008 and 2007:
(in millions) 2009 2008 2007
tuition and fees $ 458 $ 420 $ 397patient services 988 924 857Grants and contracts 1,120 1,063 1,001sales and services of educational departments 111 111 119Auxiliary enterprises 150 146 137state funding for operations 385 388 366Gifts 143 177 174Investment income (loss) (469) 77 503state funding for capital projects 101 71 74other 112 112 86total revenue – all sources $ 3,099 $ 3,489 $ 3,714
primary non-grant funding SourcesThe University relies primarily on student tuition and fees and state appropriations as revenue sources to support its non-grant funded educational operating expenses. Tuition and fees, net of scholarship allowances, increased 9% during 2009 and 6% during 2008. The increases were primarily due to a 7% increase in average tuition rates in both years.
The impact of the tuition increase was partially offset by the increase in scholarships (including scholarship allowances) of $15 million in 2009 and $16 million in 2008. The University has flexibility in its ability to set non-undergraduate resident tuition rates, which helps to compensate for shortfalls in state funding. Course fees related to the UW Educational Outreach, the continuing education branch of the University, amounted to $55 million in 2009 and $47 million in 2008.
State appropriations are considered nonoperating revenue under GASB Statement No. 35 standards and are reflected in the nonoperating section of the statements of revenues, expenses and changes in net assets; however, they are used solely for operating purposes.
patient ServicesRevenues from patient services increased $64 million, or 7%, from $924 million in 2008 to $988 million in 2009. In 2008, patient revenues increased $67 million, which was an increase of 8% over the previous year. The increase is due to inpatient volume increases and a favorable payor mix. In addition, management of patient length of stay improved margins by focusing resources on patients requiring higher levels of care.
gifts and endowments and other investmentsNet investment returns for the years ended June 30, 2009, 2008 and 2007 consisted of the following components:
grant revenueThe largest source of revenues continues to be grants and contracts. This revenue increased $57 million, or 5%, in 2009, compared to an increase of $62 million, or 6% in 2008 over 2007. Obtaining federal funding for research continues to be competitive; however, the UW had an 11% increase in the dollar amount of research awards in the year ended June 30, 2009. In addition, ARRA funding for research began in fiscal year 2009 and will continue into 2011.
Grant and contract revenue is earned when direct expenditures (such as researchers’ compensation or purchases of goods and services) are made; therefore, there is little effect to the University’s operating margin as a result of this direct expense reimbursement process.
Facility and administrative expenses necessary to support grants and contracts are reimbursed by an indirect cost recovery. The current federal indirect cost recovery is approximately 30 cents on every direct expenditure dollar on these grants and contracts.
(in millions) 2009 2008 2007
Interest and dividends $ 74 $ 75 $ 100Metropolitan tract net income 6 7 12net appreciation (depreciation) of fair value of investments (544) 3 399Investment expenses (5) (8) (8)net investment income (loss) $ (469) $ 77 $ 503
Net appreciation (depreciation) includes both realized and unrealized gains and losses; however, the unrealized gains are not expendable until the underlying securities have been sold. Net investment income decreased by $546 million in 2009 and decreased $426 million in 2008. The change in unrealized gain or loss was the major factor in the variance in Net Assets for both 2009 and 2008. The sharp decline in University investment performance in 2009 and 2008 was related to market declines which began in the latter part of fiscal year 2008.
The University continues to receive strong support from its donors with total revenue of $143 million from gifts in fiscal year 2009. Gifts are used to support a variety of purposes, including capital improvements, scholarships, research and endowments for various academic and research chairs.
a n n ua l r e p o rt 2 0 0 9 17
8.0 10.0 12.06.04.02.00
MONTHS OF COVERAGE
Expendable Financial Resourcesto Operations1
2.52.01.51.00.50
RATIO
Expendable Financial Resources to Direct Debt2
1 20
PERCENTAGE
9.5
8.9
6.8 1.9
2.5
2.4
2009
2008
2007
1.12%
1.69%
1.11%
2009
2008
2007
2009
2008
2007
Operating Margin Percentage3
expensesA comparative summary of the University’s expenses by functional classification for the years ended June 30, 2009, 2008 and 2007 is as follows:
Expenses for the instruction mission increased 10%, or $84 million, primarily as a result of a 5% increase in students, and an 11% increase in Extension registrations.
Research expenditures, which represent sponsored research, increased $17 million, or 3%, from the prior year, consistent with the 5% increase in grant and contract revenue.
Institutional support declined $13 million from 2008 to 2009, largely as a result of economies achieved during fiscal year 2009 in UW Technology, reducing operating costs in this category.
Medical related expenses increased $30 million, or 4%, primarily due to a salary and benefit increase of 3%.
(in millions) 2009 2008 2007
operating expenses: Instruction $ 908 $ 824 $ 783 Research 640 623 596 public service 33 31 35 Academic support 265 265 220 student services 34 34 31 Institutional support 143 156 140 operation and maintenance of plant 178 169 175 scholarships and fellowships 71 71 69 Auxiliary enterprises 171 162 143 Medical related 779 749 689 Depreciation 207 200 190 total operating expenses $ 3,429 $ 3,284 $ 3,071
The $145 million, or 4%, overall increase in operating expenses in 2009 was primarily driven by salaries and benefits, which increased $145 million in 2009, compared to a $112 million increase in 2008. Salary rate increases ranging from 2% to 4% had an impact on salary costs. The increase in this category was moderated by a one-time decrease in health care rates related to favorable claims experience.
In 2008, the University’s operating expenses increased $213 million, or 7%, over 2007. Instruction costs grew $41 million, or 5%, reflecting salary and other cost increases as well as a 3% increase in regular student enrollments and a 15% increase in extension enrollments. Research expenditures, representing sponsored research, increased $27 million, or 5%, from the prior year, consistent with the 5% increase in grant and contract revenue.
Academic support was stable in 2009 over 2008, while in 2008 it grew $45 million, or 20%, in such areas as the School of Medicine and the School of Public Health. Institutional Support expenditures increased $16 million in 2008 from 2007, an increase of 11%. This included an increase in information management technology. The Auxiliary Enterprise growth in expenses of $19 million, or 13%, was due in part to Intercollegiate Athletics, reflecting a revenue increase, and other enterprise accounts across the University. In 2008, medical related expenses grew $60 million, or 9%, mirroring the 7% increase in patient service revenue.
operating lossThe University’s operating loss decreased to $527 million in 2009 from $554 million in 2008. The
2008 operating loss was an increase from $498 million in 2007. GASB standards require that state appropriations, which are used solely for operations, be classified as nonoperating, thus creating the significant loss. If state appropriations were classified as operating, the operating loss would be as follows for 2009, 2008 and 2007, respectively: $142 million, $166 million and $132 million. The University continues to rely upon nonoperating revenues in addition to state appropriations to fund its operations, including operating gift revenues and investment income distributions.
Moody’s measures the net result of revenue and expense activity by considering several nonoperating revenues in determining the margin. The 2009 operating margin increased slightly to 1.12% from 1.11% in 2008. The 2008 margin was a significant decrease from 2007. Operating margin calculations include an estimated payout on the University’s investments rather than actual investment income. Therefore, variances in investment performance in a given year will not necessarily impact the operating margin.
3 Operating loss, (including interest expense, operating appropriations, non-operating federal grants, an assumed 5% spending rate on investments and non-permanent endowment gifts), divided by operating revenues (less scholarship expenses, and including operating appropriations, non-operating federal grants, an assumed 5% payout on investments and non-permanent endowment gifts).
18 u n i v e r s i t y o f W a s h i n g to n
a n n ua l r e p o rt 2 0 0 9 19
The Board of Regents University of Washington:
We have audited the accompanying balance sheets of the University of Washington (the University), an agency of the state of Washington, as of June 30, 2009 and 2008 and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the University’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1, the financial statements of the University of Washington, an agency of the state of Washington, are intended to present the financial position, and the changes in financial position and cash flows of only that portion of the activities of the state of Washington that is attributable to the transactions of the University of Washington. They do not purport to, and do not, present fairly the financial position of the state of Washington as of June 30, 2009 and 2008, the changes in its financial position or its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the University of Washington as of June 30, 2009 and 2008, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The management’s discussion and analysis on pages 13 through 17 is not a required part of the basic financial statements, but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplemental information. however, we did not audit the information and express no opinion on it.
Seattle, Washington December 22, 2009
Independent Auditors’ Report
Dollars in thousands
see accompanying notes to financial statements.
20 u n i v e r s i t y o f W a s h i n g to n
balance sheetsunIVeRsIty oF WAsHInGton
liABilitieS June 30,
2009 2008
current liABilitieS:
ACCOUnTS PAyABlE $ 109,938 $ 115,652
ACCRUED lIABIlITIES 223,440 203,401
PAyABlES: SECURITIES lEnDInG TRAnSACTIOnS - 628,279
COMMERCIAl PAPER 30,000 3,000
DEFERRED REvEnUE 143,000 140,335
FUnDS hElD FOR OThERS 11,469 16,336
lOnG-TERM lIABIlITIES, CURREnT PORTIOn (nOTES 9-12) 61,135 63,360
TOTAl CURREnT lIABIlITIES 578,982 1,170,363
noncurrent liABilitieS:
DEFERRED REvEnUE 21,799 24,188
U.S. GOvERnMEnT GRAnTS REFUnDABlE 51,618 51,252
lOnG-TERM lIABIlITIES, nET OF CURREnT PORTIOn (nOTES 9-12) 1,119,324 1,059,830
TOTAl nOnCURREnT lIABIlITIES 1,192,741 1,135,270
TOTAl lIABIlITIES 1,771,723 2,305,633
ASSetS
June 30,
2009 2008
current ASSetS:
CASh AnD CASh EqUIvAlEnTS (nOTE 2) $ 35,754 $ 16,707
COllATERAl FROM SECURITIES lEnDInG (nOTE 6) - 628,279
ShORT-TERM InvESTMEnTS (nOTE 6) 376,787 302,692
ACCOUnTS RECEIvABlE (nET OF $82,873 AnD $88,120 AllOWAnCE) (nOTE 5) 461,936 422,364
InvEnTORIES 28,066 29,205
OThER CURREnT ASSETS 4,185 6,779
TOTAl CURREnT ASSETS 906,728 1,406,026
noncurrent ASSetS:
DEPOSIT WITh STATE OF WAShInGTOn (nOTE 3) 72,002 66,146
lOnG-TERM InvESTMEnTS (nOTE 6) 2,456,877 2,999,205
METROPOlITAn TRACT (nOTE 7) 117,759 119,640
STUDEnT lOAnS RECEIvABlE (nET OF $9,499 AnD $8,861 AllOWAnCE) (nOTE 4) 68,467 66,526
OThER ASSETS 72,759 70,971
CAPITAl ASSETS (nET OF $ 2,352,246 AnD $2,207,659 ACCUMUlATED DEPRECIATIOn) (nOTE 8) 2,839,901 2,714,429
TOTAl nOnCURREnT ASSETS 5,627,765 6,036,917
totAl ASSetS $ 6,534,493 $ 7,442,943
net ASSetS
InvESTED In CAPITAl ASSETS, nET OF RElATED DEBT 1,943,511 1,815,857
RESTRICTED:
nOnExPEnDABlE 883,942 902,635
ExPEnDABlE 1,005,154 1,395,775
UnRESTRICTED 930,163 1,023,043
TOTAl nET ASSETS 4,762,770 5,137,310
totAl liABilitieS And net ASSetS $ 6,534,493 $ 7,442,943
Dollars in thousands
see accompanying notes to financial statements.
a n n ua l r e p o rt 2 0 0 9 21
revenueS
operAting revenueS
STUDEnT TUITIOn AnD FEES (nET OF SChOlARShIP AllOWAnCES OF $82,813 AnD $69,027) $ 458,061 $ 419,690
PATIEnT SERvICES (nET OF ChARITy CARE OF $33,058 AnD $30,582) 988,370 923,869
FEDERAl GRAnTS AnD COnTRACTS 865,053 832,299
STATE AnD lOCAl GRAnTS AnD COnTRACTS 69,002 56,045
nOnGOvERnMEnTAl GRAnTS AnD COnTRACTS 150,943 140,986
SAlES AnD SERvICES OF EDUCATIOnAl DEPARTMEnTS 111,405 110,873
AUxIlIARy EnTERPRISES:
hOUSInG AnD FOOD SERvICES 54,486 51,556
PARkInG SERvICES 9,661 8,397
SPORTS PROGRAMS (nET OF SChOlARShIP AllOWAnCES OF $3,977 AnD $3,004) 37,041 42,407
OThER AUxIlIARy EnTERPRISES 48,946 43,595
OThER MEDICAl CEnTER REvEnUE 47,361 44,346
OThER OPERATInG REvEnUE 62,093 55,687
totAl operAting revenueS 2,902,422 2,729,750
expenSeS
operAting expenSeS (nOTE 13)
SAlARIES 1,730,957 1,622,349
BEnEFITS 501,091 464,461
SChOlARShIPS AnD FEllOWShIPS 71,394 71,087
UTIlITIES 55,434 53,433
SUPPlIES AnD MATERIAlS 308,736 323,700
PURChASED SERvICES 439,852 435,140
DEPRECIATIOn 206,978 200,287
OThER 114,518 113,325
totAl operAting expenSeS 3,428,960 3,283,782
operAting loSS (526,538) (554,032)
nonoperAting revenueS (expenSeS)
STATE APPROPRIATIOnS 384,810 388,485
GIFTS 38,753 66,381
InvESTMEnT InCOME (lOSS) (nET OF InvESTMEnT ExPEnSE OF $5,759 AnD $8,888) (469,492) 77,379
InTEREST On CAPITAl ASSET-RElATED DEBT (44,732) (41,653)
PEll GRAnTS 25,332 20,263
OThER nOnOPERATInG REvEnUES 2,486 12,233
net nonoperAting revenueS (expenSeS) (62,843) 523,088
loSS Before other revenueS (589,381) (30,944)
CAPITAl APPROPRIATIOnS 101,304 71,218
CAPITAl GRAnTS AnD GIFTS 27,453 18,880
GIFTS TO PERMAnEnT EnDOWMEnTS 86,084 104,191
totAl other revenueS 214,841 194,289
increASe (decreASe) in net ASSetS (374,540) 163,345
net ASSetS
nET ASSETS – BEGInnInG OF yEAR 5,137,310 4,973,965
net ASSetS – end of yeAr $ 4,762,770 $ 5,137,310
June 30, 2009 2008
June 30, 2009 2008
statements of Revenues, expenses and Changes in net AssetsunIVeRsIty oF WAsHInGton
Dollars in thousands
see accompanying notes to financial statements.
22 u n i v e r s i t y o f W a s h i n g to n
statements of Cash Flows
cASh flowS from operAting ActivitieS
STUDEnT TUITIOn AnD FEES $ 432,411 $ 396,343
PATIEnT SERvICES 978,666 927,573
GRAnTS AnD COnTRACTS 1,064,735 1,050,420
PAyMEnTS TO SUPPlIERS (310,333) (343,495)
PAyMEnTS FOR UTIlITIES (55,373) (57,900)
PURChASED SERvICES (441,676) (446,773)
OThER OPERATInG DISBURSEMEnTS (125,057) (107,769)
PAyMEnTS TO EMPlOyEES (1,727,376) (1,617,317)
PAyMEnTS FOR BEnEFITS (497,527) (451,454)
PAyMEnTS FOR SChOlARShIPS AnD FEllOWShIPS (71,394) (71,087)
lOAnS ISSUED TO STUDEnTS (26,541) (24,860)
COllECTIOn OF lOAnS TO STUDEnTS 24,966 24,154
OThER MEDICAl CEnTER RECEIPTS 47,361 44,346
AUxIlIARy EnTERPRISE RECEIPTS 133,013 168,151
SAlES AnD SERvICES OF EDUCATIOnAl DEPARTMEnTS 114,051 108,148
OThER RECEIPTS 79,588 36,116
net cASh uSed By operAting ActivitieS (380,486) (365,404)
cASh flowS from noncApitAl finAncing ActivitieS
STATE APPROPRIATIOnS 385,097 396,697
GIFTS AnD GRAnTS FOR OThER ThAn CAPITAl PURPOSES 25,332 20,263
PRIvATE GIFTS 29,279 45,179
ADDITIOnS TO PERMAnEnT EnDOWMEnTS 86,084 104,191
DIRECT lEnDInG RECEIPTS 189,153 162,103
DIRECT lEnDInG DISBURSEMEnTS (187,752) (161,561)
RECEIPTS FROM OUTSIDE AFFIlIATED AGEnCIES 562,573 495,651
DISBURSEMEnTS TO OUTSIDE AFFIlIATED AGEnCIES (568,805) (517,164)
OThER 1,791 12,699
net cASh provided By noncApitAl finAncing ActivitieS 522,752 558,058
cASh flowS from cApitAl And relAted finAncing ActivitieS
PROCEEDS FROM CAPITAl DEBT 109,162 241,768
CAPITAl APPROPRIATIOnS 95,864 70,237
CAPITAl GRAnTS AnD GIFTS RECEIvED 27,453 13,393
PURChASES OF CAPITAl ASSETS (323,274) (292,305)
PRInCIPAl PAID On CAPITAl DEBT AnD lEASES (49,512) (282,761)
InTEREST PAID On CAPITAl DEBT AnD lEASES (47,237) (46,737)
OThER (5,277) (9,174)
net cASh uSed By cApitAl And relAted finAncing ActivitieS (192,821) (305,579)
reconciliAtion of operAting loSS to net cASh uSed By operAting ActivitieS
OPERATInG lOSS (526,538) (554,032)
ADJUSTMEnTS TO RECOnCIlE OPERATInG lOSS TO nET CASh USED By OPERATInG ACTIvITIES:
DEPRECIATIOn ExPEnSE 206,978 200,287
ChAnGES In ASSETS AnD lIABIlITIES:
RECEIvABlES (35,532) (12,783)
InvEnTORIES 1,139 (2,345)
OThER ASSETS 806 (5,870)
ACCOUnTS PAyABlE AnD ACCRUED lIABIlITIES (688) (25,230)
DEFERRED REvEnUE 277 46,717
OThER lOnG-TERM lIABIlITIES (25,353) (11,443)
U.S. GOvERnMEnTAl GRAnTS REFUnDABlE 366 1,421
lOAnS TO STUDEnTS (1,941) (2,126)
net cASh uSed By operAting ActivitieS $ (380,486) $ (365,404)
June 30, 2009 2008
June 30, 2009 2008
cASh flowS from inveSting ActivitieS
PROCEEDS FROM SAlES OF InvESTMEnTS 5,873,091 3,077,404
PURChASES OF InvESTMEnTS (5,878,173) (3,056,907)
InvESTMEnT InCOME 74,684 74,677
net cASh provided By inveSting ActivitieS 69,602 95,174
net increASe (decreASe) in cASh And cASh equivAlentS 19,047 (17,751)
CASh AnD CASh EqUIvAlEnTS-BEGInnInG OF ThE yEAR 16,707 34,458
cASh And cASh equivAlentS-end of the yeAr $ 35,754 $ 16,707
unIVeRsIty oF WAsHInGton
a n n ua l r e p o rt 2 0 0 9 23
finAnciAl reporting entityThe University of Washington (University), an agency of the state of Washington, is governed by a 10-member Board of Regents, appointed by the Governor and confirmed by the state Senate.
The financial statements include the individual schools, colleges and departments of the University, the University of Washington Medical Center, Portage Bay Insurance (a wholly -owned subsidiary of the University) and certain affiliated operations determined to be a part of the University’s financial reporting entity. Affiliated organizations are evaluated for inclusion in the reporting entity as component units based on the significance of their relationship with the University.
The University of Washington Alumni Association, University of Washington Physicians, University of Washington Physicians Network, Community Development Properties C-D, Educational Research Properties, Radford Court Properties, Twenty-Fifth Avenue Properties, TSB Properties and Washington Biomedical Research Properties I and II are included in the reporting entity as blended component units. These legally separate entities are included in the University’s financial reporting entity because of the nature of their relationship to the University. Financial information for these affiliated organizations may be obtained from their respective administrative offices.
BASiS of AccountingThe financial statements of the University have been prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No. 34, “Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments,” as amended by GASB Statement No. 35, “Basic Financial Statements — and Management’s Discussion and Analysis — for Public Colleges and Universities.” The University is reporting as a special purpose government engaged in business type activities (BTA). In accordance with BTA reporting, the University presents management’s discussion and analysis, balance sheets, statements of revenues, expenses and changes in net assets, statements of cash flows and notes to the financial statements. The financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting.
Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All intra-agency transactions have been eliminated. The University has elected not to apply any FASB pronouncements issued after November 30, 1989. The University reports capital assets net of accumulated depreciation (as applicable), and reports depreciation expense in the statements of revenues, expenses and changes in net assets.
On July 1, 2007, the University adopted GASB Statement No. 45, “Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions,” effective for the year ending June 30, 2008. This pronouncement requires the recognition and disclosure of the accumulated obligation for retiree health care and life insurance costs (Note 15).
On July 1, 2007, the University adopted GASB Statement No. 49, “Accounting and Financial Reporting for Pollution Remediation Obligations.” This pronouncement includes provisions for recognition and disclosure of estimated costs for cleanup of pollution that the University may have an obligation to remediate. Pursuant to this accounting pronouncement, the University has recorded liabilities totaling $6.6 million primarily for the remediation and management of contamination of several adjoining parcels at the Tacoma campus. The University has filed a feasibility plan that the Washington State Department of Ecology is reviewing. The University has also identified a number of small sites for which it may have pollution remediation liabilities that are not significant.
On July 1, 2007, the University adopted GASB Statement No. 50,“PensionDisclosure–anamendmentofGASBStatementsNo. 25 and No. 27.” This pronouncement more closely aligns the financial reporting requirements for pensions with those for other post-employment benefits (Note 16).
On July 1, 2008, the University adopted GASB Statement No. 52, “Land and Other Real Estate Held as Investments by Endowments.” This Statement requires endowments to report their land and other real estate held for investment at fair value. The University increased the carrying value of real estate held for investment in its endowment by approximately $1.0 million.
uSe of eStimAteSThe preparation of financial statements in conformity with U.S. generally accepted accounting principles involves management estimates that affect the reported amounts of assets and liabilities and revenues and expenses during the period. Actual results could differ from those estimates; however, in each case, the University believes that allowances, reserves and estimates of expected liabilities are adequate.
The pollution remediation liability is estimated by reviewing the current status of known polluted sites and developing estimates of cleanup costs. These estimates are subject to change due to improvements in technology, inflation, changes in the scope of work and the pursuit of reimbursement from other responsible parties.
Allowances for doubtful accounts (Notes 4 and 5) are estimates based on the historical experience of the University and current economic circumstances with respect to the collectability of accounts and loans receivable.
The liability and expense related to the supplemental component of the University of Washington Retirement Plan (UWRP) (Note 16), is based on an actuarial valuation. The results of an actuarial valuation are estimates based on historical data and the demographics of the employee population.
The self-insurance reserve (Note 17) is estimated through an actuarial calculation using individual case-basis valuations and statistical analyses. Considerable variability is inherent in such estimates.
other Accounting policieSInvestments. Investments, other than miscellaneous investments, are stated at fair value. Miscellaneous investments are stated at cost or, in the case of gifts, at fair values at the date of donation. The fair value of all debt and equity securities with a readily determinable fair value is based on quotations from national securities exchanges. The alternative investments, which are not readily marketable, are carried at the estimated fair values provided by the investment managers. The University reviews and evaluates the values provided by the investment managers and agrees with the valuation methods and assumptions used in
n o t e 1 :
Summary of Significant Accounting Policies
notes to Financial statements
notes to Financial statements (continued)
24 u n i v e r s i t y o f W a s h i n g to n
determining the fair value of the alternative investments. Those estimated fair values may differ significantly from the values that would have been used had a ready market for these securities existed. Investments under long-term strategies are considered non-current. Short-term investments consist primarily of cash equivalents and fixed income vehicles with maturities of less than one year.
Securities Lending Transactions. Cash collateral received from borrowers through securities lending transactions is recorded as a current asset with an offsetting current liability. At June 30, 2009, the University did not participate in any securities lending transactions.
Inventories. Inventories are carried at the lower of cost or market value. Consumable inventories, consisting of expendable materials and supplies held for consumption, are generally valued using the weighted-average method. Merchandise inventories are generally valued using the first-in, first-out method.
Capital Assets. Land, buildings, equipment and library books are stated at cost or, if acquired by gift, at fair market value at the date of the gift. Additions, replacements, major repairs and renovations are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 15 to 50 years for building components, 20 to 50 years for infrastructure and land improvements, 15 years for library books and five to seven years for equipment.
Capitalized construction-related interest was $1,960,000 and $6,256,000 during 2009 and 2008, respectively. These amounts are net of interest earned of $0 and $5,105,000, respectively.
Deferred Revenues. Deferred revenues occur when funds have been collected in advance of an event, such as advance ticket sales, summer quarter tuition and unspent cash advances on certain grants.
Deferred Giving – Split Interest Agreements. Under these agreements, donors make initial gifts to trusts or directly to the University. The University has beneficial interests, but is not necessarily the sole beneficiary. The University records an asset related to these agreements at fair market value at year end. The University also records a liability related to the split interest agreements equal to the present value of expected future distributions; the discount rates applied range from 4.6% to 8.0%.
Compensated Absences. University employees accrue annual leave at rates based on length of service and for sick leave at the rate of one day per month. Annual leave accrued at June 30, 2009 and 2008 was $73,163,000 and $63,680,000, respectively. Sick leave accrued as of June 30, 2009 and 2008 was $29,991,000 and $25,965,000, respectively. These liabilities were included in Accrued Liabilities.
Scholarship Allowances. Tuition and Fees are reported net of scholarship allowances that are applied to students’ accounts from external funds that have already been recognized as revenue by the University. Student aid paid directly to students is reported as scholarships and fellowships expense.
State Appropriations. The state of Washington appropriates funds to the University on both annual and biennial bases. These revenues are reported as nonoperating revenues in the Statements of Revenues, Expenses, and Changes in Net Assets. The University of Washington Medical Center received $8,458,000 and $8,296,000 in operating state appropriations in 2009 and 2008, respectively. These amounts are included in Other Medical Center Revenue in the Statements of Revenues, Expenses, and Changes in Net Assets.
Operating Activities. The University’s policy for reporting operating activities in the Statements of Revenues, Expenses, and Changes in Net Assets is to include activities that generally result from exchange transactions. Examples of exchange transactions are payments received for tuition, patient services or grants under which services are performed, as well as payments made for the delivery of goods or services. Certain other significant revenue streams used for operations, such as state appropriations, Pell grants, gifts and investment income are recorded as nonoperating revenues, as prescribed by GASB Statement No. 35.
Net Assets. The University’s net assets are classified as follows:
Invested in capital assets, net of related debt: The University’s investments in capital assets, less accumulated depreciation, net of outstanding debt obligations related to capital assets;
Restricted net assets – nonexpendable: Net assets subject to externally-imposed requirements that they be maintained permanently by the University, including permanent endowment funds and annuity and life income funds;
Restricted net assets – expendable: Net assets which the University is obligated to spend in accordance with restrictions imposed by external parties, generally scholarships, research and department uses;
Unrestricted net assets: Net assets not subject to externally imposed restrictions and which may be designated for specific purposes by management, or the Board of Regents.
Tax Exemption. The University, as an agency of the state of Washington, is not subject to federal income tax pursuant to Section 115 of the Internal Revenue Code, except for tax on unrelated business income.
Reclassifications. Certain amounts in the 2008 financial statements have been reclassified for comparative purposes to conform to the presentation in the 2009 financial statements.
n o t e 2 :
Cash and Cash EquivalentsCash includes cash on hand, petty cash and bank deposits. Most cash, except for cash held at the University, is covered by federal depository insurance (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC). At June 30,2009 and 2008, bank balances of $2,917,000 and $1,427,000, respectively, were insured by the FDIC and balances of $33,395,000 and $31,411,000, respectively, were collateralized under the PDPC.
n o t e 3 :
Deposit with State of WashingtonState law requires the University to deposit certain funds with the state treasurer, who holds and invests the funds. The deposits include amounts held for the University’s permanent land grant funds, the University of Washington building fee collected from students and certain general obligation bonds reserve funds. The fair value of these funds approximates the carrying value.
a n n ua l r e p o rt 2 0 0 9 25
inveStmentS – generAlThe Board of Regents of the University of Washington is responsible for the management of the University’s investments. The Board establishes investment policy which is carried out by the Chief Investment Officer. The University of Washington Investment Committee (UWINCO), comprised of Board members and investment professionals, advises on matters relating to the management of the University’s investment portfolios.
The composition of the carrying amounts of investments by type at June 30, 2009 and 2008 are listed in Table 1.
inveStment poolS The University combines most short-term cash balances into the Invested Funds Pool. At June 30, 2009, the Invested Funds Pool totaled $884,679,000 compared to $868,552,000 at June 30, 2008. The fund also owns units in the Consolidated Endowment Fund valued at $322,324,000 on June 30, 2009 and $445,985,000 on June 30, 2008. By University policy, departments with qualifying funds in the Invested Funds Pool receive distributions based on their average balances and on the type of balance. The difference between the actual earnings of the Invested Funds Pool and the calculated distributions is used to support activities benefiting all University departments.
The majority of the endowed funds are invested in a pooled fund called the Consolidated Endowment Fund (CEF). Individual endowments purchase units in the pool on the basis of a per-unit valuation of the CEF at fair value on the last business day of the calendar quarter. Income is distributed based on the number of units held. During fiscal year 2009, in light of the 2008-2009 financial crises and the decline in the CEF market value, the Board of Regents implemented an interim spending policy. Under the interim policy, year-over-year CEF distributions decreased from the fiscal year 2008 level by 25% in fiscal years 2009 and 2010. Thereafter, distributions will be held constant at the reduced levels until no later than fiscal year 2013, by which time the Board will determine the appropriate next steps. In fiscal year 2008, the CEF annual income distribution was 5% of the average fair market value of the CEF for the previous three years. RCW 24.44.050 of the Washington State Code allows for the spending of appreciation in the CEF.
The University records its permanent endowments at the lower of original gift value or current market value in the Restricted Nonexpendable Net Assets category. Of the total $1,032,987,000 and $1,280,085,000 permanent endowment funds (at fair value) as of June 30, 2009 and 2008, the aggregate amount of the deficiencies where the fair value of the assets is less than the original gifts is $80,694,000 and $3,256,000 at June 30, 2009 and 2008, respectively.
Funds in irrevocable trusts managed by trustees other than the University are not reported in the financial statements. The fair value of these funds was $43,365,000 at June 30, 2009 compared to $53,219,000 at June 30, 2008. Income received from these trusts, which is included in Investment Income,
tABle 1 – univerSity inveStmentS And collAterAl from SecuritieS lending (Dollars in thousands)
n o t e 4 :
Student Loans ReceivableNet student loans of $68,467,000 and $66,526,000 at June 30, 2009 and 2008, respectively, consist of $51,618,000 and $51,252,000 from federal programs and $16,849,000 and $15,274,000 from University programs. Interest income from student loans for the years ended June 30, 2009 and 2008 was $1,225,000 and $1,148,000, respectively. These unsecured loans are made primarily to students who reside in the state of Washington.
n o t e 5 :
Accounts ReceivableThe major components of accounts receivable as of June 30, 2009 and 2008 were:
carrying value
investment type 2009 2008
CAsH equIVAlents $ 440,742 $ 163,725
CAsH equIVAlents-loAneD – 77,383
DoMestIC FIxeD InCoMe 968,847 475,958
DoMestIC FIxeD InCoMe – loAneD – 465,144
FoReIGn FIxeD InCoMe 12,272 34,117
DoMestIC equIty 279,589 561,295
DoMestIC equIty – loAneD – 59,491
FoReIGn equIty 399,056 171,330
FoReIGn equIty-loAneD – 24,024
non-MARKetAble AlteRnAtIVes 377,946 758,043
MARKetAble AlteRnAtIVes 341,032 497,332
ReAl estAte 8,463 8,313
MIsCellAneous 5,717 5,742
totAl InVestMents 2,833,664 3,301,897
CollAteRAl FRoM seCuRItIes lenDInG – CAsH – 628,279
totAl inveStmentS And collAterAl $ 2,833,664 $ 3,930,176
(Dollars in thousands) 2009 2008
pAtIent seRVICes $ 241,342 $ 235,863
GRAnts AnD ContRACts 152,528 138,202
penDInG InVestMent sAles 5,019 6,133
sAles AnD seRVICes 9,880 12,525
tuItIon 32,957 26,991
stAte AppRopRIAtIons 12,516 7,362
otHeR 90,567 83,408
544,809 510,484
less: AlloWAnCe FoR DoubtFul ACCounts (82,873) (88,120)
totAl $ 461,936 $ 422,364
n o t e 6 :
Investments
26 u n i v e r s i t y o f W a s h i n g to n
notes to Financial statements (continued)
duration as of June 30, 2009 duration as of June 30, 2008
consolidated endowment fund invested funds
consolidated endowment fund invested funds
Asset category Asset value duration Asset value duration Asset value duration Asset value duration
domeStic fixed income
Asset bACKeD seCuRItIes $ 9,827 2.94 $ 29,852 1.26 $ 4,151 2.74 $ 39,457 1.40
CAsH equIVAlents 144,911 0.38 106,190 0.17 20,996 0.04 135,280 0.01
CoRpoRAte bonDs 32,563 4.05 52,040 2.28 17,585 8.28 7,288 1.95
GoVeRnMent & AGenCIes 118,068 2.43 662,331 3.14 53,175 4.39 468,864 3.11
MoRtGAGe RelAteD 22,579 3.42 34,266 1.70 37,087 4.71 216,936 2.95
subtotAl 327,948 1.77 884,679 2.61 132,994 4.26 867,825 2.50
foreign fixed income
CAsH equIVAlents – – – – 82 – – –
InteRnAtIonAl FIxeD – – – – 29,522 4.05 727 3.03
subtotAl – – – – 29,604 4.04 727 3.03
totAl $ 327,948 1.77 $ 884,679 2.61 $ 162,598 4.22 $ 868,552 2.50
securities held outside the Consolidated Endowment Fund and the Invested Funds Pool. These amounts make up 7.4% and 5.6%, respectively, of the University’s investments, and are not included in the duration figures detailed in Table 2.
credit riSK The University Investment Policies limit fixed income exposure to investment grade assets. The Investment Policy for the Invested Funds’ cash pool requires each manager to maintain an average quality rating of “AA” as issued by a nationally recognized rating organization. The Invested Funds’ liquidity pool requires each manager to maintain an average quality rating of “A” and to hold 50% of their portfolios in government and government agency issues. The Investment Policy for the CEF reflects its long-term nature by specifying average quality rating levels by individual manager, but still restricting investment to investment-grade credits.
foreign currency riSK The University’s Investment Policies permit investments in international equity and other asset classes which can include foreign currency exposure. The University also enters into foreign currency forward contracts, futures contracts, and options to manage the foreign currency exposure.
At June 30, 2009 and 2008, the University had net outstanding forward commitments to sell foreign currency with a total fair value of $40,164,000 and $19,056,000, respectively, which equals 1.42% and 0.58% of the total portfolio.
Table 3 details the market value of foreign denominated securities by currency type in the Consolidated Endowment Fund at June 30, 2009 and 2008.
was $2,329,000 for the year ended June 30, 2009 and $1,997,000 for the year ended June 30, 2008.
Net appreciation (depreciation) in the fair value of investments includes both realized and unrealized gains and losses on investments. The University realized net losses of $(67,054,000) in 2009 and gains of $156,467,000 in 2008 from the sale of investments. The calculation of realized gains and losses is independent of the net appreciation of the fair value of investments. Realized gains and losses on investments that have been held in more than one fiscal year and are sold in the current year, include the net appreciation of these investments reported in the prior year(s). The net (depreciation) appreciation in the fair value of investments during the years ended June 30, 2009 and 2008 was $(544,176,000) and $2,702,000, respectively.
funding commitmentS The University enters into contracts with investment managers to fund alternative investments. As of June 30, 2009, the University had outstanding commitments to fund alternative investments of $254,228,000 which may be called during the period June 30, 2009 through 2020.
SecuritieS lending The University’s investment policies permit it to lend its securities to broker dealers and other entities. Due to
market conditions, the University terminated this program in September, 2008 and as of June 30, 2009 the University had no securities on loan. Securities on loan at June 30, 2008 totaled $626,042,000 and are listed by investment type in Table 1. Non-cash collateral at June 30, 2008 was $13,615,000.
intereSt rAte riSK The University manages interest rate risk through its investment policies and the investment guidelines established with each manager. Each fixed-income manager is assigned a maximum boundary for duration as compared to the manager’s relevant benchmark index. The goal is to allow ample freedom for the manager to perform, while controlling the interest rate risk in the portfolio. Modified duration, which estimates the sensitivity of a bond’s price to interest rate changes, is based on a calculation entitled Macaulay duration. Macaulay is an accepted calculation developed for a portfolio of bonds assembled to fund a fixed liability. Macaulay duration is calculated as follows: sum of discounted time-weighted cash flows divided by the bond price. Modified duration is calculated using the following formula: Macaulay duration divided by (one plus yield-to-maturity divided by the number of coupon payments per year). As of June 30, 2009 and 2008, modified duration of the University’s investments for which duration is measured is as follows:
Duration figures at June 30, 2009 and 2008 exclude $209,235,000 and $185,177,000, respectively, of fixed-income
tABle 2 – inveStmentS mAnAged By the univerSity (Dollars in thousands; modified duration in years)
a n n ua l r e p o rt 2 0 0 9 27
June 30, 2009foreign currency market value percentage
euRo (euR) $ 83,621 17%
JApAnese yen (Jpy) 63,786 13%
CHInese RenMInbI (RMb) 41,397 8%
bRItIsH pounD (Gbp) 38,244 8%
bRAzIlIAn ReAl (bRl) 34,117 7%
InDIAn Rupee (InR) 31,374 6%
HonG KonG DollAR (HKD) 27,188 5%
CAnADIAn DollAR (CAD) 20,910 4%
RussIAn Ruble (Rub) 17,051 3%
sInGApoRe DollAR (sGD) 15,685 3%
otHeR (less tHAn 3% exposuRe eACH) 129,983 26%
totAl $ 503,356 100%
(Dollars in thousands)
June 30, 2008
euRo (euR) $ 149,730 30%
JApAnese yen (Jpy) 58,160 12%
bRItIsH pounD (Gbp) 49,498 10%
CHInese RenMInbI (RMb) 32,173 6%
CAnADIAn DollAR (CAD) 30,936 6%
RussIAn Ruble (Rub) 25,986 5%
InDIAn Rupee (InR) 22,274 5%
bRAzIlIAn ReAl (bRl) 19,799 4%
tAIWAn neW DollARs (tWD) 14,849 3%
otHeR (less tHAn 3% exposuRe eACH) 96,520 19%
totAl $ 499,925 100%
tABle 3 – inveStmentS in foreign currency n o t e 7 :
Metropolitan TractThe Metropolitan Tract, located in downtown Seattle, is comprised of approximately 11 acres of developed property, including office space, retail space, parking and a luxury hotel. This land was the original site of the University from 1861 until 1895 when the University moved to its present location. Since the early 1900’s, the Metropolitan Tract has been leased by the University to entities responsible for developing and operating the property.
On July 18, 1953, the Board of Regents of the University and the entity now known as Unico Properties, Inc. entered into a lease agreement for office, retail and parking facilities, which will expire in 2014. On January 19, 1980, the Board of Regents of the University entered into a lease with the Urban/Four Seasons Hotel Venture for the Olympic Hotel property, which will expire in 2040. The hotel was operated as the Four Seasons Olympic Hotel until July 31, 2003. On August 1, 2003, the remaining lease term was assigned to LHCS Hotel Holding (2002) LLC. The hotel was renamed the Fairmont Olympic Hotel and is now managed by Fairmont Hotels & Resorts.
The balances as of June 30, 2009 and 2008 represent operating assets, net of liabilities, and land, buildings and improvements stated at appraised value as of November 1, 1954. The balances also include subsequent capital additions and improvements at cost, less retirements and accumulated depreciation of $117,606,000 and $109,406,000, respectively, and are net of the outstanding balance of the line of credit described below.
In July 2004, the University obtained a 10-year term, variable rate revolving credit line for the Metropolitan Tract of up to $25,000,000 for capital repairs and improvements. The credit line is secured by future revenues of the Metropolitan Tract. As of June 30, 2009 and 2008, $8,500,000 was outstanding on the credit line.
notes to Financial statements (continued)
28 u n i v e r s i t y o f W a s h i n g to n
bonDs pAyAble:
GeneRAl oblIGAtIon bonDs pAyAble (nOTE 11) $ 268,224 $ - $ 13,820 $ 254,404 $ - $ 14,418 $ 239,986 $ 14,418 $ 11,719
ReVenue bonDs pAyAble (nOTE 11) 541,620 229,380 118,200 652,800 75,835 16,195 712,440 16,195 17,335
unAMoRtIzeD pReMIuM on bonDs 8,934 7,487 988 15,433 - 1,647 13,786 1,647 1,608
totAl bonDs pAyAble 818,778 236,867 133,008 922,637 75,835 32,260 966,212 32,260 30,662
notes pAyAble & CApItAl leAses:
notes pAyAble & otHeR – CApItAl Asset RelAteD 172,000 1,902 139,041 34,861 2,625 3,090 34,396 2,822 3,229
notes pAyAble & otHeR – non-CApItAl Asset RelAteD 1,707 468 2 2,173 420 1,117 1,476 1,317 742
CApItAl leAse oblIGAtIons (nOTE 10) 35,194 - 10,712 24,482 702 11,162 14,022 11,027 6,952
totAl notes pAyAble & CApItAl leAses 208,901 2,370 149,755 61,516 3,747 15,369 49,894 15,166 10,923
otHeR lonG-teRM lIAbIlItIes:
CHARItAble & DeFeRReD GIFt AnnuIty lIAbIlIty 44,868 1,360 8,148 38,080 1,023 9,783 29,320 7,118 8,965
pollutIon ReMeDIAtIon lIAbIlIty (nOTE 1) - 6,000 - 6,000 580 - 6,580 - 580
sICK leAVe (nOTE 1) 28,073 - 2,108 25,965 4,026 - 29,991 1,533 1,054
selF-InsuRAnCe (nOTE 17) 40,133 13,286 5,904 47,515 14,606 10,471 51,650 6,474 8,188
net pensIon oblIGAtIon (nOTE 16) 14,515 7,743 781 21,477 26,080 745 46,812 809 763
totAl otHeR lIAbIlItIes 127,589 28,389 16,941 139,037 46,315 20,999 164,353 15,934 19,550
totAl long-term liABilitieS $ 1,155,268 $ 267,626 $ 299,704 $ 1,123,190 $ 125,897 $ 68,628 $ 1,180,459 $ 63,360 $ 61,135
Balance at Balance at Balance at current current June 30, 2007 Additions reductions June 30, 2008 Additions reductions June 30, 2009 portion 2008 portion 2009
Balance at Additions/ Balance at Additions/ Balance at June 30, 2007 transfers retirements June 30, 2008 transfers retirements June 30, 2009
lAnD* $ 106,280 $ – $ – $ 106,280 $ 6,405 $ – $ 112,685 InFRAstRuCtuRe 173,487 – – 173,487 2,650 – 176,137 buIlDInGs 2,999,412 250,220 1,468 3,248,164 157,686 – 3,405,850 FuRnItuRe, FIxtuRes AnD equIpMent 932,587 94,458 44,680 982,365 93,712 66,329 1,009,748 lIbRARy MAteRIAls 247,302 14,845 1,320 260,827 16,685 1,401 276,111 CApItAlIzeD ColleCtIons* 5,513 6 2 5,517 – – 5,517 ConstRuCtIon In pRoGRess* 195,552 (50,104) – 145,448 60,651 – 206,099 totAl 4,660,133 309,425 47,470 4,922,088 337,789 67,730 5,192,147 less ACCuMulAteD DepReCIAtIon InFRAstRuCtuRe 65,907 3,887 – 69,794 3,980 – 73,774 buIlDInGs 1,096,730 98,738 1,418 1,194,050 106,914 – 1,300,964 FuRnItuRe, FIxtuRes AnD equIpMent 729,423 85,916 41,377 773,962 83,840 61,439 796,363 lIbRARy MAteRIAls 158,978 11,746 871 169,853 12,244 952 181,145 totAl ACCuMulAteD DepReCIAtIon 2,051,038 200,287 43,666 2,207,659 206,978 62,391 2,352,246 cApitAl ASSetS, net $ 2,609,095 $ 109,138 $ 3,804 $ 2,714,429 $ 130,811 $ 5,339 $ 2,839,901
n o t e 8 :
Capital AssetsCapital asset activity for the two-year period ended June 30, 2009 is summarized as follows:
(Dollars in thousands)
*Non-depreciable
n o t e 9 :
Long-Term Liabilities:Long-term liability activity for the two-year period ended June 30, 2009 is summarized as follows:
(Dollars in thousands)
a n n ua l r e p o rt 2 0 0 9 29
n o t e 1 1 :
Bonds and Notes PayableThe bonds and notes payable at June 30, 2009, consist of State of Washington General Obligation and Refunding Bonds, University Revenue Bonds, and Notes Payable. These obligations have fixed interest rates ranging from 2.5% to 7.38%. Debt service requirements at June 30, 2009 were as follows:
year (Dollars in thousands)
2010 $ 29,191
2011 25,650
2012 22,877
2013 18,955
2014 16,046
2015-2019 43,481
2020-2024 30,879
2025-2029 33,759
2030-2051 50,908
totAl minimum leASe pAymentS $ 271,746
n o t e 1 0 :
Leases
year (Dollars in thousands) principal
2010 $ 6,952
2011 4,389
2012 1,888
2013 1,233
2014 355
totAl minimum leASe pAymentS 14,817
less: AMount RepResentInG InteRest Costs (795)
preSent vAlue of minimum pAymentS $ 14,022
interest
stAte oF WAsHInGtonGeneRAl oblIGAtIon bonDs
unIVeRsIty oF WAsHInGtonReVenue bonDs
notes pAyAble AnD otHeR
year principal interest principal interestprincipal
2010 $ 11,719 $ 12,093 $ 17,335 $ 34,664 $ 3,971 $ 1,601
2011 12,528 11,469 18,500 36,693 3,722 1,458
2012 13,535 10,788 19,440 35,840 3,315 1,314
2013 14,515 10,041 20,720 34,927 3,374 1,161
2014 15,215 9,331 21,880 33,900 1,988 1,535
2015 – 2019 83,010 33,594 112,275 153,831 11,053 3,451
2020 – 2024 62,210 15,381 115,875 128,545 7,734 790
2025 – 2029 27,254 2,484 84,845 104,145 715 –
2030 – 2034 – – 60,870 80,661 – –
2035 – 2039 – – 164,865 47,859 – –
2040 – 2044 – – 75,835 – – –
totAl $ 239,986 $ 105,181 $ 712,440 $ 691,065 $ 35,872 $ 11,310
tABle 4 – BondS And noteS pAyABle (Dollars in thousands)
cApitAl leASeSFuture minimum lease payments under capital leases, and the present value of the net minimum lease payments, as of June 30, 2009, are as follows:
Balance at Balance at Balance at June 30, 2007 Additions retirements June 30, 2008 Additions retirements June 30, 2009
equIpMent $ 63,467 $ – $ – $ 63,467 $ 702 $ 12,177 $ 51,992
ReAl estAte 9,987 – – 9,987 – – 9,987
totAl 73,454 – – 73,454 702 12,177 61,979
less ACCuMulAteD DepReCIAtIon
equIpMent 44,308 12,863 – 57,171 6,128 12,177 51,122
ReAl estAte 6,991 999 – 7,990 999 – 8,989
totAl ACCuMulAteD DepReCIAtIon
51,299 13,862 – 65,161 7,127 12,177 60,111
leASed cApitAl ASSetS, net $ 22,155 ($ 13,862 ) $ – $ 8,293 ($6,425) $ – $ 1,868
Buildings and equipment under capital lease were as follows:
operAting leASeSThe University has certain lease agreements in effect that are considered operating leases, primarily for leased building space. During the years ended June 30, 2009 and 2008, the University recorded rent expenses of $36,198,000 and $35,399,000, respectively, for these leases. Future lease payments under these leases as of June 30, 2009, are as follows:
(Dollars in thousands)
notes to Financial statements (continued)
30 u n i v e r s i t y o f W a s h i n g to n
n o t e 1 2 :
Pledged RevenuesThe University has pledged specific revenues, net of specified operating expenses, to repay the principal and interest of revenue bonds. The following is a schedule of the pledged revenues and related debt:
n o t e 1 3 :
Operating Expenses by Function Operating expenses by functional classification for the years ended June 30, 2009 and 2008 are summarized as follows:
(Dollars in thousands) Source of revenue pledged
total future revenues pledged* description of debt purpose of debt
term of commitment
proportion of debt Service to pledged revenues (current year)
Housing and Dining Revenues, net of operating expenses
$46,308 Housing and Dining bonds, issued in 2002 and 2004
Construction and renovation of student housing
2032 17.2%
student Housing gross rent from Component unit entities, net of permitted operating expenses
$155,965 student Housing Revenue bonds (Component unit entities), issued in 1996, 2000, and 2002
Construction and renovation of student housing
2033 78.1%
student Facilities Fees and earnings on invested fees
$71,840 student Facilities Revenue bonds, issued in 2000 and student Facilities Refunding Revenue bonds, issued in 2005
Construction of student recreational sports facilities
2030 21.2%
parking Revenues from the university parking system, net of operating expenses — reported as Auxiliary Revenues.
$28,109 university of Washington parking system and Refunding bonds, issued in 2004
Construction of improvements and additions to the university’s parking system
2030 17.6%
* Total future principal and interest payments on the debt
(Dollars in thousands)
operating expenses 2009 2008
eDuCAtIonAl AnD GeneRAl InstRuCtIon $ 908,394 $ 823,734
ReseARCH 640,261 622,913
publIC seRVICe 33,061 31,555
ACADeMIC suppoRt 264,507 265,183
stuDent seRVICes 34,160 33,771
InstItutIonAl suppoRt 142,889 155,877
opeRAtIon AnD MAIntenAnCe oF plAnt 178,131 168,736
sCHolARsHIps AnD FelloWsHIps 71,394 71,087
AuxIlIARy enteRpRIses 170,602 161,807
MeDICAl RelAteD 778,583 748,832
DepReCIAtIon 206,978 200,287
totAl operAting expenSeS $3,428,960 $3,283,782
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Related PartiesHarborview Medical Center (HMC), a hospital and Level I adult and pediatric trauma center in Seattle, is a component unit of King County, Washington. It has been managed by the University under a management contract between King County and the University since 1967. The current management contract will be in force through June 30, 2010 but it can be extended until June 30, 2015 unless either party gives notice of intent to not renew it.
Under the contract, the HMC Board of Trustees determines major institutional policies and retains control of programs and fiscal matters, while King County retains ultimate control over capital programs and capital budgets. The University is responsible for the operations of HMC, including the provision of medical, dental and management services. All of the individuals employed at HMC, including physicians, are employees of the University of Washington. HMC expenses, including payroll, are reimbursed to the University from HMC fund sources.
State law requires that the University reimburse the state for debt service payments relating to its portion of the State of Washington General Obligation and Refunding Bonds from Medical Center patient revenues, tuition, timber sales and other revenues. The University has pledged the net revenues from the Housing and Dining System, the Parking System and a special student fee to retire the related revenue bonds.
SuBSequent deBt offeringOn July 8, 2009, the state of Washington refunded General Obligation Bonds totaling $29,780,000 (UW portion) with new bond issuances totaling $27,430,000. The refunded bonds had coupon rates ranging from 3.50% to 5.00%; the new bonds have an average interest rate of 4.871%. The refunding decreased the total debt service payments to be made over the next 14.5 years by $3,318,339 and resulted in a total economic gain of $4,279,188.
On December 22, 2009, the University issued $77,710,000 in General Revenue Bonds, with a fixed interest rate of 5.40% that mature on June 1, 2036. The bond proceeds will partially fund various projects including the UWMC expansion, PACCAR Business School building, Phase 1 of Housing and Food Services’ Housing Master Plan and the new Molecular Engineering building.
intereSt rAte SwAp AgreementIn October 2004, the University issued General Revenue Bonds in the amount of $60,720,000 to fund construction. In connection with this bond issuance, the University entered into an interest rate swap agreement with a notional amount of $60,720,000. The intention of the swap was to effectively change the variable-rate debt to a synthetic fixed rate of 3.27% as of the closing date of the bonds. In May 2008, the underlying bonds were refinanced, and the University paid $1,628,000 to terminate the swap.
commerciAl pAper progrAmIn July 2006, the Board of Regents authorized a commercial paper program with a maximum borrowing limit of $250 million, payable from University General Revenues. This short-term borrowing program is primarily used to fund capital expenditures. As of June 30, 2009, there was $30 million in outstanding commercial paper.
a n n ua l r e p o rt 2 0 0 9 31
HMC revenues and expenses are not recognized in the University’s financial statements. The University’s financial statements do, however, include accounts receivable from HMC of $21,715,000 at June 30, 2009 and $20,522,000 at June 30, 2008, as well as HMC investments of $2,125,000 and $2,717,000, respectively, and accrued liabilities of $16,012,000 and $15,369,000, respectively.
The University of Washington Foundation (UWF) is a non-profit organization that performs fundraising activities on behalf of the University of Washington. The UWF is not included in the University’s financial statements as a component unit because gifts and grants that are made to the UWF are immediately transferred to the University. In 2009 and 2008, the UWF transferred $46,393,000 and $61,758,000, respectively, to the University in gifts and grants received on its behalf; these are included in the financial statements of the University. The remaining amounts retained by the UWF are not significant to the University’s financial statements.
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Other Post Employment Benefits (OPEB)
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Pension PlansThe University offers two contributory plans: the Washington State Public Employees Retirement System (PERS) plan, a defined-benefit retirement plan; and the University of Washington Retirement Plan (UWRP), a defined-contribution plan with supplemental payments to beneficiaries, when required.
puBlic employeeS retirement SyStemPlan Description: The University of Washington contributes to PERS, a cost sharing, multiple-employer, defined-benefit pension plan administered by the state of Washington Department of Retirement Systems. PERS Plan 1 provides retirement and disability benefits and minimum benefit increases beginning at age 66 to eligible non-academic plan members hired prior to October 1, 1977. PERS Plans 2 and 3 provide retirement and disability benefits and a cost-of-living allowance to eligible non-academic plan members hired on or after October 1, 1977. In addition, PERS Plan 3 has a defined-contribution component, which is fully funded by employee contributions. The authority to establish and amend benefit provisions resides with the legislature. The Washington State Public Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for PERS. The report may be obtained by writing to the Department of Retirement Systems, P.O. Box 48380, Olympia, Washington 98504-8380, or visiting www.drs.wa.gov/administration.
Funding Policy: The Office of the State Actuary, using funding methods prescribed by statute, determines actuarially required contribution rates for PERS. Plan 1 members are required to contribute 6% of their annual covered salary. Contributions for Plan 2 members are determined by the aggregate method, and may vary over time. The contribution rate for Plan 2 employees at June 30, 2009 and 2008 was 5.45% and 4.15%, respectively. Plan 3 members can choose contributions ranging from 5% to 15% of salary, based on the age of the member. The defined-contribution benefit for PERS 3 will depend on the member’s contributions, the investment earnings on those contributions, and if an annuity is taken, the age at which the member receives payment. The contribution rate for the University at June 30, 2009 and 2008, for each of PERS Plans 1, 2, and 3 was 8.31% and 6.13%, for the respective years.
Health care and life insurance programs for employees of the state of Washington are administered by the Washington State Health Care Authority (HCA). The HCA calculates the premium amounts each year that are sufficient to fund the statewide health and life insurance programs on a pay-as-you-go basis. These costs are passed through to individual state agencies based upon active employee headcount; the agencies pay the premiums for active employees to the HCA. The agencies may also charge employees for certain higher cost options elected by the employee.
State of Washington retirees may elect coverage through state health and life insurance plans, for which they pay less than the full cost of the benefits, based on their age and other demographic factors.
The health care premiums for active employees, which are paid by the agency during employees’ working careers, subsidize the “underpayments” of retirees. An additional factor in the OPEB obligation is a payment that is required by the State Legislature to reduce the premiums for retirees covered by Medicare (an “explicit” subsidy). For 2008 this amount was $164 per retiree eligible for parts A and B of Medicare. This is also passed through to state agencies via active employee rates charged to the agency.
There is no formal state or University plan that underlies the subsidy of retiree health and life insurance.
In 1998, the University entered into an agreement with Seattle Children’s Hospital and Fred Hutchinson Cancer Research Center to establish the Seattle Cancer Care Alliance (SCCA). The SCCA integrates the cancer research, teaching and clinical cancer programs of all three institutions to provide state-of-the-art cancer care. Each member of the SCCA has a one-third interest. The University accounts for its interest in SCCA under the equity method and has recorded $56.0 million and $48.2 million in “Other Assets,” together with $7.8 million and $5.2 million in “Investment Income,” for its share of the joint venture in 2009 and 2008, respectively.
SuBSequent AffiliAtion with northweSt hoSpitAlUW Medicine and Northwest Hospital and Medical Center, a 281-bed full service acute care hospital, have entered into an affiliation agreement, effective January 1, 2010. This agreement will expand Northwest Hospital’s existing cooperative program agreement with UW Medicine to become an integral part of the UW Medicine health system.
ActuAriAl Study Actuarial studies performed by the Washington Office of the State Actuary calculated that the total OPEB obligation of the state of Washington at January 1, 2008 was $4.0 billion compared to $3.8 billion as of January 1, 2007. The annual cost was $332 million and $314 million for 2009 and 2008, respectively. The actuary calculated the OPEB obligation based on individual state employee data, including age, retirement eligibility and length of service. The probability of an employee of a given age and length of service retiring and receiving OPEB benefits is based on statewide historical data.
The actuary’s allocation of the cumulative statewide liability related to the University, including its unconsolidated affiliates, was estimated at approximately $590 million and $600 million for 2009 and 2008, respectively. These amounts are not included in the University’s financial statements.
The University paid $186 million for healthcare expenses in 2009, which included its pay-as-you-go portion of the OPEB liability, calculated by the actuary at $6.9 million.
The State actuary’s report is available at: http://osa.leg.wa.gov/actuarial_services/opeb/pdf_docs/2008_opeb_report.pdf
notes to Financial statements (continued)
32 u n i v e r s i t y o f W a s h i n g to n
Authorized expenditures for construction projects unexpended as of June 30, 2009, were $158,014,000. These expenditures will be funded from local funds and state appropriations.
The University receives and expends substantial amounts under federal and state grants, contracts and programs such as Medicare. This funding is used for research, student aid, Medical Center operations and other programs, and is subject to audit by governmental granting agencies. Certain grant and contract costs billed to the federal government are subject to audit under OMB Circular A-133, “Audits of States, Local Governments, and Non-Profit Organizations.” The University is also involved in various other claims and legal actions arising in the ordinary course of business. University management believes that any liabilities arising from these matters will not have a material effect on the University’s financial statements.
The University is exposed to risk of loss related to tort liability, injuries to employees and loss of property. The University purchases insurance protection for workers’ compensation as well as marine, aviation and certain other risks. The University also purchases insurance protection for loss of property at self-sustaining units, bond-financed buildings and where otherwise required by contract; otherwise, the risk of property loss is retained, unfunded. For professional, general, employment and automobile liability, the University maintains a program of self-insurance reserves and excess insurance coverage. The self-insurance reserve represents the estimated ultimate cost of settling claims resulting from events that have occurred on or before the balance sheet date. The reserve includes the amount that will be required for future payments of claims that have been reported and claims related to events that have occurred
but have not been reported. The reserve is discounted at 4.25% in the year ended June 30, 2009.
The self-insurance reserve is estimated through an actuarial calculation. Changes in the self-insurance reserve for the years ended June 30, 2009, 2008 and 2007 are noted below.
The University’s contributions to PERS for the years ended June 30, 2009, 2008 and 2007 were $64,169,000, $45,351,000 and $30,996,000, respectively, which were equal to the annual required contributions for each year.
univerSity of wAShington retirement plAn (403(B)) & univerSity of wAShington SupplementAl retirement plAn (401(A))Faculty, librarians and professional staff are eligible to participate in the University of Washington Retirement Plan, a 403(b) defined-contribution plan and the UW Supplemental Retirement Plan, a 401(a) defined-benefit retirement plan which operates in tandem with the 403(b) plan. Both plans are administered by the University.
403(b) Plan Description: Contributions to the plan are invested by participants in annuity contracts or mutual fund accounts offered by one or more fund sponsors. Employees have at all times a 100% vested interest in their accumulations. Benefits from fund sponsors are available upon separation or retirement at the member’s option. RCW 28B.10.400 et. seq. assigns the authority to the University of Washington Board of Regents to establish and amend benefit provisions.
403(b) Funding Policy: Employee contribution rates, based on age, are 5%, 7.5% or 10% of salary. The University matches the contributions of employees. Within parameters established by the legislature, contribution requirements may be established or amended by the University of Washington Board of Regents. Employee and employer contributions for the year ended June 30, 2009 were each $76,878,000 compared to $69,015,000 each for the year ended June 30, 2008.
401(a) Plan Description: This plan provides for a supplemental payment component which guarantees a minimum retirement benefit based upon a one-time calculation at each eligible participant’s retirement date. The University makes direct payments to qualifying retirees when the retirement benefits provided by the 403(b) plan do not meet the benefit goals.
401(a) Plan Funding: The supplemental component of the UWRP is financed on a pay-as-you-go basis. The University received an actuarial valuation of the supplemental payment component of the UWRP with a valuation date of July 1, 2009. The previous evaluations were performed in 2007 and 2004. The Unfunded Actuarial Accrued Liability (UAL) and Annual Required Contribution (ARC) as of July 1 of the respective year was:
2009 2008 2007
ReseRVe At beGInnInG oF FIsCAl yeAR $ 47,515 $ 40,133 $ 34,028
InCuRReD ClAIMs AnD CHAnGes In estIMAtes 14,606 13,286 13,148
ClAIM pAyMents (10,471) (5,904) (7,043)
reServe At end of fiScAl yeAr $ 51,650 $ 47,515 $ 40,133
(Dollars in thousands)
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Commitments and Contingencies
uAl $ 218,036 $ 64,215 $ 32,454
noRMAl Cost 8,860 3,369 1,370
AMoRtIzAtIon oF uAl, InCluDInG InteRest 17,220 4,374 1,993
ARC $ 26,080 $ 7,743 $ 3,363
(Dollars in thousands) 2009 2007 2004
bAlAnCe At beGInnInG oF FIsCAl yeAR $ 21,477 $ 14,515 $ 7,609
AnnuAl RequIReD ContRIbutIon 26,080 7,743 7,743
pAyMents to beneFICIARIes (745) (781) (837)
BAlAnce At end of fiScAl yeAr $ 46,812 $ 21,477 $ 14,515
(Dollars in thousands) 2009 2008 2007
pAyRoll CoVeReD by plAn $ 976,000 $ 771,000 $ 640,000
RAte oF RetuRn AssuMptIon 5% 5% 4%
sAlARy InCReAses FoR yeARs 1 AnD 2 2% 4% 2%
sAlARy InCReAse FoR tHIRD yeAR 4% 4% 2%
sAlARy InCReAses tHeReAFteR 4% 4% 4%
(Dollars in thousands) Actuarial assumptions 2009 2007 2004
The UAL and ARC were established using the entry age normal cost method.
The following table reflects the activity in the Net Pension Obligation for the years ended June 30, 2009, 2008 and 2007:
This publication was prepared jointly by Financial Management and UW Office of External Affairs. Published December 2009.
The 2009 UW Annual Report and reports from prior years are available at www.annualreport.uw.edu. For more information, contact Financial Accounting at 206-221-7845 or [email protected].
p h o t o g r A p h y
Mel Curtis, Brian Dal Balcon, Mike Fiechtner, Steve Korn, Mary Levin, Doug Plummer, Dennis Wise
e d i t o r i A l
Rudy Yuly
d e S i g n , p r o d u c t i o n A n d p r i n t c o o r d i n At i o n
UW Creative Communications, UW Marketing
v i S i t t h e u w w e B S i t e
www.uw.edu
© 2009, 2010 University of Washington
Printed on paper containing 30 percent post-consumer fiber
BoArd of regentS1
Craig W. Cole, Chair
Herb Simon, Vice Chair
Stanley H. Barer
Kristianne Blake
Jeffrey H. Brotman
William H. Gates
Sally Jewell
Frederick C. Kiga
Constance L. Proctor
Jean-Paul A . Willynck
AdminiStrAtive officerS1
Mark A. Emmert President
Phyllis M. Wise Provost and Executive Vice President
Eric Godfrey Vice President and Vice Provost for Student Life
Randy Hodgins Interim Vice President for External Affairs
Mindy Kornberg Vice President for Human Resources
Connie Kravas Vice President for University Advancement
Sheila Edwards Lange Vice President for Minority Affairs and Vice Provost for Diversity
Paul G. Ramsey CEO, UW Medicine, Executive Vice President for Medical Affairs and Dean of the School of Medicine
Doug Wadden Executive Vice Provost
V’Ella Warren Senior Vice President
1 As of June 30, 2009
Bondholder Information
2005 2006 2007 2008 2009Undergraduate
FreshmenApplied 15,955 16,634 17,808 19,906 21,268Accepted 10,694 11,355 11,511 12,094 12,264Percent Accepted to Applied 67% 68% 65% 61% 58%Enrolled 4,893 5,438 5,287 5,540 5,338Percent Enrolled to Accepted 46% 48% 46% 46% 44%
TransfersApplied 3,597 3,598 3,703 3,799 4,541Accepted 1,868 1,958 2,025 2,120 2,119Pecent Accepted to Applied 52% 54% 55% 56% 47%Enrolled 1,433 1,504 1,536 1,557 1,600Percent Enrolled to Accepted 77% 77% 76% 73% 76%
TotalUndergraduate FTE (1) 27,807 28,746 29,849 31,309 32,118Undergraduate Headcount (1) 30,580 31,135 32,355 33,697 34,523
Tuition and Fees (full academic year):Undergraduate Resident $5,610 $5,985 $6,385 $6,802 $7,692Undergraduate Non-Resident $19,907 $21,283 $22,131 $23,219 $24,367
Additional Enrollment Statistics:% of students from outside state -Graduate and Undergraduate 22% 18% 19% 21% 25%% retention (Freshman to Sophomore) 92% 92% 92% 92% 93%Mean GPA 3.69 3.66 3.69 3.72 3.72Median GPA 3.75 3.72 3.74 3.76 3.78% of class reporting GPA data 100% 100% 100% 100% 100%Mean Combined SAT scores 1198 1178 1196 1201 1207Median Combined SAT scores 1200 1190 1200 1210 1210% of class reporting SAT data 94% 92% 93% 91% 90%
Graduate
Applied 16,902 18,316 19,137 20,000 21,491Accepted 5,990 6,075 5,968 6,369 6,564Percent Accepted to Applied 35% 33% 31% 32% 31%Enrolled 3,300 3,198 3,232 3,438 3,549Percent Enrolled to Accepted 55% 53% 54% 54% 54%
Graduate FTE (2) 10,677 10,689 10,744 11,618 11,878Graduate Headcount (2) 10,557 10,557 10,591 11,114 11,592
Tuition and Fees (full academic year):Graduate Resident $8,257 $8,818 $9,417 $10,547 $11,727Graduate Non-Resident $19,307 $20,641 $21,464 $23,019 $24,567Buisness Masters Resident $15,287 $17,825 $19,843 $21,782 $23,917Buisness Masters Non-Resident $25,224 $27,525 $29,543 $32,452 $35,657
(1) Includes nonmatriculated undergraduate students at branch campuses.(2) Includes graduate students at branch campuses.
Autumn Quarter
Students & Enrollment
Professional
Law:Applied 2,465 2,545 2,559 2,415 2,448Accepted 529 538 587 601 623Enrolled 180 179 183 187 181Law Headcount 512 510 493 484 504
Pharmacy:Applied 424 474 525 493 396Accepted 97 92 95 90 85Enrolled 86 86 86 86 81Pharmacy Headcount 415 388 383 382 375
Dentistry:Applied 871 1,012 1,197 1,072 1,152Accepted 67 60 70 71 72Enrolled 56 55 55 63 63Dental Headcount 219 220 217 226 235
Medicine:Applied 3,224 3,775 4,598 4,629 4,266Accepted 232 236 241 267 271Enrolled 180 182 191 216 216Medicine Headcount 691 684 710 750 793
Total Professional FTE 2,893 2,954 3,033 3,301 3,839Total Professional Headcount 1,837 1,802 1,803 1,842 1,907
Tuition and Fees (full academic year):Law Resident $14,807 $16,255 $17,846 $19,585 $22,267Law Non-Resident $21,737 $23,878 $26,231 $28,809 $32,777Pharmacy Resident $11,177 $12,262 $13,454 $14,754 $16,187Pharmacy Non-Resident $21,627 $23,757 $26,098 $28,663 $31,487Medical and Dental Resident $14,459 $15,872 $17,425 $19,122 $20,997Medical and Dental Non-Resident $34,297 $37,694 $41,429 $45,527 $50,037
Graduate & Professional FTE 13,570 13,643 13,777 14,919 15,717Graduate & Professional Headcount 12,394 12,359 12,394 12,956 13,499
Total University FTE 41,377 42,389 43,626 46,228 47,835Total University Headcount 42,974 43,494 44,749 46,653 48,022
Students & Enrollment (Cont'd)
2005 2006 2007 2008 2009Autumn Quarter
Faculty Data:
Number of Faculty 4,730 4,980 5,135 5,055 5,243Tenure Rate (%) 34% 33% 32% 33% 32%Percent holding terminal degree (Ph.D., MD, DDS) 91% 98% 98% 91% 90%
Housing and Dining:Room and Board: $6,300 $6,561 $6,678 $6,939 $7,227Autumn Opening Occupancy 4,934 5,051 5,261 5,383 5,459Occupancy: 100% 100% 100% 100% 100%
Parking:(1)
Spaces Used 8,294 7,976 8,040 7,512 8,977Spaces Available 11,485 11,521 11,407 11,291 13,521Utilization Rate 72% 69% 71% 67% 66%
(1) October lot usage. The declining overall trend in utilization rates is attributable to the combined effect of the University'sUPASS program and rising participation in the University's pay-per-use program.
Faculty & Other Data
2005 2006 2007 2008 2009Autumn Quarter
Fiscal Years ($000)2005 2006 2007 2008 2009
Portfolio:
University Endowment
True Endowment (Mkt Value) $819,742 $989,214 $1,235,138 $1,306,187 $1,003,451Term Endowment (Mkt Value) 0 0 $40,174 $40,313 $29,537Quasi Endowment (Mkt Value) $592,358 $691,182 $798,207 $814,938 $616,171
Total Endowment $1,412,100 $1,680,396 $2,073,519 $2,161,438 $1,649,159
Portfolio BreakdownEquity 77.9% 77.1% 80.0% 76.0% 72.9%
Domestic 27.4% 17.7% 18.0% 15.0% 14.0%International 21.0% 33.2% 35.0% 28.0% 23.6%Marketable Alternatives 19.3% 14.6% 16.0% 19.0% 20.7%Private Equity 5.1% 6.6% 6.0% 9.0% 8.4%Venture Capital 5.1% 5.0% 5.0% 5.0% 6.2%
Real Assets 7.7% 11.8% 11.0% 15.0% 10.0%
Fixed Income 13.3% 10.4% 9.0% 9.0% 5.3%Domestic 10.1% 7.9% 7.0% 7.0% 4.8%International 3.2% 2.5% 2.0% 2.0% 0.5%
Cash 1.1% 0.7% 0.0% 0.0% 11.8%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Return & Spending:
Annualized Rates of Return (1)
One 12.5% 17.7% 23.3% 1.9% -23.3%Three 10.1% 16.0% 17.8% 14.0% -1.2%Five 4.0% 8.6% 14.2% 14.4% 5.0%
Endowment Return & Spending (2)
Total Annual Return on Endowment $160,971 $250,952 $383,991 $52,844 -$514,000Amount of Annual Return Spent $95,256 $91,042 $80,695 $94,314 $75,476Actual Annual Spending Rate 5.99% 6.24% 5.92% 5.61% 4.25%
Externally Managed Funds:Total Annuity and Life Income Funds $82,081 $94,017 $105,493 $84,557 $63,841Externally Managed Endowments $53,000 $54,000 $58,915 $53,219 $43,365
(1) Net of fees.
(2) Prior to FY2009, annual distributions were 5% of the average market value of the Consolidated Endowment Fund for theprevious three years. Under the current interim spending policy, annual distributions per unit have been reduced by 25% peryear in FY2009 and FY2010.
Endowment Resources
2009 2010 2011 2012 2013 2014 - 40
State General Obligation Bonds $27,219 $23,583 $23,806 $24,133 $24,391 $245,738
State Certificates of Participation $3,472 $3,480 $3,486 $3,485 $3,510 $20,254
Revenue Bonds
General Revenue Bonds2007 General Revenue Bonds $6,920 $6,920 $6,920 $6,920 $6,920 $304,491
2008 General Revenue Bonds $9,168 $9,142 $9,106 $9,064 $9,043 $88,402
2009 General Revenue Bonds (Series A&B) $0 $4,228 $8,792 $8,792 $8,792 $371,844
Sub Total $16,088 $20,290 $24,818 $24,777 $24,755 $764,737
Other Revenue Bonds2002 & 2004 Housing and Food Services $2,632 $2,628 $2,621 $2,634 $2,630 $35,795
2000 & 2005 Student Facilities Fee $3,417 $3,421 $3,420 $3,416 $3,423 $58,161
2004 Parking System $1,337 $1,339 $1,340 $1,340 $1,338 $22,752
2001 Alumni Association (Roos Ctr II) $2,011 $2,066 $2,148 $2,206 $2,257 $6,791
Sub Total $9,398 $9,454 $9,528 $9,596 $9,648 $123,499
Total Direct Debt Service $56,176 $56,807 $61,639 $61,990 $62,303 $1,154,228
Lease Transactions1999 Educational Research Properties $2,071 $2,034 $2,197 $2,145 $2,359 $38,063
South Lake Union (1) $13,981 $13,978 $13,977 $13,969 $13,978 $251,064
2006 TSB Properties $1,069 $1,072 $1,069 $1,071 $1,072 $24,635
Equipment $12,698 $7,896 $5,194 $2,648 $1,934 $2,971
Sub Total $29,820 $24,979 $22,437 $19,834 $19,343 $316,733
Interest on Commercial Paper (2) $179 $57 $0 $0 $0 $0
Other Loans $260 $260 $260 $260 $260 $3,247
Total Direct Debt Serviceand Lease Transactions $86,435 $82,103 $84,336 $82,083 $81,906 $1,474,208
Public-Private Housing Projects (3) $6,204 $6,312 $6,421 $6,540 $6,653 $130,039
Total Debt Service All Obligations $92,639 $88,415 $90,757 $88,623 $88,558 $1,604,247
Notes:(1) Includes 2004 Washington Biomedical Research Properties (WABRP) I, 2005E WABRP II and 2006J WABRP II.(2) Reflects interest paid on outstanding commercial paper of which $30 million in principal was outstanding at 6/30/2009.(3) Includes 1996 Commodore Duchess, 2000 Radford Court Properties, and 2002 Twenty-Fifth Avenue Properties.
Future Debt ServiceFiscal Years ($000)
By Biennium($ Millions)
Actual Actual Actual Estimated03-05 05-07 07-09 09-11Capital Expenditures
General Capital Fund Projects
Major Renovations $71.1 $89.2 $143.3 $190.7New Construction $133.8 $0.0 $4.4 $67.8Minor Repairs & Other $76.3 $66.8 $109.8 $95.9Branch Campuses $21.5 $19.5 $13.8 $42.1
Sub Total $302.7 $175.5 $271.3 $396.5
Restricted Capital Fund Projects
UW Medical Center $23.6 $12.1 $40.8 $144.2Parking System $3.9 $11.1 $14.5 $6.3Housing and Dining System $13.9 $0.0 $7.0 $77.0Intercollegiate Athletics $9.6 $9.1 $11.5 $4.3School of Medicine $2.8 $82.1 $41.2 $45.3Other $1.3 $23.2 $0.0 $0.0
Sub Total $55.1 $137.6 $115.0 $277.1
Grand Total $357.8 $313.1 $386.3 $673.6
Funding Sources
WA State G.O. Bonds $90.8 $106.7 $146.0 $90.0UW Reimbursed WA State G.O. Bonds $30.2 $63.3 $0.0 $0.0UW Building Account & Plant Fund $151.7 $68.8 $161.1 $72.9UW Restricted Capital Funds (1) $85.1 $74.3 $79.2 $510.7
Total $357.8 $313.1 $386.3 $673.6
Washington State Funding 25% 34% 38% 13%University of Washington Funding (2) 75% 66% 62% 87%
Notes:
(1) UW Restricted Capital Fund sources include proceeds for UW-issued revenue bonds & notes(2) UW Funding includes UW Reimbursed WA State G.O. BondsSources: UW Capital Budget Office / Office of Planning & Budgeting
Capital Expenditures & Funding Sources
Financial Reports
UNIVERSITY OF WASHINGTON
Supplementary Information
June 30, 2009 and 2008
(With Independent Auditors’ Report Thereon)
KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.
KPMG LLP Suite 900 801 Second Avenue Seattle, WA 98104
Independent Auditors’ Report
The Board of Regents University of Washington:
We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the University of Washington, an agency of the State of Washington, as of and for the years ended June 30, 2009 and 2008, and have issued our report thereon dated December 22, 2009.
Our audits were made for the purpose of forming an opinion on the basic financial statements of the University of Washington taken as a whole. The supplementary information included on pages 2 through 4 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
This report is intended solely for the information and use of the board of regents and management of the University of Washington who have previously received the financial statements of the University of Washington as of and for the years ended June 30, 2009 and 2008, and our unqualified opinion thereon, for use in evaluating those financial statements and is not intended to be and should not be used for any other purpose.
December 22, 2009
UNIVERSITY OF WASHINGTON
Reconciliation of Total University Revenue to General Revenue
Years ended June 30, 2009 and 2008
(Dollars in thousands)
2009 2008
General Revenue:Total revenue $ 3,099,153 $ 3,488,780 Less:
State appropriations (384,810) (388,485) Grant and contract direct costs (909,322) (852,055) Gifts (38,753) (66,381) Revenues of Component Units (200,456) (161,604) Revenues of Auxiliary Systems and Patient Services (note 1) — (952,566) Student activities fees (25,928) (24,115) Student technology fees, student building fees, student loan funds (32,733) (29,714) Trust and endowment income, net unrealized gains and losses
on Non-Invested Funds investments, Metro Tract netoperating income, component unit investment income, otherrestricted investment income 512,115 (1,259)
Capital appropriations (101,304) (71,218) Capital grants and gifts (27,453) (18,880) Other nonoperating revenues (2,486) (12,233) Gifts to permanent endowments (86,085) (104,191)
Total General Revenue $ 1,801,938 $ 806,079
General Revenue components:Student tuition and fees (less student activities fees,
technology fees, building fees, and loan funds) $ 399,401 $ 365,861 Grant and contract indirect costs 201,008 197,538 Invested funds distribution and net invested funds unrealized
gains and losses (note 2) 42,623 76,120 Sales and services of educational departments 111,405 110,873 Auxiliary systems and patient services (note 1) 985,408 — Other operating revenues 62,093 55,687
Total General Revenue $ 1,801,938 $ 806,079
See accompanying notes to supplementary information.
2
UNIVERSITY OF WASHINGTON
Reconciliation of Total University of Washington Unrestricted Net Assetsto General Net Assets
June 30, 2009 and 2008
(Dollars in thousands)
2009 2008
Total University unrestricted net assets per financial statements $ 930,163 $ 1,007,610
Less:Auxiliary fund balances: (note 1)
Housing and Dining System — 16,680 Student and activities fees 11,024 11,202 Parking Services — 9,156 Intercollegiate Athletics — 15,500 University of Washington Medical Center — 331,032
Component units:Association of University Physicians 76,688 85,235 University Physician’s Network 3,705 3,640 Alumni Association 7,766 11,270 Real Estate Entities 33,878 22,590
Total to be excluded 133,061 506,305 General net assets $ 797,102 $ 501,305
See accompanying notes to supplementary information.
3
UNIVERSITY OF WASHINGTON
Notes to Supplementary Information
June 30, 2009 and 2008
4
(1) Basis of Presentation
The General Revenue schedule presents the general income of the University of Washington (University) that is not restricted in its use by law, regulation, or contract. The unspent accumulation of these earnings is also detailed in the General net asset balance.
Revenues and receipts of the University’s auxiliary systems established under RCW 28B.10.300 were incorporated into General Revenues for the year ended June 30, 2009. Adding auxiliary system revenues to General Revenues aligns the sources of repayment with the uses of bond proceeds, streamlines future borrowing by eliminating the need for separate auxiliary revenue bonds, and strengthens the University’s overall credit quality. These auxiliary systems include the University Medical Center, parking system, intercollegiate athletics system, housing and dining system, and other auxiliary units. The outstanding obligations of the auxiliary systems will remain outstanding and have a prior claim on auxiliary revenues. These obligations consist of housing and dining bonds of $29.9 million, and parking bonds of $17.9 million, as of June 30, 2009.
(2) Invested funds distributions and net invested funds unrealized gains and losses
These amounts represent the net interest, dividends, and realized gains or losses earned on the Invested Funds that are distributed to departments for operations, in addition to or offset by any unrealized gains and losses on the portfolio.
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UNIVERSITY OF WASHINGTON
SEATTLE, WASHINGTON
DEPARTMENT OF HOUSING AND
FOOD SERVICES
HOUSING AND DINING SYSTEM
FINANCIAL REPORT
JUNE 30, 2009
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C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT ......................................................................... 1 and 2
MANAGEMENT'S DISCUSSION AND ANALYSIS .......................................................... 3 - 7
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS ......................................................................................................... 8
STATEMENTS OF REVENUE, EXPENDITURES, AND CHANGES IN NET ASSETS ................... 9
STATEMENTS OF CASH FLOWS ..................................................................................................... 10
NOTES TO FINANCIAL STATEMENTS .................................................................................... 11 - 20
1
INDEPENDENT AUDITORS' REPORT
To the Board of Regents
University of Washington
Seattle, Washington
We have audited the accompanying statements of net assets of the University of Washington
Housing and Dining System, a division of the University of Washington Department of Housing
and Food Services, as of June 30, 2009 and 2008, and the related statements of revenue,
expenses, and changes in net assets, and cash flows for the years then ended. These financial
statements are the responsibility of the management of the University of Washington Housing
and Dining System. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the University of Washington Housing and Dining System, a division of
the University of Washington Department of Housing and Food Services, as of June 30, 2009
and 2008, and the changes in net assets and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
As described in Note 1, as of July 1, 2009, Housing and Dining System has implemented a new
financial reporting model, based on Governmental Accounting Standards Board (GASB)
Statement No. 34, Basic Financial Statements – and Management's Discussion Analysis – for
State and Local Governments, as amended by GASB Statements No. 35, Basic Financial
Statements – and Management's Discussion and Analysis – for Public Colleges and Universities,
No. 37, Basic Financial Statements – and Management's Discussion and Analysis – for State and
Local Governments: Omnibus (an amendment of GASB Statements No. 21 and No. 34), No. 38,
Certain Financial Statement Note Disclosures, No. 41, Budgetary Comparison Schedules –
Prospective Differences, and No. 46, Net Assets Restricted by Enabling Legislation.
2 8491hdsfs063009 Revised: 1/7/2010 2:47 PM eat
This implementation has been retroactively applied to the financial statements as of July 1, 2007.
Management's discussion and analysis (on pages 3 through 7) is not a required part of the
financial statements but is supplementary information required by the Governmental Accounting
Standards Board. 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.
January 7, 2010
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UNIVERSITY OF WASHINGTON
HOUSING AND DINING SYSTEM
DEPARTMENT OF HOUSING AND FOOD SERVICES
June 30, 2009
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provide an overview of the financial position and activities
of the Housing and Dining System ("the System"), a division of the University of Washington's
Housing and Food Services ("HFS") for the years ended June 30, 2009 and 2008. This
discussion has been prepared by management and should be read in conjunction with the
financial statements and accompanying notes which follow this section.
Overview of the Financial Statements
The financial statements of the System include the Statements of Net Assets, the Statements of
Revenue, Expenses, and Changes in Net Assets, the Statements of Cash Flows, and Notes to
Financial Statements. These financial statements are prepared in accordance with Governmental
Accounting Standards Board ("GASB") principles, which establish standards for external
financial reporting for public colleges and universities.
As of July 1, 2009, the System has implemented a new financial reporting model, based on
Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial
Statements – and Management's Discussion and Analysis – for State and Local Governments, as
amended by GASB Statements No. 35, Basic Financial Statements – and Management's
Discussion and Analysis – for Public Colleges and Universities and amendments thereafter. The
System now reports capital assets, long-term debt, and depreciation in the financial statements.
The System believes that the implementation of GASB Statements 34 and 35 more accurately
reflect period results of operations and makes the presentation of its financial statements more
consistent with the rest of the University entities' financial statements. The effects of the change
in the 2009 financial statements were to decrease net operating income, increase the change in
net assets, and increase total net assets by $6,683,770, $1,264,539, and $1,181,186, respectively.
The System has retroactively restated the financial statements for the fiscal year ended June 30,
2008, to reflect the implementation of GASB Statements 34 and 35. This resulted in recording
capital assets (net of accumulated depreciation) of $57,236,647, bond payable of $31,150,000,
internal lending program payable of $23,525,000, lease payable of $2,645,000, a decrease in net
operating income of $6,016,599, and an increase in change in net assets of $1,695,809. Net
assets have decreased accordingly in the amount of $1,779,162 as of the beginning of fiscal year
2008 for the effect of retroactive application of GASB Statements 34 and 35.
The Statements of Net Assets (Balance Sheets) present the financial condition of the System at
the end of the last two fiscal years and reports all assets and liabilities. A summarized
comparison of the System's assets, liabilities, and net assets as of June 30, 2009 and 2008,
follows:
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Statements of Net Assets
2009 2008
Percentage
Change
ASSETS
Current assets $ 26,869,719 $ 22,221,278 20.92%
Non-current assets
Deposits with Trustee 2,056,891 2,144,022 (4.06)%
Capital assets 62,029,788 57,236,647 8.37%
Total assets 90,956,398 81,601,947 11.46%
LIABILITIES
Current liabilities 13,310,534 13,223,603 0.66%
Non-current liabilities 57,990,815 54,680,000 6.05%
Total liabilities 71,301,349 67,903,603 5.00%
NET ASSETS $ 19,655,049 $ 13,698,344 43.48%
Current assets consist primarily of cash, accounts receivable, inventory, and prepaid expenses.
Current assets were $13.6 million more than current liabilities at June 30, 2009. Total current
assets increased from $22.2 million at June 30, 2008, to a total of $26.9 million at June 30, 2009.
The increase was caused by an increase in cash due to overall increase in activities of the System.
Noncurrent assets consist of deposits with Trustee and capital assets of land, buildings, building
improvements, equipment, and construction in process. Noncurrent assets were $4.7 million
more at June 30, 2009, than at June 30, 2008, primarily because of the purchase of Cavalier
Apartment land for use in a new master plan for additional housing and the related capitalized
construction development expenses. Other fiscal year 2009 capital expenditures of $1.3 million
were also related to the master plan. In 2008, capital expenditures were $2.2 million, which
included various renovations and replacements at Haggett Hall.
Current liabilities consist primarily of accounts payable, accrued expenses, current portion of
debt payments, deferred revenue, and deposits.
Noncurrent liabilities consist of the long-term portion of internal lending program payable, bond
payable, and lease payable. Total long-term debt increased by 6.05% to a total of $58.0 million
at June 30, 2009, from $54.7 million at June 30, 2008, due mostly to new debt incurred to
finance the master plan.
The change in net assets or "equity" measures whether the overall financial condition has
improved or deteriorated during the past year. The total of net assets increased by 43.48% to a
total of $19.7 million at June 30, 2009, due primarily to a positive change in net assets.
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Statements of Revenue, Expenses, and Changes in Net Assets
The changes in total net assets, as presented on the Statements of Net Assets, are detailed in the
activity presented in the Statements of Revenue, Expenses, and Changes in Net Assets. These
statements present the System's results of operations. In accordance with GASB reporting
principles, revenue and expenses are classified as operating, non-operating, or other.
In general, operating revenue is that received for providing housing, dining, and related services
to the customers of the System, the majority of which consists of room and board services to
students. Operating expenses are those expenses paid to provide the services and resources.
Non-operating revenue is that received for which goods and services are not provided. Under
GASB reporting principles, investment income and expenses are classified as non-operating
revenue.
Following is a condensed view of the Statement of Revenues, Expenses, and Changes in Net
Assets for the fiscal years ended June 30:
2009 2008
Percentage
Change
Operating revenue $ 48,425,644 $ 46,345,668 4.49%
Operating expense (40,373,589) (38,515,032) 4.83%
Net operating income 8,052,055 7,830,636 2.83%
Net non-operating revenue
(expense) (2,095,350) (1,758,299) (19.17)%
Change in net assets 5,956,705 6,072,337 (1.90)%
Net assets, beginning of year 13,698,344 7,626,007 79.63%
Net assets, end of year $ 19,655,049 $ 13,698,344 43.48%
The largest revenue source is residence hall/single student room rent and food services which
comprised 83% of revenue in 2009 versus 82% in 2008. Residence hall/single student rent
increased by 7.8% or $1.8 million over the prior year. This increase was primarily due to an
increase in the number of rooms as a result of repurposing of Stevens Court Addition Building K
from apartment beds to residence hall double room configurations and an increase of academic
year occupancy rate for residence halls and single student apartments from 96% in 2008 to 98%
in 2009. Food service revenue increased by 2.0%, or $0.3 million over the prior year. This
increase is due to the increased occupancy rate and the opening of The Nook, a new dining hall.
Cost of food services for 2009 showed a slight increase over 2008. However, cost of food was
28.8% of total revenue for 2009 versus 30.0% of total revenue for 2008.
Salaries and benefits increased $0.6 million or 7.7% over 2008, primarily due to cost of living
increases, increased benefit expenses and an increase in custodial and residential life staff
associated with the repurposing of Stevens Court Addition Building K.
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Other expenses such as contract services, supplies, utilities and maintenance increased
$0.4 million, or 5% over 2008, due to fees related to credit card acceptance and disposable
supplies.
Administrative expenses increased slightly in dollars but remained constant as a percent of
revenue.
Non-operating revenue decreased $0.3 million in 2009 compared to 2008 due to lower
investment interest earnings. Non-operating expenses increased slightly due to an increase of
interest expense associated with the new debt incurred to finance the master plan.
Economic Factors and Significant Events
In May 2009, the Board of Regents approved borrowing under the University Internal Lending
Program ("ILP") of up to $162 million for Phase 1 of the Housing Master Plan to build residence
halls and single student apartments. Phase 1 consists of four sites located adjacent to or near NE
Campus Parkway in west campus. The units will open over a two-year period with
approximately 1,650 additional beds. Additional revenue for the Phase 1 is expected to be
approximately $5.8 million in the fiscal year ending 2012 and $14.5 million in the fiscal year
ending 2013. Additional operating costs are expected to be approximately $1.9 million in the
fiscal year ending 2012 and $4.4 million in the fiscal year ending 2013. The first full year of debt
service will occur in the fiscal year ending 2014 and will be approximately $10.7 million.
Future phases of the Housing Master Plan include:
Phase 2 with the addition of 1,000 single student apartment beds.
Phase 3 with the renovation of all existing residence halls
Phase 4 with the addition of 1,000 single student apartment beds
Development and timing of these phases is still in review. Phase 3 renovations of existing
residence halls will take one residence hall out of commission and rooms unavailable for one
academic year and two summers per building. When Phase 3 moves forward, increases in
revenue realized from the Phase I buildings are expected to be offset by the loss of revenue for
closed residence hall(s). Expenses are also expected to be similarly offset.
As of June 1, 2009, Transportation Services assumed management of all parking associated with
HFS residential locations. This will result in an annual loss in revenue of approximately
$100,000. The agreement was made in order to mitigate the cost of replacing parking of the
various surface lots that will be eliminated in the construction of Phase 1 housing.
Interest payments on funds drawn from the ILP for Phase 1 buildings will be made during the
2010 fiscal year, which brings total expected debt service ratio for the year to 1.88%.
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Despite the nationwide economic downturn, demand for campus housing and food service
remains strong. The 2009 autumn quarter has opened with a waiting list of approximately 180
students for traditional residential housing and single student apartments. Off campus single
student apartments have opened at 100% occupancy. Off campus family housing is more
sensitive to normal market demands and has opened with an expected 79% occupancy, a
decrease of 8% from 2008 autumn opening. Off campus family housing has been opened up to
non-students to increase the pool of prospective renters and mitigate the financial impact of
lower student occupancy rates.
See Notes to Financial Statements
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UNIVERSITY OF WASHINGTON
DEPARTMENT OF HOUSING AND FOOD SERVICES
HOUSING AND DINING SYSTEM
STATEMENTS OF NET ASSETS
June 30, 2009 and 2008
ASSETS 2009 2008
Current AssetsCash deposits with the University 25,770,114$ 20,953,897$ Accounts receivable, net 690,951 903,735Inventory 297,262 247,104 Prepaid expenses and other 111,392 116,542
Total current assets 26,869,719 22,221,278
Noncurrent AssetsDeposits with Trustee 2,056,891 2,144,022 Capital Assets, less accumulated depreciation 62,029,788 57,236,647
Total non-current assets 64,086,679 59,380,669
Total assets 90,956,398$ 81,601,947$
LIABILITIES AND NET ASSETS
Current LiabilitiesAccounts payable 1,596,314$ 1,738,194$ Accrued interest 116,029 119,331Other accrued expenses 1,276,144 1,220,116Deferred revenue 2,935,729 3,117,711Deposits 2,988,272 3,050,908Due to other entities within the Department
of Housing and Food Services 1,061,405 1,255,218 Due to other University departments 402,141 82,125 Internal lending program payable, current portion (Note 6) 1,174,500 935,000 Bonds payable, current portion (Note 5) 1,255,000 1,220,000 Lease payable, current portion (Note 4) 505,000 485,000
Total current liabilities 13,310,534 13,223,603
Non-current LiabilitiesInternal lending program payable, less current portion (Note 6) 27,660,815 22,590,000Bonds payable, less current portion (Note 5) 28,675,000 29,930,000Lease payable, less current portion (Note 4) 1,655,000 2,160,000
Total non-current liabilities 57,990,815 54,680,000
Total liabilities 71,301,349 67,903,603
NET ASSETS
Invested in Capital Assets, net of related debt obligations 1,181,186 (83,353) Restricted
Bond sinking fund 2,634,138 2,634,122Repair and replacement fund 3,000,000 3,000,000
Unrestricted 12,839,725 8,147,575
Total net assets 19,655,049 13,698,344
Total liabilities and net assets 90,956,398$ 81,601,947$
See Notes to Financial Statements
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UNIVERSITY OF WASHINGTON
DEPARTMENT OF HOUSING AND FOOD SERVICES
HOUSING AND DINING SYSTEM
STATEMENTS OF REVENUE, EXPENDITURES, AND CHANGES IN NET ASSETS
For the Years Ended June 30, 2009 and 2008
2009 2008
Operating Revenue
Residence halls and single student apartment rent 25,116,802$ 23,295,834$
Residence halls food services 15,132,035 14,831,554
Conferences and guest rent 2,535,072 2,360,663
Family housing rent 1,735,586 1,722,600
Leases 1,842,963 2,364,466
Forfeitures and miscellaneous fees 1,357,999 1,190,715
Laundry 282,246 247,276
Vending machines 111,629 123,171
Parking 211,853 109,727
Refrigerator rent 21,384 20,921
Other 78,075 78,741
Total operating revenue 48,425,644 46,345,668
Operating Expenditures
Cost of residence hall food services 13,957,276 13,898,396
Salaries and related benefits 8,073,195 7,498,430
Utilities 3,918,104 3,749,264
Indirect expenses 3,110,951 2,973,127
Repairs and maintenance 1,760,321 1,665,579
Contract services 1,857,799 1,736,871
Supplies 888,874 858,775
Depreciation 3,219,427 3,221,219
Noncapitalized equipment 3,464,343 2,795,380
Other 123,299 117,991
Total operating expenditures 40,373,589 38,515,032
Net operating income 8,052,055 7,830,636
Non-operating Revenue (Expense)
Investment income 573,472 834,884
Interest expense on capital asset-debt related (2,591,543) (2,593,183)
Loss on net equipment disposal (77,279)
Total non-operating revenue (expense) (2,095,350) (1,758,299)
Change in net assets 5,956,705 6,072,337
Net Assets, beginning of year, as restated 13,698,344 7,626,007
Net Assets, end of year 19,655,049$ 13,698,344$
See Notes to Financial Statements
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UNIVERSITY OF WASHINGTON
DEPARTMENT OF HOUSING AND FOOD SERVICES
HOUSING AND DINING SYSTEM
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2009 and 2008
2009 2008
Cash Flows from Operating ActivitiesCash received from student housing fees 27,260,017$ 24,878,280$ Cash received from residence hall food services 15,242,731 15,007,436 Cash received from contract services 2,040,932 3,048,627 Cash received from leases 1,842,963 2,364,466 Cash received from facility rentals 1,710,622 2,168,461 Cash received from vending commissions 211,853 214,519 Cash received from others 78,075 75,739 Cash paid to suppliers (16,155,763) (18,242,946) Cash paid for employee salaries, wages, and benefits (16,408,091) (12,223,898) Cash paid for indirect expenses (4,668,791) (4,468,153) Cash paid for interfund and debit card activties (229,056) 122,433
Net cash flows from operating activities 10,925,492 12,944,964
Cash Flows from Capital and Related Financing ActivitiesPurchases of capital assets (8,042,067) (2,332,028) Refunding of 1996 junior lien revenue bonds (22,785,000) Borrowing on internal lending program 6,348,067 22,785,000 Principal payments on capital debt (2,510,309) (2,585,000) Interest paid on capital debt (2,563,322) (2,698,592)
Net cash flows from financing activities (6,767,631) (7,615,620)
Cash Flows from Investing ActivitiesInvestment income 658,356 835,809
Net change in cash deposits with the University 4,816,217 6,165,153
Cash deposits with the University, beginning of year 20,953,897 14,788,744
Cash deposits with the University, end of year 25,770,114$ 20,953,897$
Reconciliation of operating incometo net cash flows from operating activitiesOperating income 8,052,055$ 7,830,636$ Adjustments to reconcile operating income to
net cash flows from operating activitiesDepreciation 3,219,427 3,221,219
Change in operating assets and liabilitiesAccounts receivable 212,784 28,106 Prepaid expenses and other 7,397 56,682 Inventory (50,158) 2,983 Due to/from other University departments 8,270 82,131 Due to/from entities within the Department of Housing and
Food Services (193,813) 157,676 Accounts payable (141,880) 108,230 Deferred revenue (181,982) 791,883 Accrued expenses 56,028 155,678 Deposits (62,636) 509,740
Net cash flows from operating activities 10,925,492$ 12,944,964$
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NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization
The Housing and Dining System ("the System") is a division of the University of Washington
Department of Housing and Food Services ("HFS") which operates residence halls and apartment
complexes both on and off the University of Washington ("the University") campus. In addition,
the System provides conference facilities and catering services to various organizations.
The University provides certain administrative services to the System. Due to restrictions
contained in the bond covenants, the University does not charge the System for these services.
These financial statements present only a selected portion of the activities of the University. As
such, they are not intended to and do not present either the financial position, results of
operations, or changes in fund balances of the University or HFS.
Financial Statement Presentation
The financial statements of the Housing and Dining System for the year ended June 30, 2009 and
2008, have been prepared in accordance with Governmental Accounting Standards Board
(GASB) Statement No. 34, Basic Financial Statements – and Management's Discussion and
Analysis – for State and Local Governments, as amended by GASB Statement No. 35, Basic
Financial Statements – and Management's Discussion and Analysis – for Public Colleges and
Universities, No. 37, Basic Financial Statements – and Management's Discussion and Analysis –
for State and Local Governments: Omnibus (an amendment of GASB Statements No. 21 and
No. 34), No. 38, Certain Financial Statement Note Disclosures, No. 41, Budgetary Comparison
Schedules – Prospective Differences, and No. 46, Net Assets Restricted by Enabling Legislation.
The System presents a management's discussion and analysis, a statement of net assets, a
statement of revenue, expenditures, and changes in net assets, a statement of cash flows, and
notes to the financial statements.
As of July 1, 2009, the System has implemented a new financial reporting model, based on
Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial
Statements – and Management's Discussion and Analysis – for State and Local Governments, as
amended by GASB Statements No. 35, Basic Financial Statements – and Management's
Discussion and Analysis – for Public Colleges and Universities and amendments thereafter. The
System now reports capital assets, long-term debt, and depreciation in the financial statements.
The System believes that the implementation of GASB Statements 34 and 35 more accurately
reflects period results of operations and makes the presentation of its financial statements more
consistent with the rest of the University entities' financial statements. The effects of the change
in the 2009 financial statements were to decrease net operating income, increase the change in
net assets, and increase total net assets by $6,683,770, $1,264,539, and $1,181,186, respectively.
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The System has retroactively restated the financial statements for the fiscal year ended June 30,
2008, to reflect the implementation of GASB Statements 34 and 35. This resulted in recording
capital assets (net of accumulated depreciation) of $57,236,647, bond payable of $31,150,000,
internal lending program payable of $23,525,000, lease payable of $2,645,000, a decrease in net
operating income of $6,016,599, and an increase in change in net assets of $1,695,809. Net
assets have decreased accordingly in the amount of $1,779,162 as of the beginning of fiscal year
2008 for the effect of retroactive application of GASB Statements 34 and 35.
Basis of Presentation
The financial statements have been prepared in accordance with generally accepted governmental
accounting principles. The statements are presented using the economic resources measurement
focus and the accrual basis of accounting. Under the accrual basis, revenue is recognized when
earned and expenses are recorded when an obligation has been incurred.
Cash Deposits with the University and Trustee
All cash balances are deposited with the University. The System shares in the earnings of the
University's pooled investments, which amounted to rates of return of 2% and 4.25% during the
years ended June 30, 2009 and 2008, respectively.
At June 30, 2009, the University's pooled investments were allocated as follows:
Percent of
Total Allocated
U.S. Treasury and other agencies' debt 46%
Consolidated endowment fund (a mutual
fund sponsored by the University)
27
Collateralized mortgage obligations 14
Cash and certificates of deposit (partially
unsecured)
7
Corporate bonds 3
Asset-backed securities 3
100%
Deposits with the trustee are investments which are stated at fair value. (See Note 2)
Accounts Receivable
The System has established an allowance for doubtful accounts to allow for those receivables
which may be uncollectible. The allowance is based on historical rates. Student accounts are
considered past due if they are unpaid for 30 days after the due date. Other customer accounts
are considered past due if they are unpaid for 60 days after the due date. When an account is
deemed uncollectible, it is generally written off against the allowance. The balance of the
allowance account was $77,821 and $62,272 at June 30, 2009 and 2008, respectively.
13 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
Inventory
Inventory, consisting primarily of food, is stated at the lower of cost (first-in, first-out method) or
market.
Capital Assets
Capital asset activity for the years ended June 30, 2009 and 2008 is summarized as follows:
Balance at
June 30, 2007
Additions/
Transfers Retirements
Balance at
June 30, 2008
Additions/
Transfers Retirements
Balance at
June 30, 2009
Capital assets, not being
depreciated:
Land -$ -$ -$ -$ 6,405,215$ -$ 6,405,215$
Construction in progress 2,458,674 (260,012) 2,198,662 (875,375) 1,323,287
Total capital assets
not being
depreciated 2,458,674 (260,012) - 2,198,662 5,529,840 - 7,728,502
Capital assets, being
depreciated:
Building and building
improvements 111,300,837 2,461,175 113,762,012 2,358,863 116,120,875
Equipment 3,145,590 120,422 3,266,012 151,362 (1,203,920) 2,213,454
Total capital assets 114,446,427 2,581,597 - 117,028,024 2,510,225 (1,203,920) 118,334,329
being depreciated
Less accumulated depreciation
Building and building
improvements 56,441,521 2,970,312 59,411,833 2,960,008 62,371,841
Equipment 2,356,380 221,826 2,578,206 209,636 (1,126,640) 1,661,202
Total accumulated
depreciation 58,797,901 3,192,138 - 61,990,039 3,169,644 (1,126,640) 64,033,043
Capital assets, net 58,107,200$ (870,553)$ -$ 57,236,647$ 4,870,421$ (77,280)$ 62,029,788$
Buildings, building improvements, and equipment are stated at cost. Additions, replacements,
major repairs and renovations are capitalized. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, generally 10 to 50 years for building
components, 20 to 50 years for infrastructure and land improvements, and 4 to 13 years for
equipment. Expenditures for non-capitalized equipment and repairs that represent normal
replacement of such equipment and routine maintenance of the buildings are expensed as
incurred. Building and improvements are capitalized if they result in additional asset services
(i.e. expanded facilities), result in more valuable asset services (i.e. upgraded facilities), or extend
normal service life. Expenditures are not capitalized if they are incurred to maintain assets in
good operating condition, and/or do not meet the criteria for capitalization stated above.
Equipment with a cost of $2,000 and above are generally capitalized if they benefit more than
one operating cycle.
14 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
HFS developed a Comprehensive Housing Master Plan to construct three residence halls and
single student apartments. The development of these residence halls will assist in creating a
richer on-campus community, alleviating the currently overcrowded conditions within student
housing and will also provide surge space to support renovation of existing residence halls,
which is anticipated to begin in 2014. As of June 30, 2009, costs incurred related to this project
are approximately $1.3 million, which was for the design costs of Phase 1 of the project. These
costs were recorded in construction in progress at June 30, 2009. Total anticipated costs of the
Phase 1 of the project are $161,926,000, which will be funded by borrowing under the University
Internal Lending Program ("ILP"). See Note 5.
Deferred Revenue
Deferred revenue consists of prepaid food sales, room rent, and conference revenue. Revenue is
recognized as the food service is provided, the appropriate rental period occurs, or the conference
takes place.
Internal Cost Allocations
HFS allocates administrative expenses to its various divisions based on services provided. These
indirect expenses allocated to the System amounted to $4,704,335 and $4,503,396 for the years
ended June 30, 2009 and 2008, respectively. Of this total, $1,593,384 and $1,530,269 are
included in the cost of residence hall food services.
Operating and Non-operating Revenue and Expenses
In general, operating revenue is revenue received for providing housing, dining, and related
services to the customers of the System, the majority of which consists of room and board
services to students. Operating expenses are those expenses paid to provide the services and
resources, mainly consisting of the cost of food, salaries and benefits, utilities, building
maintenance, and administrative overhead expenses.
Non-operating activities are monies received for which goods and services were not provided.
Under GASB reporting principles, investment income and expense are classified as non-
operating activities.
Income Taxes
As a part of the University, the operations of the System are exempt from federal income taxes.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
15 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
Reclassifications
Due to the change in reporting format to conform with GASB Statements 34 and 35, certain
amounts from prior year have been restated and some amounts have been reclassified to conform
to the current presentation.
Note 2. Deposits with Trustee
The investments held as deposits with the trustee are stated at fair value and represent highly
liquid U.S. government debt securities to be used for the retirement of bonds as described in
Note 4.
Note 3. Non-Current Liabilities
Non-current liability activity for the years ended June 30, 2009 and 2008 is summarized as
follows:
Balance at
June 30, 2007 Additions Reductions
Balance at
June 30, 2008 Additions Reductions
Balance at
June 30, 2009
Non-current liabilities
ILP payable -$ 23,525,000$ -$ 23,525,000$ 6,348,067$ (1,037,752)$ 28,835,315$
Bonds payable 56,795,000 (25,645,000) 31,150,000 (1,220,000) 29,930,000
Lease payable 3,110,000 (465,000) 2,645,000 (485,000) 2,160,000
Total non-current
liabilities 59,905,000$ 23,525,000$ (26,110,000)$ 57,320,000$ 6,348,067$ (2,742,752)$ 60,925,315$
Current portion 2,588,000$ 2,640,000$ 2,934,500$
Non-current portion 57,317,000$ 54,680,000$ 57,990,815$
Note 4. Leases
Lease Payments
In June 2001, the State of Washington, in conjunction with the Washington Finance Officers
Association (a nonprofit corporation), issued Certificates of Participation ("CoPs") to certain
investors. The proceeds from the CoPs were used for improvements to McCarty and Lander
Halls. The University has agreed to make certain payments (considered lease payments) as
required by the CoPs, and the System has agreed to reimburse the University for these payments.
16 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
At June 30, 2009 and 2008, the total principal amount of the obligation under this agreement was
$2,160,000 and $2,645,000, respectively. It is expected to be repaid in installments of
approximately $600,000 (including imputed interest of approximately 5%) per year through
2013. The following is a summary of minimum payments under this agreement (principal and
interest) for the years ending June 30:
Principal Interest Total
2010 $ 505,000 $ 99,325 $ 604,325
2011 530,000 76,600 606,600
2012 550,000 52,750 602,750
2013 575,000 27,313 602,313
$ 2,160,000 $ 255,988 $ 2,595,988
Lease Revenue
The University and Community Development Properties ("CDP"), a non-profit organization,
entered into a lease agreement whereby CDP issued bonds to undertake a comprehensive
redevelopment of the Commodore Duchess, Radford Court, and Nordheim Court properties,
mainly for student housing. CDP also manages these properties. The leases are effective
through 2036 subject to certain compliance provisions as stated in the agreement.
In accordance with the lease agreement, the University receives an annual minimum payment,
inflated annually, which it designates to go to the System. The annual minimum payment is
recorded on a cash basis since the amount is subject to several contingent factors and cannot be
reasonably estimated. These contingent factors are defined in the lease agreement. One of the
contingent factors is that CDP must meet the bond debt service coverage ratio for the prior fiscal
year for the System to be paid. These financial statements include revenue from this lease
agreement of $1,665,245 and $2,364,466 for June 30, 2009 and 2008, respectively.
Note 5. Bonds Payable
The System is responsible for semi-annual payments on two series of revenue bonds issued by
the University:
The Revenue Bonds of 2002 are junior lien bonds and require varying annual principal and
interest payments, with the final payment due in 2032. The principal amount of these bonds
outstanding was $16,655,000 and $17,020,000 at June 30, 2009 and 2008, respectively.
Bonds outstanding at June 30, 2009, have interest rates between 4.5% and 5.4%.
The Revenue Bonds of 2004 are junior lien bonds and require varying annual principal and
interest payments, with the final payment due in 2026. The principal amount of these bonds
outstanding was $13,275,000 and $14,130,000 at June 30, 2009 and 2008, respectively.
Bonds outstanding at June 30, 2009, have interest rates between 2.5% and 5.0%.
17 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
In prior years, the System has defeased bonds previously issued. At June 30, 2009, the aggregate
outstanding principal balance of defeased bonds was $2,278,000. The assets used to defease
these bonds are not included in the System's financial statements. The related defeased bonds are
not considered as being outstanding in these footnote disclosures.
The Bond Sinking Fund is maintained for the Revenue Bonds of 2002 and 2004. The following
is a summary of future required deposits (principal and interest) to the Bond Sinking Fund for the
years ending June 30:
Principal Interest Total
2010 $ 1,255,000 $ 1,372,865 $ 2,627,865
2011 1,290,000 1,331,103 2,621,103
2012 1,350,000 1,284,089 2,634,089
2013 1,405,000 1,224,870 2,629,870
2014 1,160,000 1,165,590 2,325,590
2015-2019 6,650,000 4,969,284 11,619,284
2020-2024 7,200,000 3,241,864 10,441,864
2025-2029 7,115,000 1,581,631 8,696,631
2030-2032 2,505,000 206,804 2,711,804
$ 29,930,000 $ 16,378,100 $ 46,308,100
The System is required by the bond covenants to maintain its net revenue at a level to provide a
coverage ratio of 1.25 times the annual debt service in each fiscal year. For the year ended
June 30, 2009, the ratio of annual net revenue, as defined, of $15,309,297 to the annual debt
service requirement of $4,856,426 was 3.15 to 1.00. Certain bond covenants as to required
insurance coverage were also met.
The System is required to maintain certain reserve levels in the Bond Sinking Fund and Repair
and Replacement Reserve Fund. All reserve requirements were met by internal funding
resources.
Additionally, these bonds are secured by revenue, cash, and investments, subordinate to the
obligation of the System to pay its operating expenses when due, and by cash and investment in
the Bond Sinking Fund.
Note 6. The Internal Lending Program and the University of Washington General
Revenue Refunding Bonds of 2008
Effective July 1, 2008, the University Board of Regents adopted the amended "Debt Management
Policy: Statement of Objectives and Policies" to provide for the implementation of an Internal
Lending Program ("ILP").
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The purpose of the ILP is to lower the University's overall cost of capital and provide internal
borrowing units with a stable and predictable borrowing rate. The ILP will make loans to
internal borrowers at a uniform internal lending rate. These loans will be funded through the
issuance of University General Revenue bonds and notes. ILP program policies include a
provision for a rate of stabilization reserve and a provision for rate adjustments, if necessary.
Under the terms of the ILP, rate adjustments will apply to all outstanding debt obligations,
including debt issuance prior to the ILP implementation. The ILP lending rate will be reviewed
annually and a preliminary indication of a rate adjustment will require approval by the Board of
Regents.
On April 22, 2008, the University issued General Revenue Refunding Bonds ("2008 Bonds") to
refund certain outstanding bonds of the University. A portion of the proceeds from the sale of
the 2008 Bonds was used for the purpose of refunding the System's 1996 junior lien revenue
bonds. The System is obligated to the ILP in the amount of $21,850,000 as of June 30, 2009,
related to the 2008 Bonds. The final payment is due in the fiscal year ending 2022. The interest
rate ranges between 3% and 5%. The original proceeds from the 1996 junior lien revenue bonds
were used for capital improvements. Total outstanding balance of the 1996 junior lien revenue
bonds prior to the refunding was $23,525,000. The System was able to refund these bonds with
$22,785,000 from the ILP proceeds as the 1996 junior revenue bonds were issued at premium.
The difference between the outstanding bond balance and the amount required to refund the
bonds amounted to $740,000. This amount was recorded as a premium and included in the
internal lending program payable. This premium is being amortized over the life of the new ILP
loan (14 years) and is recorded as a reduction in the related interest expense. The amortization of
the premium amounted to $52,860 during the fiscal year ended June 30, 2009 (none in 2008).
As a result of this refunding, the System reduced its total debt service requirements by
approximately $1,700,000, which resulted in an economic gain (the difference between the
present value of the debt service payments on the 1996 junior lien bonds and the ILP) of
approximately $1,400,000.
In December 2008, the System drew funds from the ILP in a total amount of $6,348,067 for the
purchase of a piece of property called the Cavalier Apartments for future housing development
plans. The final payment is due in the fiscal year ending 2034. The annual interest rate is 5.5%,
which is reviewed annually and is subject to adjustment. The System is obligated to the ILP in
the amount of $6,298,175 as of June 30, 2009. The System is required to maintain the same debt
service coverage ratio of 1.25 to 1 described in Note 4 at the end of each fiscal year.
19 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
The following is a summary of future payments (principal and interest) to be paid to the
University to cover the debt service payments for the years ending June 30:
Principal Interest Total
2010 $ 1,174,500 $ 1,325,392 $ 2,499,892
2011 1,231,523 1,264,619 2,496,142
2012 1,278,942 1,211,176 2,490,118
2013 1,341,779 1,154,938 2,496,717
2014 1,760,059 1,076,659 2,836,718
2015-2019 10,081,785 4,088,551 14,170,336
2020-2024 7,801,218 1,638,618 9,439,836
2025-2029 1,587,025 751,936 2,338,961
2030-2034 1,891,344 252,701 2,144,045
28,148,175 $ 12,764,590 $ 40,912,765
Add: unamortized
premium
687,140
$ 28,835,315
In May 2009, the Board of Regents approved borrowing under the ILP of up to $162 million for
Phase 1 of the Housing Master Plan to build residence halls and single student apartments. The
first full year of debt service is expected to occur in the fiscal year ending 2014 and is expected to
be approximately $10.7 million. As of June 30, 2009, draws were not material.
Note 7. Pension Plan
As employees of the University, the System's full-time employees are participants in the State of
Washington Public Employees' Retirement System ("PERS") and the University of Washington
Retirement Plan ("UWRP"). PERS is a defined benefit pension plan. UWRP is a defined
contribution plan. Under these plans, the employee and the employer contribute a percentage of
the employee's compensation. The System contributed approximately $544,000 and $398,000 to
these plans in 2009 and 2008, respectively. An actuarial valuation of the PERS plan for the
System as a stand-alone entity is not available.
20 8491hdsfs063009 Revised: 1/7/2010 11:38 AM eat
Note 8. Cost of Residence Hall Food Services
2009 2008
Food and merchandise 5,881,417$ 5,903,511$ Salaries and related benefits 4,925,926 4,881,146 Indirect expenses 1,593,384 1,530,269 Supplies 684,131 664,085 Repairs and maintenance 337,258 336,854 Contract services 259,574 314,160 Utilities 245,924 30,810 Other 29,662 237,561
13,957,276$ 13,898,396$
8484fs063009 Revised: 1/20/2010 9:17 AM eat
STUDENT FACILITIES FEES –
SEATTLE CAMPUS
ADMINISTERED BY
THE DIVISION OF STUDENT LIFE
OF THE UNIVERSITY OF WASHINGTON
FINANCIAL REPORT
JUNE 30, 2009
8484fs063009 Revised: 1/20/2010 9:17 AM eat
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT ................................................................................... 1
FINANCIAL STATEMENT
STATEMENT OF CASH RECEIPTS, CASH DISBURSEMENTS, AND CHANGES IN
CASH BALANCE .............................................................................................................................. 2
NOTES TO FINANCIAL STATEMENT .......................................................................................... 3 - 5
1
INDEPENDENT AUDITORS' REPORT
To the Board of Regents
University of Washington
Seattle, Washington
We have audited the accompanying statement of cash receipts, cash disbursements, and changes
in cash balance of the Student Facilities Fees administered by the Division of Student Life of the
University of Washington for the year ended June 30, 2009. This financial statement is the
responsibility of the management of Student Life of the University of Washington. Our
responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, this financial statement has been prepared on the cash basis of
accounting, which is a comprehensive basis of accounting other than accounting principles
generally accepted in the United States.
In our opinion, the financial statement referred to above presents fairly, in all material respects,
the cash receipts, cash disbursements, and changes in cash balances of the Student Facilities Fees
administered by the Division of Student Life of the University of Washington for the year ended
June 30, 2009, on the cash basis of accounting described in Note 1.
January 12, 2010
See Notes to Financial Statement
2 8484fs063009 Revised: 1/20/2010 9:17 AM eat
STUDENT FACILITIES FEES –
SEATTLE CAMPUS
ADMINISTERED BY
THE DIVISION OF STUDENT LIFE
OF THE UNIVERSITY OF WASHINGTON
STATEMENT OF CASH RECEIPTS, CASH DISBURSEMENTS,
AND CHANGES IN CASH BALANCE
For the Year Ended June 30, 2009
Cash ReceiptsStudent facilities fees - Seattle campus 15,755,213$ Interest income 214,685
Total cash receipts 15,969,898
Debt ServiceRevenue bond series 2000 (1,065,345) Revenue bond series 2005 (2,067,318)
Total debt service payments (3,132,663)
Cash receipts available after debt service 12,837,235
Other Cash DisbursementsHall Health Center 6,054,816 Recreational Sports Operations 1,725,512 Childcare Programs/Office 940,102 Associated Students of the University of Washington 755,092 Ethnic Cultural Center and Theatre Complex 588,085 Student Activities and Union Facilities 537,465 Graduate and Professional Student Senate 282,294 Student Publications 230,072 Student Counseling Center 211,241 Student Legal Services 143,656 Q-Center 90,264 Classroom Support Services 70,030 Services and Activities Committee Operations 40,497 Capital Reserve 150,000
Total other cash disbursements 11,819,126
Cash Receipts in Excess of Other Cash Disbursements 1,018,109
Unspent Cash Returned 317,843
Change in cash balance 1,335,952
Cash balance, beginning of year 8,607,525
Cash balance, end of year 9,943,477$
3 8484fs063009 Revised: 1/20/2010 9:17 AM eat
NOTES TO FINANCIAL STATEMENT
Note 1. Organization and Significant Accounting Policies
Organization
The Division of Student Life is a unit within the University of Washington ("the University") and
is responsible for all aspects of the student experience on campus, including admissions,
financial aid, registration, housing, food services, recreational sports programs, student
government, and counseling and career services. Student Life administers the allocation and
expenditure of certain fees collected from students on the Seattle campus called "Student
Facilities Fees." Student Facilities Fees are a portion of the total fees collected from students.
Student Facilities Fees include Service and Activities Fees and Intramural Bond Fees (excluding
the amount transferred to the loan fund for these fees).
The Student Facilities Fees are first used to pay debt service on current and future bonds, and are
then used to support programs recommended by the Student Services and Activities Fee
Committee and approved by the Board of Regents. Student Facilities Fees are charged to full-
time and part-time students registered at the University for each academic quarter.
As a part of the University, Student Facilities Fee activity is exempt from income taxes. Student
Facilities Fee activity receives administrative support from the University without charge.
This financial statement only presents a selected portion of the activities of the University. As
such, it is not intended and does not present either the financial position, results of operations, or
changes in net assets of the University.
Financial Statement Presentation
This financial statement is prepared on the cash basis of accounting. Accordingly, revenue is
recognized when cash is received and expenses are recognized when cash is disbursed.
The disbursement for "Capital Reserve" is not actually a disbursement, but is a set-aside for
potential capital expenditures. The unspent portion of the reserve is included in "Unspent Cash
Returned" (see Note 3).
Cash Receipts on Deposit with the University
All cash receipts are deposited with the University. The Student Facilities Fees shares in the
earnings of the University's pooled investments, which amounted to a rate of return of 2% during
the year ended June 30, 2009.
4 8484fs063009 Revised: 1/20/2010 9:17 AM eat
At June 30, 2009, the University's pooled investments were allocated as follows:
Percent of
Total Allocated
U.S. Treasury and other agencies' debt 46%
Consolidated endowment fund (a mutual
fund sponsored by the University)
27
Collateralized mortgage obligations 14
Cash and certificates of deposit (partially
unsecured)
7
Corporate bonds 3
Asset-backed securities 3
100%
Note 2. Uncollected Fees
As this financial statement is presented on the cash basis of accounting, receivables and payables
are not recognized.
Student Life has Student Facilities Fees that are uncollected (and are therefore receivable) of
$694,467 at June 30, 2009.
Note 3. Unspent Cash
Unless otherwise allowed by the Services and Activities Fee Committee, programs funded with
Student Facilities Fees return unspent cash at the end of the biennium. The returned cash is
reallocated at the beginning of the next biennium. Unspent cash returned totaled $317,843 for
June 30, 2009.
Note 4. Bonds
Student Facilities Fees are used to make semi-annual payments on two bond series issued by the
University as follows:
The Revenue Bonds, Series 2000 are bonds that require varying annual principal and
interest payments, with the final payment due in 2030. The principal amount of the bonds
outstanding was $1,110,000 at June 30, 2009. Bonds outstanding at June 30, 2009, have
interest rates ranging from 4.6% to 5.875%.
5 8484fs063009 Revised: 1/20/2010 9:17 AM eat
The Revenue Bonds, Series 2005 are bonds that require varying annual principal and
interest payments, with the final payment due in 2030. The principal amount of the bonds
outstanding was $42,915,000 at June 30, 2009. Bonds outstanding at June 30, 2009, have
interest rates ranging from 2.75% to 5.0%.
Total debt service payments (including $284,787 funded by the University) related to the 2000
and 2005 bond series collectively totaled $1,225,000 for principal and $2,192,450 for interest for
the year ended June 30, 2009. The ratio of cash receipts to debt service payments is 4.7 to 1 for
the year ended June 30, 2009.
Note 5. Related Party Transactions
In fiscal year ended June 30, 2009, the University changed its internal process for debt with the
implementation of the Internal Lending Program. As a result, on an accrual basis, the Student
Facilities Fees had a payable for debt service of $284,287 to the University, as described in
Note 4.
Note 6. Subsequent Events
In July 2009, the Board of Regents approved the renovation of the Husky Union Building, the
Hall Health Center, and the Ethnic Cultural Center. As part of this approval, $3.6 million of the
Student Facilities Fees was committed to reimburse these entities for lost operational revenue.
These funds will be disbursed in fiscal year 2010. A majority of the money to fund the
renovations will be borrowed from the University Internal Lending Program and repaid by a new
student renovation facilities fee. The new fee will be put into place in two phases between
September 2011 and September 2012.
Student Facilities Fees has evaluated additional subsequent events through the date these
financial statements were available to be issued, which was on January 12, 2010.
Student Facilities Fees Seattle Campus
Administered by the Division of Student Life
Unaudited information prepared by the University of Washington
Fiscal Year2006 2007 2008Cash Receipts
Student Facilities Fees 13,082,921 14,225,180 14,991,837Interest income 243,667 357,612 413,249
Total cash receipts 13,326,588 14,582,792 15,405,087
Debt ServiceRevenue Bonds, Series 2000 (1,165,213) (1,166,513) (1,165,675)Revenue Bonds, Series 2005 (2,294,900) (2,259,538) (2,255,000)
Total Debt Service payments (3,460,113) (3,426,051) (3,420,675)Cash receipts available after debt service 9,866,475 11,156,741 11,984,412
Other Cash Disbursements
Health Center 5,613,650 5,583,650 5,901,380Recreational Sports Operations 1,707,880 1,627,985 1,680,478Childcare Programs / Office 818,244 1,020,244 860,635Associated Students of the University of Washington 508,810 586,432 689,159Ethnic Cultural Center and Theater Complex 522,546 526,616 569,022Student Activities and Union Facilities 369,530 501,515 420,297Graduate and Professional Student Senate 217,049 241,463 252,188 Student Publications 4,925 227,000 260,072 Student Counseling Center 40,000 159,423 179,746 Student Legal Services 135,664 129,002 140,963Q-Center 35,000 53,250 60,645Classroom Support Services 56,732 65,620 66,156Services and Activities Committee Operations 10,236 43,826 43,869Capital Reserve
Total Other cash disbursements 10,040,266 10,766,026 11,124,610
Cash receipts in Excess of Other Cash Disbursements (173,791) 390,715 859,802Unspent cash returned 0 554,184 9,579Change in Cash Balance (173,791) 944,899 869,381
Cash Balance, beginning of year 6,967,037 6,793,246 7,738,145
Cash Balance, end of year 6,793,246 7,738,145 8,607,526
Student Facilities Fees - Seattle CampusAdministered by the Division of Student Life
Unaudited information prepared by University of Washington
Endowment Resources
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Financial Statements
June 30, 2009
(With Independent Auditors’ Report Thereon)
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis 3
Balance Sheet 9
Statement of Revenues, Expenses, and Changes in Net Assets 10
Statement of Cash Flows 11
Notes to Financial Statements 12
Independent Auditors’ Report
The Board of Regents University of Washington:
We have audited the accompanying balance sheet of the University of Washington Commuter Services (Unit or CS) as of June 30, 2009 and the related statements of revenues, expenses, and changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of the management of the Unit. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Unit’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in note 1, the financial statements of the Unit, an auxiliary enterprise within the University of Washington (the University), are intended to present the financial position, and the changes in financial position and cash flows of only the portion of the business-type activities of the University that is attributable to the transactions of the Unit. They do not purport to, and do not, present fairly the financial position of the University as of June 30, 2009, the changes in its financial position or its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the University of Washington Commuter Services as of June 30, 2009 and the change in its net assets and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.
KPMG LLP Suite 900 801 Second Avenue Seattle, WA 98104
2
The management’s discussion and analysis on pages 3 through 8 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it.
Seattle, Washington December 31, 2009
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Management’s Discussion and Analysis
June 30, 2009
3 (Continued)
Discussion and Analysis Prepared by Management
The following discussion and analysis provides an overview of the financial position and activities of the University of Washington Commuter Services (CS) for the years ended June 30, 2009 and 2008. This discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes, which follow in this section.
Using the Financial Statements
CS’s financial statements include the balance sheet, statement of revenues, expenses, and net assets, statement of cash flow, and notes to financial statements. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles, which establish standards for external financial reporting for public colleges and universities. The financial health of CS can be measured by reviewing the summaries and explanations that follow.
Balance Sheets Summary
The balance sheet in the financial statements reflects the financial condition of CS at the end of the current year and reports the various categories of all assets and liabilities. The following balance sheets summary shows CS’s total assets, total liabilities, and net assets as of June 30, 2009 and 2008:
Balance Sheets Summary
2009 2008
Current assets $ 11,856,295 18,127,332 Noncurrent assets:
Capital assets, net 38,014,540 29,655,631 Advance to University for capital projects 4,609,562 6,322,569
Total assets $ 54,480,397 54,105,532
Current liabilities $ 1,809,746 1,543,993 Noncurrent liabilities 18,508,097 17,833,404
Total liabilities 20,317,843 19,377,397
Net assets 34,162,554 34,728,135 Total liabilities and net assets $ 54,480,397 54,105,532
Following are comments about the changes highlighted by the Balance Sheets summary.
• Current assets consist primarily of cash, accounts receivable, and prepaid expenses. Current assets were $10.0 million greater than current liabilities at the end of fiscal year 2009. Total current assets decreased from $18.1 million at the end of fiscal year 2008, to a total of $11.9 million at the end of fiscal year 2009. The decrease was caused by cash spent on capital assets and a decrease in restricted cash for debt service reserve of $247,000.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Management’s Discussion and Analysis
June 30, 2009
4 (Continued)
• Noncurrent assets consist of capital assets and advances to University of Washington (the University) for capital projects. Noncurrent assets were $6.6 million more at the end of fiscal year 2009 than at the end of fiscal year 2008, primarily because the $10.0 million of capital asset additions and offset by $1.6 million depreciation and $1.7 million decrease in advance to the University for capital projects during fiscal year 2008.
• Current liabilities increased by $266,000 during fiscal year 2009 to a total of $1.8 million. This change was comprised primarily of increases in accounts payable, accrued salaries/vacation payable and deferred revenues for permit sales.
• Noncurrent liabilities increased by $675,000 in fiscal year 2009 primarily because of the $1.2 million of debt borrowed from the Internal Lending Program of the University and offset by bond principal payments of $525,000.
• The change in net assets measures whether the overall financial condition has improved or deteriorated during the year. Total net assets decreased by $566,000 during fiscal year 2009 mostly due to the nonoperating loss and transfer to University for UPASS mentioned below.
Net Assets
The following table is a summary of the net assets for CS at June 30, 2009 and 2008:
Net Assets Summary
2009 2008
Invested in capital assets, net of related debt $ 22,241,741 16,373,897 Restricted – expendable 1,340,575 1,587,374 Unrestricted 10,580,238 16,766,864
Total net assets $ 34,162,554 34,728,135
The categories of net assets listed in the table above are defined as follows:
• “Invested in capital assets, net of related debt” is CS’s total investment in property, plant, equipment and infrastructure and unspent debt proceeds, net of accumulated depreciation and any outstanding debt obligations related to those capital assets.
• “Restricted net assets – expendable” are net assets which the CS is obligated to spend in accordance with restrictions imposed by bond holders for debt services purpose.
• “Unrestricted net assets” are all other funds available to CS for any purpose. Unrestricted assets are often internally designated for specific purposes.
Following are comments about the changes CS’s net assets summary:
• Net investment in capital assets increased by $5.9 million or 36% in fiscal year 2009 to a total of $22.2 million. This balance increases as the revenue bonds are paid down or when CS funds fixed asset purchases without financing. The balance decreases as assets are depreciated or CS borrows from the
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Management’s Discussion and Analysis
June 30, 2009
5 (Continued)
University’s Internal Lending Program (ILP). The increase reflects CS’s continuing investment in facilities.
• Restricted net assets – expendable decreased by $247,000 or 16% in fiscal year 2009. The decrease was caused by a portion of the debt reserve fund being used to pay down the revenue bonds during the year.
• Unrestricted net assets decreased by $6.2 million or 37% in fiscal year 2009. The decrease was caused by operating cash being spent on capital assets.
Capital Improvements and Related Debt
• In fiscal year 2009, capital expenditures were $10.0 million, which included $8.6 million for the Portage Bay Parking Facility Addition with Offices and $1.1 million related to UW Tower Parking Garage Seismic Project.
• In fiscal year 2008, capital expenditures were $4.2 million, which included $3.8 million for the Portage Bay Parking Facility Addition.
• Total debt increased from $18.4 million of outstanding principal due at the end of fiscal year 2008 to $19.1 million at the end of fiscal year 2009. The increase in debt is the result of utilizing the University’s internal lending program. See note (3) to the financial statements for more details.
Statements of Revenues, Expenses, and Changes in Net Assets
The statement of revenues, expenses, and changes in net assets present how CS’s operations and nonoperating items resulted in changes in net assets. In accordance with GASB reporting principles, revenues and expenses are classified as either operating or nonoperating. The following summary shows the revenues, expenses, and changes in net assets for the years ended June 30, 2009 and 2008.
Revenues, Expenses, and Changes in Net Assets Summary
2009 2008
Operating revenues $ 13,906,735 13,238,307 Operating expenses 8,574,711 7,542,955
Operating income 5,332,024 5,695,352
Nonoperating revenues (expenses) (94,746) 352,417 Other revenue and transfer (5,802,859) 5,804,477
Increase (decrease) in net assets (565,581) 11,852,246
Net assets, beginning of year 34,728,135 22,875,889 Net assets, end of year $ 34,162,554 34,728,135
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Management’s Discussion and Analysis
June 30, 2009
6 (Continued)
Revenues from All Sources
The following table summarizes revenues from all sources for the years ended June 30, 2009 and 2008:
Revenues from All Sources Summary
2009 2008
Parking revenue $ 12,226,193 11,666,889 Reimbursement for football related expenses 302,573 204,656 Revenue from Triangle Garage 1,377,969 1,366,762 Interest income 397,815 1,184,433 Reimbursement from Sound Transit for parking mitigation — 10,000,000 Insurance refund 328,892 — Capital projects grants and other 254,527 —
Total revenue – all sources $ 14,887,969 24,422,740
Following are comments about the changes highlighted by the revenues from all sources summary:
• Parking revenue continues to be the largest source of revenue for CS. Parking revenue increased by $559,000 primarily due to the increase in parking rates.
• Interest income represents interest earned from cash and cash equivalents in the University invested funds pool and advances to the University for capital projects. Interest income decreased by $787,000 due to a $5.5 million advance to the University for capital projects used at the end of fiscal year 2008 to purchase the University of Washington Tower Garage, which reduced cash and cash equivalents in the University invested funds pool balances in fiscal year 2009.
• CS and the University received a payment of $10.0 million from Sound Transit in fiscal year 2008 for the design and construction of the replacement parking spaces to mitigate the permanent loss of maximum of 100 and temporary loss of maximum of 500 parking spaces as a result of Sound Transit’s construction in the C-12, E-11 and E-12 parking lots.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Management’s Discussion and Analysis
June 30, 2009
7 (Continued)
Expenses and Transfer
The following table summarizes expenses and transfer for the years ended June 30, 2009 and 2008:
Expenses and Transfer Summary
2009 2008
Salaries and wages $ 3,011,601 2,039,866 Employee benefits 875,100 622,359 University overhead 936,607 863,512 Outside services 495,548 348,709 Maintenance 488,426 688,470 Depreciation 1,630,988 1,347,416 Supplies and materials 194,019 82,409 Utilities 203,453 191,164 Motorpool 134,679 87,332 Insurance 20,985 20,359 Telephone 91,927 72,150 Data processing 71,771 39,068 Temporary services 140,480 105,803 Printing 112,394 75,105 Parking enforcement — 792,135 Interest 821,453 832,016 Miscellaneous 166,733 167,098
Total expenses 9,396,164 8,374,971
Transfer to the University for UPASS 6,057,386 4,195,523
Total transfer 6,057,386 4,195,523 Total expenses and transfer $ 15,453,550 12,570,494
Following are comments about the changes in expenses highlighted by the expenses summary:
• CS’s expenses increased by $1.0 million, or 12% in fiscal year 2009. The combination of salaries and wages and employee benefits increased by $1.2 million. Of the $1.2 million increase, over $800,000 of the increase is related to combining Parking Enforcement into CS’s regular operations in fiscal year 2009.
• CS’s maintenance expense decreased by $200,000, or 29% in fiscal year 2009. There were no significant garage maintenance projects in fiscal year 2009.
• CS’s depreciation expense increased by $284,000, or 21%, primarily because the $13.7 million of capital assets were put in service and started to depreciate in fiscal year 2009.
• CS’s parking enforcement expense decreased by $792,000, or 100% due to the combination of Parking Enforcement into regular CS’s operations in fiscal year 2009.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Management’s Discussion and Analysis
June 30, 2009
8
• CS’s transfer to the University for UPASS increased by $1.9 million, or 44% in fiscal year 2009. Commuter Services transfers revenue received from the sales of parking permits to the University to fund a portion of the UPASS program costs. The UPASS program is operated by the University’s Transportation Planning Department and provides a package of flexible, low-cost transportation choices for faculty, staff, and students. It includes unlimited access to public transit, and a parking management component that subsidizes carpool and vanpool parking rather than single occupant vehicles. The amount of funds transferred increased in fiscal year 2009 due to increases in transit fees from King County Metro and Sound Transit.
Factors That Will Affect the Future
On November 10, 2009, Associate Vice Provost of the University approved a proposal that beginning in fiscal year 2010, the University will not charge CS the institutional overhead on the revenue that is collected from parking fees and then transferred to the UPASS program. This is expected to significantly reduce the annual institutional overhead expense.
UNIVERSITY OF WASHINGTONCOMMUTER SERVICES
Balance Sheet
June 30, 2009
Assets
Current assets:Cash and cash equivalents in the University of Washington Invested Funds Pool $ 9,914,480 Accounts receivable 596,842 Prepaid expenses 4,398 Restricted cash for debt service reserve 1,340,575
Total current assets 11,856,295
Noncurrent assets:Advances to University for capital projects 4,609,562 Capital assets (less accumulated depreciation of $28,373,551) (note 2) 38,014,540
Total noncurrent assets 42,624,102 Total assets $ 54,480,397
Liabilities and Net Assets
Current liabilities:Accounts payable $ 326,298 Accrued salaries and vacation payable 480,164 Accrued interest payable 117,070 Deferred revenue 331,690 Internal lending program payable, current portion (note 3) 9,524 Bonds payable, current portion (note 3) 545,000
Total current liabilities 1,809,746
Noncurrent liabilities:Internal lending program payable, net of current portion (note 3) 1,216,283 Bonds payable, net of current portion (note 3) 17,291,814
Total noncurrent liabilities 18,508,097
Total liabilities 20,317,843
Net assets:Invested in capital assets, net of related debt 22,241,741 Restricted – expendable 1,340,575 Unrestricted 10,580,238
Total net assets 34,162,554 Total liabilities and net assets $ 54,480,397
See accompanying notes to financial statements.
9
UNIVERSITY OF WASHINGTONCOMMUTER SERVICES
Statement of Revenues, Expenses, and Changes in Net Assets
Year ended June 30, 2009
Operating revenues:Parking revenue $ 12,226,193 Reimbursement for football related expenses 302,573 Revenue from Triangle Garage 1,377,969
Total operating revenues 13,906,735
Operating expenses:Salaries and wages 3,011,601 Employee benefits 875,100 Temporary services 140,480 Maintenance 488,426 Printing 112,394 Outside services 495,548 Utilities 203,453 Data processing 71,771 Motorpool 134,679 Insurance 20,985 Supplies and materials 194,019 Telephone 91,927 Miscellaneous 166,733 University overhead 936,607 Depreciation 1,630,988
Total operating expenses 8,574,711
Operating income 5,332,024
Nonoperating revenues (expenses):Interest income 397,815 Insurance refund 328,892 Interest expense (821,453)
Total nonoperating revenues (expenses) (94,746)
Income before other revenues and transfers 5,237,278
Other revenue and transfers:Capital projects grants and other 254,527 Transfer to the University for UPASS (6,057,386)
Total other revenue and transfers (5,802,859)
Decrease in net assets (565,581)
Net assets:Net assets at beginning of year 34,728,135 Net assets at end of year $ 34,162,554
See accompanying notes to financial statements.
10
UNIVERSITY OF WASHINGTONCOMMUTER SERVICES
Statement of Cash Flows
Year ended June 30, 2009
Cash flows from operating activities:Parking revenue $ 12,581,360 Reimbursement for football related expenses 302,573 Revenue from Triangle Garage 1,177,000 Payments to suppliers (2,236,020) Payments to employees (2,899,387) Payments for benefits (875,100) University overhead (936,607)
Net cash provided in operating activities 7,113,819
Cash flows from noncapital financing activities:Transfer to the University for UPASS (6,057,386) Insurance refund 328,892
Net cash used by noncapital financing activities (5,728,494)
Cash flows from capital and related financing activities:Capital project grants and other 254,527 Proceeds from internal lending program 1,225,807 Purchases of capital assets (8,276,890) Principal paid on bonds payable (525,000) Interest paid (454,174)
Net cash used in capital and related financing activities (7,775,730)
Cash flows from investing activities:Interest income 397,815
Net cash provided by investing activates 397,815
Net decrease in cash and cash equivalents (5,992,590)
Cash and cash equivalents at beginning of year 15,907,070 Cash and cash equivalents at end of year $ 9,914,480
Reconciliation of operating income to net cash used in operating activities:Operating revenue $ 5,332,024 Adjustments to reconcile operating loss to net cash used in operating
activities:Depreciation expense 1,630,988 Changes in assets and liabilities:
Decrease in accounts receivable 31,775 Increase in prepaid expenses (127) Decrease in accounts payable (115,478) Increase in accrued salaries and vacation payables 112,214 Increase in deferred revenue 122,423
Net cash provided in operating activities $ 7,113,819
See accompanying notes to financial statements.
11
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Notes to Financial Statements
June 30, 2009
12 (Continued)
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
The University of Washington Commuter Services (Unit or CS), a unit of Facilities Services, is responsible for the operation of the parking facilities of the University of Washington (the University).
(b) Basis of Presentation
The financial statements of the Unit have been prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statement – and Management’s Discussion and Analysis – for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities. The Unit is reporting as a special-purpose government engaged in business-type activities (BTA). In accordance with BTA reporting, the Unit presents a management’s discussion and analysis, balance sheets, statements of revenues, expenses, and changes in net assets, statements of cash flows, and notes to the financial statements. The financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting.
Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. The Unit has elected not to apply any Financial Accounting Standards Board (FASB) pronouncements after November 30, 1989. The Unit reports capital assets net of accumulated depreciation (as applicable), and reports depreciation expense in the statement of revenues, expenses, and changes in net assets.
(c) Capital Assets
Expenditures for equipment and repairs that represent normal replacement of such equipment and routine maintenance of the buildings are expensed as incurred. Capital expenditures for facilities and equipment funded by the Unit are reflected as capital assets on the Unit’s balance sheet. Buildings and equipment are stated at cost. Additions, replacements, major repairs, and renovations are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 15 – 50 years for building components, 20 – 50 years for infrastructure and land improvements, and 5 – 7 years for equipment.
(d) Advances to University for Capital Projects
Advances to the University for capital projects represent the difference between the cash paid and the capital expenditures incurred by the University for various capital projects that are in process at year-end, which CS expects to use in capital expenditures or be refunded if not used in the future.
(e) Revenue Recognition
Parking sales are recognized as revenue in the period when the parking is utilized.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Notes to Financial Statements
June 30, 2009
13 (Continued)
The University Department of Intercollegiate Athletics (ICA) and CS entered into a formal written agreement whereby CS operates the parking for Husky football games for ICA. ICA is entitled to all parking revenues from Husky football games and reimburses CS for all expenses incurred by CS. The reimbursement for football related expenses is reported as CS’s operating revenue.
The University of Washington Medical Center (UWMC) and CS entered into a formal written agreement whereby UWMC operates the Triangle Garage for CS and pays the Net Operating Revenue from the Triangle Garage to CS. The Net Operating Revenue accrued per the Triangle Garage operating results is reported as CS’s operating revenue.
(f) Deferred Revenues
Funds received from the sale of permits for periods subsequent to June 30 are deferred. Permit sales are recognized as revenue in the period when the parking is utilized. At June 30, 2009, deferred revenues were $331,690.
(g) Federal Income Taxes
As a part of the University, the Commuter Services is exempt from federal income taxes, except to the extent of unrelated business taxable income. Commuter Services did not incur unrelated business income tax during fiscal year 2009 and, accordingly, the financial statements do not include a provision for federal income taxes.
(h) New Accounting Pronouncements
On July 1, 2008, the Unit adopted GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The University had no additional disclosures resulting from this new pronouncement.
On July 1, 2008, the Unit adopted GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. The University had no additional disclosures resulting from this new pronouncement.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Notes to Financial Statements
June 30, 2009
14 (Continued)
(2) Capital Assets
Capitalized asset activity for the year ended June 30, 2009 is summarized as follows:
Balance at Balance atJune 30, June 30,
2008 Additions Transfers Retirements 2009
Buildings $ 49,804,432 — 13,654,769 — 63,459,201 Furniture, fixtures, and
equipment 998,852 45,647 — 7,263 1,037,236 Construction in progress* 5,602,173 9,944,250 (13,654,769) — 1,891,654
Total 56,405,457 9,989,897 — 7,263 66,388,091
Less accumulated depreciation:Buildings 25,975,210 1,536,774 — — 27,511,984 Furniture, fixtures, and
equipment 774,616 94,214 — 7,263 861,567
Totalaccumulateddepreciation 26,749,826 1,630,988 — 7,263 28,373,551
Capital assets, net $ 29,655,631 8,358,909 — — 38,014,540
* Nondepreciable.
(3) Internal Lending Program
During 2004, the University issued $20,410,000 of Revenue Bonds to refund the outstanding Series 1995 Revenue Bonds and to finance various parking projects. The Revenue Bonds are held by the University and bear interest rates from 3.00% to 5.00% depending on the fiscal year, with interest and principal payments due on May 1 and November 1 of each year. The Bonds are secured by the pledge of the Parking System revenues over operating expenses.
CS obtained a loan from the University’s internal lending program (ILP) as described below. Of the $2,800,000 of loan proceeds available, CS’ has only requested 43.8% or $1,225,807 as of June 30, 2009.
The purpose of the ILP is to lower the University’s overall cost of capital and provide internal borrowing units with a stable and predictable borrowing rate. The ILP will make loans to internal borrowers at a uniform internal lending rate. These loans will be funded through the issuance of University General Revenue bonds and notes. ILP program policies include a provision for a rate stabilization reserve and a provision for rate adjustments if necessary.
Under the terms of the ILP, rate adjustments will apply to all outstanding debt obligations, including debt issued prior to the ILP implementation. The ILP lending rate will be reviewed annually and a preliminary indication of a rate adjustment will be announced to ILP participants 12 months in advance of the effective date. Final rate adjustments require approval by the Board of Regents.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Notes to Financial Statements
June 30, 2009
15 (Continued)
Future principal and interest payments due through maturity dates are as follows:
Principal Interest
Years ending June 30:2010 $ 554,524 833,554 2011 582,053 841,401 2012 603,015 820,314 2013 624,031 797,717 2014 650,105 773,487 Thereafter 16,117,079 7,417,105
19,130,807 11,483,578
Bond discount 68,186 — $ 19,062,621 11,483,578
Bond and internal lending program activity for the year ended June 30, 2009 is summarized as follows:
Balance as of Balance as ofJune 30, 2007 Additions Reductions June 30, 2008
Revenue bonds and internal lendingprogram payable:
Revenue bonds $ 18,358,404 — 521,590 17,836,814 Internal lending program
payable — 1,225,807 — 1,225,807
Total bonds and internallending programpayable $ 18,358,404 1,225,807 521,590 19,062,621
(4) Related Party Transactions
The University provides support to Commuter Services by performing the following services:
• The Commuter Services’ cash is managed by the University through the Treasurer of the Board of Regents. All cash balances are insured by either the Federal Deposit Insurance Corporation or the Washington Public Deposit Protection Commission. During fiscal year 2009, the Unit’s funds on deposit with the University were invested in the University’s the Invested Funds Pool (IFP). The IFP is considered unrated and the principal balance in each account is available to be withdrawn at any time. Since the IFP funds can be withdrawn at any time, the IFP funds are recorded on the financial statements as cash and cash equivalents. The IFP funds are invested in highly liquid, shorter-term investments and are generally designated for Unit operating purposes. For funds invested in the IFP, the University credits the Unit with interest at rates established at the University’s discretion (2.00% for fiscal year 2009) on the average month-end balance of IFP funds.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Notes to Financial Statements
June 30, 2009
16 (Continued)
• The University requires a discretionary transfer for overhead equal to 8.88% of certain Commuter Services’ revenues in exchange for providing the following:
– Use of the University’s buildings and equipment.
– Administrative and accounting support.
– Serving as the purchasing and disbursing agent.
– Various other operational and support services.
• The University has included Commuter Services in its liability self-insurance program and allocates a portion of the program’s cost to Commuter Services in an amount established at the University’s discretion.
• Additionally, transfers to and from the University are made at the discretion of the University and Commuter Services.
Commuter Services transfers revenue received from the sales of parking permits to the University to fund a portion of the UPASS program costs. The UPASS program is operated by the University’s Transportation Planning Department and provides a package of flexible, low-cost transportation choices for faculty, staff, and students. It includes unlimited access to public transit, and a parking management component that subsidizes carpool and vanpool parking rather than single occupant vehicles.
(5) Pension Plan
The University offers two contributory plans: the Washington State Public Employees Retirement System (PERS) plan, a defined benefit retirement plan; and the University of Washington Retirement Plan (UWRP), a defined contribution plan with supplemental payment, when required.
(a) Public Employees Retirement System
Plan Description – The University contributes to PERS, a cost-sharing multiple-employer defined benefit pension plan administered by the State of Washington Department of Retirement Systems. PERS Plan 1 provides retirement and disability benefits, and minimum benefit increases beginning at age 66 to eligible nonacademic plan members hired prior to October 1, 1977. PERS Plans 2 and 3 provide retirement and disability benefits and a cost of living allowance to eligible nonacademic plan members hired on or after October 1, 1977. In addition, PERS Plan 3 has a defined contribution component, which is fully funded by employee contributions. The authority to establish and amend benefit provisions resides with the legislature. The PERS issues a publicly available financial report that includes financial statements and required supplementary information for PERS. The report may be obtained by writing to the Department of Retirement Systems, P.O. Box 48380, Olympia, WA 98504 8380, or visiting http://www.drs.wa.gov/administration.
UNIVERSITY OF WASHINGTON COMMUTER SERVICES
Notes to Financial Statements
June 30, 2009
17
Funding Policy – The Office of the State Actuary, using funding methods prescribed by statute, determines actuarially required contribution rates for PERS. Plan 1 members are required to contribute 6.00% of their annual covered salary. Contributions for Plan 2 members are determined by the aggregate method, and may vary over time. The contribution rate for Plan 2 employees at June 30, 2009 was 5.45%. PERS Plan 3 members can choose contributions ranging from 5.00% to 15.00% of salary, based on the age of the member. The defined contribution benefit for PERS Plan 3 will depend on the member’s contributions, the investment earnings on those contributions, and if an annuity is taken, the age at which the member receives payment. The contribution rate for the University at June 30, 2009 for each of PERS Plans 1, 2, and 3 was 8.31%.
The Commuter Services’ contributions to PERS for the years ended June 30, 2009 was $210,363, which was equal to the annual required contributions for each year.
(b) University of Washington Retirement Plan
Plan Description – Professional staff and certain other salaried employees are eligible to participate in the UWRP, a defined contribution plan administered by the University. Contributions to the plan are invested in annuity contracts or mutual fund accounts offered by one or more fund sponsors. Employees have at all times a 100% vested interest in their accumulations.
Benefits from fund sponsors are available upon separation or retirement at the member’s option. RCW 28.B.10.400 et. seq. assigns the authority to the University of Washington Board of Regents to establish and amend benefit provisions.
The Plan has a supplemental payment component that guarantees a minimum retirement benefit based upon a one-time calculation at each employee’s retirement date. The University makes direct payments to qualifying retirees when the retirement benefits provided by the fund sponsors do not meet the benefit goals.
Funding Policy – Employee contribution rates, based on age, are 5.0%, 7.5%, or 10.0% of salary. The University matches the contributions of employees. Within parameters established by the legislature, contribution requirements may be established or amended by the University of Washington Board of Regents. Employee and employer contributions for the year ended June 30, 2009 were each $28,322. The supplemental component of the UWRP is financed on a pay-as-you-go basis.
(6) Commitments and Contingencies
The Unit is subject to various claims and lawsuits that are covered by the University’s self-insurance fund in excess of $100,000.
(7) Subsequent Event
On November 10, 2009, Associate Vice Provost of the University approved a proposal that beginning in fiscal year 2010, the University will not charge CS the institutional overhead on the revenue that is collected from parking fees and then transferred to the UPASS program. This is expected to significantly reduce the annual institutional overhead expense.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Financial Statements and Schedules
June 30, 2009 and 2008
(With Independent Auditors’ Report Thereon)
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Table of Contents
Page
Independent Auditors’ Report 1
Management’s Discussion and Analysis 3
Balance Sheets 11
Statements of Revenue, Expenses, and Changes in Net Assets 12
Statements of Cash Flows 13
Notes to Financial Statements 14
Schedules
1. Operating and Other Revenue by Specific Function 23
2. Operating Expenses and Other Deductions by Specific Function 25
Notes to Schedules 27
1
Independent Auditors’ Report
The Board of Regents University of Washington:
We have audited the accompanying balance sheets of the University of Washington Department of Intercollegiate Athletics (the Department) as of June 30, 2009 and 2008 and the related statements of revenue, expenses, and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the management of the Department. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1, the financial statements of the Department, an auxiliary enterprise within the University of Washington (the University), are intended to present the financial position, and the changes in financial position and cash flows of only the portion of the business-type activities of the University that is attributable to the transactions of the Department. They do not purport to, and do not, present fairly the financial position of the University as of June 30, 2009 and 2008, the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the University of Washington Department of Intercollegiate Athletics as of June 30, 2009 and 2008 and the change in its net assets and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in schedules 1 and 2 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.
KPMG LLP Suite 900 801 Second Avenue Seattle, WA 98104
The management’s discussion and analysis on pages 3 through 10 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it.
Seattle, Washington December 28, 2009
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UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
3 (Continued)
Discussion and Analysis Prepared by Management
The following discussion and analysis provides an overview of the financial position and activities of the University of Washington Department of Intercollegiate Athletics (ICA) for the years ended June 30, 2009 and 2008. This discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes, which follow in this section.
Using the Financial Statements
ICA’s financial statements include the balance sheets, statements of revenues, expenses, and net assets, statements of cash flow, and notes to financial statements. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles, which establish standards for external financial reporting for public colleges and universities. The financial health of ICA can be measured by reviewing the summaries and explanations that follow.
Balance Sheets Summary
The balance sheets in the financial statements reflect the financial conditions of ICA at the end of the last two years and report the various categories of all assets and liabilities. The following balance sheets summary shows ICA’s total assets, total liabilities, and net assets as of June 30, 2009 and 2008:
Balance Sheets Summary
2009 2008(In thousands)
Current assets $ 6,843 17,090 Noncurrent assets:
Capital assets, net 100,390 100,161 Other 44,809 52,278
Total assets $ 152,042 169,529
Current liabilities $ 18,077 20,169 Noncurrent liabilities 4,867 5,859
Total liabilities 22,944 26,028
Net assets 129,098 143,501 Total liabilities and net assets $ 152,042 169,529
Following are comments about the changes highlighted by the balance sheets summary.
• Current assets consist primarily of cash, cash equivalents, accounts receivable, and prepaid expenses. Current assets were $11.2 million less than current liabilities at the end of 2009. Total current assets decreased from $17.1 million at the end of 2008, to a total of $6.8 million at the end of 2009. The decrease
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
4 (Continued)
was caused by a decrease in University of Washington Invested Funds and a decrease in accounts receivable.
• Noncurrent assets consist primarily of long term investments, endowments, and capital assets. Noncurrent assets were $7.2 million less at the end of 2009 than at the end of 2008, primarily because the decline in market value of long term investment funds and endowments more than offset any new endowment funds that were donated to the Department during 2009. At the end of 2009, there is $14.7 million of noncurrent assets in long term investment funds. These investments can be used to meet ICA’s obligations.
• Current liabilities decreased by $2.1 million during 2009 to a total of $18.1 million. This change was comprised primarily of decreases in accounts payable, accrued salaries/vacation payable and deferred revenues for ticket sales.
• Noncurrent liabilities decreased by $1.0 million in 2009 because of the reduced principal due to the Internal Lending Program of the University of Washington (University).
• The change in net assets or “equity” measures whether the overall financial condition has improved or deteriorated during the year. The total of net assets decreased by $14.4 million during 2009 mostly due to the decline in market value of long term investments and endowments mentioned above.
ICA’s Net Assets or “Equity”
The following table is a summary of the net assets or “equity” for ICA at June 30, 2009 and 2008:
Net Assets or “Equity” Summary
2009 2008(In thousands)
Invested in capital assets, net of related debt $ 94,603 93,430 Restricted:
Nonexpendable 28,066 30,811 Expendable 3,276 3,720
Unrestricted 3,153 15,540 Total net assets $ 129,098 143,501
The categories of net assets or “equity” listed in the table above are defined as follows:
• “Invested in capital assets, net of related debt” is ICA’s total investment in property, plant, equipment and infrastructure, net of accumulated depreciation and any outstanding debt obligations related to those capital assets.
• “Restricted nonexpendable net assets” consist of funds for which the donor has made the restriction that the principal is not available for expenditures, but investment earnings can be used for specific purposes.
• “Restricted expendable net assets” are resources that ICA is obligated to spend in accordance with the restrictions placed by donors and/or external parties.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
5 (Continued)
• “Unrestricted net assets” are all other funds available to ICA for any purpose. Unrestricted assets are often internally designated for specific purposes.
Following are comments about the changes highlighted in the net assets or “equity” summary:
• Net investment in capital assets increased by $1.2 million or 1.3% in 2009 to a total of $94.6 million. This balance increases as debt is paid off or when ICA funds fixed asset purchases without financing. The balance decreases as assets are depreciated. The increase reflects ICA’s continuing investment in facilities.
• Restricted nonexpendable net assets decreased by $2.7 million or 8.8% in 2009 as the decline in market value of endowments more than offset any new endowment funds that were donated to the Department during 2009.
• Restricted expendable net assets decreased by $444 thousand or 11.9% in 2009 due to a decrease in the amount of expendable contributions received and a decrease in the value of expendable endowments.
• Unrestricted net assets decreased by $12.3 million from $15.5 million in 2008 to $3.2 million in 2009. The decline in market value of long term investment funds and endowments is primarily responsible for this decrease.
Endowments and Other Investments
• The fair market value of ICA’s quasi endowments and endowments, not including long-term investments in the CEF, was $28.8 million at June 30, 2009.
• ICA had $14.7 million of long-term investments, not including endowments, in the CEF at June 30, 2009. The loss on this investment was 23.3% in 2009, compared with a return of 1.9% in 2008.
• Short-term investments in the Invested Funds Pool used as operating moneys for ICA yielded a 2.0% return in 2009 and a 4.25% return in 2008.
Capital Improvements and Related Debt
• In 2009, there was an increase of $4.7 million in capital assets of which $3.1 million was for Husky Stadium design and $1.3 million for a Golf Center.
• In 2008, there was an increase of $3.6 million in capital assets of which $3.1 million was for the Football Legends Center in the Graves Annex.
• Total long term debt decreased from $5.9 million of outstanding principal due at the end of 2008 to $4.9 million at the end of 2009. In May of 2008, the University of Washington refunded ICA’s outstanding bonds and replaced them with a new bond issuance with lower interest rates. ICA’s annual obligation for debt for the next several years has consequently been reduced. The obligation for this debt has also been shifted to the University’s internal lending program. See note (4) to the financial statements for more details. The $796,250 in savings will be amortized over the remaining life of the bonds.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
6 (Continued)
Statements of Revenues, Expenses, and Changes in Net Assets
The statement of revenues, expenses, and changes in net assets present how ICA’s operations and nonoperating items resulted in changes in net assets. In accordance with GASB reporting principles, revenues and expenses are classified as either operating or nonoperating. The following summary shows the revenues, expenses, and changes in net assets for the years ended June 30, 2009 and 2008.
Revenues, Expenses, and Changes in Net Assets Summary
2009 2008(In thousands)
Total operating revenues $ 36,791 38,389 Operating expenses 67,977 67,723
Operating loss (31,186) (29,334)
Nonoperating revenues and expenses 7,403 24,294 Other revenues 9,380 11,348
Increase in net assets (14,403) 6,308
Net assets, beginning of year 143,501 137,193 Net assets, end of year $ 129,098 143,501
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
7 (Continued)
Revenues from All Sources
The following table summarizes revenues from all sources for the years ended June 30, 2009 and 2008:
Revenues from All Sources Summary
2009 2008(In thousands)
Gate revenue $ 22,656 24,166 NCAA/Conference distributions 10,278 9,823 Other TV, radio, and Internet rights 725 926 Concessions/souvenirs/parking/boat moorage 1,288 1,473 Other operating revenue 1,844 2,002 Contributions (noncapital) 12,488 12,682 Donated advertising and supplies 1,881 4,426 Endowment and investment income, net 1,148 1,579 State-funded tuition waivers 1,997 1,850 Sponsorships 4,961 5,087 Capital gifts 3,972 4,276 Amortization on debt refinance gain 144 12 Endowment gifts 5,409 7,072
Total revenue – all sources $ 68,791 75,374
Following are comments about the changes highlighted by the revenues from all sources summary:
• Gate ticket sales revenue continues to be the largest source of revenue for ICA, although gate ticket sales revenue decreased by $1.5 million primarily due to the difference in the home football game schedule. There were seven home football games in 2009 and seven home games in 2008. The 2008 schedule included several home games that were more attractive to the fans than in 2009, which resulted in decreased attendance.
• NCAA/Conference distributions increased by $455,000 primarily due to increases in football television revenue from the Pac 10 Conference package and NCAA Men’s Basketball tournament revenue.
• Contributions related to noncapital gifts decreased by $194,000 in 2009. There was a $659,000 decrease related to Don James Center memberships in Husky Stadium as these membership payments are not all due on an annual basis. The payments for these five year premium seating memberships are received in advance. The decrease in Don James Center memberships was mostly offset by a $550,000 increase in contributions for scholarships.
• Donated advertising and supplies revenue decreased by $2.5 million due to the decreased value of donated advertising related to the multimedia rights contract. There were fewer promotional advertising spots provided, but the multimedia rights company also placed a significantly lower value to many of the spots to reflect market value versus the promotional rate value that was used in 2008. This decrease in revenue is offset by a corresponding decrease in expenses.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
8 (Continued)
• Endowment and investment income decreased by $431,000 in 2009. There are three pieces of endowment and investment income; endowment distributions, long term investment income and short term investment income.
– Endowment distributions decreased by $103,000 in 2009 due to a decrease in the percentage of market value distributed per a University midyear policy change. The policy change was caused by a loss of endowment market value due to the economic downturn. Although the markets recovered somewhat during the last quarter of fiscal year 2009, the loss for 2009 was 23.3%. Only endowment distributions are shown within operating income as revenue; the loss in market value of endowments is shown as “an unrealized loss on endowments” in the nonoperating category of the statement of revenues, expenses, and changes in net assets.
– Short term investments received a 2.0% distribution in 2009 after a 4.25% distribution in 2008. The difference in returns and in cash balances caused a $328,000 decrease in revenue.
• Endowment gifts decreased by $1.7 million in 2009, but there still were $5.4 million in new gifts in 2009, primarily related to the “Students First” program in which the University provided a 50% match for qualified gifts.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
9 (Continued)
Expenses
The following table summarizes expenses for the years ended June 30, 2009 and 2008:
Expenses, Gains and Losses Summary
2009 2008(In thousands)
Salaries and wages $ 21,603 18,957 Payroll taxes and employee benefits 4,306 4,218 Athletic student aid 8,311 7,794 Guarantees paid to visiting teams 2,306 3,482 Team travel 3,773 4,391 Day of game 4,409 4,020 Direct facilities, maintenance, and utilities 2,526 2,464 Donated advertising and supplies 1,881 4,426 Uniforms and supplies 2,140 1,643 Institutional overhead 1,893 1,928 Training table 1,109 976 Department relations 402 457 Banquets and special events 419 437 Depreciation 4,576 4,284 Noncapitalized equipment and repairs 2,026 2,823 Other 6,297 5,423
Total operating expenses 67,977 67,723
Interest expense 268 345 Unrealized loss (gain) on investments 14,949 998
Total nonoperating expenses, gains and losses 15,217 1,343 Total $ 83,194 69,066
Following are comments about the changes in expenses highlighted by the expenses summary:
• Expenses increased by $14.1 million from $69.1 million to $83.2 million, or 20% in 2009. Of the $14.1 million increase, $14.0 million was related to the increase in the unrealized loss on endowments. There were other significant decreases and increases that offset each other. There was a $2.5 million decrease in donated advertising and a $1.2 million decrease in guarantees paid to visiting teams. There was a $2.7 million increase in salaries and benefits as well as a $500,000 increase in uniforms and supplies.
• The combination of the two categories of salaries and wages as well as the related payroll taxes and employee benefits increased by $2.7 million. Of the $2.7 million increase, $1.2 million of the increase is related to severance payments made to former staff. The remaining $1.5 million is a combination of salary increases upgrades and new positions.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Management Discussion and Analysis
June 30, 2009 and 2008
10
• Athletic student aid increased due to rate increases for tuition and room and board.
• Guarantees paid to visiting teams decreased by $1.2 million due to the difference in the nonconference football game schedule and the impact of the WSU football game guarantee being greater in years where this game is played in Seattle (2008 Fiscal Year) than when played in Pullman (2009 Fiscal Year).
• Donated advertising and supplies expense decreased by $2.5 million, which was due to the decreased value of donated advertising related to the multimedia rights contract. There were fewer promotional advertising spots provided, but the multimedia rights company also placed a significantly lower value on many of the spots to reflect market value versus the promotional rate value that was used in 2008. This decrease in expense is offset by a corresponding decrease in revenue.
• There was a $10.4 million unrealized loss on endowments in 2009 compared to a $1.0 million unrealized loss in 2008. Long term investments, which are invested in the same fund as University endowments had an unrealized loss of $4.6 million in 2009. The loss in 2009 is directly related to worldwide economic factors that caused the decline in market value of endowments and long term investments invested in the CEF.
Operating Loss
There were operating losses of approximately $31.2 million and $29.3 million in 2009 and 2008, respectively. There were sufficient nonoperating revenues from contributions, donated advertising and supplies, investment income, state funded tuition waivers, and sponsorships as well as capital gifts to cover the operating loss for 2008. These nonoperating revenues and capital gifts would also cover the operating loss for 2009, if not for the unrealized loss on investments.
Economic Factors that will Impact the Future
The greatest opportunity to improve the financial picture for ICA is for the football team to have winning seasons which will increase gate revenues, contributions, and television revenue. There are also risks to maintaining a positive financial status. There are major repairs needed for Husky Stadium and if the proposed renovation does not occur it could have a negative impact on ICA’s financial results.
In the first three quarters of Fiscal Year 2009, major U.S. and foreign stock indices declined significantly. The University responded by adjusting the policy related to endowment income distributions and continues to monitor investment market conditions and the impact such declines have on its investment portfolios. As of the date of this report, the extreme volatility in the global capital markets has lessened. The Consolidated Endowment Fund and Invested Funds have had positive returns in the last quarter of Fiscal Year 2009 and the first quarter of Fiscal Year 2010.
UNIVERSITY OF WASHINGTONDEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Balance Sheets
June 30, 2009 and 2008
Assets 2009 2008
Current assets:Cash and cash equivalents in the University of Washington
Invested Funds Pool $ 3,999,120 11,958,466 Accounts receivable 2,015,244 4,550,036 Prepaid expenses 828,134 581,352
Total current assets 6,842,498 17,089,854
Noncurrent assets:Investments:
University of Washington Diversified Investmented Funds 14,718,417 19,615,314Endowments 28,841,196 31,881,302
Advances to University for capital projects 1,249,716 781,114 Capital assets (less accumulated depreciation) of $58,073,418 and
$53,648,636 in 2009 and 2008, respectively (note 3) 100,389,980 100,161,419
Total noncurrent assets 145,199,309 152,439,149 Total assets $ 152,041,807 169,529,003
Liabilities and Net Assets
Current liabilities:Accounts payable $ 517,014 2,097,491 Accrued salaries and vacation payable 2,844,273 2,794,376 Admission taxes payable 655,776 707,052 Accrued interest payable 22,276 39,290 Deferred revenue 13,117,513 13,658,930 Internal lending program payable, current portion (note 4) 920,573 871,875
Total current liabilities 18,077,425 20,169,014
Noncurrent liabilities:Internal lending program payable, net of current portion (note 4) 4,866,501 5,859,186
Total noncurrent liabilities 4,866,501 5,859,186
Total liabilities 22,943,926 26,028,200
Net assets:Invested in capital assets, net of related debt 94,602,906 93,430,358 Restricted:
Nonexpendable (note 2) 28,065,923 30,810,803 Expendable:
Contribution 1,300,759 1,484,514 Principal (note 2) 775,273 1,070,499 Endowment interest 1,200,270 1,165,196
Unrestricted 3,152,750 15,539,433
Total net assets 129,097,881 143,500,803 Total liabilities and net assets $ 152,041,807 169,529,003
See accompanying notes to financial statements.
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UNIVERSITY OF WASHINGTONDEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Statements of Revenue, Expenses, and Changes in Net Assets
Years ended June 30, 2009 and 2008
2009 2008
Operating revenue:Gate ticket sales $ 22,656,181 24,166,335 NCAA/conference distributions 10,277,847 9,822,718 Other TV, radio, and internet rights 724,673 925,600 Concessions, souvenirs, parking, and boat moorage 1,288,477 1,472,836 Trademarks and licensing 352,890 360,540 Facility income 522,191 633,570 Other 969,012 1,007,463
Total operating revenue 36,791,271 38,389,062
Operating expenses:Salaries and wages 21,602,763 18,956,875 Payroll taxes and employee benefits 4,305,938 4,218,354 Athletic student aid 8,310,489 7,794,307 Guarantees paid to visiting teams 2,306,032 3,481,483 Team travel 3,773,231 4,391,457 Day of game expenses 4,409,454 4,020,387 Direct facilities, maintenance, and utilities 2,525,945 2,464,490 Donated advertising 695,155 3,284,738 Uniforms and supplies 2,140,050 1,643,019 Donated supplies 1,185,698 1,141,258 Institutional overhead 1,892,404 1,928,080 Medical expenses 632,602 551,919 Fund-raising, marketing, and promotions 421,269 343,806 Recruiting 227,839 215,793 Equipment 19,623 17,417 Training table 1,108,910 975,511 Department relations 402,323 457,412 Banquets and special events 419,110 436,499 Depreciation 4,576,062 4,284,121 Noncapitalized equipment and repairs 2,026,452 2,822,897 Other 4,995,855 4,293,633
Total operating expenses 67,977,204 67,723,456
Operating loss (31,185,933) (29,334,394)
Nonoperating revenues (expenses):Contributions 12,488,233 12,682,342 Donated advertising 695,155 3,284,738 Donated supplies 1,185,698 1,141,258 Investment income 86,155 413,572 Investment income on CEF 1,061,615 1,165,196 Unrealized loss on investments (14,949,366) (998,535) State funded tuition waivers 1,996,736 1,849,894 Sponsorships 4,960,907 5,087,692 Amortization of debt refinance gain 144,768 12,064 Interest expense (267,317) (344,314)
Total nonoperating revenues (expenses) 7,402,584 24,293,907
Loss before other revenues (23,783,349) (5,040,487)
Other revenues:Capital gifts 3,971,920 4,275,914 Gifts to permanent endowments 5,408,507 7,071,864
Total other revenues 9,380,427 11,347,778
Increase (decrease) in net assets (14,402,922) 6,307,291
Net assets:Net assets at beginning of year 143,500,803 137,193,512 Net assets at end of year $ 129,097,881 143,500,803
See accompanying notes to financial statements.
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UNIVERSITY OF WASHINGTONDEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Statements of Cash Flows
Years ended June 30, 2009 and 2008
2009 2008
Cash flows from operating activities:Gate ticket sales $ 22,059,452 23,762,062 NCAA/conference distributions 10,137,970 9,829,269 Other TV, radio, and internet rights 724,673 925,600 Concessions and souvenirs 1,287,080 1,488,756 Trademarks and licensing 531,638 188,005 Facility income 623,826 583,236 Other 1,185,053 793,422 Payments to suppliers (29,187,307) (26,466,685) Payments to employees (21,552,865) (18,357,422) Payments for benefits (4,305,938) (4,218,354) Payments for scholarships (8,310,489) (7,794,307)
Net cash used in operating activities (26,806,907) (19,266,418)
Cash flows from noncapital financing activities:Contributions, excluding permanent endowments and capital 12,488,233 12,682,342 State-funded tuition waivers 1,996,736 1,849,894 Department-funded additions to permanent endowments (124,483) (2,034,118) Sponsorships 5,301,142 4,918,436
Net cash provided by noncapital financing activities 19,661,628 17,416,554
Cash flows from capital and related financing activities:Capital gifts received 3,971,920 4,275,910 Purchases of capital assets (5,273,225) (3,751,419) Retirement of revenue bonds — (7,615,000) Proceeds from internal lending programs — 6,743,125 Principal paid on capital debt (799,219) — Interest paid on capital debt (207,456) (413,181)
Net cash used in capital and related financing activities (2,307,980) (760,565)
Cash flows from investing activities:Purchases of investments (220,625) (1,270,654) Sale of investments 428,114 — Investment income 1,286,424 1,599,083
Net cash provided by investing activities 1,493,913 328,429
Net decrease in cash and cash equivalents (7,959,346) (2,282,000)
Cash and cash equivalents at beginning of year 11,958,466 14,240,466 Cash and cash equivalents at end of year $ 3,999,120 11,958,466
Reconciliation of operating loss to net cash used in operating activities:Operating loss $ (31,185,933) (29,334,394) Adjustments to reconcile operating loss to net cash used in operating activities
Noncash expenses – donated advertising 695,155 3,284,738 Noncash expenses – donated supplies 1,185,698 1,341,258 Depreciation expense 4,576,062 4,284,121 Changes in assets and liabilities:
Decrease (increase) in accounts receivable 292,165 (375,594) Increase (decrease) in accounts payable and accrued expenses (1,580,477) 1,032,685 Decrease in deferred revenue (541,417) (376,008) Increase in accrued salaries 49,898 361,953 Decrease in notes receivable — 237,500 Decrease (increase) in prepaid expenses (246,782) 296,580 Decrease in admissions taxes payable (51,276) (19,257)
Net cash used in operating activities $ (26,806,907) (19,266,418)
See accompanying notes to financial statements.
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UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
14 (Continued)
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
The University of Washington Department of Intercollegiate Athletics (Department or ICA) is an auxiliary enterprise within the University of Washington (the University). The records of the Department are maintained as part of the general records of the University.
(b) Basis of Presentation
The financial statements of the Department have been prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statement – and Management’s Discussion and Analysis – for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities. The Department is reporting as a special purpose government engaged in business type activities (BTA). In accordance with BTA reporting, the Department presents a management’s discussion and analysis, balance sheets, statements of revenues, expenses, and changes in net assets, statements of cash flows, and notes to the financial statements. The financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting.
Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. The University has elected not to apply any FASB pronouncements after November 15, 1989. The Department reports capital assets net of accumulated depreciation (as applicable), and reports depreciation expense in the statements of revenues, expenses, and changes in net assets.
(c) Capital Assets
Expenditures for equipment and repairs that represent normal replacement of such equipment and routine maintenance of the buildings are expensed as incurred. Capital expenditures for facilities and equipment funded by the Department are reflected as capital assets on the Department’s balance sheets. Buildings and equipment are stated at cost, or if acquired by gift, at fair market value at the date of the gift. Additions, replacements, major repairs, and renovations are capitalized. Depreciation is computed using the straight line method over the estimated useful lives of the assets, generally 15 – 50 years for building components, 20 – 50 years for infrastructure and land improvements, and 5 – 7 years for equipment.
(d) Advances to University for Capital projects
Advances to University for capital projects represent the difference between the cash paid and the expenditures incurred by the University for various capital projects that are in process at year end, which ICA expects to expense or capitalize in the next fiscal year.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
15 (Continued)
(e) Deferred Revenues
Funds received from the sale of tickets (which could be shared with visiting teams) for games to be played subsequent to June 30 are deferred. The Department’s share of such receipts is recognized as income in the period in which the games are played. At June 30, 2009 and 2008, deferred revenues consist of the following:
2009 2008
Advance sales of football tickets $ 12,117,017 13,606,168 Advance sales for men’s and women’s basketball 681,636 7,386 Other deferred revenues 318,860 45,376
$ 13,117,513 13,658,930
(f) Contributions
Contributions are recorded as income when all applicable eligibility requirements have been met.
(g) Donated Advertising and Athletic Supplies
In 2009 and 2008, the radio rights and the related donated advertising are included as part of a multimedia rights contract. The donated advertising is recorded as revenue and expense at its estimated fair market value at the date of donation. In addition, athletic supplies are donated to the Department at estimated fair market value at the date of donation.
(h) Income Taxes
As a part of the University, the Department is exempt from federal income taxes, except to the extent of unrelated business taxable income. Unrelated business tax was not significant to the balance sheets taken as a whole at June 30, 2009 and 2008.
(i) New Accounting Pronouncements
On July 1, 2007, the University adopted the provisions of GASB Statement No. 45 (GASB 45), Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions. This statement establishes standards for the measurement, recognition, and display of other postemployment benefits (OPEB) expenditures and related liabilities (assets), note disclosures, and required supplementary information in the financial reports of state and local governmental employers. GASB 45 requires systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employees’ years of service. The statement also provides information about actuarial accrued liabilities (AAL) associated with OPEB and whether and to what extent progress is being made in funding the plan. The University funds OPEB obligations at a university-wide level on a pay-as-you-go basis. Disclosure information, as required under GASB 45, does not exist at department levels, and as a result, the AAL is not available for auxiliary entities. The University is ultimately responsible for the obligation; therefore, the annual required contribution (ARC) is not recorded on the Department’s financial statements.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
16 (Continued)
On July 1, 2008, the Department adopted GASB Statement No. 55, “The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments.” The University had no additional disclosures resulting from this new pronouncement.
On July 1, 2008, the Department adopted GASB Statement No. 56, “Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards.” The University had no additional disclosures resulting from this new pronouncement.
(j) Reclassifications
Certain amounts in the 2008 financial statements have been reclassified for comparative purposes to conform to the presentation in the 2009 financial statements.
(2) Endowment and Quasi-Endowment Funds
The Department purchases or sells units in the University’s Consolidated Endowment Fund (CEF) on the basis of a per unit valuation of the CEF at fair value on the last business day of the calendar quarter. Income is distributed by the University based on the number of units held. The Department records its permanent endowments at fair market value. Net appreciation/depreciation in the fair market value is recorded as unrealized gain or loss on investments in the statements of revenue, expenses and changes in net assets. At June 30, 2009, 74% of the CEF was invested in equities, 16% in fixed income, and 10% in real assets. At June 30, 2008, 76% of the CEF was invested in equities, 9% in fixed income, and 15% in real assets. CEF investments are all externally managed by investment professionals. Investment strategies include exposure to domestic and international stocks and bonds as well as allocations to absolute return and nonmarketable alternative asset managers. Alternative assets enable extensive diversification in area such as venture capital, buyout, private equity, opportunistic, event driven and long and short equities.
At June 30, 2009 and 2008, the fund balance of the Endowment and Quasi-Endowment funds stated at fair value comprised the following:
2009 2008
Quasi-endowments:Graham* $ 313,753 433,232 Spence* 461,520 637,267
Endowments 28,065,923 30,810,803 Total $ 28,841,196 31,881,302
* Expenditure of principal is permitted under certain circumstances.
The Department received $5,408,507 and $7,071,864 in endowment gifts in 2009 and 2008, respectively, which is invested in the CEF.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
17 (Continued)
(3) Capital Assets
Capitalized asset activity for the period ended June 30, 2009 is summarized as follows:
Balance at Balance atJune 30, Additions/ June 30,
2008 transfers Retirements 2009
Buildings $ 148,556,900 185,667 — 148,742,567 Furniture, fixtures, and
equipment 4,763,712 405,622 182,544 4,986,790 Construction in progress* 489,443 4,244,598 — 4,734,041
Total 153,810,055 4,835,887 182,544 158,463,398
Less accumulated depreciation:Buildings 50,474,261 4,135,685 — 54,609,946 Furniture, fixtures, and
equipment 3,174,375 440,377 151,280 3,463,472
Total accumulateddepreciation 53,648,636 4,576,062 151,280 58,073,418
Capital assets, net $ 100,161,419 259,825 31,264 100,389,980
* Nondepreciable.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
18 (Continued)
Capitalized asset activity for the period ended June 30, 2008 is summarized as follows:
Balance at Balance atJune 30, Additions/ June 30,
2007 transfers Retirements 2008
Buildings $ 141,590,766 6,966,134 — 148,556,900 Furniture, fixtures, and
equipment 4,138,698 717,313 92,299 4,763,712 Construction in progress* 4,530,871 (4,041,428) — 489,443
Total 150,260,335 3,642,019 92,299 153,810,055
Less accumulated depreciation:Buildings 46,309,025 4,165,236 — 50,474,261 Furniture, fixtures, and
equipment 3,146,760 118,885 91,270 3,174,375
Total accumulateddepreciation 49,455,785 4,284,121 91,270 53,648,636
Capital assets, net $ 100,804,550 (642,102) 1,029 100,161,419
* Nondepreciable.
(4) Internal Lending Program
On December 1, 2000, the University issued the Department of Intercollegiate Athletics Revenue Bonds, Series 2000 to pay a portion of the cost of construction and equipping an indoor practice facility and outdoor practice field and renovating the Bank of America Arena. The total amount of the issuance was $16,310,000. Of the approximately $16 million received from the Revenue bonds, the Department received and was only responsible for approximately $10 million.
On May 6, 2008, the University of Washington refunded ICA bonds totaling $9,890,000 with General Revenue bond issuances totaling $9,515,000 as part of a larger refunding of University debt. The ICA refunded bonds had average interest rates ranging from 4.750% to 5.150%; the new bonds have an average interest rate of 4.523%. The new bonds replace ICA’s obligation to the external market with an obligation to the University’s internal lending program (ILP) as described below. Of the $9,515,000 of bond issuances, ICA is only responsible for 62.5% or $5,946,875. Due to the refunding of the revenue bonds and the issuance of the new internal lending program obligation, ICA benefited from a gain on refunding of bonds of $796,250, which is being amortized over the life of the bonds.
The purpose of the ILP is to lower the University’s overall cost of capital and provide internal borrowing units with a stable and predictable borrowing rate. The ILP will make loans to internal borrowers at a uniform internal lending rate. These loans will be funded through the issuance of University General Revenue bonds and notes. ILP program policies include a provision for a rate stabilization reserve and a provision for rate adjustments if necessary.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
19 (Continued)
Under the terms of the ILP, rate adjustments will apply to all outstanding debt obligations, including debt issued prior to the ILP implementation. The ILP lending rate will be reviewed annually and a preliminary indication of a rate adjustment will be announced to ILP participants 12 months in advance of the effective date. Final rate adjustments require approval by the Board of Regents.
Future principal and interest payments due through maturity dates are as follows:
Principal Interest
Years ending June 30:2010 $ 920,573 212,907 2011 967,969 165,485 2012 1,009,115 124,734 2013 1,052,604 81,875 2014 1,197,395 27,734
5,147,656 612,735
Capitalized gain on refinancing 639,418 — $ 5,787,074 612,735
Bond and internal lending program activity for the year ended June 30, 2009 is summarized as follows:
Balance as of Balance as ofJune 30, 2008 Additions Reductions June 30, 2009
Revenue bonds and internal lendingprogram payable:
Internal lending program payable $ 6,731,061 — 943,987 5,787,074
Total bonds and internallending programpayable $ 6,731,061 — 943,987 5,787,074
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
20 (Continued)
Bond and internal lending program activity for the year ended June 30, 2008 is summarized as follows:
Balance as of Balance as ofJune 30, 2007 Additions Reductions June 30, 2008
Revenue bonds and internal lendingprogram payable:
Revenue bonds $ 7,615,000 — 7,615,000 — Internal lending program payable — 6,743,125 12,064 6,731,061
Total bonds and internallending programpayable $ 7,615,000 6,743,125 7,627,064 6,731,061
(5) Related Party Transactions
The University provides support to the Department by performing the following services:
• Providing use of University buildings and equipment
• Serving as the depository, purchasing, and disbursing agent
• Providing certain administrative and accounting services
In addition, the Department purchases operating and office supplies and other services from the University and is allocated institutional overhead from the University for services provided and payment for utility costs. The institutional overhead allocated from the University for fiscal year 2009 and 2008 was $1,892,404 and $1,928,080, respectively, and is included in administration expense.
The Department is covered by the University’s self insurance program and is responsible for the first $100,000 of costs in general, automobile, and employment practices liability claims. Payments over $100,000 are covered by the University’s self insurance program and excess carriers, except that in claims related to coaches’ contracts or the acts of trainers and non-University physicians to the athletes’ medical services program, all costs are the exclusive responsibility of the Department.
All cash is on deposit with the University. This cash is managed by the University through the treasurer of the Board of Regents. All cash balances are covered by either the Federal Deposit Insurance Corporation or the Washington Public Deposit Protection Commission.
During 2009 and 2008, the Department’s funds on deposit with the University were invested in the University’s Invested Fund which contains two investment pools: the Invested Funds Pool (IFP) and the Consolidated Endowment Fund (CEF). The IFP investment pools are considered unrated and the principal balance in each account is available to be withdrawn at any time. Since the IFP funds can be withdrawn at any time, the IFP funds are recorded on the financial statements as cash and cash equivalents. The IFP funds are invested in highly liquid, shorter-term investments and are generally designated for Department
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
21 (Continued)
operating purposes. For funds invested in the IFP, the University credits the Department with interest at rates established at the University’s discretion (2.00% and 4.25% for fiscal year 2009 and 2008, respectively) on the average month-end balance of IFP funds. Both endowment and diversified investment funds for the department are invested in the CEF investment pool. The endowment portion of the CEF fund is explained in note 2. For the investment portion of the CEF funds, the principal balance can be withdrawn at the end of each quarter. The Department earned investment income on these investment funds based on the performance of the University’s CEF funds net of investment management and University administrative fees. The total return on the investments portion of the CEF funds for the years ended June 30, 2009 and 2008 was approximately (23.3%) and 1.9%, respectively. As of June 30, 2009 and 2008, Department funds invested in the investment portion of the CEF funds amounted to $14,718,417 and $19,615,314 and funds invested in the IFP (cash and cash equivalents) amounted to $3,999,120 and $11,958,466, respectively.
In 2005, a housing loan was given to the Athletic Director for $475,000 at 5% interest. The portion of the loan that was still unpaid at the time of the Athletic Director’s separation (January 2008) was forgiven in full during 2008.
(6) Pension Plan
The University offers two contributory plans in which Department employees can participate: the Washington State Public Employees Retirement System (PERS) plan, a defined benefit retirement plan; and the University of Washington Retirement Plan (UWRP), a defined contribution plan with supplemental payment, when required.
(a) Public Employees Retirement System
Plan Description. The University contributes to PERS, a costsharing multiple employer defined benefit pension plan administered by the State of Washington Department of Retirement Systems. PERS Plan 1 provides retirement and disability benefits and minimum benefit increases beginning at age 66 to eligible nonacademic plan members hired prior to October 1, 1977. PERS Plans 2 and 3 provide retirement and disability benefits and a cost of living allowance to eligible nonacademic plan members hired on or after October 1, 1977. In addition, PERS Plan 3 has a defined contribution component, which is fully funded by employee contributions. The authority to establish and amend benefit provisions resides with the legislature. The PERS issues a publicly available financial report that includes financial statements and required supplementary information for PERS. The report may be obtained by writing to the Department of Retirement Systems, P.O. Box 48380, Olympia, Washington 98504 8380, or visiting http://www.drs.wa.gov/administration.
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Financial Statements
June 30, 2009 and 2008
22
Funding Policy. The Office of the State Actuary, using funding methods prescribed by statute, determines actuarially required contribution rates for PERS. Plan 1 members are required to contribute 6% of their annual covered salary. Contributions for Plan 2 members are determined by the aggregate method and may vary over time. The contribution rate for Plan 2 employees at June 30, 2009 and 2008 was 5.45% and 4.15%, respectively. PERS 3 members can choose contributions ranging from 5% to 15% of salary, based on the age of the member. The defined contribution benefit for PERS 3 will depend on the member’s contributions, the investment earnings on those contributions, and if an annuity is taken, the age at which the member receives payment. The contribution rate for the University at June 30, 2009 and 2008, for each of PERS Plans 1, 2, and 3 was 8.31% and 6.13%, respectively. The University’s contributions to PERS on the Department’s behalf for the years ended June 30, 2009 and 2008 was $366,123 and $253,700, respectively, which was equal to the annual required contributions for the year.
(b) University of Washington Retirement Plan
Plan Description. Professional staff and certain other salaried employees are eligible to participate in the UWRP, a defined contribution plan administered by the University. Contributions to the plan are invested in annuity contracts or mutual fund accounts offered by one or more fund sponsors. Employees have at all times a 100% vested interest in their accumulations.
Benefits from fund sponsors are available upon separation or retirement at the member’s option. RCW 28.B.10.400 et. seq. assigns the authority to the Board of Regents to establish and amend benefit provisions.
The plan has a supplemental payment component that guarantees a minimum retirement benefit based upon a one time calculation at each employee’s retirement date. The University makes direct payments to qualifying retirees when the retirement benefits provided by the fund sponsors do not meet the benefit goals.
Funding Policy. Employee contribution rates, based on age, are 5%, 7.5%, or 10% of salary. The University matches the contributions of employees. Within parameters established by the legislature, contribution requirements may be established or amended by the Board of Regents. Employee and employer contributions for the years ended June 30, 2009 and 2008 were each $653,391 and $629,986, respectively. The supplemental component of the UWRP is financed on a pay as you go basis.
(7) Commitments and Contingencies
The Department is subject to various claims and lawsuits that are covered by the University’s self insurance fund in excess of $100,000.
SCHEDULES
Schedule 1UNIVERSITY OF WASHINGTON
DEPARTMENT OFINTERCOLLEGIATE ATHLETICS
Operating and Other Revenue by Specific Function
Years ended June 30, 2009 and 2008
2008
Men’s Men’s Women’s Other sports Administrationfootball basketball basketball Men’s Women’s and other Total
Gate ticket sales revenue:Ticket sales for home events $ 19,357,207 3,158,504 280,047 92,165 233,919 — 23,121,842 Admission taxes (921,132) (150,264) (13,395) (4,414) (11,147) — (1,100,352) Ticket-processing fees 429,099 79,593 11,006 3,594 12,160 — 535,452
18,865,174 3,087,833 277,658 91,345 234,932 — 22,556,942
University’s share of gate revenue for away games 1,450,000 154,243 1,000 1,150 3,000 — 1,609,393
Total gate ticket sales revenue 20,315,174 3,242,076 278,658 92,495 237,932 — 24,166,335
NCAA/conference distributions:PAC-10 television share 4,539,329 668,666 — — — — 5,207,995 PAC-10 Rose/other bowl shares 1,643,501 — — — — — 1,643,501 Conference postseason other 127,734 — — — — — 127,734 NCAA MBB tournament — 1,204,739 — — — — 1,204,739 MBB PAC-10 tournament — 320,871 — — — — 320,871 Other — — — — — 1,317,878 1,317,878
Total NCAA/conference distributions 6,310,564 2,194,276 — — — 1,317,878 9,822,718
Royalties, advertisements, and sponsorships:Sponsorships 80,000 65,000 15,000 106,197 123,395 4,698,100 5,087,692 Donated advertising — — — — — 3,284,738 3,284,738 Trademarks and licensing — — — — — 360,540 360,540 Donated supplies 265,496 80,160 78,910 377,682 328,538 10,472 1,141,258
Total royalties, advertisements, and sponsorships 345,496 145,160 93,910 483,879 451,933 8,353,850 9,874,228
Contributions 7,640,454 2,571,204 105,643 498,214 425,920 1,440,907 12,682,342 Capital gifts — — — — — 4,275,914 4,275,914 Gifts to permanent endowments — — — — — 7,071,864 7,071,864 Other TV, radio, and internet rights 780,311 113,435 26,854 1,950 3,050 — 925,600 Investment income — — — — — 1,578,768 1,578,768 State funded tuition waivers — — — — — 1,849,894 1,849,894 Concessions, souvenirs, parking, and boat moorage 1,123,066 124,989 31,231 10,443 18,859 164,248 1,472,836 Facility income — — — — — 633,570 633,570 Amortization of debt refinance gain — — — — — 12,064 12,064 Other 177,291 5,485 25,746 248,578 253,101 297,262 1,007,463
Total revenue $ 36,692,356 8,396,625 562,042 1,335,559 1,390,795 26,996,219 75,373,596
See accompanying notes to schedules and independent auditors’ report.
23
Schedule 1UNIVERSITY OF WASHINGTON
DEPARTMENT OFINTERCOLLEGIATE ATHLETICS
Operating and Other Revenue by Specific Function
Years ended June 30, 2009 and 2008
2009
Men’s Men’s Women’s Other sports Administrationfootball basketball basketball Men’s Women’s and other Total
Gate ticket sales revenue:Ticket sales for home events $ 17,975,750 3,301,310 255,035 114,695 258,585 — 21,905,375 Admission taxes (855,002) (157,378) (12,209) (5,418) (12,341) — (1,042,348) Ticket-processing fees 332,364 112,208 14,602 3,076 14,354 — 476,604
17,453,112 3,256,140 257,428 112,353 260,598 — 21,339,631
University’s share of gate revenue for away games 1,243,371 62,499 — 3,030 7,650 — 1,316,550
Total gate ticket sales revenue 18,696,483 3,318,639 257,428 115,383 268,248 — 22,656,181
NCAA/conference distributions:PAC-10 television share 4,768,669 730,416 — — — — 5,499,085 PAC-10 Rose/other bowl shares 1,657,259 — — — — — 1,657,259 Conference postseason other 127,472 — — — — — 127,472 NCAA MBB tournament — 1,339,880 — — — — 1,339,880 MBB PAC-10 tournament — 335,880 — — — — 335,880 Other — — — — — 1,318,271 1,318,271
Total NCAA/conference distributions 6,553,400 2,406,176 — — — 1,318,271 10,277,847
Royalties, advertisements, and sponsorships:Sponsorships 80,000 65,000 15,000 104,132 108,275 4,588,500 4,960,907 Donated advertising — — — — — 695,155 695,155 Trademarks and licensing — — — — — 352,890 352,890 Donated supplies 265,496 81,600 78,910 399,097 350,123 10,472 1,185,698
Total royalties, advertisements, and sponsorships 345,496 146,600 93,910 503,229 458,398 5,647,017 7,194,650
Contributions 6,586,642 3,057,117 101,525 419,774 332,828 1,990,347 12,488,233 Capital gifts — — — — — 3,971,920 3,971,920 Gifts to permanent endowments — — — — — 5,408,507 5,408,507 Other TV, radio, and internet rights 565,387 120,380 33,706 2,340 2,860 — 724,673 Investment income — — — — — 1,147,770 1,147,770 State funded tuition waivers — — — — — 1,996,736 1,996,736 Concessions, souvenirs, parking, and boat moorage 958,065 133,714 30,597 11,158 18,332 136,611 1,288,477 Facility income — — — — — 522,191 522,191 Amortization of debt refinance gain — — — — — 144,768 144,768 Other 92,018 2,978 11,835 208,524 324,946 328,711 969,012
Total revenue $ 33,797,491 9,185,604 529,001 1,260,408 1,405,612 22,612,849 68,790,965
See accompanying notes to schedules and independent auditors’ report.
24
Schedule 2UNIVERSITY OF WASHINGTON
DEPARTMENT OFINTERCOLLEGIATE ATHLETICS
Operating Expenses and Other Deductions by Specific Function
Years ended June 30, 2009 and 2008
2008
Facilities Departmentmaintenance relations
Men’s Men’s Women’s Other sports Postseason and event and visitingfootball basketball basketball Men’s Women’s activity Administration management recruits Total
Operating expenses:Salaries and wages $ 4,306,648 1,854,682 707,225 1,494,237 2,131,234 327 6,481,453 1,392,721 588,348 18,956,875 Payroll taxes and employee benefits 854,387 332,995 169,788 367,579 515,572 37 1,534,211 380,085 63,700 4,218,354 Athletic student aid 2,076,866 370,125 346,101 1,591,199 2,853,525 — 556,491 — — 7,794,307 Guarantees paid to visiting teams 2,744,630 674,243 34,269 22,426 5,915 — — — — 3,481,483 Team travel 1,334,560 410,884 208,564 838,212 1,070,008 282,903 233,335 — 12,991 4,391,457 Day of game expenses 922,269 222,935 149,752 137,685 170,178 15,797 485,123 152,873 1,763,775 4,020,387 Direct facilities, maintenance, and utilities 116,292 — — 27,219 30,015 — 1,404,142 886,822 — 2,464,490 Donated advertising — — — — — — 3,284,738 — — 3,284,738 Uniforms and supplies 283,215 61,564 59,021 213,828 268,348 25,405 477,741 200,499 53,398 1,643,019 Donated supplies 265,496 80,160 78,910 377,682 328,538 — 10,472 — — 1,141,258 Institutional overhead — — — — — — 1,928,080 — — 1,928,080 Medical expenses — — — — — — 551,919 — — 551,919 Fund-raising, marketing, and promotions 293 — — — — — 343,513 — — 343,806 Recruiting — — — — — — — — 215,793 215,793 Equipment — — — — — — 13,363 4,054 — 17,417 Training table 486,738 30,653 22,824 134,287 246,782 — 31,704 — 22,523 975,511 Department relations — 977 7,304 34,123 19,719 — 80,862 — 314,427 457,412 Banquets and special events 37,600 3,550 2,729 46,256 23,778 — 87,152 — 235,434 436,499 Depreciation — — — — — — 4,284,121 — — 4,284,121 Noncapitalized equipment and repairs — — — — — — — 2,822,897 — 2,822,897 Other 260,504 180,136 176,391 176,372 282,445 27,117 2,664,679 26,398 499,591 4,293,633
Total operating expenses 13,689,498 4,222,904 1,962,878 5,461,105 7,946,057 351,586 24,453,099 5,866,349 3,769,980 67,723,456
Other deductions:Unrealized loss on investments — — — — — — 998,535 — — 998,535 Interest expense — — — — — — 344,314 — — 344,314
Total other deductions — — — — — — 1,342,849 — — 1,342,849
Total operating expenses andother deductions $ 13,689,498 4,222,904 1,962,878 5,461,105 7,946,057 351,586 25,795,948 5,866,349 3,769,980 69,066,305
See accompanying notes to schedules and independent auditors’ report.
25
Schedule 2UNIVERSITY OF WASHINGTON
DEPARTMENT OFINTERCOLLEGIATE ATHLETICS
Operating Expenses and Other Deductions by Specific Function
Years ended June 30, 2009 and 2008
2009
Facilities Departmentmaintenance relations
Men’s Men’s Women’s Other sports Postseason and event and visitingfootball basketball basketball Men’s Women’s activity Administration management recruits Total
Operating expenses:Salaries and wages $ 6,607,847 1,779,980 731,624 1,884,448 2,427,407 846 6,518,918 1,413,476 238,217 21,602,763 Payroll taxes and employee benefits 896,442 332,707 168,842 372,239 527,559 102 1,580,426 369,761 57,860 4,305,938 Athletic student aid 2,172,904 411,354 386,876 1,765,891 3,033,381 — 540,083 — — 8,310,489 Guarantees paid to visiting teams 1,625,000 583,519 45,030 44,806 7,677 — — — — 2,306,032 Team travel 842,656 238,996 216,561 785,991 1,198,659 283,973 189,278 — 17,117 3,773,231 Day of game expenses 936,900 263,998 146,137 135,195 147,789 34,512 460,130 116,237 2,168,556 4,409,454 Direct facilities, maintenance, and utilities 143,816 — — 28,008 24,392 — 1,522,191 807,538 — 2,525,945 Donated advertising — — — — — — 695,155 — — 695,155 Uniforms and supplies 500,901 72,419 50,597 295,502 378,849 98,347 559,686 168,161 15,588 2,140,050 Donated supplies 265,496 81,600 78,910 399,097 350,123 — 10,472 — — 1,185,698 Institutional overhead — — — — — — 1,892,404 — — 1,892,404 Medical expenses — — — — — — 632,602 — — 632,602 Fund-raising, marketing, and promotions — — — 1,420 — — 419,849 — — 421,269 Recruiting — — — — — — — — 227,839 227,839 Equipment — — — — — — 9,678 9,945 — 19,623 Training table 593,123 27,609 23,623 150,405 244,510 — 38,020 — 31,620 1,108,910 Department relations 3,992 953 5,036 11,586 24,681 18,656 50,337 — 287,082 402,323 Banquets and special events — 14,189 2,767 56,927 24,699 — 52,515 — 268,013 419,110 Depreciation — — — — — — 4,576,062 — — 4,576,062 Noncapitalized equipment and repairs — — — — — — — 2,026,452 — 2,026,452 Other 336,352 157,333 116,546 181,661 294,613 21,995 3,149,473 21,054 716,828 4,995,855
Total operating expenses 14,925,429 3,964,657 1,972,549 6,113,176 8,684,339 458,431 22,897,279 4,932,624 4,028,720 67,977,204
Other deductions:Unrealized loss on investments — — — — — — 14,949,366 — — 14,949,366 Interest expense — — — — — — 267,317 — — 267,317
Total other deductions — — — — — — 15,216,683 — — 15,216,683
Total operating expenses andother deductions $ 14,925,429 3,964,657 1,972,549 6,113,176 8,684,339 458,431 38,113,962 4,932,624 4,028,720 83,193,887
See accompanying notes to schedules and independent auditors’ report.
26
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Schedules
Year ended June 30, 2009 and 2008
27 (Continued)
(1) Television and Radio
Under the terms of a multimedia rights contract in 2009, the University of Washington Department of Intercollegiate Athletics received fees and donated advertising. Donated advertising is recorded as both revenue and expense.
(2) Postseason Activity Expenses
Postseason activity expenses for the year ended June 30, 2009 and 2008 are as follows:
2009 2008
Men’s Basketball $ 39,306 31,935 Other Sports – men’s 137,864 127,211 Other Sports – women’s 281,261 192,440
$ 458,431 351,586
UNIVERSITY OF WASHINGTON DEPARTMENT OF
INTERCOLLEGIATE ATHLETICS
Notes to Schedules
Year ended June 30, 2009 and 2008
28
(3) Administration Expenses and Other Deductions
Administration expenses and other deductions for the year ended June 30, 2009 and 2008 are as follows:
2009 2008
Administration $ 4,565,135 3,657,608 Donated advertising 695,155 3,284,738 Donated supplies 1,185,698 1,643,019 Depreciation 4,576,062 4,284,121 Training room 1,680,839 1,445,630 Student athlete academic services 1,322,861 1,252,029 Athletic communication 867,916 832,593 Ticket office 661,531 564,495 Director’s office 1,076,630 1,527,532 Husky band 660,955 742,348 Fund development office 640,708 565,633 Equipment room 459,275 434,495 Computer office 743,190 575,218 Business office 347,948 337,738 Marketing/promotions 969,683 1,000,806 Compliance office 851,500 855,258 Video/filming 327,121 353,055 Sports performance 581,017 517,826 Business and finance 293,235 285,697 Life skills 42,595 44,683 Laundry 122,801 101,736 Travel office 89,507 59,689 Boat moorage 135,917 87,152 Unrealized loss on investments 14,949,366 998,535 Interest expense 267,317 344,314
$ 38,113,962 25,795,948
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Financial Statements
June 30, 2009 and 2008
(With Independent Auditors’ Report Thereon)
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Table of Contents
Page
Independent Auditors’ Report 1
Statements of Financial Position 2
Statements of Activities and Changes in Net Assets 3
Statements of Cash Flows 4
Notes to Financial Statements 5
KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.
KPMG LLP Suite 900 801 Second Avenue Seattle, WA 98104
Independent Auditors’ Report
The Board of Trustees University of Washington Alumni Association:
We have audited the accompanying statements of financial position of the University of Washington Alumni Association (Association) as of June 30, 2009 and 2008, and the related statements of activities and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Association’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion of the effectiveness of the Association’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Association as of June 30, 2009 and 2008, and the changes in its net assets and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in the note (4) to the financial statements, the Association adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, during the year ended June 30, 2009.
Seattle, Washington October 22, 2009
UNIVERSITY OF WASHINGTONALUMNI ASSOCIATION
Statements of Financial Position
June 30, 2009 and 2008
Assets 2009 2008
Current assets:Cash and cash equivalents $ 1,218,223 800,815 Accounts receivable, net of allowance of $1,487 and $2,650
in 2009 and 2008, respectively 221,079 392,435 Interest receivable 38,073 38,073 Other assets 86,847 98,723 Receivable from University 30,795 5,270 Current portion of net investment in direct financing lease 1,658,034 1,507,699
Total current assets 3,253,051 2,843,015
Land, building, and equipment:Land 96,000 96,000 Building 867,791 867,791 Equipment 950,810 942,967
1,914,601 1,906,758
Less accumulated depreciation 1,662,041 1,598,988
Land, building, and equipment, net 252,560 307,770
Net investment in direct financing lease, less current portion 8,631,150 10,289,184 Investments 10,035,966 13,976,765 Restricted investments 3,366,480 3,296,506
Total assets $ 25,539,207 30,713,240
Liabilities and Net Assets
Current liabilities:Accounts payable and accrued expenses $ 842,933 975,443 Current portion of deferred revenue 1,443,655 1,571,246 Current portion of bonds payable 1,415,000 1,290,000 Interest payable 258,142 282,330
Total current liabilities 3,959,730 4,119,019
Bonds payable, less current portion 12,051,391 13,564,402 Deferred revenue, less current portion 1,499,246 1,451,864
Total liabilities 17,510,367 19,135,285
Unrestricted net assets 8,028,840 11,577,955
Total net assets 8,028,840 11,577,955 Total liabilities and net assets $ 25,539,207 30,713,240
See accompanying notes to financial statements.
2
UNIVERSITY OF WASHINGTONALUMNI ASSOCIATION
Statements of Activities and Changes in Net Assets
Years ended June 30, 2009 and 2008
2009 2008
Unrestricted net asset activity:Support and revenues:
University support $ 1,858,438 1,662,080 Annual membership dues 862,560 794,169 Life membership dues 332,369 290,937 Alumni relations 458,855 636,293 University of Washington Travels 298,768 303,962 Columns magazine 172,461 143,668 Other revenue:
Royalty and merchandising income 1,670,767 1,625,069 Rental income — 43,563 Direct financing lease interest income 706,831 775,400 Interest and dividends 476,700 642,432 Realized and unrealized loss on investments, net (3,860,799) (397,824) Other 2,367 1,064
Total support and revenues 2,979,317 6,520,813
Expenses:Program services:
Alumni relations 1,657,242 2,002,070 University of Washington Travels 303,519 318,287 Columns magazine 903,484 901,136 Direct financing arrangements 706,831 775,400
Supporting services:Management and general 1,007,774 1,017,568 Membership development 1,949,582 1,846,942
Total expenses 6,528,432 6,861,403
Change in total net assets (3,549,115) (340,590)
Net assets at beginning of year 11,577,955 11,918,545 Net assets at end of year $ 8,028,840 11,577,955
See accompanying notes to financial statements.
3
UNIVERSITY OF WASHINGTONALUMNI ASSOCIATION
Statements of Cash Flows
Years ended June 30, 2009 and 2008
2009 2008
Cash flows from operating activities:Change in net assets $ (3,549,115) (340,590) Adjustments to reconcile change in net assets to net cash
provided by operating activities:Depreciation 63,053 69,430 Amortization of bond premium (98,011) (98,011) Realized and unrealized loss on investments, net 3,860,799 397,824 Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 171,356 (181,736) Decrease (increase) in other assets 11,876 (9,639) (Decrease) increase in deferred revenue (80,209) 156,110 Increase in receivable from University (25,525) (21,775) (Decrease) increase in accounts payable and accrued
expenses (132,510) 219,100 Decrease in scholarship payable — (6,662) Decrease in interest payable (24,188) (22,125)
Net cash provided by operating activities 197,526 161,926
Cash flows from investing activities:Purchase of equipment (7,843) (85,286) Purchase of restricted investments (69,974) (63,902) Sale (purchase) of investments 80,000 (200,000) Receipts of principal portion of lease receivable 1,507,699 1,385,813
Net cash provided by investing activities 1,509,882 1,036,625
Cash flows from financing activity:Principal payments on bonds payable (1,290,000) (1,180,000)
Net cash used in financing activity (1,290,000) (1,180,000)
Net increase in cash and cash equivalents 417,408 18,551
Cash and cash equivalents at beginning of year 800,815 782,264 Cash and cash equivalents at end of year $ 1,218,223 800,815
Supplemental disclosure of cash flow information:Cash paid during the year for interest $ 720,631 782,381
See accompanying notes to financial statements.
4
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
5 (Continued)
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
The mission of the University of Washington Alumni Association (Association) is to reach, connect, and celebrate alumni and friends of the University of Washington (University) to build lifelong relationships and to support the University’s mission.
(b) Basis of Presentation
The financial statements of the Association have been prepared on the accrual basis of accounting. In accordance with U.S. generally accepted accounting principles, net assets and revenues, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Association and changes therein are classified and reported as follows:
• Unrestricted Net Assets – Net assets that are not subject to donor-imposed stipulations. Temporarily restricted support received during the fiscal period, for which restriction expires or the purpose accomplished during the fiscal period, is reported as unrestricted support.
(c) Cash and Cash Equivalents
Cash and cash equivalents include investments in interest-bearing instruments with original maturities of three months or less.
(d) Accounts Receivable
Accounts receivable represent amounts due from Columns magazine advertisers, Alumni Relations event sponsors, and from insurance companies and travel agencies for royalties, and merchandising income. The Association maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical write-offs and current receivables aging. Write-offs for accounts deemed uncollectible for 2009 and 2008 amounted to $13,580, and $750, respectively.
(e) Other Assets
Other assets at June 30, 2009 and 2008 include approximately $13,095 and $21,000, respectively, of merchandise inventory, which is stated at the lower of cost or market under the first-in, first-out method of accounting.
(f) Land, Building, and Equipment
Land, building, and equipment are stated at cost. The Association’s building consists of an office building which is depreciated on the straight-line method over its estimated useful life of 30 years. Office equipment and automobiles are depreciated on the straight-line method over estimated useful lives ranging from 3 to 15 years.
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
6 (Continued)
(g) Revenue Recognition
Revenue from sources other than contributions, which mainly include Alumni Relations event registrations, UW Travels trip commissions, and Columns magazine advertising sales, are reported as increases in unrestricted net assets. Contributions, including unconditional promises, are recognized as revenue in the period received and reported as increases in the appropriate category of net assets based on the presence or absence of donor-imposed restrictions. Donor-restricted gifts are received and either spent or deemed spent within the same year are reported as unrestricted revenues.
Deferred revenue consists of unearned annual and life membership dues and a credit card royalty advance. Life membership dues received are deferred and recognized over a period of ten years. The credit card royalty advance is deferred and recognized straight-line over the term of the contract. The advance is nonrefundable except in the event of nonperformance by the Association. Royalties earned under an adjustment provision that exceed the initial advance will be paid to the Association as they are earned.
The current portion of deferred revenue reflects the annual and life membership dues and royalty that will be recognized as income within one year. The current portion of deferred annual and life membership dues revenue totaled $708,185 and $796,054 as of June 30, 2009 and 2008, respectively. The current portion of deferred royalty revenue totaled $713,178 and $775,192 as of June 30, 2009 and 2008, respectively.
In 2003, the Association entered into an affinity agreement over seven years with Bank of America. As a part of this agreement, the Association obtained authorization from the University of Washington to allow Bank of America the use of the University trademarks and license mailing lists. In exchange, the Association is to pay 24.6% of the total royalty to the Department of Intercollegiate Athletics over the seven-year period. The Association received $1,333,333 in royalties, and accrued $350,000 payable to the Department of Intercollegiate Athletics in both 2009 and 2008. The payable was paid subsequent to year-end.
(h) Donated Services
Many people have donated significant amounts of time to the activities of the Association. However, such contributed services do not meet the criteria for recognition promulgated by U.S. generally accepted accounting principles and, accordingly, are not reflected in the accompanying financial statements.
(i) Functional Allocation of Expenses
The Association allocates expenses among various program and supporting services on the following bases:
• Salaries and benefits are allocated on the time devoted by staff members to each of the program and supporting services.
• Other expenses are allocated on the basis of specific identification to a program or supporting service.
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
7 (Continued)
(j) 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(k) Tax Status
The Association is a nonprofit organization exempt from federal income taxes under Section 501(a) of the Internal Revenue Code (IRC), as amended, as an organization described in IRC Section 501(c)(3), except for that portion of income derived from unrelated business activities. Unrelated business activities primarily include travel tours and advertising-related operations.
(l) Recently Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes methods used to measure fair value and expands disclosure requirements about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal periods, as it relates to financial assets and liabilities, as well as for any nonfinancial assets and liabilities that are carried at fair value. On November 14, 2007, the FASB provided a one year deferral for the implementation of SFAS No. 157 for nonfinancial assets and liabilities. SFAS No. 157 excludes from its scope SFAS No. 13, Accounting for Leases (SFAS No. 13), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No 13. The Association adopted SFAS No. 157 on July 1, 2008 as it applies to its financial assets and liabilities, and based on the November 14, 2007 deferral of SFAS No. 157 for nonfinancial assets and liabilities. The adoption of SFAS No. 157 did not have a material impact on its financial position, results of operations or cash flows. Refer to note (4) for more information regarding the Association’s fair value disclosures under SFAS No. 157.
Effective July 1, 2008, the Association adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Association did not elect to adopt the fair value option under SFAS No. 159 as this Statement was not expected to have a material impact on the Association’s results of operations and financial condition.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165), which is effective for interim and fiscal years ending after June 15, 2009. SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
8 (Continued)
statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Association adopted SFAS No. 165 as of June 30, 2009. The subsequent event disclosure in note (8) is in accordance with SFAS No. 165.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, which replaced SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162). This statement documents the hierarchy of the various sources of accounting principles and the framework for selecting the principles used in preparing financial statements. This statement is effective for interim and fiscal years ending after September 15, 2009. SFAS No. 168 will not have a material impact to the Association’s invested financial statements.
(2) Investments
Unspent support and revenues are invested in the University’s Consolidated Endowment Fund (CEF) and are recorded at fair value as provided by the University. Investors purchase or sell units in the pool on the basis of a per unit valuation of the CEF at fair value on the last business day of the calendar quarter. The Association can make withdraws in any amount at its discretion. Income is distributed based on the number of units held. At June 30, 2009, 74% of the CEF was invested in equities, 16% in fixed income, and 10% in real assets. At June 30, 2008, 76% of the CEF was invested in equities, 9% in fixed income, and 15% in real assets. CEF investments are all externally managed by investment professionals. Investment strategies include exposure to domestic and international stocks and bonds as well as allocations to absolute return and nonmarketable alternative asset managers. Alternative assets enable extensive diversification in area such as venture capital, buyout, private equity, opportunistic, event driven and long and short equities.
(3) Roosevelt II Medical Clinic
The Association issued lease revenue bonds dated May 1, 1994 in the principal amount of $21,750,000, exclusive of an original issue discount of $187,790, which is amortized over a period of 20 years using a method that approximates the effective interest method. The bonds were issued for the purpose of providing the funds needed to pay a part of the costs of acquiring and constructing a medical clinic and office facility for lease to the University. Other costs of issuing the bonds were reimbursed by the University. The University has also agreed to indemnify the Association for any liabilities that may arise related to construction or operation of the clinic or from issuance of the bonds. The clinic is pledged as security for the otherwise nonrecourse revenue bonds.
In October 2001, the Association extinguished the May 1, 1994 bonds and issued refunding bonds dated October 1, 2001 in the principal amount of $19,855,000, exclusive of an original issue premium of $1,265,976, which is amortized over a period of 13 years.
The clinic has been leased to the University under a direct financing lease for a term of 20 years. During the lease, the University will be obligated to make rental payments to the Association sufficient to pay regularly scheduled debt service, including interest on the bonds in excess of the amount that is already
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
9 (Continued)
held in restricted investments. In October 2001, the Association and the University amended the lease to reflect the changes in the scheduled debt service, including interest on the bonds.
Title to the clinic will be transferred to the University upon the retirement or defeasance of all the outstanding bonds.
The difference of lease-related receipts over bond-related payments is presented as Obligation to or Receivable from University on the statement of financial position.
(a) Restricted Investments
The excess of lease-related receipts over bond-related payments are invested by a trustee in accordance with the terms of the bond indenture and are classified as restricted investments.
Restricted investments consist of U.S. Treasury bonds and notes and guaranteed investment contracts and are stated at estimated fair value.
The aggregate carrying amount of the investments by major types at June 30, 2009 and 2008 is as follows:
2009 2008
Guaranteed investment contract $ 1,985,500 1,985,500 U.S. Treasury bonds and notes 1,380,980 1,311,006
$ 3,366,480 3,296,506
(b) Net Investment in Direct Financing Lease
A summary of amounts to be received under the medical clinic direct financing lease agreement is as follows for the years ending June 30:
2010 $ 2,075,142 2011 2,141,358 2012 2,197,324 2013 2,258,180 2014 2,469,078 Thereafter 418,198
Total minimum lease payments 11,559,280
Less amount representing unearned interest at 4.37% 1,270,096 Present value of net minimum lease payments $ 10,289,184
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
10 (Continued)
(c) Bonds Payable
Interest rates on the bonds range from 5.000% to 5.375%. Interest on the bonds is payable semiannually on February 15 and August 15 each year. Principal of the bonds is payable each August 15 through 2014.
The aggregate minimum payments required for debt service on the bonds are as follows for the years ending June 30:
Principal Interest Total
2010 $ 1,415,000 651,238 2,066,238 2011 1,575,000 572,750 2,147,750 2012 1,720,000 486,256 2,206,256 2013 1,865,000 392,150 2,257,150 2014 2,025,000 288,772 2,313,772 Thereafter 4,360,000 117,175 4,477,175
12,960,000 2,508,341 15,468,341
Original issue premium 506,391 — 506,391 $ 13,466,391 2,508,341 15,974,732
(d) Line of Credit
The Association maintains a $500,000 revolving line of credit at a floating interest rate. As of June 30, 2009, there were no draws outstanding against this line.
(4) Fair Value of Financial Instruments
(a) Fair Value Measurements
The Association adopted SFAS No. 157, Fair Value Instruments, as amended by FASB Statement of Position (FSP) No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, and FSP No. 157-2, Effective Date of FASB Statement No. 157 (together referred to as SFAS No. 157), on January 1, 2008, for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The Association, in accordance with FSP No. 157-2, delayed implementation of SFAS No. 157 for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a Nonrecurring basis.
SFAS No. 157 defines the fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. SFAS No. 157 also establishes a fair value hierarchy, which requires an entity to
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
11 (Continued)
maximize the use of observable inputs when measuring fair value. The standard describes three levels of inputs:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Observable market based inputs or unobservable inputs that are corroborated by market data or quoted prices for similar instruments in active markets.
Level 3 – Significant inputs to the valuation model are unobservable.
Valuation techniques utilized in the fair value measurement of assets and liabilities presented on the Association’s balance sheet were not changed from previous practice during the reporting period.
(b) Financial Assets Measured at Fair Value on a Recurring Basis
The following table presents information about the Association’s financial assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:
Significantother Significant
observable unobservableJune 30, inputs inputs
2009 (level 2) (level 3)
Assets:Investments $ 10,035,965 — 10,035,965 Restricted investments 3,366,480 1,380,980 1,985,500
Total $ 13,402,445 1,380,980 12,021,465
Fair value measurementsat reporting date using
The Association participates in pooled investments of CEF and invests in Guaranteed Investment Contracts (GICs), and accordingly cannot identify the composition or nature of the underlying investments. Accordingly, the Association’s investments and portion of its restricted investments are categorized as level 3 investments.
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
12 (Continued)
The following table presents the Association’s activity for assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) as defined in SFAS 157 for the year ended June 30, 2009:
RestrictedInvestments investments
Balance at June 30, 2008 $ 13,976,765 1,985,500 Purchases — — Unrealized loss (3,388,076) — Realized gain — 99,949 Dividends received (472,723) (99,949) Withdraws (80,000) —
Balance at June 30, 2009 $ 10,035,966 1,985,500
(c) Other Financial Instruments
The Association’s other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses, and short-term and long-term borrowings. The Association believes that the fair value of these financial instruments approximates their carrying amounts based on current market indicators, such as prevailing interest rates and market pricing models, with the exception of its bonds payable.
The estimated fair value of the bonds payable, based on the quoted offer price is as follows:
June 302009 2008
Financial liabilities:Bonds payable
Carrying value $ 13,466,391 14,854,402 Fair value 13,559,289 14,866,286
UNIVERSITY OF WASHINGTONALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
(5) Functional Expenses
Expenses incurred for the years ended June 30, 2009 and 2008 were the following:
Supporting services Program servicesTotal University of Direct Total program
Management Membership supporting Alumni Washington Columns financing services and2009 and general development services relations Travels magazine arrangements bonds related Grand total
Salaries and benefits $ 588,541 1,165,346 1,753,887 931,085 223,800 128,691 — 1,283,576 3,037,463 Facilities/equipment rental 8,261 270 8,531 54,615 — — — 54,615 63,146 Food/beverage 2,042 82,048 84,090 196,105 2,704 281 — 199,090 283,180 Honoraria/contracts and professional fees 75,265 46,942 122,207 29,806 2,611 98,010 — 130,427 252,634 Postage 1,510 103,841 105,351 32,814 19,683 260,413 — 312,910 418,261 Printing 69 141,894 141,963 87,909 13,962 365,715 — 467,586 609,549 Supplies 3,956 10,017 13,973 41,532 5,229 — — 46,761 60,734 Scholarships awarded — — — 100,331 — — — 100,331 100,331 Sponsorship expense — 350,005 350,005 — — — — — 350,005 Other direct program expenses 13,277 23,382 36,659 126,990 13,770 1,254 2,318 144,332 180,991 Board and staff travel 4,575 2,363 6,938 38,884 9,505 3,209 — 51,598 58,536 Business and entertainment 22,736 4,158 26,894 6,917 383 263 — 7,563 34,457 Staff training and development 830 3,220 4,050 3,198 1,660 — — 4,858 8,908 Advertising expenses — 9,792 9,792 3,067 — 45,122 — 48,189 57,981 Office expenses 59,377 4,730 64,107 3,890 1,199 374 — 5,463 69,570 Insurance expense 42,388 — 42,388 — 3,671 — — 3,671 46,059 Depreciation 61,572 1,481 63,053 — — — — — 63,053 Miscellaneous 17,276 93 17,369 99 5,342 152 — 5,593 22,962 Interest — — — — — — 704,513 704,513 704,513 Facility expense 106,099 — 106,099 — — — — — 106,099
Total expense $ 1,007,774 1,949,582 2,957,356 1,657,242 303,519 903,484 706,831 3,571,076 6,528,432
Supporting services Program servicesTotal University of Direct Total program
Management Membership supporting Alumni Washington Columns financing services and2008 and general development services relations Travels magazine arrangements bonds related Grand total
Salaries and benefits $ 493,308 990,257 1,483,565 1,041,194 222,681 178,081 — 1,441,956 2,925,521 Facilities/equipment rental 5,582 — 5,582 50,601 — — — 50,601 56,183 Food/beverage 5,625 81,945 87,570 248,108 4,519 916 — 253,543 341,113 Honoraria/contracts and professional fees 132,661 116,608 249,269 48,827 3,211 54,022 — 106,060 355,329 Postage 3,094 88,768 91,862 43,871 22,394 267,349 — 333,614 425,476 Printing 743 143,591 144,334 125,848 15,085 358,792 — 499,725 644,059 Supplies 8,984 1,166 10,150 71,071 7,242 — — 78,313 88,463 Scholarships awarded — — — 83,002 — — — 83,002 83,002 Sponsorship expense — 350,004 350,004 — — — — — 350,004 Other direct program expenses 11,716 16,240 27,956 177,983 16,473 — 7,074 201,530 229,486 Board and staff travel 10,831 8,668 19,499 70,040 11,670 3,805 — 85,515 105,014 Business and entertainment 37,028 2,829 39,857 13,336 80 569 — 13,985 53,842 Staff training and development 2,844 6,835 9,679 2,760 1,441 — — 4,201 13,880 Advertising expenses 561 13,160 13,721 11,183 — 33,855 — 45,038 58,759 Office expenses 70,904 15,998 86,902 6,402 959 651 — 8,012 94,914 Insurance expense 42,416 — 42,416 — 3,524 — — 3,524 45,940 Depreciation 69,430 — 69,430 — — — — — 69,430 Miscellaneous 8,214 10,873 19,087 7,844 9,008 3,096 — 19,948 39,035 Interest — — — — — — 768,326 768,326 768,326 Facility expense 113,627 — 113,627 — — — — — 113,627
Total expense $ 1,017,568 1,846,942 2,864,510 2,002,070 318,287 901,136 775,400 3,996,893 6,861,403
13 (Continued)
UNIVERSITY OF WASHINGTON ALUMNI ASSOCIATION
Notes to Financial Statements
June 30, 2009 and 2008
14
(6) Pension Plan
The Association’s employees participate in pension plans through the University. The Association’s employees may participate in one of two contributory pension plans: the State of Washington Public Employees Retirement System (PERS) plan or the Teacher’s Insurance and Annuity Association College Retirement Equities Fund (TIAA CREF). Contributions made by the Association totaled $174,415 and $161,500 for the years ended June 30, 2009 and 2008, respectively.
(7) Other Related-Party Transactions
Approximately 41% and 40% of the Association’s payroll costs for 2009 and 2008, respectively, were paid by the University and are classified as University support in the accompanying financial statements. The University also pays most of the remaining Association salaries under the self-sustaining budget program, but is reimbursed for these payments each month by the Association.
At June 30, 2009 and 2008, accounts payable to the University totaled $269,307 and $133,203, respectively, and primarily represents salaries and benefits.
At June 30, 2009 and 2008, net accounts receivable from the University totaled $30,795 and $5,270, respectively.
The University leased space in the Association’s building, which terminated in 2008. Lease revenue during the years ended June 30, 2009 and 2008 was $0 and $43,563, respectively.
(8) Subsequent Event
On May 1, 2009 the Association entered a Use and Services Agreement to occupy certain University-owned facilities on a rent-free basis. This agreement expires on March 31, 2029.
The Association has also agreed to reimburse the University for certain Leasehold Improvements in an amount not to exceed $1.7 million. The Association will be charged 5.5% interest on any unreimbursed amounts expended by the University for the Leasehold Improvements. The interest rate will be reviewed annually and is subject to adjustment on 6 month’s notice. The Association may partially or fully prepay any amounts owed under this agreement at any time without penalty. This agreement is collateralized by the Association’s investments in the CEF, and is subject to certain minimum financial performance goals and disclosure requirements.
The Association owns an office building which it vacated on July 31, 2009 to occupy certain University-owned facilities. On May 21, 2009 the Association entered into a Right of First Opportunity with the University. This agreement provides that the Association shall first offer to sell the office building to the University when the building is first offered for sale. The Association is currently in negotiations to sell the office building.
The Association has performed an evaluation of subsequent events through October 22, 2009, which is the date these financial statements were available to be issued.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Financial Statements
June 30, 2009 and 2008
(With Independent Auditors’ Report Thereon)
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Table of Contents
Page
Management’s Discussion and Analysis 1
Independent Auditors’ Report 16
Financial Statements:
Balance Sheets 17
Statements of Revenues, Expenses, and Changes in Net Assets 19
Statements of Cash Flows 20
Notes to Financial Statements 21
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
1 (Continued)
Introduction
The University of Washington Medical Center (the Medical Center) is a 450 bed hospital owned and operated by the University of Washington (UW). The Medical Center is a major component of the UW Medicine Health System (UW Medicine). The Medical Center provides comprehensive inpatient and outpatient care to the Puget Sound community and serves as a regional referral center for the nearly 10 million residents of Washington, Wyoming, Alaska, Montana and Idaho. The Medical Center serves as a major clinical teaching and research site for students and faculty of UW Medicine.
UW Medicine includes the University of Washington School of Medicine (UWSOM), Harborview Medical Center (HMC), University of Washington Physicians (UWP), and University of Washington Physician’s Network (the Network). Our 800 attending physicians are faculty members at the UW School of Medicine. UW Medicine is also a one third owner of the Seattle Cancer Care Alliance (SCCA) along with Fred Hutchinson Cancer Research Center (FHCRC) and Seattle Children’s.
This Management’s Discussion and Analysis provides an overview of the financial position and activities of the Medical Center for the years ended June 30, 2009, 2008, and 2007. This discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes. The following sections are included in this discussion:
• Background
• Recognition
• 2009 Overview
• Results of Operations 2009
• Looking Ahead – Opportunities and Challenges
• Volumes and Statistics
• Financial Statements
Background
The Medical Center provides comprehensive primary, secondary and highly specialized care in both inpatient and outpatient settings. Inpatient care is provided to over 19,000 patients each year. Our highly specialized inpatient program areas include:
• The Cancer Center, an internationally recognized referral and treatment center, that offers specialized radiation therapies, blood and marrow transplantation, complex surgical interventions and advanced chemotherapeutic regimens.
• The Regional Heart Center, featuring an integrated service team that delivers comprehensive cardiovascular care including aortic surgery, cardiac surgery and coronary disease management.
• A level III neonatal intensive care unit (NICU) where all babies are cared for by highly trained and experienced Neonatologists. The NICU is staffed by registered nurses specially trained in neonatal resuscitation and care.
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• A solid organ transplant service line that is organized around four multidisciplinary clinical teams: Heart transplantation, Kidney-pancreas transplantation, Liver transplantation and Lung transplantation.
• A top ranked orthopedic program by U.S. News and World Report that includes physicians and surgeons who perform joint replacement, spine surgery and other care for complex bone and joint problems.
Patients who seek treatment on an outpatient basis may be seen at one of our 60 primary and specialty care clinics. The clinics at the Medical Center provide state-of-the-art technology combined with the latest research in medical treatment to provide patients the very best care.
Recognition
The Medical Center has received numerous awards for excellence.
• For the last 16 years, we have been ranked among the top 15 hospitals nationally by U.S. News and World Report. In 2009, there were over 4,800 hospitals considered in the survey and we were among only 21 hospitals ranked as part of the 2009 Honor Roll of hospitals demonstrating exceptional breadth of excellence.
• The Medical Center is the first hospital in the nation to receive its fourth recertification as a “Magnet Nursing Services Organization”. The Magnet designation is the nursing profession’s top honor, given to just 348 hospitals nationwide. The award recognizes excellence in nursing and the promotion of the professional practice of nursing. This strengthens our recruitment and retention of highly qualified professionals in nursing as well as in other health care disciplines
• For the third consecutive year, UW Medical Center has been awarded the Environmental Leadership Award by Practice Greenhealth, a national organization that recognizes environmentally responsible operations within health care. The award recognizes efforts to protect the environment and public health, and, at the same time, maintain high quality, cost effective patient care. UWMC has received six environmental sustainability and pollution prevention awards in the last four years.
• In 2008, the UW Medicine Clinical Information Systems Replacement (CISR) project was named the IT Project of the Year by ADVANCE for Health Information Executives, an industry publication for healthcare executives. The CISR project, implemented at the Medical Center, HMC and SCCA, consolidates care documentation into a common electronic system, enhancing quality of care and patient safety.
2009 Overview
In fiscal year 2009, we continued to focus on three goals that will advance the achievement of our quality mission and enhance the long term financial strength of the hospital: improving patient safety, expanding capacity and upgrading our information technology. These goals require significant investment of capital and human resources to be successful.
• Enhance Patient Safety. In 2007, we defined our vision for patient safety: to be the safest medical center in America with the lowest risk adjusted mortality rate and the lowest number of patients harmed inside our organization. To meet these goals UWMC seeks to be a health care system that is free of preventable infections, free of medication errors and a hospital free of injury. To execute on these goals the Medical
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Center is working on enhancing its culture of safety by creating an environment where reporting of adverse events and near misses is expected and disclosure of adverse events to patients is routine. We are actively training to improve our teamwork and communication.
– UWMC has adopted TeamSTEPPS, a team training program developed by the Department of Defense in collaboration with the Agency for Healthcare Research and Quality, to be the standard language and behaviors around team behaviors and interaction. This will be included in a system that balances safety and accountability in a “just culture” framework.
– The Institute for Simulation and Interprofessional Studies (ISIS), located in the Medical Center’s Surgical Pavilion, continues to expand its work enhancing the training of medical students, residents and attending physicians and staff. A key feature of the ISIS facility is the virtual operating room which allows physicians to master new surgical and procedural techniques in a safe environment.
– In 2008, the UW Medicine Learning Gateway was established to provide incoming residents with e-learning modules about subjects such as patient safety, infection control, central venous catheter placement, and documentation. This web-based training is used in conjunction with simulation software to provide comprehensive, high quality education for residents.
• Expand Capacity. In February of 2008, the University of Washington Board of Regents granted approval to construct phase one of a two phase inpatient expansion. The first phase provides the structural capacity for nine floors. Five floors will be fully constructed in this phase including a new fifty bed neonatal intensive care unit, a 32 bed adult surgical oncology unit, additional diagnostic imaging capacity and future operating room capacity. Construction began in April 2009 and completion is expected to be in fiscal year 2012. Phase one is estimated to cost $170 million and financing is being provided through the University of Washington’s internal lending program.
The Medical Center, working with the University of Washington Capital Project Office, has hired a general contractor/construction manager (GC/CM) for the project. The recent downturn in the economy has afforded the Medical Center the opportunity to build out more of the project than previously planned for this phase.
• Upgrade Information Technology (IT). UW Medicine is currently working on three major IT system implementations which will replace legacy systems and improve productivity in clinical and administrative areas at the Medical Center, HMC and SCCA.
– Electronic Medical Record (EMR). UW Medicine IT and the Medical Center, along with other UW Medicine affiliates, is in the process of completing an electronic medical records (EMR) system from Cerner. This is a multi-year, multi-phase project that includes a clinical results repository, inpatient pharmacy management, and structured documentation and physician order entry. In 2008, the core clinical information system replacement (CISR) was completed. Implementation of CISR has provided a powerful tool for improving quality through automated notifications and assessments. Future phases of the EMR project include electronic physician ordering, outpatient pharmacy, and emergency department triage tracking.
– Patient Billing System. UW Medicine IT is working with the Medical Center, HMC and SCCA, on implementation of a replacement of the legacy hospital admission, discharge and transfer (ADT) and
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billing system with an integrated system from EPIC. In fiscal year 2008, the University of Washington Board of Regents and the Washington State Department of Information Systems approved the system replacement project.
Replacement of UW Medicine’s legacy billing system is expected to be completed in 2010. Capital and operating costs are shared with HMC and SCCA. The Medical Center’s portions of total capital costs are estimated to be $10 million and operating costs are estimated to be $6 million. Implementation of this system will greatly improve the efficiency of the revenue cycle processes. We expect to generate clear, concise and correct patient bills that optimize collections and minimize manual effort and we expect to improve our data mining capabilities to support decision-making and compliance efforts. The Medical Center has implemented a number of revenue cycle improvements in preparation for this implementation.
– Human Resources and Timekeeping Systems. In 2009, UW Medicine IT implemented a new human resources system that tracks employee positions, pay rates, licensure and performance evaluations along with other human resources related employee data at the Medical Centers. The medical centers are currently developing project plans for a new time and attendance system. The Medical Centers plan to seek approval for the project in 2010 and begin implementation in 2011. These systems are designed to simplify the human resources and payroll processes and improve reporting and analysis.
Results of Operations 2009
The Medical Center ended fiscal year 2009 with income from operations, including interest expense, of $58 million, a 7.6% operating margin. In fiscal years 2008 and 2007, our operating margins were 4.5% and 4.3%, respectively. Our favorable operating performance in 2009 can be attributed to strong volumes, a favorable payor mix, and the continued focus on revenue cycle improvements that will set the stage for the billing system conversion in 2010.
• The Medical Center continued to see growth in inpatient volumes in 2009, particularly in the intensive and critical care units. Growth was possible because we have continued to focus on reducing our length of stay by benchmarking against our peer group of academic hospitals and adopting best practices. Managing length of stay is critical to ensure that scarce tertiary care beds are available to patients requiring this level of care. During 2009, we applied our knowledge of best practices in care coordination by intensifying this effort within General Medicine inpatient services. By enhancing the nurse care coordination role and strengthening provider and multidisciplinary team communication, numerous process improvements were initiated to streamline the patient’s care and address barriers to discharge at the earliest point possible. During fiscal year 2009, the overall hospital LOS dropped to 5.9 days, compared to 6.1 for the prior year.
• Despite the downturns in the economy, the Medical Center continued to have a stable payor mix. Approximately 51% of gross hospital charges were related to patients with commercial and other nongovernmental insurance in both fiscal year 2008 and fiscal year 2009.
• In 2009, the Medical Center continued implementation of a clinical documentation management program (CDMP). The CDMP program included training of Physicians, coders, and newly hired RN documentation specialists. The new program has improved the capture of patient severity indicators which has resulted in
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more accurate quality of care metrics and improved benchmarking. The CDMP staff has demonstrably improved patient safety by increasing our compliance with core measures through concurrent chart review.
• In fiscal year 2009, we continued working on revenue cycle and billing system improvement projects that will enable us to transition to our new admitting and billing system. We implemented up-front cash collections at several new sites. We increased the automation in the current legacy system to minimize the data entry and improve billing and collection efficiency. We continued to work on the timeliness of charge entry and documentation. Based on a three-month rolling average, our gross days in accounts receivable dropped to 69 in fiscal year 2009 from 73 in fiscal year 2008 and 77 in fiscal year 2007.
Looking Ahead – Opportunities and Challenges
We believe that an operating margin of 3-4% is required to provide the necessary cash and debt capacity for our capital and strategic investments. Our average operating margin including interest expense over the five-year period from fiscal year 2005 through fiscal year 2009 has been 4.4%. It is management’s objective to maintain this average operating margin even as we undertake sizeable capital investments. Looking ahead, we see opportunities to advance our initiatives and improve our operating margin, but we also see challenging economic times that could pose a threat to our operating margin.
• Strategic Plan. UW Medicine is currently involved in a major strategic planning effort that includes the Medical Center, HMC, the Network Clinics, and other UW Medicine affiliates. UW Medicine has a mission of improving the health of the public through the combination of our clinical, teaching and research programs. The strategic plan will clarify our vision for UW Medicine and describe the major strategic initiatives we will undertake over the next three to five years. The plan will serve as a platform for more specific planning at the Medical Center level.
• Affiliation with Northwest Hospital. Northwest Hospital & Medical Center, a 281-bed full service acute care hospital, will expand its existing cooperative program agreement with UW Medicine to become an integral part of the UW Medicine health system. The University of Washington Board of Regents endorsed the expanded affiliation agreement at its September 17, 2009 meeting. UW Medicine and Northwest Hospital anticipate the first opportunities for clinical collaboration under the new affiliation will center around cardiovascular services, oncology services and maternal and child health.
• Infrastructure Improvements. Infrastructure improvements, including both the inpatient tower construction and information systems upgrades will consume a great deal of time and resources in the next several years.
Construction activity in 2010 will make some aspects of normal operations more challenging. Some operating rooms will be closed during 2010 but it is anticipated that remaining capacity will be adequate to handle projected case volumes. Inpatient capacity is not expected to be impacted in 2010.
In 2010 and early 2011, much of our attention will be focused on the significant planning, coordination and communication that is involved in the replacement of the legacy billing system at the Medical Center, HMC and SCCA. UW Medicine has an experienced project management team to guide the implementation, and has engaged a quality assurance consultant to assist with independent milestone reviews and go/no-go decision points. The project also benefits from oversight by the UW and the Washington State Department of Information Systems.
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Even with our significant advance preparations we recognize that an implementation of this size and complexity will have a lengthy learning curve and will result in temporary slowdowns in cash collections. The Medical Center has been systematically decreasing its days in accounts receivable, thus increasing its cash reserves in preparation for potential delays in claims processing after go-live. Our budget and long range financial plan includes an increase in days in accounts receivable and a reduction in cash balances until the system is stabilized.
• Economic Challenges. This year has seen the most significant economic downturn in decades. The recession has resulted in increased unemployment, and unprecedented state budget deficits, all of which will result in downward pressure on hospital revenues and increased requirements for expense management. Charity care and bad debt are increasing as more and more patients find themselves without health insurance. State budget cuts to hospital reimbursement rates, medical assistance eligibility, and direct appropriations to the Medical Center reduced state funding by a projected $21 million in fiscal year 2010. The shape of national health reform is still very uncertain thus we cannot forecast the potential impact. While we can expect the economy will recover over an extended period, the financial outlook for healthcare is less clear. It is clear that we need to concentrate on making our operations more efficient, patient centered, and coordinated with the other entities comprising UW Medicine.
Volumes and Statistics
Following are key operating statistics for the years ended June 30, 2009, 2008, and 2007:
Statistics 2009 2008 2007
Admissions 19,322 18,993 18,866 Patient days 113,468 115,270 115,659 Average length of stay 5.9 6.1 6.1Occupancy 79% 80% 81%Surgery cases 14,853 14,548 14,151 Outpatient visits 333,675 353,850 352,165 Full time equivalents (FTEs) 3,968 3,916 3,794
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Management’s Discussion and Analysis
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The Medical Center continued to have strong inpatient admissions in fiscal year 2009. Fiscal years 2009 and 2008 admissions were 2% and 1%, respectively, over the prior year. Surgery cases in fiscal year 2009 were 2% higher than fiscal year 2008. Fiscal year 2008 surgery cases were 3% higher than fiscal year 2007. Outpatient visits in fiscal year 2009 were 2% higher than fiscal year 2008 and fiscal year 2008 were consistent with fiscal year 2007.
17,91918,086 18,121
18,86618,993
19,322
17000
17500
18000
18500
19000
19500
2004 2005 2006 2007 2008 2009
Admissions
Financial Statements
The balance sheets, the statements of revenues, expenses, and changes in net assets, and statements of cash flows provide an indication of the Medical Center’s financial health. The balance sheets include all the Medical Center’s assets and liabilities, using the accrual basis of accounting, as well as an indication about which assets can be utilized for operations and which are restricted as a result of donor’s or third party’s restricted purposes. The statements of revenues, expenses, and changes in net assets report all of the revenues and expenses during the time period indicated. The statements of cash flows report the cash provided by the operating activities, as well as other sources such as investment income and cash payments for capital additions and improvements.
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Balance Sheets – Assets
Shown below is a summary of the Medical Center’s balance sheets (in thousands):
Summary of Assets, Liabilities, and Net Assets
Assets 2009 2008 2007
Current assets:Funds held by UW $ 9,411 13,627 13,100 Patient A/R, net 99,221 94,015 95,997 Other current assets 35,020 34,824 34,510
Total current assets 143,652 142,466 143,607
Noncurrent assets:Capital assets 300,498 285,243 291,899 Funds held by UW 201,489 169,167 140,179 Other noncurrent assets 58,157 50,850 46,218
Total noncurrent assets 560,144 505,260 478,296 Total assets $ 703,796 647,726 621,903
Liabilities and Net Assets
Current liabilities:Current portion of long-term debt $ 6,664 10,975 10,630 Other current liabilities 117,592 113,235 117,779
Total current liabilities 124,256 124,210 128,409
Noncurrent liabilities 84,786 91,505 102,587
Total liabilities 209,042 215,715 230,996
Net assets:Invested in capital assets, net 209,047 182,763 178,682 Expendable, restricted 2,196 2,191 2,251 Unrestricted 283,511 247,057 209,974
Total net assets 494,754 432,011 390,907 Total liabilities and net assets $ 703,796 647,726 621,903
As of June 30, 2009, the Medical Center had total assets of approximately $704 million, an increase of approximately $56 million from fiscal year 2008. In fiscal year 2009, the net increase in assets was primarily due to an increase in invested funds held by the University of $32 million and an increase in net plant of $15 million. As of June 30, 2008, the Medical Center had total assets of approximately $648 million, an increase of approximately $26 million from fiscal year 2007. In fiscal year 2008, the net increase in assets was primarily due to an increase in funds held by the University of $30 million and a decrease in net plant of $7 million. As of June 30, 2007, the Medical Center had total assets of approximately $622 million, an increase of approximately
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June 30, 2009 and 2008
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$55 million from fiscal year 2006. In fiscal year 2007, the net increase in assets was primarily due to an increase in the funds held by the University of $25 million, an increase in net accounts receivable of $9 million and an increase in net plant of $9 million and an increase in other assets of $5 million.
Current assets consist of cash, accounts receivable and other assets that are expected to be converted to cash within a year. Funds held in cash are reported at levels approximately equal to current annual debt service requirements, and all other funds held by the UW are shown as noncurrent assets as it is not expected that the funds will be utilized over the next year. Board Designated cash and investment funds managed by the UW have no principal risk to the Medical Center and are available upon demand.
Current assets also include net accounts receivable valued at the estimated net realizable amount due from patients and their insurers. As shown below for fiscal year 2009, 12% of the accounts receivable balance is due directly from patients, 47% from government payors Medicare and Medicaid, and 41% from commercial insurers. Patient responsibility includes amounts due from patients who are uninsured as well as copayment and deductible amounts from patients with insurance coverage. As employers and insurers continue to shift responsibility to patients in the form of increased coinsurance and deductibles, the patient responsibility component of accounts receivable will increase. Collection of patient responsibility amounts requires significantly more effort than collection of insurance amounts because patient responsibility is generally composed of a high number of small dollar accounts.
13% 14%12%
23% 24%
27%
20%
23%
20%
44%
39%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Patient Portion Medicare Medicaid Commercial
Gross Accounts Receivable Payor Mix
2007 2008 2009
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
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Net accounts receivable increased by $5 million to $99 million in fiscal year 2009 from $94 million in fiscal year 2008 due to improved billing and collections processes. Based on a three-month rolling average, gross days in accounts receivable dropped from 73 days to 69 days during this period. Net accounts receivable decreased $2 million to $94 million in fiscal year 2008 from $96 million in fiscal year 2007 due to increases in volume and in reimbursement rates.
Noncurrent assets include capital assets, noncurrent funds held by the UW, donor restricted funds and other assets. Capital assets, including buildings and equipment, are the single largest asset of the Medical Center and as of June 30, 2009, 2008, and 2007, are valued at net book value of $300 million, $285 million, and $292 million, respectively. During fiscal years 2009, 2008, and 2007, capital asset additions were approximately $54 million, $30 million, and $44 million, respectively. The fiscal year 2009 additions include the phase 1 expansion construction, radiation oncology remodel, purchase of new cardiac monitors, cardiovascular c-arm, bi-plane system, CT scanners and EMR and facility billing system investments. The fiscal year 2008 additions include upgrades to space and equipment for radiation oncology, purchase of new infusion pumps throughout the hospital and investments in other medical equipment and information systems. In fiscal year 2007, the Medical Center completed the regional heart center and cardiac procedure area remodels. In fiscal year 2007, $5.6 million of equipment was financed with capital leases.
As of June 30, 2009, the Medical Center had noncurrent cash and investments held by the UW of approximately $211 million. These investments are used by the Medical Center to fund strategic initiatives and capital improvements. Noncurrent funds held by the University increased by $32 million in fiscal year 2009 and by $29 million in fiscal year 2008. Strong operating performance in both years and improved collections of outstanding receivables contributed to the increase in investments.
Other noncurrent assets consist primarily of the Medical Center’s interest in SCCA. The Medical Center accounts for its interest in the SCCA using the equity method of accounting. Investment in the SCCA increased by approximately $7 million during fiscal year 2009 and $4 million during fiscal year 2008, reflecting the Medical Center’s proportionate interest in the operating performance of SCCA.
Balance Sheets – Liabilities
The Medical Center had approximately $209 million of liabilities as of June 30, 2009, $216 million as of June 30, 2008, and $231 million as of June 30, 2007.
Current liabilities include payables to employees, vendors, and other third parties as well as the current portion of long-term debt. The current portion of long term debt decreased by $4 million primarily due to payments on capital leases and on Series R-2001A General Obligation Refunding Bonds, which will mature in fiscal year 2010. In fiscal year 2009, current liabilities other than debt, increased $4 million to $117 million from $113 million at June 30, 2008 due to increases in vendor payables.
Noncurrent liabilities consist of long-term debt. Long-term debt as of the years ended June 30, 2009, 2008, and 2007 consists of general obligation bonds and capital leases issued to finance construction and equipment. In fiscal year 2007, the Medical Center financed $5.6 million of equipment with capital leases. The Medical Center made bond and lease principal payments of $11 million in fiscal years 2009 and 2008, and $10 million in fiscal year 2007.
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Management’s Discussion and Analysis
June 30, 2009 and 2008
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The debt to net assets ratio as of June 30, 2009, 2008, and 2007, respectively, is 0.18, 0.24, and 0.29. The debt service coverage ratio at June 30, 2009 is 9.6. A comparison of the most recent debt service coverage ratios against Moody’s “A” rated 2008 (published in August 2009) results is shown below.
5.1
3.9
5.0 5.0 5.2
9.6
4.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2004 2005 2006 2007 2008 2009 Moody's "A"Rated
Debt Service Coverage 2004 – 2009
Balance Sheet – Net Assets
The Medical Center reports its net assets in three categories:
Invested in Capital Assets (Net of Related Debt) – the Medical Center’s total investment in property, plant, and equipment net of accumulated depreciation and outstanding debt obligations related to those capital assets.
Donor-Restricted Expendable Net Assets – resources in which the Medical Center is legally or contractually obligated to spend in accordance with restrictions placed by donor and/or external parties that have placed time or purpose restrictions on the use of the asset.
Unrestricted Net Assets – all other net assets of the Medical Center.
As of June 30, 2009, assets exceeded liabilities by $495 million, an increase of $63 million from June 30, 2008. As of June 30, 2008, assets exceeded liabilities by $432 million, an increase of $41 million from June 30, 2007. Increases in net assets include the net income generated during each year, donated property and transfers between the Medical Center and UW departments, primarily the School of Medicine.
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Summary of Revenues, Expenses and Changes in Net Assets
A summarized comparison of revenues, expenses and other changes in net assets for the years ended June 30, 2009, 2008, and 2007 is shown below (in thousands).
Operating revenues consist primarily of net patient service revenues, state appropriations to the UW and allocated to the Medical Center for the education of health professionals, and other operating revenues. Net patient service revenues are recorded based on standard billing rates less contractual adjustments, charity and an allowance for uncollectible accounts. The Medical Center has agreements with federal and state agencies, and commercial insurers that provide for payments at amounts different than gross charges. The differences between gross charges and the contracted payments are identified as contractual adjustments. The Medical Center provides care at no charge or reduced charges to patients who qualify under the Medical Center’s charity policy. The Medical Center also estimates the amount of patient responsibility accounts receivable that will become uncollectible. The difference between gross charges and the estimated net realizable amounts from payors and patients is recorded as an adjustment to charges. The resulting net patient service revenues are shown on the statements of revenues, expenses, and changes in net assets.
Summary of Revenues, Expenses, and Changes in Net Assets
2009 2008 2007
Net patient service revenues $ 705,108 642,997 578,267 State appropriations 8,458 8,296 10,859 Other revenue 38,903 35,891 32,306
Total operating revenue 752,469 687,184 621,432
Salaries and benefits 341,304 331,779 303,708 Supplies and other 311,647 281,733 248,243 Depreciation and amortization 36,857 36,583 36,649
Total operating expense 689,808 650,095 588,600
Income from operations 62,661 37,089 32,832
Nonoperating revenues (expenses):Interest expense (4,229) (4,813) (5,200) Other, net 4,570 9,081 9,931
Net nonoperating revenues 341 4,268 4,731
Income before capitalcontributions and transfers 63,002 41,357 37,563
Transfers and donated property (259) (253) (2,610) Total change in net assets $ 62,743 41,104 34,953
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
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The mix of services provided to governmental, commercial and uninsured patients is a key driver of hospital profitability. Reimbursement from governmental payers is generally below commercial rates and reimbursement rules are complex and subject to interpretation. Both Medicare and Medicaid Programs require current year settlement estimates that may be adjusted in future years as year-end reports are filed, audited, and potentially appealed and settled. The graph below shows the payor mix for fiscal years 2007, 2008, and 2009 based on gross revenues.
Gross Revenue Payor Mix
2% 2% 2%
30% 30% 29%
18%17%
18%
50% 51% 51%
0%
10%
20%
30%
40%
50%
60%
Patient Portion Medicare Medicaid Commercial
Gross Revenue Payor Mix
2007 2008 2009
Total operating revenues increased by 10% from fiscal year 2008 to fiscal year 2009. Total operating revenues increased by 11% from fiscal year 2007 to fiscal year 2008. The increase in operating revenues is due to volume and price increases in each year, as well as favorable payment experience. Reductions in length of stay, increases in contract payment rates, improvements in the revenue cycle and favorable prior year cost report settlements contributed to lower deductions and thus higher net revenues.
The Medical Center’s operating expenses including interest expense, which is reflected as nonoperating expense in the accompanying financial statements in compliance with governmental reporting requirements, were approximately $694 million for the year ended June 30, 2009. Labor expenses accounted for 49% of operating expenses, with supplies accounting for 45%, and the remaining 6% related to depreciation, interest and amortization in fiscal year 2009. Labor expenses accounted for 51% of operating expenses, with supplies accounting for 43%, and the remaining 6% related to depreciation, interest and amortization in fiscal year 2008. Labor expenses accounted for 52% of operating expenses, with supplies accounting for 42%, and the remaining 6% related to depreciation, interest and amortization in fiscal year 2007.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
14 (Continued)
Medical Center operating expenses increased by 6% in fiscal year 2009 and 10% in fiscal year 2008 and 5% in fiscal year 2007. Salaries and benefits increased by approximately 3% in fiscal year 2009. Supplies and other expenses increased by 11%, primarily due to increases in faculty support payments to the UWSOM. In fiscal years 2009 and 2008, the amount paid to UWSOM for goods, services, faculty and departmental support was $86 million and $73 million, respectively, and in fiscal year 2007 the amount paid was $56 million.
The Medical Center ended fiscal year 2009 with income from operations of approximately $63 million. As required by governmental accounting standards, the Medical Center has reflected interest expense as a nonoperating expense and bad debt expense as a component of net patient service revenues. Industry practice for health care entities not subject to governmental accounting standards is to reflect interest expense and bad debt expense as operating expenses. The Medical Center’s income from operations, including interest expense, is approximately $58 million for the year ended June 30, 2009 as compared to $32 million and $28 million, respectively, in fiscal years 2008 and 2007. The graph below shows a comparison of the Medical Center’s recent operating margins, including interest expense and bad debt expense in operating expenses, with Moody’s “A” rated hospital median for 2008.
3.2%
0.9%
3.7%
4.3%4.5%
7.6%
2.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2004 2005 2006 2007 2008 2009 Moody’s “A”Rated
Operating Margin 2004 – 2009
Projects to reduce length of stay, improve clinical documentation, and benchmark expenses against peer hospitals have contributed to steady improvements in operating performance in recent years. In fiscal year 2009, projects to improve charge capture, timely billing and collections have also contributed to favorable performance.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
15
The Medical Center also has nonoperating revenues and expenses. Nonoperating revenues consist primarily of investment income and equity income related to SCCA. Nonoperating expense is primarily interest expense and the working capital funding to the Network. Net nonoperating income for the years ended June 30, 2009, 2008, and 2007 totaled approximately $0.3 million, $4 million, and $5 million, respectively. The decrease of net nonoperating income in 2009 is primarily due to a $3 million increase in Network contributions to fund quality initiatives and capital investments.
The Medical Center had total income before capital contributions and transfers of approximately $63 million, $41 million, and $38 million for the years ended June 30, 2009, 2008, and 2007, respectively. Total margin (calculated with bad debt expense in operating expenses) before capital contributions for the last six years with Moody’s “A” rated hospital median for 2008, is shown on the graph below.
3.2%
2.4%
5.0%
5.9% 5.9%
8.2%
4.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2004 2005 2006 2007 2008 2009 Moody’s “A”Rated
Total Margin 2004 – 2009
The Medical Center transferred approximately $300 thousand in fiscal year 2009, $253 thousand in fiscal year 2008, and $3 million in fiscal year 2007 to UWSOM. The total change in net assets for the years ended June 30, 2009, 2008, and 2007 were approximately $64 million, $41 million, and $35 million, respectively.
KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.
KPMG LLP Suite 900 801 Second Avenue Seattle, WA 98104
16
Independent Auditors’ Report
The University of Washington UW Medicine Board Seattle, Washington:
We have audited the accompanying balance sheets of the University of Washington Medical Center (the Medical Center) as of June 30, 2009 and 2008, and the related statements of revenue, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Medical Center’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Medical Center’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1, the financial statements of the Medical Center, a division of the University of Washington, are intended to present the financial position, and the changes in financial position and, where applicable, cash flows of only that portion of the business-type activities that are attributable to the transactions of the Medical Center. They do not purport to, and do not, present fairly the financial position of the University of Washington, as of June 30, 2009 and 2008, the changes in its financial position, or, where applicable, its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the University of Washington Medical Center as of June 30, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
Management’s discussion and analysis as shown on pages 1 through 15 is not a required part of the basic financial statements of the University of Washington Medical Center but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.
October 23, 2009
UNIVERSITY OF WASHINGTON MEDICAL CENTER(A Division of the University of Washington)
Balance Sheets
June 30, 2009 and 2008
(In thousands)
Assets 2009 2008
Current assets:Funds held by the University of Washington $ 9,411 13,627
Patient accounts receivable 133,192 127,436 Less allowance for uncollectible accounts (33,971) (33,421)
Accounts receivable, net 99,221 94,015
Other receivables 17,654 17,665 Supplies inventory and other 17,366 16,569 Interest receivable — 590
Total current assets 143,652 142,466
Noncurrent assets:Capital assets, at cost, net of accumulated depreciation 300,498 285,243 Funds held by the University of Washington 201,489 169,167 Donor-restricted funds 2,193 2,188 Other assets 55,964 48,662
Total noncurrent assets 560,144 505,260 Total assets $ 703,796 647,726
17 (Continued)
UNIVERSITY OF WASHINGTON MEDICAL CENTER(A Division of the University of Washington)
Balance Sheets
June 30, 2009 and 2008
(In thousands)
Liabilities and Net Assets 2009 2008
Current liabilities:Current portion of long-term debt $ 6,664 10,975 Accounts payable and accrued expenses 65,696 58,917 Accrued compensation 38,806 36,985 Accrued interest 1,833 1,911 Payable to contractual agencies, net 11,257 15,422
Total current liabilities 124,256 124,210
Noncurrent liabilities:Long-term debt, net of current portion 84,786 91,505
Total liabilities 209,042 215,715
Commitments and contingencies (note 16)
Net assets:Invested in capital assets, net of related debt 209,047 182,763 Expendable, restricted 2,196 2,191 Unrestricted 283,511 247,057
Total net assets 494,754 432,011 Total liabilities and net assets $ 703,796 647,726
See accompanying notes to financial statements.
18
UNIVERSITY OF WASHINGTON MEDICAL CENTER(A Division of the University of Washington)
Statements of Revenues, Expenses, and Changes in Net Assets
Years ended June 30, 2009 and 2008
(In thousands)
2009 2008
Operating revenues:Net patient service revenues (net of provision for uncollectible
accounts of $11,732 in 2009, and $18,254 in 2008) $ 705,108 642,997 State appropriations 8,458 8,296 Other revenue 38,903 35,891
Total operating revenues 752,469 687,184
Operating expenses:Salaries and wages 271,921 262,289 Employee benefits 69,383 69,490 Supplies and other 311,647 281,733 Depreciation and amortization 36,857 36,583
Total operating expenses 689,808 650,095
Income from operations 62,661 37,089
Nonoperating revenues (expenses):Investment income 10,469 11,928 Interest expense (4,229) (4,813) Other, net (5,899) (2,847)
Net nonoperating revenues 341 4,268
Income before capital contributions and transfers 63,002 41,357
Donated property 41 — Intra-UW governmental transfers (300) (253)
Total capital contributions and transfers (259) (253)
Total change in net assets 62,743 41,104
Net assets – beginning of year 432,011 390,907 Net assets – end of year $ 494,754 432,011
See accompanying notes to financial statements.
19
UNIVERSITY OF WASHINGTON MEDICAL CENTER(A Division of the University of Washington)
Statements of Cash Flows
Years ended June 30, 2009 and 2008
(In thousands)
2009 2008
Cash flows from operating activities:Cash received for patient care and related services $ 734,650 679,279 Cash received from state appropriations 8,458 8,296 Cash paid to employees, suppliers, and others (651,381) (610,534)
Net cash provided by operating activities 91,727 77,041
Cash flows from capital and related financing activities:Capital expenditures (45,526) (35,117) Cash paid for interest (4,305) (4,883) Principal payments on debt and capital lease obligations, net (10,974) (10,629)
Net cash used in capital and related financing activities (60,805) (50,629)
Cash flows from investing activities:Cash provided by investment income 3,755 7,169 Change in funds held by UW (32,689) (30,018) Cash paid for the Network funding (6,050) (3,000) Cash provided by other investments 146 214 Cash paid for intra-UW governmental transfers (300) (250)
Net cash used in investing activities (35,138) (25,885)
Increase (decrease) in cash and cash equivalents (4,216) 527
Cash and cash equivalents, beginning of year 13,627 13,100 Cash and cash equivalents, end of year $ 9,411 13,627
Reconciliation of income from operations to net cash provided byoperating activities:
Income from operations $ 62,661 37,089 Adjustments to reconcile income from operations to net cash
provided by operating activities:Depreciation and amortization 36,857 36,583 Provision for uncollectible accounts 11,732 18,254 Gain on disposal of capital assets 433 (4) Change in assets and liabilities:
Patient accounts receivable (16,938) (16,271) Other receivables 11 1,077 Supplies inventory, at cost and other (797) (1,329) Accounts payable and accrued expenses 112 3,364 Accrued compensation 1,821 949 Payable to contractual agencies, net (4,165) (2,671)
Net cash provided by operating activities $ 91,727 77,041
See accompanying notes to financial statements.
20
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
21 (Continued)
(1) Organization
University of Washington Medical Center (the Medical Center) is a division of the University of Washington (a not-for-profit, tax-exempt agency of the State of Washington).
Authority for specified governance functions of the Medical Center has been delegated by the Board of Regents (the Regents) to the UW Medicine Board (the Board) as specified in the Board’s bylaws, originally adopted by the Regents in 1976 and amended in February 2000. The Board’s members during fiscal year 2009 were:
Orin Smith, Chairman Charlotte Guyman, Vice Chairman Mark Emmert Michael D. Garvey Allan Golston Gerald Grinstein Sally Jewell Shan Mullin Julie A. Nordstrom Dennis I. Okamoto Paul G. Ramsey Herman Sarkowski JoAnn Taricani
The Medical Center is under the direction of the Executive Director, who is accountable to the Board and UW Medicine’s Clinical Operations Officer and Vice-President for Medical Affairs for the management of the Medical Center. The Medical Center is an integral component of UW Medicine which also includes the University of Washington School of Medicine (UWSOM), Harborview Medical Center (HMC), University of Washington Physicians (UWP), and University of Washington Physicians Network (the Network). The primary purpose of the Medical Center is to care for patients. The Medical Center also serves as a clinical teaching and research resource for students and faculty of the School of Medicine. The assets and liabilities of the Medical Center are assets and liabilities of the University of Washington (UW).
The Medical Center reports its financial information in a form that complies with the “HealthCare Organizations Audit and Accounting Guide” of the American Institute of Certified Public Accountants. The accounting system of the Medical Center has been adapted to also provide the financial information necessary to meet the governmental reporting requirements of UW.
(2) Summary of Significant Accounting Principles
(a) Accounting Standards
The Medical Center reports as a business-type activity, as defined by Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements – and Management’s
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
22 (Continued)
Discussion and Analysis – for State and Local Governments. Business-type activities are those that are financed in whole or in part by fees charged to external parties for goods or services.
(b) Accrual Basis
The Medical Center’s financial statements have been prepared using the accrual basis of accounting with the economic resources measurement focus. Under this method of accounting, revenues are recognized when earned and expenses are recorded when liabilities are incurred without regard to receipt or disbursement of cash.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(d) Funds Held by the University of Washington
These funds represent cash and pooled investments held by UW as of year-end for the payment of Medical Center liabilities. As these assets are part of an external investment pool and are available upon demand, they are not categorized for risk level. Amounts are stated at fair market value. By agreement with UW, the Medical Center receives a stipulated rate of return based on the UW spending policy. For fiscal years 2009 and 2008, the rate used was 2.00% and 4.25%, respectively. Those funds classified as current assets are considered cash and cash equivalents for presentation in the statements of cash flows.
(e) Capital Assets
Capital assets are stated at cost at the date of acquisition. Improvements and replacements of capital assets are capitalized. Maintenance and repairs are expensed. The cost of the capital assets sold or retired and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recorded.
The provision for depreciation is determined by the straight-line method, which allocates the cost of tangible property ratably over its estimated useful life. The estimated useful lives used by the Medical Center are as follows:
Land improvements 10 to 25 yearsPlant, including fixed equipment 10 to 40 yearsFixed equipment 15 to 20 yearsMovable equipment 3 to 20 years
Equipment under capital lease is amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the equipment. Such amortization is included in depreciation and amortization in the accompanying statements of revenues, expenses, and changes in net assets.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
23 (Continued)
(f) Other Assets
Other assets include an interest in the Seattle Cancer Care Alliance (SCCA) which is accounted for under the equity method of accounting as well as prepaid license fees for the adult inpatient units operating at the Medical Center. See notes 15(f) and (g) for further information.
(g) Supplies Inventory
Supplies inventory, consisting principally of surgical, medical, and pharmaceutical supplies, is carried at the lower of cost (first-in, first-out (FIFO) or average cost methods) or market.
(h) Payable to Contractual Agencies, Net
The Medical Center is reimbursed for Medicare inpatient, outpatient, psychiatric, and rehabilitation services, and for capital and medical education costs during the year either prospectively or at an interim rate. The difference between interim payments and the reimbursement computed based on the Medicare filed cost report results in an estimated receivable from or payable to Medicare at the end of each year.
The Medicare program’s administrative procedures preclude final determination of amounts receivable from or payable to the Medical Center until after the cost reports have been audited or otherwise reviewed and settled by Medicare. The estimated amounts for unsettled cost reports are included in payable to contractual agencies, net in the accompanying balance sheets.
A significant portion of the services of the Medical Center is provided to Medicare inpatients under the Prospective Payment System, which provides for reimbursement based on diagnosis-related groupings (DRGs), and includes payments for capital related costs and certain medical education costs. DRG payments are prospectively established and may be greater or less than the Medical Center’s actual charges for its services. Payments for Medicare outpatient laboratory services are based on a fixed fee schedule. Other outpatient services are paid based upon a payment system known as Ambulatory Payment Classes (APC’s). Prospective payments for inpatient rehabilitation and psychiatric services are based upon case mix groups (CMG’s) and per diem costs, respectively. Payments for other Medicare outpatient services, inpatient psychiatric, and inpatient rehabilitation services are based on defined allowable costs.
Medicare reimburses the Medical Center for certain teaching costs incurred by UWSOM. The Medical Center has estimated amounts due to UWSOM related to medical education arising from the cost report settlement estimates.
(i) Net Assets
Net assets of the Medical Center are classified in the following three components:
Net Assets Invested in Capital Assets, Net of Related Debt
This component of net assets consists of capital assets net of accumulated depreciation and reduced by any outstanding borrowings that are attributable to the acquisition, construction or improvements of these assets.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
24 (Continued)
Expendable, Restricted Net Assets
These components of net assets are noncapital assets that must be used for a particular purpose, as specified by creditors, grantors, or contributors external to the Medical Center. These assets consist of pooled investments held by UW.
The Medical Center receives investment earnings from endowments that are held and recorded by the UW, the income of which is designated to support Medical Center programs. At cost the endowments are valued at $665 and the fair market value is $840 as of June 30, 2009. At cost the endowments are valued at $665 and the fair market value is $1,159 as of June 30, 2008.
Unrestricted Net Assets
This component of net assets consists of net assets that do not meet the definition of “expendable and non expendable, restricted” or “invested in capital assets, net of related debt”.
(j) Net Patient Service Revenues
The Medical Center has agreements with third-party payors that provide for payments to the Medical Center at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Net patient service revenues are 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.
Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. The fiscal year 2009 and 2008 net patient service revenues increased approximately $908 and $7,149, respectively, due primarily to settlements of prior year cost reports.
(k) Operating Revenues and Expenses
The Medical Center’s statements of revenues, expenses, and changes in net assets distinguish between operating and nonoperating revenues and expenses. Operating revenues, such as patient service revenue, result from exchange transactions associated with providing healthcare services – the Medical Center’s primary business. Exchange transactions are those in which each party to the transaction receives and gives up essentially equal values. Nonexchange revenues, such as contributions, are reported as nonoperating revenues. Operating expenses are all expenses incurred to provide healthcare services, other than financing costs.
(l) Intra-UW Governmental Transfers
When fund transfers occur between the Medical Center and other UW divisions and economic benefits are neither provided nor received in exchange for the transfer, the transfers are classified as Intra-UW governmental transfers and are reported as such on the statements of revenue, expenses, and changes in net assets.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
25 (Continued)
(m) Federal Income Taxes
The Medical Center, as a division of UW, is not subject to federal income tax because it is an entity whose income is excluded from gross income for federal income tax purposes under Section 115 of the Internal Revenue Code, except for unrelated business income tax.
(n) Recently Adopted Accounting Standards
In July 2004, GASB issued statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (GASB 45). GASB 45 was effective for the year ended June 30, 2008. This statement required the recording of the accumulated liability for retiree health care and life insurance costs, which the University subsidizes.
Health care and life insurance programs for employees of the State of Washington are administered by the Washington State Health Care Authority (HCA). All University of Washington employees, including Medical Center employees, are employees of the State of Washington. The HCA calculates the premium amounts each year that are sufficient to fund the statewide health and life insurance programs on a pay as you go basis. These costs are passed through to individual state agencies based upon active employee headcount; the agencies pay the premiums for active employees to the HCA. The agencies may also charge employees for certain higher cost options elected by the employee.
State of Washington retirees may elect coverage through state health and life insurance plans, for which they pay less than the full cost of the benefits, based on their age and other demographic factors.
The health care premiums for active employees, which are paid by the agency during employees’ working careers, subsidize the “underpayments” of retirees. An additional factor in the Other Post Employment Benefits (OPEB) obligation is a payment that is required by the State Legislature to reduce the premiums for retirees covered by Medicare (an explicit subsidy). For 2008 this amount was $164 per retiree eligible for parts A and B of Medicare. This is also passed through to state agencies via active employee rates charged to the agency.
There is no formal State or University plan that underlies the subsidy of retiree health and life insurance.
An actuarial study performed by the Washington Office of the State Actuary calculated that the total OPEB obligation of the State of Washington at July 1, 2008 was $4.0 billion and that the 2009 annual cost was $334 million. The Actuary calculated the OPEB obligation based on individual State employee data, including age, retirement eligibility, and length of service. The probability of an employee of a given age and length of service retiring and receiving OPEB benefits is based on statewide historical data.
The Actuary’s allocation of the overall statewide liability related to the University, including its unconsolidated affiliates (which includes the Medical Center), was approximately $600 million, and the annual allocated estimated cost to the University for fiscal year 2009 was approximately
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
26 (Continued)
$65 million. This estimated expense represents the amortization of the liability for fiscal year 2008 plus the current expense for active employees.
Since sufficient specific employee data and other actuarial data are not available at levels below the statewide level, such amounts have not been determined nor recorded in the University’s nor the Medical Center’s financial statements. This liability is recorded at the statewide level. The Medical Center was billed and paid $33,463 and $38,793, respectively, for health care expenses in fiscal years 2009 and 2008 which included its funding of the OPEB liability.
The State Actuary’s report is available at:
http://osa.leg.wa.gov/Actuarial_Services/OPEB/PDF_Docs/2008_OPEB_Report.pdf
In March 2009, the GASB issued GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This statement incorporates the hierarchy of generally accepted accounting principles (GAAP) for state and local governments into the GASB authoritative literature. The "GAAP hierarchy" consists of the sources of accounting principles used in the preparation of financial statements of state and local governmental entities that are presented in conformity with GAAP, and the framework for selecting those principles. This statement is effective upon issuance. Management believes the adoption of this standard did not have a material impact on the Medical Center’s financial statements.
In March 2009, the GASB issued GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. This statement addresses three issues not included in the authoritative literature that establishes accounting principles – related party transactions, going concern considerations, and subsequent events. This statement is effective upon issuance. Management believes the adoption of this standard did not have a material impact on the Medical Center’s financial statements.
(o) New Accounting Pronouncement
In June 2007, the GASB issued GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. This statement establishes accounting and financial reporting requirements for intangible assets. This statement provides guidance on the recognition, initial measurement, and amortization of intangible assets, including easements, water rights, timber rights, patents, trademarks, and computer software. This statement is effective for financial statements for periods beginning after June 15, 2009. Management believes the adoption of this standard will not have a material impact on the Medical Center’s financial statements.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
27 (Continued)
(3) Net Patient Service Revenues
The following are the components of net patient service revenues for the year ended June 30:
2009 2008
Patient service charges $ 1,269,926 1,134,024
Less adjustments to patient service charges:Charity 18,650 17,957 Contractual discounts 534,436 454,816 Provision for uncollectible accounts 11,732 18,254
Total adjustments to patient service charges 564,818 491,027 Net patient service revenues $ 705,108 642,997
The Medical Center grants credit without collateral to its patients, most of whom are insured under third-party payor agreements. The mix of gross patient charges and receivables from significant third-party payors at June 30, 2009 and 2008 was as follows:
Patientservice Accountscharges receivable
2009:Medicare 29% 27%Medicaid 18 20Premera 13 9
2008:Medicare 30% 23%Medicaid 17 23Premera 13 8
(4) Certified Public Expenditure Program
Since July 2005 the Medical Center has been paid for certain inpatient services under the Washington Certified Public Expenditure (CPE) program. The CPE program, approved by the Centers for Medicare and Medicaid Services, relies on federal regulations that permit states to consider qualifying expenditures made by public hospitals serving Medicaid eligible or uninsured patients as the state’s share of Medicaid payments. Under the CPE program, only the federal matching portion (approximately 50%) of cost-based Medicaid inpatient payments are remitted to the Medical Center as claims payments. The balance owed to the hospital is paid either as disproportionate share payments (DSH) or state grant payments. The American Recovery and Reinvestment Act of 2009 temporarily increased the federal matching percentage from approximately 50% to approximately 61%. This higher federal match rate is effective from October 1, 2008 until December 31, 2010.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
28 (Continued)
The intent of the legislature is that hospitals in the program receive no less in payments than they would have received under the methodology that is in place for other hospitals in the state – this is the so-called “hold harmless” provision. If DSH payments are insufficient to satisfy the “hold harmless” provision, the state is required to make additional grant payments to make up the difference.
Interim state grant payments based on prospectively estimated experience are retrospectively reconciled to “hold harmless” after actual claims are repriced using the applicable methods. This process takes place approximately 6 months after the end of the fiscal year and results in either a payable to, or receivable from, the state Medicaid Program. State inpatient claim and DSH payments are subject to retrospective determination of actual costs once the Medical Center’s Medicare Cost Report is audited. CPE program payments are not considered final until retrospective cost reconciliation is complete, shortly after the Medical Center receives its Medicare Notice of Program Reimbursements (NPR) for the corresponding cost reporting year. To date, no CPE program year has had a final settlement.
The Medical Center received approximately $23,769 and $21,311 in claims payments, $9,775 and $9,573 in DSH payments and $13,342 and $20,257 in state grant funds in fiscal years 2009 and 2008, respectively.
As of June 30, 2009, the Medical Center had an estimated payable of $4,802 of state grant funds, for fiscal years 2006, 2007, 2008 and 2009 which is included as a liability in payable to contractual agencies in the accompanying balance sheet.
The Medicaid CPE program has been continued through fiscal year 2011 but extension of the program beyond 2011 is uncertain. Inpatient Medicaid charges represented approximately 8.2% and 7.5% of total charges for the Medical Center in fiscal years 2009 and 2008, respectively.
(5) State Appropriation
The Washington State Legislature has historically made an appropriation to UW to fund medical education. This appropriation is specifically designated by the State for the training of future healthcare professionals and to upgrade the skills of current practitioners. Due to the nature of the designation, these amounts are included in operating revenues in the accompanying financial statements.
(6) Charity Care
The Medical Center provides care at no charge or reduced charges to those patients who qualify under the Medical Center’s approved charity care guidelines. The Medical Center has adopted guidelines which provide charity to a greater number of patients which are monitored by the Washington Department of Health. General economic conditions, declines in employer-sponsored health care, and decreased funding for state-sponsored health programs all contribute to an upward trend in the amount of charity care provided.
Included in the definition of charity care are patients who are uninsured or underinsured. Because the Medical Center does not pursue collection of amounts determined to qualify as charity care, these are not reported as net revenue.
For the years ended June 30, 2009 and 2008, the amount of gross revenue forgone for charity, based on established rates, was $18,650 and $17,957, respectively.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
29 (Continued)
The Medical Center has elected to estimate the cost of charity care using the Medicaid cost to charge ratio of 51.2% for fiscal year ending June 30, 2008. Applying the Medical Center’s Medicaid cost to charge ratio of 51.2%, to total charity of $18,650, results in a cost of charity care of $9,549 for the fiscal year ended June 30, 2009.
(7) Care to the Underserved and Community Benefits (Unaudited)
The Medical Center is a nationally recognized academic medical center excelling in specialty and primary care. The Medical Center is an integral part of UW Medicine which also includes HMC, UWSOM, UWP, and the Network.
Academic medicine is the one arena where teaching, research and clinical practice come together to provide cutting-edge research, innovative patient care and education of the next generation of care givers. For 16 years, the UWSOM has been ranked by U.S. News & World Report as the No. 1 school for teaching primary care physicians. The Medical Center, as one of the two medical centers operated by UW Medicine, leads the region in the introduction and application of diagnostic and treatment applications. The Medical Center was ranked among America’s top 15 hospitals in U.S. News and World Report’s honor roll, and the Medical Center is a Magnet Hospital for nursing.
The Medical Center contributes to the community both as a tertiary hospital serving the region’s sickest populations and as an essential component of the UW Medicine academic enterprise. Contributions to the community include the following:
(a) Care to the Elderly and Underserved
The Medical Center serves a patient population that draws from a multi-state area. This population reflects an increasing number of patients who are part of government-sponsored programs like Medicare and Medicaid. Medicare and Medicaid revenues represented 47% of gross patient revenues in the year ended June 30, 2009. Care for the elderly and care for patients at or below the poverty level often involves nursing support, diagnostic testing and aggressive treatments not required by the average patient. The Medical Center and other academic hospitals serve as safety net hospitals to patients with these special needs.
The most recent data available from the Washington Department of Health indicates that the Medical Center sees some of the most severely ill Medicare and Medicaid patients in the state. Medicaid inpatients seen at the Medical Center in calendar year 2008 had a case mix index of 1.020, 43% higher than the hospital statewide average. Medicare inpatients seen at the Medical Center in calendar year 2008 had a case mix index of 1.794, 40% higher than the hospital statewide average.
(b) Medical Education
The Medical Center and HMC are the largest training sites for UWSOM, which is the only medical school in the five-state area of Washington, Wyoming, Alaska, Montana and Idaho. Each year the Medical Center sponsors over 300 residents and fellows enrolled in UWSOM for training within the Medical Center. The Medical Center also sponsors training for other Health Sciences students including students from the Schools of Dentistry, Nursing, Social Work, Pharmacy, Public Health and Community Medicine.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
30 (Continued)
(c) Research
The research conducted by UW Medicine faculty has contributed to the advancements in scientific knowledge and the prevention and treatment of disease. Examples of scientific innovation at UW Medicine include the development of kidney dialysis, bone marrow transplantation, and the use of medical ultrasound. Advancements in research result in both humanitarian and economic returns to the region, nation, and world. Seattle is one of the leading biotech centers in the world in large part due to UW Medicine’s preeminent position in biomedical sciences, including emerging areas such as genomics and proteomics. The Medical Center is a critical site for UW Medicine research.
(d) Outreach and Public Service
The Medical Center provides a wide range of patient-centered community outreach programs. These services include disease related support groups, community newsletters, lecture series, and conferences. The Medical Center is committed to strengthening the relationship between care providers, patients and their families. Patient and family volunteers are recruited as advisors and work with the Medical Center staff to provide input on health care programs and policies, review educational materials, serve on committees and participate in discussion groups designed to improve the patient experience at the Medical Center.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
31 (Continued)
(8) Capital Assets
The activity in the Medical Center’s capital asset accounts, and the related accumulated depreciation accounts, for the years ended June 30, 2009, 2008, and 2007, are set forth below:
Balance Transfers BalanceJune 30, and June 30,
2008 Additions retirements 2009
Capital assets, not being depreciated:Land $ 2,631 — — 2,631 Construction-in-progress 11,621 26,942 (4,708) 33,855
Total capital assets, notbeing depreciated 14,252 26,942 (4,708) 36,486
Capital assets, being depreciated:Land improvements 2,032 — (36) 1,996 Plant, including certain fixed
equipment 320,127 — — 320,127 Fixed equipment 88,822 — — 88,822 Movable equipment 277,665 27,462 (7,411) 297,716
Total capital assets,being depreciated 688,646 27,462 (7,447) 708,661
Total capital assets athistorical cost 702,898 54,404 (12,155) 745,147
Less accumulated depreciation for:Land improvements (1,988) (20) 36 (1,972) Plant, including certain fixed
equipment (138,808) (13,628) 138 (152,298) Fixed equipment (78,716) (1,533) 148 (80,101) Movable equipment (198,143) (21,724) 9,589 (210,278)
Total accumulateddepreciation (417,655) (36,905) 9,911 (444,649)
Total capital assets, net $ 285,243 17,499 (2,244) 300,498
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
32 (Continued)
Interest expense on borrowed funds during construction is a component of the cost of assets. The amount capitalized represents interest on funds expended for construction. Capitalization of interest ceases when the asset is substantially complete or placed in service. Interest earned on these project funds is applied against interest expense for purposes of capitalization. Interest capitalized was $215 and $60 during fiscal years 2009 and 2008, respectively.
Balance Transfers BalanceJune 30, and June 30,
2007 Additions retirements 2008
Capital assets, not being depreciated:Land $ 2,631 — — 2,631 Construction-in-progress 9,979 8,631 (6,989) 11,621
Total capital assets, notbeing depreciated 12,610 8,631 (6,989) 14,252
Capital assets, being depreciated:Land improvements 2,032 — — 2,032 Plant, including certain fixed
equipment 313,514 — 6,613 320,127 Fixed equipment 88,165 — 657 88,822 Movable equipment 259,600 21,431 (3,366) 277,665
Total capital assets,being depreciated 663,311 21,431 3,904 688,646
Total capital assets athistorical cost 675,921 30,062 (3,085) 702,898
Less accumulated depreciation for:Land improvements (1,967) (21) — (1,988) Plant, including certain fixed
equipment (125,209) (13,599) — (138,808) Fixed equipment (77,078) (1,638) — (78,716) Movable equipment (179,768) (21,433) 3,058 (198,143)
Total accumulateddepreciation (384,022) (36,691) 3,058 (417,655)
Total capital assets, net $ 291,899 (6,629) (27) 285,243
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
33 (Continued)
(9) Other Assets
Other assets are as follows as of June 30:
2009 2008
Interest in SCCA (note 15(f)) $ 55,912 48,609 Other 52 53
Total other assets $ 55,964 48,662
(10) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are as follows as of June 30:
2009 2008
Accounts payable $ 34,549 34,840 Payable to UWSOM 13,285 12,464 Construction payable 10,312 3,455 Payable to Consolidated Laundry 3,034 3,380 Due to SCCA 1,380 1,213 Due to Fred Hutchinson Cancer Research Center 1,836 2,068 Other 1,300 1,497
Total accounts payable and accrued expenses $ 65,696 58,917
(11) Long-Term Debt and Capital Leases
The long-term debt is a direct obligation of the State of Washington. However, the debt is recorded by the Medical Center since it was obtained to finance Medical Center plant and equipment additions and is being repaid by the Medical Center.
(a) General Obligation Refunding Bonds
R-2001A – General Obligation Refunding Bonds were issued in fiscal year 2001 to advance-refund portions of the Medical Center’s R-92A bonds.
2006A – General Obligation Refunding Bonds were issued in fiscal year 2006 to advance-refund the Medical Center’s 2000A series bonds.
(b) General Obligation Bonds
2002A – General Obligation Bonds were issued in fiscal year 2002 to pay for certain construction projects.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
34 (Continued)
2003D – General Obligation Bonds were issued in fiscal year 2003 to pay for certain construction projects.
2009 2008
Series R-2006A General Obligation Refunding Bonds,interest ranging from 4.0% to 5.0%, maturing seriallythrough fiscal year 2025 in annual installments ofprincipal and semiannual installments of interest;annual principal payments ranging from $50 to $4,555,unamortized premium of $240 $ 49,890 49,971
Series 2003D General Obligation Bonds, 5.0%; maturingserially through fiscal year 2028 in annual installmentsof principal and semiannual installments of interest;annual principal payments ranging from $45 to $122,including unamortized premium of $44 1,556 1,608
Series 2002A General Obligation Bonds, interest rangingfrom 4.0% to 5.0%; maturing serially through fiscalyear 2027 in annual installments of principal andsemiannual installments of interests; annual principalpayments ranging from $726 to $1,878, includingunamortized premium of $73 22,947 23,718
Series R-2001A General Obligation Refunding Bonds,interest ranging from 5.0% to 5.5%; maturing seriallythrough fiscal year 2010 in annual installments ofprincipal and semiannual installments of interest;annual principal payments ranging from $745 to$3,133; unamortized premium of $1 747 3,897
Capital leases for medical office building and equipment 16,310 23,286
91,450 102,480
Less current portion (6,664) (10,975) Long-term debt, net of current portion $ 84,786 91,505
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
35 (Continued)
(c) Long-Term Debt Maturities, Excluding Capital Leases
The following schedule shows future long-term debt maturities by year:
Principal Interest Total
Fiscal year ending June 30, 2009:2010 $ 1,653 3,700 5,353 2011 2,201 3,601 5,802 2012 3,242 3,465 6,707 2013 3,331 3,301 6,632 2014 3,425 3,132 6,557 2015 – 2019 23,179 12,416 35,595 2020 – 2024 27,498 6,112 33,610 2025 – 2028 10,253 569 10,822
74,782 36,296 111,078
Less current portion (1,655) (3,700) (5,355) Add unamortized premiums and
discounts, net 357 — 357
Long-term debt, net ofcurrent portion $ 73,484 32,596 106,080
(d) Capital Leases
In fiscal year 1994, the Medical Center entered into a capital lease with the UW Alumni Association for the UW Medical Center Roosevelt Clinic land and building (the Clinic). The lease specifies that at the end of the 20-year lease term, the Clinic building and land will become the property of the Medical Center.
The Medical Center has entered into various other lease agreements for certain equipment.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
36 (Continued)
Future minimum lease payments under these agreements are as follows:
Fiscal year ending June 30, 2009:2010 $ 5,494 2011 4,125 2012 2,783 2013 2,258 2014 2,469 2015 418
17,547
Less amounts representing interest (1,237)
Net 16,310
Less current portion (5,009) $ 11,301
(e) Changes in Noncurrent Liabilities
Changes in the Medical Center’s long-term liabilities during the fiscal years ended June 30, 2009, 2008, and 2007 are summarized below:
Balance BalanceJune 30, 2008 Increases Decreases June 30, 2009
Long-term debt, bonds $ 75,195 — (1,710) 73,485 Long-term debt, capital leases 16,310 — (5,009) 11,301
Total noncurrentliabilities $ 91,505 — (6,719) 84,786
Balance BalanceJune 30, 2007 Increases Decreases June 30, 2008
Long-term debt, bonds $ 79,301 — (4,106) 75,195 Long-term debt, capital leases 23,286 — (6,976) 16,310
Total noncurrentliabilities $ 102,587 — (11,082) 91,505
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
37 (Continued)
(f) Internal Lending Program
Historically, when the Medical Center required long-term debt, it was obtained through State General Obligation bonds. Effective July 1, 2008, the University Board of Regents adopted the amended “Debt Management Policy: Statement of Objectives and Policies” to provide for the implementation of an Internal Lending Program (ILP). The ILP will be used for future long-term debt issues by the Medical Center, including debt related to the hospital expansion. The Medical Center expects to enter into an internal financing agreement for the expansion debt in July 2009.
The purpose of the ILP is to lower the University’s overall cost of capital and provide internal borrowing units with a stable and predictable borrowing rate. The ILP will make loans to internal borrowers at a uniform internal lending rate. These loans will be funded through the issuance of University General Revenue bonds and notes. ILP program policies include a provision for a rate stabilization reserve and a provision for rate adjustments if necessary.
Under the terms of the ILP, rate adjustments will apply to all outstanding debt obligations, including debt issued prior to the ILP implementation. The ILP lending rate will be reviewed annually and a preliminary indication of a rate adjustment will be announced to ILP participants twelve months in advance of the effective date. Final rate adjustments require approval by the Board of Regents.
(12) Professional Liability Coverage
The Medical Center participates in the professional liability program of UW. UW’s professional liability program includes self-insured and commercial reinsurance coverage components.
The Medical Center’s annual funding to the professional liability program is determined by UW administration, using information from an annual actuarial study. The actuary discounts funding needs are approximately 7.0% for fiscal years 2009 and 2008 in recognition of the expected earnings of the self-insurance programs. In addition to UW, the participants in the professional liability program include HMC, UWP, Children’s University Medical Group (CUMG), the Network, Associated University Oral Surgeons, Airlift Northwest, and the Medical Center. The various participants in the program contribute a portion of the annual deposit into the self-insurance revolving programs and also a share of the expenses of the University’s Health Sciences Risk Management Office.
The Medical Center’s funding and amount expensed was approximately $2,532 and $2,453 in 2009 and 2008, respectively.
(13) Retirement Plans
The Medical Center offers two contributory pension plans for employees: the Washington State Public employee Retirement System (PERS) plan, a defined benefit retirement plan; and the University of Washington Retirement Plan (UWRP), a defined contribution plan with supplemental payments, when required.
The Medical Center, through the UW, contributes to PERS, a cost sharing, multiple-employer, defined benefit plan administered by the State of Washington Department of Retirement Systems.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
38 (Continued)
Faculty, professional staff and certain other salaried employees are eligible to participate in the UWRP, a defined contribution plan administered by the UW. The supplemental component of the UWRP is financed on a pay-as-you-go basis.
(14) Vacation and Sick Leave
(a) Vacation
All monthly paid employees earn annual vacation hours for each full month of service. Part-time employees accrue vacation at an amount proportionate to their monthly full-time equivalent. Employees become eligible to use accrued annual vacation hours following the completion of one full calendar month of service. The monthly annual vacation accrual rates vary depending on the employee’s level of employment and length of service.
(b) Sick Leave
Full-time employees earn eight hours of sick leave upon completion of each month of service. Part-time employees accrue sick leave at an amount proportionate to their monthly full-time equivalent. In January of each year, an employee whose year-end sick leave balance exceeds 480 hours may choose to convert the sick leave hours above 480, which were earned in the previous year, to monetary compensation at a rate of 25%. Employees may be compensated for the unused sick leave accumulation upon retirement or death at the rate of 25%.
(15) Related Parties
The Medical Center has engaged in a number of transactions with related parties including other UW divisions. These transactions are recorded by the Medical Center as either revenue or expense transactions because economic benefits are either provided or received by the Medical Center. The Medical Center records cash transfers between the Medical Center and other UW divisions that are not the result of economic benefits and are presented as intra-UW governmental transfers within net assets.
(a) University of Washington
UW provides the Medical Center with services and support such as general and professional liability insurance, printing, accounting, temporary help and other administrative and operational services. The amounts paid for these services are included in the related party transactions summary in (i).
(b) University of Washington School of Medicine
The Medical Center purchases a variety of clinical and administrative services from UWSOM. For example the Medical Center purchases laboratory services from UWSOM and the Medical Center pays a portion of residents and faculty salaries for clinical and administrative support at the Medical Center. The Medical Center also transfers a portion of their Medicare reimbursement for medical education to UWSOM in support of teaching costs. The amounts paid for these services are shown in (i).
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
39 (Continued)
(c) Vice President of Medical Affairs
The office of the Vice President of Medical Affairs provides services to the Medical Center such as news and community relations staffing, medical staff oversight, marketing, information systems services, and other administrative services. The amounts paid by the Medical Center for these services are shown in (i).
(d) Consolidated Laundry
The University of Washington Consolidated Laundry (the Laundry) provides laundry services to HMC, the Veteran’s Administration, Steven’s Healthcare, UW, and the Medical Center.
The State of Washington allocated certain proceeds from General Obligation Bond issues to the Laundry for acquisition and construction of a laundry facility. The Laundry’s portion of the General Obligation Bonds is not included in the Medical Center’s financial statements. The Medical Center pays the entire debt service on these General Obligation Bonds to the State. The Laundry reimburses the Medical Center for its portion of the debt service.
The Laundry transfers funds to the Medical Center for the purposes of satisfying debt and capital accumulation requirements. The Laundry also transfers excess funds to the Medical Center in order to invest those funds with the Medical Center’s funds held by UW. The Medical Center records these amounts as payables to the Laundry. This payable to the Laundry is included in the accounts payable and accrued expenses on the accompanying balance sheets.
The Medical Center purchases laundry services from the Laundry and the amounts purchased are shown in (i).
(e) University of Washington Physicians Network (also known as UW Neighborhood Clinics)
The Network consists of seven primary care clinics that offer family practice and other primary and ancillary services in neighborhood settings throughout the King County area. In fiscal year 1996, the Medical Center entered into an agreement (the Original Agreement) with UWSOM, HMC, and the Network to provide for funding of the Network.
As a result of the Original Agreement, the Medical Center funded a total of $19,745. Cumulative funding in addition to the Original Agreement is $30,771 and $24,721 at June 30, 2009 and 2008, respectively. Funding made subsequent to the Original Agreement has been made based on UW Medicine board approval of the Network’s annual funding requests. Funding by the Medical Center represents approximately 50% of the cumulative funding received by the Network. Funding for the Medical Center’s obligation with the Network related to its fiscal years 2008 and 2007 funding agreements is included in the detailed related party transactions in (i).
In November 2003, an agreement was reached to reallocate any Network funding requirements made subsequent to June 30, 2004 between UWP, HMC and the Medical Center. Under the approved reallocation, UWP and HMC funding will be fixed at $200 and $800 per year, respectively, and the Medical Center will cover any financial obligations of the Network which remain thereafter. The Network’s losses have been approximately $6,200 and $5,700 in its years ended June 30, 2009 and
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
40 (Continued)
2008, respectively. Cash funding from the Medical Center to the Network was $6,050 for fiscal year 2009 and $3,000 for fiscal year 2008, and is recorded as a nonoperating expense in the statements of revenues, expenses, and changes in net assets. The Network’s fiscal year 2010 loss is budgeted to be approximately $6,700.
During fiscal year 2009 an Amendment was signed extending the 1996 Funding Agreement until the end of fiscal year 2010.
(f) Seattle Cancer Care Alliance
In 1998, the Medical Center entered into an agreement with Seattle Children’s and FHCRC to establish the SCCA. Each member of the SCCA has a one-third interest. The mission of the SCCA is to eliminate cancer as a cause of human suffering and death and to become recognized as the premier cancer research and treatment center in the Pacific Northwest. The SCCA integrates the cancer research, teaching, and clinical cancer programs of all three institutions to provide state-of-the-art cancer care. Under the agreement, the Medical Center provides the patient care to all adult inpatients of the SCCA. The Medical Center accounts for its interest in SCCA under the equity method of accounting. Nonoperating income of $6,711 and $4,105 was recorded in fiscal year 2009 and 2008, respectively.
Inpatient Services – The SCCA operates a 20-bed unit located within the Medical Center in which its adult inpatients receive care. The fiscal intermediary has determined that the 20-bed unit qualifies as a hospital within a hospital for Medicare Reimbursement purposes. The SCCA provides medical oversight and management of the inpatient unit. Under agreements, the Medical Center provides inpatient care services to the SCCA including necessary personnel, equipment, and ancillary services. Payments due to the Medical Center for services provided to the SCCA inpatients in fiscal years 2009 and 2008 are included in net patient service revenues. The Medical Center purchases administrative and program support services from the SCCA. These purchased services are included in supplies and other expenses and in the detailed related party transaction summarized in (i).
Outpatient Services – The SCCA operates an ambulatory cancer care service facility in Seattle. The Medical Center provides various services to the SCCA’s outpatient facility including certain pharmacy, laboratory, and pathology services as well as billing, purchasing, and other administrative services. Fees for such services and supplies provided by the Medical Center are included in other revenue.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
41 (Continued)
The following is a summary of the SCCA’s financial results for the years ended June 30, 2009 and 2008:
2009 2008
Assets $ 345,094 278,367
Liabilities $ 152,112 107,400 Unrestricted net assets 190,264 168,537 Temporarily restricted net assets 1,961 2,430 Permanently restricted 757 —
Total liabilities and net assets $ 345,094 278,367
Revenues $ 254,159 216,138 Expenses 235,291 207,983 Nonoperating income 1,265 4,161
Excess of revenues over expenses 20,133 12,316
Change in net unrealized fair value hedged transactions — (74) Change in net unrealized gains on investments 1,594 287
Increase in unrestricted net assets $ 21,727 12,529
(g) Fred Hutchinson Cancer Research Center
Prepaid License Fees – As a part of the SCCA agreement, the Medical Center had prepaid license fees to FHCRC totaling $12,049 for its expertise and assistance in the establishment of two adult inpatient oncology units at the Medical Center. FHCRC’s expertise includes bone marrow transplants, access to existing protocols, knowledge and expertise in the technology to establish the bone marrow transplant program and access to and linkages with FHCRC research. The prepaid license fee, which has been fully amortized, is included in other assets.
Other Fees – The SCCA agreement provides that the Medical Center will make various payments to FHCRC related to research and development support, data collection and analysis, physician assistance services, consulting services and license rights to use the FHCRC name in connection with the inpatient oncology services program. These fees are included in other expenses and are listed in (i).
(h) Harborview Medical Center
The Medical Center provides services and support to HMC such as administrative and operational services. HMC provides the Medical Center with services and support such as pharmacy refills and lab testing as well as other administrative and operational services. The amounts paid for these services are included in the related party transactions summary in (i).
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
42 (Continued)
(i) The Following is a Summary of Related Party Transactions
Revenue (expense) transactions 2009 2008
Services purchased from UW $ (10,560) (9,322) Funding to other departments within UW (intra-UW
governmental transfer) (259) (253) Services purchased from UWSOM (85,945) (73,357) Services purchased from the Vice President of
Medical Affairs (6,250) (6,275) Services and supplies purchased from the Laundry (2,754) (2,597) Funding support to the Network (6,050) (3,000) Revenues and fees associated with services provided
to SCCA inpatients 30,030 26,705 Revenues associated with services provided to SCCA
related to their outpatient services 12,668 11,916 Services and supplies purchased from SCCA related
to the adult inpatient program (9,534) (8,301) Services purchased from FHCRC (7,455) (8,276) Services purchased from HMC (1,012) (1,009) Services provided to HMC 40 40
As of June 30, 2009 and 2008, respectively, the Medical Center had net amounts (due to) or due from related parties for the various transactions described above, which are as follows:
2009 2008
SCCA $ 12,693 13,120 UWSOM (14,163) (12,711) The Laundry (3,034) (3,380) The Network 840 272 HMC (336) (108) FHCRC (1,792) (2,012)
(16) Commitments and Contingencies
(a) Operating Leases
The Medical Center leases certain buildings and equipment under operating leases expiring at various dates through 2021. Total rental expense in fiscal years 2009 and 2008 for all operating leases was $9,484 and $8,673, respectively.
UNIVERSITY OF WASHINGTON MEDICAL CENTER (A Division of the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
43
The following is a schedule of future minimum lease payments under operating leases as of June 30, 2009, that have initial or remaining lease terms in excess of one year:
Fiscal year ending June 30:2010 $ 9,306 2011 9,056 2012 9,118 2013 8,195 2014 7,586 2015 – 2021 30,457
Total $ 73,718
(b) Construction Commitments
The Medical Center has current construction commitments of approximately $29,461 related to Medical Center renovations. The Medical Center intends to use its funds held by UW for these commitments.
(c) Regulatory Environment
The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, governmental health care program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government agencies are actively conducting investigations concerning possible violations of fraud and abuse statutes and regulations by health care providers. Violations of these laws and regulations could result in expulsion by health care providers, together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Medical Center is in compliance with the fraud and abuse regulations as well as other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions known or unasserted at this time.
In 2007, the Medical Center received an audit report from the state Medicaid program requesting repayment of reimbursement for patients who were admitted as inpatients but should have been classified as outpatients according to the medical necessity criteria. Based on the results of the Medicaid short stay audit, management undertook a more extensive review of inpatient short stay claims for Medicaid and Medicare for prior periods and recorded an estimated liability as of June 30, 2007. During fiscal year 2009 and 2008, the Medical Center completed repayment of all identified claims and remitted $5,613 and $2,003, respectively, to the appropriate agencies.
(d) Litigation
The Medical Center is involved in litigation arising in the course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect to the Medical Center’s financial statements.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Financial Statements
June 30, 2009 and 2008
(With Independent Auditors’ Report Thereon)
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
June 30, 2009 and 2008
Table of Contents
Page
Management’s Discussion and Analysis 1
Independent Auditors’ Report 11
Financial Statements:
Balance Sheets 12
Statements of Revenues, Expenses, and Changes in Net Assets 13
Statements of Cash Flows 14
Notes to Financial Statements 15
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
1 (Continued)
Introduction
This discussion and analysis provides an overview of the financial position and activities of Harborview Medical Center (the Medical Center) for the years ended June 30, 2009, 2008 and 2007. This discussion has been prepared by management and should be read in conjunction with the financial statements and accompanying notes that follow this section.
Results of Operations
The Medical Center reported income from operations of $5,749, $12,513 and $7,344 for fiscal years ended June 30, 2009, 2008 and 2007, respectively. The reduction in operating income for the current year is primarily attributable to the addition of significant operating expenses associated with opening new beds and operating rooms during the fiscal year with expected patient volumes not occurring as quickly as anticipated. Key contributors to the financial results are described below.
• Opening of the Norm Maleng Building
The Medical Center began operations of the Norm Maleng Building in August of 2008. The opening was delayed by one month compared to the original plan. The nine story building added fifty additional inpatient beds and eight new operating rooms. The additional beds brought the Medical Center’s bed capacity up to 413, which is its licensed limit. The new operating rooms increased surgical capacity by fifty percent over the previous capacity of 16 operating rooms. The start up and capital related costs associated with opening the building were approximately $12 million. While inpatient days did not increase from fiscal year 2008 to fiscal year 2009, surgery cases did increase by 7%. Patient days and surgery cases, however, were less than the volumes budgeted for the year.
• Opening of the Ninth and Jefferson Building (NJB)
In addition to the Maleng Building, the Medical Center also began occupying the NJB, a fourteen story medical office building that includes over 440,000 square feet of clinical and office space. The occupancy of the building will be substantially complete by December of 2009. The additional costs associated with moving into and occupying the NJB in fiscal year 2009 were approximately $4 million.
• Implementation of Expense Reduction Strategies
Significant financial losses in the months of November and December of 2008 resulted in a number of expense reduction strategies being implemented. Full time equivalent employees were reduced from 4,729 in the month of November to 4,592 in the month of June. The reduction was primarily achieved through reductions of overtime and contract labor. In addition, restrictions on travel and capital spending were instituted. Organizational efficiencies were achieved by consolidating positions and programs within the Medical Center as well as across UW Medicine. Through implementation of these strategies and others the Medical Center was able to achieve positive income from operations in the months from March through June.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
2 (Continued)
• Fluctuations in Payer Mix and Case Mix Index
The Medical Center experienced large monthly variations in payer mix during the year. Compared to a budget of 12% of its revenue being generated from unsponsored patients, the months of November and December were 14% and 16%, respectively. This increase in unsponsored patients was a large contributor to the losses in those two months, but returned to budgeted levels by the end of the year. The Medical Center’s case mix index, which is an indicator of the acuity of its patients and a driver of reimbursement, also fluctuated significantly during the year. For the fiscal year the index was three percent lower than budget, which contributed to lower than expected revenues.
Volumes and Statistics
Following are key operating statistics for the years ended June 30:
Medical Center Key Operating Statistics
2009 2008 2007
Available beds 402 368 368 Admissions 19,424 18,597 18,538 Patient days 136,687 136,662 133,345 Occupancy 93% 101% 99%Surgery cases 13,455 12,630 12,583 Emergency room visits 65,515 68,987 76,491 Outpatient clinic visits 224,769 230,315 218,229 Full time equivalent employees 4,626 4,425 4,336
Admissions, patient days, surgery cases, outpatient clinic visits and full time equivalent employees increased while emergency room visits decreased between 2007 and 2009. Over the last five years, admissions have increased by 2%, emergency room visits have decreased 25% and outpatient visits have increased 1%. The decrease in emergency room visits is attributed to the need to use that area for increases in inpatient volumes while diverting less acute patients to other community hospitals and healthcare resources.
Overview of the Financial Statements
The balance sheets, the statements of revenues, expenses, and changes in net assets, and statements of cash flows provide an indication of the Medical Center’s financial health. The balance sheets include all the Medical Center’s assets and liabilities, using the accrual basis of accounting, as well as an indication about which assets can be utilized for operations and which are restricted as a result of a donor’s or third party’s restricted purposes. The statements of revenues, expenses, and changes in net assets report all of the revenues and expenses during the time period indicated. The statements of cash flows report the cash provided by the operating activities, as well as other cash sources such as investment income and cash payments for capital additions and improvements.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
3 (Continued)
Financial Statements
Following is a presentation of certain condensed financial information derived from the financial statements:
Medical Center Summary Assets, Liabilities, and Net Assets
June 302009 2008 2007
Assets:Current assets:
Cash and cash equivalents $ 114,500 124,464 90,149 Patient accounts receivable, net 103,932 101,035 100,322 Other current assets 23,997 20,246 20,951
Total current assets 242,429 245,745 211,422
Concurrent assets:Capital assets, net 423,548 418,752 360,147 Assets whose use is limited 99,920 100,761 154,458 Other noncurrent assets 8,412 7,700 10,617
Total noncurrent assets 531,880 527,213 525,222 Total assets $ 774,309 772,958 736,644
Liabilities:Current liabilities:
Current portion of long-term debt $ 718 673 1,084 Other current liabilities 99,438 110,509 92,396
Total current liabilities 100,156 111,182 93,480
Noncurrent liabilities 12,631 11,902 12,769
Total liabilities 112,787 123,084 106,249
Net assets:Invested in capital, net 421,948 411,077 352,318 Expendable, restricted 20,734 18,172 89,692 Nonexpendable, restricted 2,372 2,012 1,920 Unrestricted 216,468 218,613 186,465
661,522 649,874 630,395 Total liabilities and net assets $ 774,309 772,958 736,644
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
4 (Continued)
Medical Center Summary Revenues, Expenses, and Changes in Net Assets
Years ended June 302009 2008 2007
Net patient service revenues $ 628,082 590,091 531,868 State support 7,934 7,740 10,174 Interest in ALNW 714 (2,916) (2,935) Other revenues 41,747 39,309 35,538
Total operating revenues 678,477 634,224 574,645
Salaries and benefits 393,710 373,306 346,669 Supplies and purchased services 243,403 222,259 196,151 Depreciation and amortization 35,615 26,146 24,481
Total operating expenses 672,728 621,711 567,301
Income from operations 5,749 12,513 7,344
Nonoperating revenues (expenses):Interest income, net 2,033 9,107 7,865 Interest expense (347) (323) (435) Donations and other income 3,410 3,134 2,632 Nonoperating expenditures (1,909) (2,624) (2,271) Unrealized gains (losses) and other, net 3,318 (4,040) 1,022
Nonoperating income 6,505 5,254 8,813
Income before capital contributionsand additions to permanentendowments 12,254 17,767 16,157
Capital contributions, additions to permanentendowments, realized losses on impairedinvestments and other changes in net assets (606) 1,712 6,974
Total increase in net assets $ 11,648 19,479 23,131
Financial Analysis
Balance Sheets – Assets
The Medical Center had total assets of approximately $774,309, $772,958 and $736,644 as of June 30, 2009, 2008 and 2007, respectively.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
5 (Continued)
As of June 30, 2009, total assets were comprised of: 15% in current cash and cash equivalents, 16% related to receivables and other current assets, 55% invested in capital assets (e.g. buildings and equipment), and 14% related to assets whose use is limited and other noncurrent assets. As of June 30, 2008, total assets were comprised of: 16% in current cash and cash equivalents, 16% related to receivables and other current assets, 54% invested in capital assets (e.g. buildings and equipment), and 14% related to assets whose use is limited and other noncurrent assets. As of June 30, 2007, total assets were comprised of: 12% in current cash and cash equivalents, 17% related to receivables and other current assets, 49% invested in capital assets (e.g. buildings and equipment), and 22% related to assets whose use is limited and other noncurrent assets.
The Medical Center maintained operating cash and cash equivalents of $114,500, $124,464 and $90,149 in addition to long-term cash and investments whose use is limited of $99,920, $100,761 and $154,458 as of June 30, 2009, 2008 and 2007, respectively. Included in assets whose use is limited are $71,646, $72,438 and $82,760 of cash that has been designated by the Board of Trustees (the Trustees) for specific purposes as of June 30, 2009, 2008 and 2007, respectively. The Medical Center’s total days cash on hand, including long-term investments, decreased 43 days from 155 to 112 from June 30, 2007 to June 30, 2009, primarily due to expenditures made during the two years for capital projects.
Patient accounts receivable represent 43%, 41% and 47% of current assets as of June 30, 2009, 2008 and 2007, respectively. Gross days’ revenue in patient accounts receivable decreased to 85 in 2009 from 87 in 2008 and 97 in 2007. Patient accounts receivable are comprised of $299,136, $277,925 and $237,191 of gross receivables and contractual and bad debt reserves of $195,204, $176,890 and $136,869 as of June 30, 2009, 2008 and 2007, respectively. Net patient accounts receivables of approximately $103,932, $101,035 and $100,322 as of June 30, 2009, 2008 and 2007, respectively, represents the estimated net realizable value of amounts due from patients and their insurers for health care services.
Capital assets, including buildings and equipment, are the single largest asset of the Medical Center. For the years ended June 30, 2009, 2008 and 2007, approximately $40,604, $85,342 and $88,297, respectively, were added to buildings, equipment, and construction in progress. In fiscal year 2009, capital investments included completion of the Norm Maleng Building, replacement of equipment, project costs in anticipation of implementing a new patient billing system as well as additional integrated functionality of the Medical Center’s electronic medical record.
Assets whose use is limited include Board designated and restricted investments. As of June 30, 2009, 2008 and 2007, the Medical Center had Board designated cash and other investments of approximately $74,582, $75,435 and $85,914, respectively. These amounts include cash, long-term investments, and certain capital assets. Board designated cash and investments are used by the Medical Center to fund strategic initiatives, capital improvements, and to purchase equipment. Restricted investments are amounts restricted by donors or other third parties for operations and capital expenditures. Donor restricted cash and investments of approximately $10,467, $9,627 and $7,842, at June 30, 2009, 2008 and 2007, respectively, are also included in this category.
The Medical Center’s investments restricted for capital expenditures decreased to $14,871 as of June 30, 2009 from $15,699 as of June 30, 2008 and $60,702 as of June 30, 2007. Restricted investments include approximately $12,732 in bond funds as of June 30, 2009 as compared to $13,839 as of June 30, 2008 and $56,901 as of
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
6 (Continued)
June 30, 2007 for bond funds issued in September of 2004 by King County. These bond issues were approved by King County voters in September of 2000 in the amount of $193,000 to construct new and modify existing facilities to address seismic concerns and provide additional patient care capacity through 2010. In addition to the bond funds, Medical Center reserves and interest income on bond funds were set aside to provide funding to the project. Repayment of the bond funds will occur through tax revenues collected by King County as authorized by the voters.
In September 2006, the Trustees approved financing the Ninth and Jefferson Building (NJB) using a 63-20 model. Under the 63-20 model, King County entered into a 26.5–year lease with the building owner, Ninth & Jefferson Properties. The lease qualifies for capital lease treatment and, as such, the building and related lease obligation are recorded by King County based upon the terms of the agreement. The Medical Center has entered into an annual lease arrangement with King County to utilize this facility. As a result, the funds that the Medical Center had set aside for the NJB portion of the bond project of approximately $36.9 million were no longer needed and were transferred to Capital Program Reserves in 2006.
Other noncurrent assets increased $712, decreased $2,917 and decreased $2,937 during the years ended June 30, 2009, 2008 and 2007, respectively. The increase in fiscal year 2009 and decreases in fiscal years 2007 and 2008 are due primarily to the Medical Center’s interest in Airlift Northwest (ALNW), which sustained a profit in fiscal year 2009 but losses in fiscal years 2007 and 2008.
Balance Sheets – Liabilities
The Medical Center has approximately $112,787, $123,084 and $106,249 of liabilities as of June 30, 2009, 2008 and 2007, respectively. As of June 30, 2009, 2008 and 2007, 89%, 90% and 88%, respectively, of the liabilities are current and 11%, 10% and 12%, respectively, are long-term liabilities. The long-term liabilities consist primarily of debt. Current liabilities include payables to employees, vendors, and other third parties as well as the current portion of long-term debt.
Long term debt as of the years ended June 30, 2009, 2008 and 2007 consists of bonds issued by King County.
Balance Sheets – Net Assets
The Medical Center reports its net assets in three categories:
Invested in Capital Assets Net of Related Debt – Total investment in Medical Center property, plant, and equipment net of accumulated depreciation and outstanding debt obligations related to those capital assets.
Restricted Expendable and Nonexpendable Net Assets – Restricted expendable net assets represent resources that the Medical Center is legally or contractually obligated to spend in accordance with restrictions placed by donors and/or external parties that have placed time or purpose restrictions on the use of the asset. Restricted nonexpendable net assets represent resources that the Medical Center may not spend as the donor and/or external parties have placed a restriction on preservation of the assets.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
7 (Continued)
Unrestricted Net Assets – All other funds available to the Medical Center that do not meet the definition of restricted or invested in capital net of related debt.
Revenues, Expenses, and Changes in Net Assets
The statements of revenues, expenses and changes in net assets are divided into three categories:
(1) Income from operations, (2) nonoperating income, and (3) capital contributions, additions to permanent endowments and other changes in net assets. Each category is discussed in the following sections.
(1) Income from Operations
For the years ended June 30, 2009, 2008 and 2007 the Medical Center had income from operations of approximately $5,749, $12,513 and $7,344, respectively. As required by governmental accounting standards, the Medical Center has reflected interest expense as a nonoperating expense. Industry practice for health care entities not subject to governmental accounting standards is to reflect interest expense and bad debt as an operating expense. The Medical Center’s income from operations, including interest expense, is approximately $5,402, $12,190 and $6,909 for the years ended June 30, 2009, 2008 and 2007, respectively. The graph below shows a comparison of recent operating margins, including interest expense and provision for uncollectible accounts in operating expenses, with Moody’s A 2008 rated hospital median (published in August 2009).
T he M edical Center O perating Margin FY 03-FY09
1.7%
0.7%
2.2%
-0.3%
1 .3% 1 .1%
0 .2%
1.4%
-1.0 %
0.0 %
1.0 %
2.0 %
3.0 %
4.0 %
2003 2 004 2005 2006 2007 2008 20 09 M oody"A"
Revenues
For the years ended June 30, 2009, 2008 and 2007 the Medical Center had operating revenues of approximately $678,477, $634,224 and $574,645, respectively. Operating revenues consist of net patient revenues, a state appropriation designated for education of health professionals, and other operating revenues. During fiscal years 2009, 2008 and 2007, Medical Center operating revenues increased 7%, 10%
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
8 (Continued)
and 6%, respectively, over the prior years. Increases in 2009 and 2008 related primarily to volumes, payer mix and price changes. Operating revenues include approximately $714, ($2,916) and ($2,935) representing the Medical Center’s share in the net income (loss) of ALNW for fiscal years 2009, 2008 and 2007, respectively.
The Medical Center has agreements with government and other third-party payers that provide for payments at amounts different than gross charges. The difference between gross charges and the estimated net realizable amounts from payers is recorded as an adjustment to charges. The resulting net patient revenues are shown on the statements of revenues, expenses, and changes in net assets.
The graphs below show the Medical Center’s payer mix based on gross revenues for the years ended June 30, 2009, 2008 and 2007.
FY 2009
28%
23%
37%
12%
Medicare
Medicaid
Commercial
Unsponsored
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
9 (Continued)
FY 2008
27%
24%
37%
12%
Medicare
Medicaid
Commercial
Unsponsored
FY 2007
25%
25%
38%
12%
Medicare
Medicaid
Commercial
Unsponsored
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Management’s Discussion and Analysis
June 30, 2009 and 2008
(Dollar amounts in thousands)
10
Expenses
Operating expenses totaled approximately $672,728, $621,711 and $567,301 for the years ended June 30, 2009, 2008 and 2007, respectively. During fiscal years 2009, 2008 and 2007, the Medical Center’s operating expenses increased 8%, 10% and 6%, respectively, over the prior years. During fiscal years 2009, 2008 and 2007, labor expenses accounted for 59%, 60% and 61%, respectively, of operating expenses, with supplies and other expenses accounting for 36%, 36% and 35%, respectively, and 5%, 4% and 4% related to depreciation and amortization, respectively. The increase in operating expenses relates to changes in salary levels and benefits for hospital staff during the year, increases in FTE’s, inflation in the cost of medical supplies as well as an increase in depreciation expense as a result of the opening of the Norm Maleng Building.
(2) Nonoperating Income
The Medical Center recognized $6,505, $5,254 and $8,813 of nonoperating income for the years ended June 30, 2009, 2008 and 2007, respectively, consisting of interest income and expense, donations, nonoperating expenses and unrealized gains and losses on investments. During fiscal years 2009, 2008 and 2007 the Medical Center recognized $3,410, $3,134 and $2,632, respectively, in donations and other income, which includes contributions and donations restricted by the donors for various purposes. Investment income, including interest income and unrealized gains and losses, increased $268, decreased $3,748 and increased $4,049, during fiscal years 2009, 2008 and 2007, respectively. This decrease during fiscal year 2008 was due to impairment of certain investments, while the increase during fiscal year 2007 is due to increases in interest rates and cash available with a majority of the increase relating to board designated assets. Additionally, as a result of adopting the 63-20 model for the NJB, $1,027 of interest earned on the Medical Center’s contributions to the project was recognized as interest income during the year ended June 30, 2007.
(3) Net Assets
As of June 30, 2009, net assets increased by $11,648 over the prior year. Included in this increase is $12,254 of net income and ($606) related to other changes in net assets including additions to permanent endowments.
As of June 30, 2008, net assets increased by $19,479 over the prior year. Included in this increase is $17,767 of net income and $1,712 related to other changes in net assets including additions to permanent endowments.
As of June 30, 2007, net assets increased by $23,131 over the prior year. Included in this increase is $16,157 of net income and $6,974 related to other changes in net assets including additions to permanent endowments.
KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.
KPMG LLP Suite 900 801 Second Avenue Seattle, WA 98104
11
Independent Auditors’ Report
The Board of Trustees Harborview Medical Center:
We have audited the accompanying balance sheets of Harborview Medical Center (the Medical Center), a component unit of King County, as of and for the years ended June 30, 2009 and 2008, and the related statements of revenues, expenses, and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Medical Center’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Medical Center’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Harborview Medical Center as of June 30, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The management’s discussion and analysis on pages 1 through 10 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.
November 12, 2009
HARBORVIEW MEDICAL CENTER(A Component Unit of King County)
(Operated by the University of Washington)
Balance Sheets
June 30, 2009 and 2008
(Dollar amounts in thousands)
Assets 2009 2008
Current assets:Cash and cash equivalents $ 114,500 124,464 Deposit with University of Washington 775 1,033 Patient accounts receivable, less allowance for uncollectible accounts
of $25,777 in 2009 and $34,415 in 2008 103,932 101,035 Interest receivable 151 301 Other receivables 14,927 11,390 Supplies inventory, at cost 7,172 6,635 Prepaid expenses 972 887
Total current assets 242,429 245,745
Noncurrent assets:Capital assets, net of accumulated depreciation 423,548 418,752 Deposit with University of Washington 600 600 Assets whose use is limited 99,920 100,761 Other assets 7,812 7,100
Total noncurrent assets 531,880 527,213 Total assets $ 774,309 772,958
Liabilities and Net Assets
Current liabilities:Current portion of long-term debt $ 718 673 Current portion of deferred rent 175 175 Accrued payroll, vacation, and compensatory time 34,053 30,435 Accounts payable and accrued expenses 34,482 33,638 Payable to contractual agencies, net 8,619 21,393 Payable to University of Washington 22,109 24,868
Total current liabilities 100,156 111,182
Noncurrent liabilities:Deferred revenue 284 424 Deferred rent, net of current portion 6,070 4,476 Long-term debt, net of current portion 6,277 7,002
Total liabilities 112,787 123,084
Commitments and contingencies (note 12)
Net assets:Invested in capital assets, net of related debt 421,948 411,077 Expendable, restricted 20,734 18,172 Nonexpendable, restricted 2,372 2,012 Unrestricted 216,468 218,613
Total net assets 661,522 649,874 Total liabilities and net assets $ 774,309 772,958
See accompanying notes to financial statements.
12
HARBORVIEW MEDICAL CENTER(A Component Unit of King County)
(Operated by the University of Washington)
Statements of Revenues, Expenses, and Changes in Net Assets
Years ended June 30, 2009 and 2008
(Dollar amounts in thousands)
2009 2008
Operating revenues:Net patient service revenues (net of provision for uncollectible
accounts of $57,340 in 2009 and $76,271 in 2008) $ 628,082 590,091 State appropriation 7,934 7,740 Other operating revenues 42,461 36,393
Total operating revenues 678,477 634,224
Operating expenses:Salaries and wages 312,752 293,814 Employee benefits 80,958 79,492 Supplies and other expenses 243,403 222,259 Depreciation 35,615 26,146
Total operating expenses 672,728 621,711
Income from operations 5,749 12,513
Nonoperating revenues (expenses):Interest income, net 2,033 9,107 Interest expense (347) (323) Donations and other income 3,410 3,134 Nonoperating expenditures (1,909) (2,624) Unrealized gain (loss) on investments, net 3,048 (4,294) Other, net 270 254
Nonoperating income, net 6,505 5,254
Income before capital contributions, additions topermanent endowments, and other changesin net assets 12,254 17,767
Capital contributions, additions to permanent endowments,and other changes in net assets:
Capital contributions 157 1,610 Realized losses on impaired investments (1,134) — Additions to permanent endowments 371 102
Total capital contributions, additions to permanentendowments, and other changes in net assets (606) 1,712
Increase in net assets 11,648 19,479
Net assets – beginning of year 649,874 630,395 Net assets – end of year $ 661,522 649,874
See accompanying notes to financial statements.
13
HARBORVIEW MEDICAL CENTER(A Component Unit of King County)
(Operated by the University of Washington)
Statements of Cash Flows
Years ended June 30, 2009 and 2008
(Dollar amounts in thousands)
2009 2008
Cash flows from operating activities:Cash received for patient services and other $ 672,569 636,945 Cash paid to employees and suppliers (654,491) (582,626)
Net cash provided by operating activities 18,078 54,319
Cash flows from noncapital financing activities:Donations received 3,410 3,134 Nonoperating expenditures (1,909) (2,624) Additions to endowments 371 102 Nonoperating revenue 265 249
Net cash provided by noncapital financing activities 2,137 861
Cash flows from capital and related financing activities:Principal payments on long-term debt (673) (1,084) Cash paid for interest (351) (398) Loss on disposal of capital assets 193 591 Capital expenditures (34,293) (80,094) Capital contributions 157 1,610
Net cash used in capital and related financing activities (34,967) (79,375)
Cash flows from investing activities:Net decrease in assets whose use is limited 2,755 49,403 Investment income 2,033 9,107
Net cash provided by investing activities 4,788 58,510
(Decrease) increase in cash and cash equivalents (9,964) 34,315
Cash and cash equivalents, beginning of year 124,464 90,149 Cash and cash equivalents, end of year $ 114,500 124,464
Reconciliation of excess of income from operations to net cash provided byoperating activities:
Income from operations $ 5,749 12,513
Adjustments to reconcile income from operations to net cash provided byoperating activities:
Provision for uncollectible accounts 57,340 76,271 Depreciation 35,615 26,146 Interest in Airlift Northwest (714) 2,916 Net increase in current assets, except cash and cash equivalents (63,988) (76,279) Net (decrease) increase in current liabilities, except current portion of
long-term debt (17,378) 12,939 Decrease in deferred revenue (140) (11) Increase (decrease) in deferred rent 1,594 (176)
Total adjustments 12,329 41,806 Net cash provided by operating activities $ 18,078 54,319
Supplemental disclosure of cash flow information:Accruals for capital $ 12,877 6,566
See accompanying notes to financial statements.
14
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
15 (Continued)
(1) Organization
Harborview Medical Center (the Medical Center) is a 413 licensed-bed hospital with extensive ambulatory services and is a component unit of King County operating in Seattle, Washington. The Medical Center does not have any component units within its activities. The Medical Center is managed by the University of Washington (the University) under a management contract between the Board of Trustees (the Trustees) of the Medical Center and the Board of Regents of the University of Washington in accordance with policies established by the Trustees as provided for in the management contract. The first management contract originated on July 1, 1967, and has been revised and extended several times. The latest contract version extends through June 30, 2010. The contract allows for a review by both parties for extension until June 30, 2015. The management contract recognizes the Trustees’ desire to maintain the Medical Center as a means of meeting King County government’s desire to provide the community with a resource for health services and the University’s desire that the Medical Center be maintained as a continuing resource for education, training, and research.
The general conditions within the management contract specify that King County will retain title to all real and personal properties acquired for King County with Medical Center capital or operating funds. However, the Medical Center retains the rights of ownership to these real and personal properties and records these assets on their books. The Trustees determine major institutional policies and retain control of programs and fiscal matters. King County retains ultimate control over capital programs and capital budgets for buildings and renovations. The Trustees agree to secure the University’s recommendations on any changes to the above. The Trustees are accountable to the public and King County government for all financial aspects of the Medical Center’s operation and agree to maintain a fiscal policy which keeps the essential operating program and expenditures within the limits of the operating income. In maintaining a balanced budget fiscal policy, the Trustees agree to adopt standards of patient care developed in cooperation with the University. The University provides for the rendering of medical, dental, and other professional services in the Medical Center and professional and hospital services by University personnel and overall management services. A special account is maintained with the University to receive reimbursement payments from the Medical Center’s operating account and to pay for the costs of all services and expenditures provided by the University.
The Trustees and the University establish and maintain operational standards for all teaching and patient care that meet the requirements of such approval agencies as the Joint Commission on Accreditation of Healthcare Organizations. The Trustees control the use of all physical facilities and establish overall space-use policies and guidelines in support of the Medical Center’s programs. The University manages the Medical Center so as to retain its institutional identity in a manner which, to the extent of the funds available to the Medical Center, will achieve the aims of the Trustees to meet their community obligation and provide services to address the community’s needs, as identified in the Medical Center’s mission statement. Additionally, the management contract requires the University “to provide hospital services, including management under the direction of a hospital administrator for the hospital, to provide for the rendering of medical services in connection with the hospital and to provide for the conduct of teaching and research activities by the University in connection with the hospital.”
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
16 (Continued)
The Medical Center is the only Level I adult and pediatric trauma center in the Washington, Alaska, Montana, and Idaho region. In addition to trauma services, the Medical Center is a comprehensive inpatient and outpatient health care facility. Its primary mission is to provide and teach exemplary patient care and to provide health care to those patients King County is obligated to serve. As determined by the Trustees and within available resources, the Medical Center gives priority to patient populations that include: persons incarcerated in the King County Jail; mentally ill patients, particularly those treated involuntarily; persons with sexually transmitted diseases; substance abusers; indigents without third-party coverage; non-English speaking poor; trauma, burn treatment, specialized emergency care; victims of domestic violence; and victims of sexual assault. While maintaining a priority commitment to patients and programs in these categories, the Medical Center also serves a broad spectrum of patients to maintain a balanced clinical program and fiscal viability.
The Medical Center also serves as a clinical teaching and research resource for students and faculty of the University of Washington School of Medicine (UWSOM). The Medical Center has approximately 485 attending physicians who are full-time faculty members at UWSOM.
The State Legislature has appropriated funds to the University on a biennial basis for the continuing operations of the Medical Center as a resource for teaching and research. Allocation of state-appropriated funds is explained in note 3.
(2) Summary of Significant Accounting Policies
(a) Medical Center Records
The Medical Center, as a county hospital within the Municipal Corporation of King County, maintains its own distinct set of accounting records.
(b) Accounting Standards
The Medical Center’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America as established by the Governmental Accounting Standards Board (GASB).
(c) Accrual Basis
The accompanying financial statements have been prepared on the accrual basis of accounting using the economic resources measurement focus. The Medical Center reports as a business type activity, as defined by GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments. Business type activities are those that are financed in whole or in part by fees charged to external parties for goods or services.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
17 (Continued)
the reported amounts of assets, liabilities, revenues, and expenses in the financial statements and in the disclosures of contingent assets and liabilities. While actual results could differ from those estimates, management believes that actual results will not be materially different from amounts provided in the accompanying financial statements.
(e) Capital Assets
Land, buildings, and equipment are stated at historical cost. Improvements and replacements of buildings and equipment are capitalized. Maintenance and repairs are expensed. The provision for depreciation is determined by the straight-line method, which allocates the historical cost of capital assets over their estimated useful life. The estimated useful lives used by the Medical Center are as follows:
Land improvements 25 yearsBuildings, renovations,
and furnishings 5 – 50 yearsFixed equipment 5 – 25 yearsMovable equipment 3 – 20 yearsLeasehold improvements The shorter of
the lease termor useful life
Interest cost incurred on funds borrowed by the Medical Center during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets. No interest was capitalized during 2009 and 2008.
The cost of land, buildings, and equipment sold or retired, and the related accumulated depreciation, are removed from the accounts, and the resulting gain or loss is recorded as nonoperating income or expense.
(f) Federal Income Taxes
The Medical Center, as an instrumentality of the State of Washington, is not subject to federal income taxes under Section 115 of the Internal Revenue Code.
(g) Cash and Cash Equivalents
Cash and cash equivalents are primarily comprised of investments held in an external investment pool managed for the Medical Center by King County. These investments consist of pooled investment funds of commercial paper, government obligations, bankers’ acceptances, certificates of deposit and repurchase agreements, and are carried at fair market value.
The King County Investment Pool is not registered with the Securities and Exchange Commission (SEC) as an investment company. Oversight is provided by the King County Executive Finance
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
18 (Continued)
Committee (EFC). All investments are subject to written policies and procedures adopted by the EFC. The EFC reviews pool performance monthly.
The King County Investment Pool values participants’ shares using an amortized cost basis. Monthly income is distributed to participants based on their relative participation during the period. Income is calculated based on: (1) realized investment gains and losses; (2) interest income based on stated rates (both paid and accrued); and (3) the amortization of discounts and premiums on a straight-line basis. Income is reduced by the contractually agreed upon investment fee. This method differs from the fair value method used to value investments in this statement because the amortized cost method is not designed to distribute to participants all unrealized gains and losses in the fair values.
The Medical Center has unrestricted access to these investments at its discretion and without limitation, and as such these investments are considered cash equivalents. The Medical Center had cash equivalents of $114,124 and $124,073 as of June 30, 2009 and 2008, respectively.
(h) Assets Whose Use is Limited
Assets whose use is limited include designated unrestricted assets set aside by the Trustees for future capital and program purposes over which the Trustees retain control and may at its own discretion subsequently use for other purposes; investments restricted for use by creditors, grantors, or contributors external to the Medical Center; and investments restricted for capital purchases representing unspent bond proceeds, required capital funding by the Medical Center and interest earnings thereon by King County. Investments are held in an external investment pool, managed for the Medical Center by King County and are carried at fair market value.
Disclosure requirements related to investment risk, credit risk, interest rate risk, foreign currency risk and deposit risk are applicable to the primary government which, as it relates to the Medical Center, is King County.
(i) Charity Care
The Medical Center provides care without charge or at amounts less than established rates to patients who meet certain criteria under its charity care policy. Because the Medical Center does not pursue collection of amounts determined to qualify for charity care, they are not reported as revenue.
(j) Net Assets
Net assets of the Medical Center are classified in three components. Net assets invested in capital assets net of related debt consist of capital assets net of accumulated depreciation and reduced by the balances of any outstanding borrowings used to finance the purchase or construction of those assets. Restricted net assets (expendable and nonexpendable) are noncapital assets that must be used for a particular purpose, as specified by creditors, grantors, or contributors external to the Medical Center. When a restriction expires, the expense incurred will first reduce restricted net assets. Restricted net assets are reduced by any liabilities payable from restricted assets. Unrestricted net assets are
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
19 (Continued)
remaining net assets that do not meet the definition of invested in capital assets net of related debt or restricted.
(k) Operating Revenues and Expenses
The Medical Center’s statements of revenues, expenses, and changes in net assets distinguish between operating and nonoperating revenues and expenses. Operating revenues, such as patient service revenue, result from exchange transactions associated with providing healthcare services – the Medical Center’s primary business. Exchange transactions are those in which each party to the transaction receives and gives up essentially equal values. Nonexchange revenues, such as contributions, are reported as nonoperating revenues. Operating expenses are all expenses incurred to provide healthcare services, other than financing costs.
(l) Supplies Inventory
Supplies inventory, consisting principally of surgical, medical, and pharmaceutical supplies, is carried at the lower of cost (first-in, first-out (FIFO) or average cost methods) or market.
(m) Provision for Uncollectible Accounts
The Medical Center provides an allowance for potential uncollectible patient accounts receivable whereby such receivables are reduced to their estimated net realizable value. The Hospital estimates this allowance based on the aging of accounts receivable, historical collection experience by payor, and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the increased burden of co-payments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process.
(n) Compensated Absences
The Medical Center’s employees earn vacation days at varying rates depending on employment type and years of service. Accrued vacation is reported as a current liability as generally employees utilize their vacation days within the following year.
(o) Recently Adopted Accounting Standards
In July 2004, GASB issued statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (GASB 45). GASB 45 is effective for the year ended June 30, 2008. This statement requires the recording of the accumulated liability for retiree health care and life insurance costs, which the University subsidizes.
Health care and life insurance programs for employees of the State of Washington are administered by the Washington State Health Care Authority (HCA). All University of Washington employees, including Medical Center employees, are employees of the State of Washington. State of
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Washington retirees may elect coverage through state health and life insurance plans, for which they pay less than the full cost of the benefits, based on their age and other demographic factors.
An actuarial study performed by the Washington Office of the State Actuary calculated the total OPEB obligation of the State of Washington. Since sufficient specific employee data and other actuarial data are not available at levels below the statewide level, such amounts have not been determined nor recorded in the University’s nor the Medical Center’s financial statements. This liability is recorded at the statewide level. The Medical Center was billed and paid $38,828 and $44,012, respectively, for health care expenses for the years ended June 30, 2009 and 2008, respectively, which included its funding of the OPEB liability.
In June 2007, the GASB issued GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. This statement establishes accounting and financial reporting requirements for intangible assets. This statement provides guidance on the recognition, initial measurement, and amortization of intangible assets, including easements, water rights, timber rights, patents, trademarks, and computer software. This statement is effective for financial statements for periods beginning after June 15, 2009. The Medical Center is currently evaluating the impact of the adoption of this standard will have on its future financial statements.
In March 2009, the GASB issued GASB Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This statement incorporates the hierarchy of generally accepted accounting principles (GAAP) for state and local governments into the GASB authoritative literature. The “GAAP hierarchy” consists of the sources of accounting principles used in the preparation of financial statements of state and local governmental entities that are presented in conformity with GAAP, and the framework for selecting those principles. This statement is effective upon issuance. The adoption of this standard did not have a material impact on the Medical Center’s financial statements.
In March 2009, the GASB issued GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards. This statement addresses three issues not included in the authoritative literature that establishes accounting principles – related party transactions, going concern considerations, and subsequent events. This statement is effective upon issuance. The adoption of this standard did not have a material impact on the Medical Center’s financial statements.
(3) State Appropriation
An appropriation is made by the Washington State Legislature to the University on a biennial basis. The Medical Center is designated as a division of the major program “hospitals” included within the total appropriation. This appropriation is specifically designated by the State for the training of future healthcare professionals and to upgrade the skills of current practitioners. The State warrant is transmitted to the Medical Center for deposit into its operating account and is recorded as operating revenue in the accompanying statements of revenues, expenses, and changes in net assets. The Medical Center received
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payments through June 2009 totaling $7,934 and payments through May 2008 totaling $7,740 for the years ended June 30, 2009 and 2008, respectively.
(4) Net Patient Service Revenues
Net patient service revenue 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. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. In 2009 and 2008, net patient service revenue includes approximately $1,264 and $3,256, respectively, relating to prior years’ Medicare cost report settlements and revised estimates, including disproportionate share reimbursement, and other third-party settlements not separately discussed in note 4.
A significant portion of the services of the Medical Center are provided to Medicare inpatients under prospective payment systems which provide for reimbursement, based on diagnosis-related groupings (DRGs), that includes payments for capital-related costs and certain medical education costs. Such DRG payments are prospectively established and are generally less than the Medical Center’s actual charges for its services. Payments for Medicare outpatient laboratory services are based on a fixed fee schedule. Other outpatient services are paid based upon a second prospective payment system known as Ambulatory Payment Classes (APCs). Payment for inpatient psychiatric care has transitioned from defined allowable costs to a prospective payment system that began in 2009. Effective July 1, 2002, Medicare began a third prospective payment system based upon case mix groups (CMGs) for reimbursement of inpatient rehabilitation services. Payments for other Medicare outpatient services are based on defined allowable costs.
Net patient service revenue is as follows:
2009 2008
Gross patient service revenues $ 1,323,369 1,209,719
Deductions from gross patient service revenues:Charity (155,174) (120,352) Contractual discounts (482,773) (423,005) Bad debt (57,340) (76,271)
(695,287) (619,628) Net patient service revenues $ 628,082 590,091
In 2005, the State of Washington submitted and CMS approved a State Plan Amendment that replaced Intergovernmental Transfers (IGTs) with Certified Public Expenditures (CPE) as a mechanism for funding the required local share of Medicaid inpatient program costs for certain public hospitals. The new CPE program was effective July 1, 2005 and has been approved to continue through fiscal year 2011. Under
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CPE, Disproportionate Share Payments (DSH) are the lesser of qualifying uncompensated care cost or the hospital’s specific limit. The Medical Center received $33,672 and $31,393 in DSH funding under this program for the years ended June 30, 2009 and 2008, respectively. These amounts are included in net patient service revenues in the accompanying statements of revenues, expenses and changes in net assets.
In each year since the inception of the CPE program, the State budget has included a hold harmless provision. The intent of the legislature is that hospitals that participate in the CPE program receive no less in inpatient Medicaid program payments than they would have received under the methodology used to pay other hospitals. In addition, the hold harmless provision ensures that participating hospitals receive no less in DSH payments than they did prior to CPE program inception (discussed above). In the event of a shortfall between CPE program component payments and the hold harmless baseline amount, the difference is paid to the hospitals as a grant from state only funds. The Medical Center received $23,179 and $42,322 in state grants for the years ending June 30, 2009 and 2008, respectively. The state grant funds are included in net patient service revenues in the statements of revenues, expenses and changes in net assets.
For each payment to a hospital in the program, only the federal matching portion of the payment is remitted to the hospital; the state portion is funded through CPE. During the service year, the Medical Center estimates the expected final settlement amount based on the difference between year-to-date CPE payments received and the expected hold harmless baseline amount to determine the appropriate amount of revenue to be recognized and any required reserve. The Medical Center has closely monitored this calculation over the past four years, including the current year.
The final hold harmless baseline for each fiscal year is determined at the end of the following 18 months. Any additional state grant payment required will be made at that time and any overpayments will be recouped. For the years ended June 30, 2009 and 2008, net patient service revenue includes approximately $4,455 and $650, respectively, of additional revenue relating to prior year’s estimate. In addition to the 18 month settlement timeframe, there is a potential for additional settlement requests resulting from settlements of cost reports and potential reopenings of those cost reports which would impact the ratio of cost to charges and therefore impact the overall final hold harmless settlement. This timeline of three years of potential reopening of costs reports further extends the potential exposure of these reserves. For fiscal years 2008 and 2009, the final settlement will be determined in the spring of 2011 and 2012, respectively.
An additional source of funding from the state that the Medical Center was eligible for in both 2009 and 2008 is the State’s Trauma Enhancement program. This program allocates funding to hospitals providing trauma services. Participating hospitals receive a pro-rata share of the pool appropriated for this program based on their portion of total claims submitted. The Medical Center received $8,258 and $8,633 for the years ended June 30, 2009 and 2008, respectively. The Medical Center also received additional trauma grants from the State in the amount of $2,431 and $2,348 for each of the years ended June 30, 2009 and 2008, respectively, which is included in net patient service revenues in the statements of revenues, expenses and changes in net assets.
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During the year ended June 30, 2009, the Medical Center was eligible for Federal Stimulus funding. This funding represented Medicaid Title XIX payments and reduced the CPE state grant and DSH payments. The Medical Center received $6,311 under this program for the year ended June 30, 2009, which is included in net patient service revenues in the statements of revenues, expenses and changes in net assets.
The Medical Center receives funding under its Healthy Options Graduate Medical Education program. The funding is intended to help defray the costs associated with being a teaching hospital. The Medical Center received $2,905 and $2,475 under this program for the years ended June 30, 2009 and 2008, respectively, which is included in net patient service revenues in the statements of revenues, expenses and changes in net assets.
(5) Care to the Underserved and Community Benefits
The Medical Center is a nationally recognized academic medical center offering world–class specialty and primary care. The Medical Center is an integral part of UW Medicine. UW Medicine is comprised of University of Washington Medical Center (UWMC), the Medical Center, University of Washington School of Medicine (UWSOM), UW Physicians (UWP), and the UW Physicians Network (UWPN) neighborhood clinics.
Academic medicine is the one arena where teaching, research and clinical practice come together to provide cutting-edge research, innovative patient care and education of the next generation of caregivers. UW Medicine is a national leader in biomedical research and is recognized as the nation’s best medical school for training primary care physicians. The Medical Center, as one of the two medical centers operated by UW Medicine, leads the region in the introduction and application of diagnostic and treatment services.
The Medical Center contributes to the community as the only Level I adult and pediatric trauma center and regional burn center serving Washington, Alaska, Montana and Idaho, and as an essential component of the UW Medicine academic enterprise. Contributions to the community include the following:
(a) Care to the Elderly and Underserved
The Medical Center serves a patient population that draws from a multi-state area. This population reflects an increasing number of patients who are part of government sponsored programs like Medicare and Medicaid. Medicare and Medicaid revenues represented 51% of gross patient revenues in both the years ended June 30, 2009 and 2008, respectively. Care for the elderly and care for patients at or below the poverty level often involves nursing support, diagnostic testing and aggressive treatments not required by the average patient. The Medical Center and other academic hospitals serve as safety net hospitals to patients with these special needs. The most recent data available from the Washington Department of Health indicates that the Medical Center itself provides more than 21% of all charity care in the state of Washington for calendar year 2007.
The Medical Center sees some of the most severely ill Medicare and Medicaid patients in the state. The most recent data available from the Washington Department of Health indicates that Medicare
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and Medicaid inpatients seen at the Medical Center in calendar year 2008 had a case mix index of 1.707, 58% higher than the hospital statewide average of 1.077.
The Medical Center maintains records to identify and monitor the level of charity care it provides. These records include charges foregone for services and supplies furnished under its charity care policy to the uninsured and the underinsured. The charges associated with charity care provided by the Medical Center were $128,476 and $96,822, respectively, for the years ended June 30, 2009 and 2008.
In addition, the Medical Center maintains records on uncompensated care related to state-funded Medicaid patients to identify the difference between federal and state Medicaid reimbursement levels. The charges associated with uncompensated care were $26,698 and $23,530, respectively, for the years ended June 30, 2009 and 2008.
Unsponsored revenue is composed of charity care and uncompensated care. The share of unsponsored revenue as a percentage of gross revenue decreased from 12.49% in 2008 to 12.36% in 2009. This decrease in the percentage of unsponsored revenue represents about $1.7 million in gross charges for the fiscal year ended June 30, 2009. This change in unsponsored revenue may be attributed to the Medical Center working with other community hospitals and other providers to appropriately share in the cost of providing care to these patients.
In fiscal year 2007, HFMA’s Statement 15: Valuation and Financial Statement Presentation of Charity Care and Bad Debt by Institutional Healthcare Providers (Statement 15) was updated to require hospitals to report the cost of charity care. Statement 15 allows charity care costs to be estimated using the best data and method available, if actual costs are unknown and/or unavailable. The Medical Center estimates the cost of charity care and uncompensated care using its estimated Medicaid cost to charge ratios of 47.2% and 48.8% for the fiscal years ending June 30, 2009 and 2008, respectively. For fiscal year 2009, applying the Medical Center’s Medicaid cost to charge ratio of 47.2% to total charges for charity and uncompensated care of $155,174 results in a cost of charity care and uncompensated care of $73,242. For fiscal year 2008, applying the Medical Center’s Medicaid cost to charge ratio of 48.8% to total charges for charity and uncompensated care of $120,352 results in a cost of charity care and uncompensated care of $58,732.
(b) Medical Education
The Medical Center and UWMC are the largest training sites for UWSOM, a regional medical school serving the five-state area of Washington, Wyoming, Alaska, Montana and Idaho. This year the Medical Center sponsored approximately 252 School of Medicine residents and fellows. The Medical Center also sponsors training for other Health Sciences students including students from the Schools of Dentistry, Nursing, Social Work, Pharmacy, Public Health and Community Medicine.
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(c) Research
The research conducted by UW Medicine faculty has contributed to the advancements in scientific knowledge and the prevention and treatment of disease. Examples of scientific innovation at UW Medicine include the development of kidney dialysis, bone marrow transplantation, and the use of medical ultrasound. Advancements in research result in both humanitarian and economic returns to the region, nation, and world. Seattle is one of the leading biotech centers in the world in large part due to UW Medicine’s preeminent position in biomedical sciences, including emerging areas such as genomics and proteomics. The Medical Center is a critical site for UW Medicine research.
(d) Outreach and Public Service
The Medical Center provides a wide range of patient-centered community outreach programs. These services include disease related support groups, community newsletters, lecture series, and conferences. The Medical Center is committed to strengthening the relationship between care providers, patients and their families. Patient and family volunteers are recruited as advisors and work with the Medical Center staff to provide input on health care programs and policies, review educational materials, serve on committees and participate in discussion groups designed to improve the patient experience at the Medical Center.
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(6) Capital Assets
The Medical Center’s land, buildings, and equipment accounts and the related accumulated depreciation for the years ended June 30, 2009 and 2008 are set forth below:
2009Balance Balance
June 30, 2008 Additions Transfers Retirements June 30, 2009
Land $ 1,586 — — — 1,586 Land improvements 912 — 3,822 — 4,734 Buildings, renovations, and
furnishings 191,784 — 195,644 — 387,428 Fixed equipment 132,974 — 7,800 — 140,774 Major movable equipment 165,204 10,823 16,824 (2,178) 190,673 Leasehold improvements 946 7,256 10 — 8,212 Construction in progress 216,268 22,525 (224,100) — 14,693
Total at historicalcost 709,674 40,604 — (2,178) 748,100
Less accumulated depreciation for:Land improvements (544) (240) — — (784) Buildings, renovations,
and furnishings (94,955) (12,368) — — (107,323) Fixed equipment (83,696) (6,276) — — (89,972) Major movable equipment (111,228) (16,632) — 1,985 (125,875) Leasehold improvements (499) (99) — — (598)
Total accumulateddepreciation (290,922) (35,615) — 1,985 (324,552)
Capital assets, net $ 418,752 4,989 — (193) 423,548
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2008Balance Balance
June 30, 2007 Additions Transfers Retirements June 30, 2008
Land $ 1,586 — — — 1,586 Land improvements 912 — — — 912 Buildings, renovations, and
furnishings 189,051 3 2,730 — 191,784 Fixed equipment 132,140 4 830 — 132,974 Major movable equipment 147,864 26,290 2,381 (11,331) 165,204 Leasehold improvements 714 — 232 — 946 Construction in progress 163,396 59,045 (6,173) — 216,268
Total at historicalcost 635,663 85,342 — (11,331) 709,674
Less accumulated depreciation for:Land improvements (514) (30) — — (544) Buildings, renovations,
and furnishings (88,988) (5,967) — — (94,955) Fixed equipment (77,810) (5,886) — — (83,696) Major movable equipment (107,789) (14,179) — 10,740 (111,228) Leasehold improvements (415) (84) — — (499)
Total accumulateddepreciation (275,516) (26,146) — 10,740 (290,922)
Capital assets, net $ 360,147 59,196 — (591) 418,752
Included in board-designated assets is $2,718 of property held for future use, net of $83 accumulated depreciation as of both June 30, 2009 and 2008, respectively.
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(7) Board-Designated and Restricted Assets
(a) Assets Whose Use is Limited
Assets whose use is limited consists of the following, as of June 30:
2009 2008
Board-designated assets:Pooled investments $ 71,646 72,438 Receivables and other 218 279 Property held for future use, at cost,
less accumulated depreciation 2,718 2,718
Total board-designated assets 74,582 75,435
Restricted cash and investments:Investments restricted for capital by King County 14,871 15,699 Investments restricted by donor 10,467 9,627
Total restricted assets 25,338 25,326 Total assets whose use is limited $ 99,920 100,761
(b) Board-Designated Assets
Certain assets have been designated by the Trustees for specific purposes. These assets are comprised of cash, cash equivalents and other. The assets by designated purpose are as follows as of June 30:
2009 2008
Commuter service fund $ 5,751 4,561 Development office fund 2 — Self-insurance fund 1,128 1,099 Walter Scott Brown property and rental receivables 2,722 2,726 Planned capital and services component 4,397 4,284 Equipment fund 20,312 9,096 Building repair and replacement fund 8,311 9,578 Capital Program Reserves 31,959 44,091
Total $ 74,582 75,435
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(c) Investments Restricted for Capital and by Donor
Investments restricted for capital are comprised of investments held in an external investment pool, managed for the Medical Center by King County. The balance represents unspent bond proceeds, required capital funding by the Medical Center (note 9) and interest earnings thereon. Access to these investments is restricted by King County for designated capital projects. Investments restricted by donor represent assets whose use is restricted by creditors, grantors, or contributors external to the Medical Center. These investments consist of pooled investment funds of commercial paper, government obligations, bankers’ acceptances, certificates of deposit, and repurchase agreements, and are carried at market value.
(d) Impaired Investments
Between August 2007 and January 2008, four commercial paper investments held in the investment pool by King County with an original par value of $207 million were identified as being impaired. As of September, 2009, King County has participated in restructuring auctions and has recovered a total of $75.2 million, or about 50% of the adjusted par value on three of the four impaired investments.
The remaining impaired investment is not expected to be restructured until late 2009 at the earliest. Due to the stressed market condition for this type of security, it is difficult to predict what King County may eventually recover from the upcoming restructuring. However, recent financial analysis performed by King County indicated a recovery range between 50% and 76%. The Medical Center had an unrealized gain of $3,048 on its investment in the King County pool as of June 30, 2009 which includes its share of the impaired investments.
For the years ended June 30, 2009 and 2008 the King County investment pool had approximately $4.2 billion in total assets. The impaired commercial paper investments represent 1.1% and 4.4% of this total as of June 30, 2009 and 2008, respectively. The Medical Center currently invests approximately $208.2 million within the pool, representing approximately 4.9% of the total pool value. The Medical Center recognized $3,894 as realized losses on its investment in the King County pool for the year ended June 30, 2009. These losses were included within interest income, net on the statements of revenues, expenses, and changes in net assets.
(8) Professional Liability Insurance
The Medical Center participates in the professional liability program of the University. The University’s professional liability program currently includes self-insured and commercial excess coverage components.
The Medical Center’s annual funding to the professional liability program is determined by the University administration using information from an annual actuarial study. The actuary discounts funding needs by approximately 7.0% for fiscal years 2009 and 2008 in recognition of the expected earnings of the self-insurance fund. In addition to the University, the participants in the professional liability program include the Medical Center, the UW Physicians, Children’s University Medical Group, UWPN, Associated
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University Oral Surgeons and UWMC. The various participants in the program contribute into the self-insurance fund and a share of the expenses of the Health Sciences Risk Management Office.
The Medical Center’s pro rata share of premiums paid to the self-insurance revolving fund were $1,681 and $1,683 in 2009 and 2008, respectively, and is shown in the supplies and other expenses line of the statements of revenues, expenses, and changes in net assets.
(9) Noncurrent Liabilities
(a) Long-Term Debt
Long-term debt consists of the following as of June 30:
2009 2008
Long-term liability to King County related to:2007 Refinance of 1996 Series B Bonds,
5.0%; annual principal payments of$55 through 2010 $ 55 110
2007 Refinance of 1997 Series G Bonds,4.5% to 5.0%; annual principal payments rangingfrom $445 to $695 through 2017, including premiumof $94 as of June 30, 2009 4,623 5,048
2001 General Obligation Bonds of King County, 3.8%to 5.0%; annual principal payments ranging from$110 to $190 through 2021 1,880 1,985
1999 Series A General Obligation Bonds of KingCounty, 4.0% to 5.3%; annual principal paymentsranging from $108 to $125 through 2012 437 532
6,995 7,675
Less current portion (718) (673) $ 6,277 7,002
In fiscal year 1998, King County issued $7,800 of 1997 Series G General Obligation bonds at a premium of $57 to be used for the construction of the Medical Center’s View Park II Garage. In fiscal year 2002, King County issued an additional $2,500 of General Obligation bonds to also be used for the construction of the Medical Center’s Viewpark II Garage. These bonds are due over a 20-year period and the incremental parking revenues are the source of the Medical Center’s funding to retire the debt.
King County also issued $959 of 1999 General Obligation bonds to partially refund the 1993 Series A General Obligation Bonds. As a result of this funding, approximately $105, the difference
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between the reacquisition price and the net carrying amount of the new debt liability was deferred and reflected as an increase in the new debt liability.
In fiscal year 2007, King County refinanced 1996 Series B Refunding bonds and the 1997 Series G General Obligation bonds. As a result of this funding, approximately $125, the difference between the reacquisition price and the net carrying amount of the new debt liability was deferred and reflected as a reduction in the new debt liability.
The Medical Center reflects long-term liabilities to King County on its balance sheet for debt service related to their bond issues.
(b) Long-Term Debt Maturities
Annual debt service requirements to maturity for the general obligation and refunding bonds are as follows:
Principal Interest Total
Years ending June 30:2010 $ 718 312 1,030 2011 703 278 981 2012 748 249 997 2013 790 211 1,001 2014 700 181 881 2015 – 2019 2,705 418 3,123 2020 – 2022 540 42 582
Net 6,904 1,691 8,595
Less current portion (718) (312) (1,030) Add unamortized premiums and
loss on refunding, net 91 — 91
Long-term debt, netof current portions $ 6,277 1,379 7,656
The cost of obtaining debt is deferred and amortized over the term of the related debt.
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(c) Changes in Noncurrent Liabilities
Changes in the Medical Center’s long-term liabilities during the fiscal years ended June 30, 2009 and 2008 are summarized below:
2009Amounts
Balance Balance due withinJune 30, 2008 Increases Decreases June 30, 2009 one year
Long-term liability to KingCounty related to:
2007 Refinancing of1996 Series BRefunding Bonds $ 110 — (55) 55 55
2007 Refinancing of1997 Series GGeneral Bonds 5,048 — (425) 4,623 445
2001 General ObligationBonds 1,985 — (105) 1,880 110
1999 Series A GeneralObligation Bonds ofKing County 532 — (95) 437 108
Deferred rent 4,651 1,770 (176) 6,245 175 Deferred revenue 424 — (140) 284 —
Total noncurrentliabilities $ 12,750 1,770 (996) 13,524 893
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2008Amounts
Balance Balance due withinJune 30, 2007 Increases Decreases June 30, 2008 one year
Long-term liability to KingCounty related to:
2007 Refinancing of1996 Series BRefunding Bonds $ 165 — (55) 110 55
2007 Refinancing of1997 Series GGeneral Bonds 5,894 — (846) 5,048 410
2001 General ObligationBonds 2,085 — (100) 1,985 105
1999 Series A GeneralObligation Bonds ofKing County 623 — (91) 532 103
Deferred rent 4,827 — (176) 4,651 175 Deferred revenue 435 — (11) 424 —
Total noncurrentliabilities $ 14,029 — (1,279) 12,750 848
(d) Long-Range Capital Improvement Plan
Ordinance 2000-0368 authorized a special election to be held in conjunction with the general election on September 19, 2000 for the purpose of voter consideration of a general obligation bond of $193,130 to pay for seismic and public health and safety improvements for the Medical Center and the Medical Examiner. The voters (61%) approved the issuance of the general obligation bond.
Although the 2000 voter approved bond proposal requested approval of a total amount equaling $193,130, multiple bond sales were anticipated to comply with federal IRS regulation regarding timing of the use of the funds. The originally proposed schedule for the sales was:
2001 $ 28,800 2004 95,200 2007 67,200
Net bond proceeds $ 191,200
Including underwriters discount $ 193,130
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Bonds in the amount of $29,130 were issued on January 22, 2001. Bonds in the amount of $110,174 were issued on May 4, 2004. Bonds in the amount of $54,121 were issued on September 14, 2004. King County has assumed responsibility for repayment of all of the associated debt. Total expenditures for the project were $221,000 and the project was completed in September 2008. This project cost includes $31,208 for the initial phase of construction of the Ninth and Jefferson Building.
Interest income on unspent bond project funds is reflected as capital contributions in the accompanying statements of revenues, expenses and changes in net assets as the interest earned on these funds is restricted by King County for the capital project. Interest income recognized as capital contributions was $1,544 for the year ended June 30, 2008. There was no interest income recognized as capital contributions for the year ended June 30, 2009.
(10) Concentrations of Credit Risk
The Medical Center grants credit without collateral to its patients, most of whom are local residents and are insured under third-party payor agreements. The composition of patient accounts receivable at June 30, 2009 and 2008 was as follows:
2009 2008
Medicare 21% 22%Medicaid 22 21Self pay 15 18Other third-party payors and patients 42 39
(11) Fair Value of Financial Instruments
The estimated fair value of certain financial instruments is reflected in the accompanying balance sheets in two ways. The carrying amount of cash and cash equivalents, patient accounts receivable, receivable from contractual agencies, accounts payable and accrued expenses, and payable to contractual agencies is assumed to approximate fair value of these instruments and is reflected accordingly in the balance sheets. Fair values of investments and assets limited as to use are based on quoted market prices, if available, or estimated using quoted market prices for similar securities and are reflected in the balance sheets at these amounts.
Fair value of the Medical Center’s long-term debt is estimated based on quoted market prices, when available, or on the discounted value of the future cash flows that would theoretically be paid using current rates offered to the Medical Center for debt with the same remaining maturity.
The fair value of the Medical Center’s bonds outstanding was $7,376 and $7,840 at June 30, 2009 and 2008, respectively. The carrying amounts reported in the notes to the financial statements were $6,995 and $7,675 at June 30, 2009 and 2008, respectively.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
35 (Continued)
(12) Commitments and Contingencies
(a) Operating Leases
The Medical Center has seven operating space leases that expire over the next three years. The leases generally contain renewal options for periods ranging from one to five years and require the Medical Center to pay all executory costs such as maintenance and insurance. Rental payments under operating leases are recognized on a straight-line basis over the term of the lease including periods of free rent and consists only of minimum rentals as there are no contingent rentals associated with these leases.
Additionally, the Medical Center has two operating equipment leases for medication dispensing systems that expire over the next five years. The leases generally contain renewal options for periods ranging from one to five year periods and require the Medical Center to pay maintenance costs while insurance is held by the vendors. Rental payments are recognized over the term of the lease and consist only of minimum rentals as there are no contingent rentals associated with these leases.
The minimum annual payments for noncancelable operating space and equipment leases are as follows:
Operatingleases
Fiscal year ending June 30:2010 $ 1,131 2011 932 2012 887 2013 487 2014 50 Thereafter —
$ 3,487
Operating lease expense for both noncancelable and cancelable operating leases for the years ended June 30, 2009 and 2008 was $10,949 and $9,654, respectively.
(b) Regulatory Environment
The healthcare industry is subject to numerous laws and regulations from federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government health care program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity within the healthcare industry continues with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by health care providers. Violations of these
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
36 (Continued)
laws and regulations could result in expulsion from government health care programs, together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Medical Center is in compliance with the fraud and abuse regulations as well as other applicable government laws and regulations. Compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.
The Medical Center received a subpeona from the Department of Health and Human Services in November of 2007 which included the production of documents relating to the Medicare program for the years 1997 to 2004, primarily focusing on outlier payments. A special assistant attorney general has been retained to assist with this issue and information sharing continues. The Medical Center believes that it is not possible at this time to make a judgment about the outcome of this inquiry.
(c) Litigation
The Medical Center is involved in litigation arising in the normal course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect to the Medical Center’s future financial position or results of operations.
(d) Construction Commitments
The Medical Center has committed to various remodel projects during fiscal year 2009. At fiscal year-end 2009, the future commitments for these projects total approximately $10,774.
(e) Patricia Bracelin Steel Building
In June 2004, construction was completed on the Patricia Bracelin Steel building, which is owned by Broadway Office Properties. The building contains 156,800 square feet of office space with related parking and is primarily occupied by the Medical Center. The Medical Center took possession of the building in July 2004. King County has entered into a lease with Broadway Office Properties for the building with a 30-year term. The lease qualifies for capital lease treatment and as such the building asset and related lease obligation are recorded by King County based upon the terms of the agreement.
The County Council has directed the Trustees to budget funds, annually, to make the rental payments due under the lease. As the financial obligations of the lease remain the responsibility of King County, the Medical Center accounts for these rental payments as rental expense. Lease payments are approximately $366 per month.
(f) Ninth and Jefferson Building
The Ninth & Jefferson Building (NJB), a fourteen-story medical office building with approximately 440,000 square feet, including 13,300 square feet of retail space, and five levels of underground parking, is located at 908 Jefferson Street in Seattle. The building is substantially complete and
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
37 (Continued)
several Medical Center departments will be occupying the building. The move-in schedule for the various Medical Center departments and tenants spans from March 1, 2009 through January 31 2010.
On September 28, 2006, the Trustees passed a resolution in support of the NJB under the 63-20 financing model. The building owner and lessor is NJB Properties, however the land upon which the building is constructed is owned by King County and leased to NJB Properties under a ground lease, dated November 1, 2006. King County has entered into a lease with NJB Properties for the building with a 30-year term. The lease qualifies for capital lease treatment and as such the building asset and related lease obligation are recorded by King County based upon the terms of the agreement.
The County Council has directed the Trustees to budget funds, annually, to make the rental payments due under the lease. As the financial obligations of the lease remain the responsibility of King County, the Medical Center will account for these rental payments as rental expense. The Medical Center is accruing proportional rental expense on a monthly basis as portions of the building are occupied or available for occupancy. Upon full occupancy of the building, lease payments will be approximately $1,100 per month.
(13) Related Parties
The Medical Center has engaged in a number of transactions with related parties including other UW Divisions as well as King County. These transactions are recorded by the Medical Center as either revenue or expense transactions because economic benefits are either provided or received by the Medical Center.
(a) The Following is a Summary of Related Party Transactions
Revenue (expense) transactions 2009 2008
Services purchased from the University $ (2,145) (2,389) Services provided to the University 9 9 Services purchased from UWSOM (43,320) (37,625) Services provided to UWSOM 3,552 3,581 Services purchased from VPMA (5,014) (4,433) Services and supplies purchased from the Laundry (2,443) (2,326) Services purchased from and funding provided to UWPN (800) (801) Services purchased from UWP (12) (11) Services purchased from UWMC (40) (40) Services provided to UWMC 1,011 1,008 Services provided to Seattle Cancer Care Alliance
(SCCA) 79 56 Services provided to King County 9,050 8,833
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
38 (Continued)
As of June 30, 2009 and 2008, respectively, the Medical Center has net amounts (due to) or due from related parties for the various transactions described above, which are as follows:
2009 2008
The University $ (27,909) (23,842) UWSOM (9,516) (13,249) The Laundry (204) (281) UWP (2) (1) UWMC 281 (86) VPMA — 19 UWPN — 22 King County (8,746) (5,882) ALNW 9,316 1,289
(b) University of Washington
The University provides the Medical Center with services and support such as general and professional liability insurance, printing, accounting, temporary help and other administrative and operational services. The amounts paid for these services are included in the related party transactions above.
(c) University of Washington School of Medicine (UWSOM)
The Medical Center purchases a variety of clinical and administrative services from the UWSOM. For example, the Medical Center purchases laboratory services from UWSOM and the Medical Center pays a portion of residents and faculty salaries for clinical and administrative support at the Medical Center. The Medical Center also transfers a portion of their Medicare reimbursement for medical education to UWSOM in support of teaching costs. The amounts paid for these services are shown above.
In June 2004, the Trustees passed a resolution expressing its intent to allocate additional funds to the UWSOM beginning in fiscal year 2005. The intent was to provide funding to support the School’s efforts to stabilize faculty recruitment and retention programs, recognizing the essential role of faculty in the University’s teaching and clinical service missions. The Trustees passed a clarifying resolution committing $7,000 in funds to the UWSOM to support faculty recruitment and retention. This commitment was included in fiscal year 2005 operating expenses. This commitment will be funded, subject to annual approval by the Trustees, at a range of $1,500 – $3,000 per year for up to five years. As of June 30, 2009, the Trustees have approved and the Medical Center has paid $7,000 in funding and the obligation is now fully paid.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
39 (Continued)
(d) Vice President of Medical Affairs (VPMA)
The office of the Vice President of Medical Affairs of the University provides services to the Medical Center such as news and community relations staffing compliance, medical staff oversight, marketing, information systems services, and other administrative services. The amounts paid by the Medical Center for these services are shown above.
(e) University of Washington Consolidated Laundry (the Laundry)
The Laundry provides laundry services to the Medical Center, UWMC, the Veteran’s Administration, UWPN clinics, the University and the amounts purchased are shown above.
(f) UW Physicians Network (UWPN)
UWPN is a network of seven primary care clinics that offer family practice and other primary and ancillary services in neighborhood settings throughout King County. In fiscal year 1996, the Medical Center entered into an agreement (the Original Agreement) with UWSOM, UWMC and UWPN to provide for funding of UWPN.
Based on an amended agreement during fiscal year 2004, the Trustees committed to providing funding of $800 per year beginning in fiscal year 2005. Payment is subject to annual Trustees approval through the normal budgeting process. As of June 30, 2009, there were no plans to revise the agreement.
Funding for the Medical Center’s obligation with UWPN related to its fiscal 2009 and 2008 funding agreement is included in the detailed related party transactions above. Also included are payments made to UWPN for specific services provided to the Medical Center.
(g) Airlift Northwest (ALNW)
In 1982, UWMC, the Medical Center and Children’s Hospital and Regional Medical Center (CHRMC) founded ALNW as a regional air ambulance system. Since its inception, ALNW has provided critical care and emergency medical transportation via fixed-wing and rotary-wing aircraft primarily to the Pacific Northwest Region. Effective January 1, 2003, ALNW re-organized operations as a nonprofit 501(c)(3) corporation with UWMC, the Medical Center and CHRMC as its initial members. As of June 30, 2009, ALNW has total assets of approximately $18,010 and total liabilities and net assets of approximately $6,727 and $11,283, respectively. As of June 30, 2008, ALNW had total assets of approximately $18,724 and total liabilities and net assets of approximately $8,461 and $10,263, respectively. ALNW recognized net income of approximately $1,020 and a net loss of approximately $4,166 for the years ended June 30, 2009 and 2008, respectively.
HARBORVIEW MEDICAL CENTER (A Component Unit of King County)
(Operated by the University of Washington)
Notes to Financial Statements
June 30, 2009 and 2008
(Dollar amounts in thousands)
40
The Medical Center has a 70% equity interest in ALNW, however as the Medical Center has one-third representation on the ALNW board of trustees, and so does not possess majority control of the board of trustees, the Medical Center does not consolidate ALNW and is recording its interest under the equity method of accounting. The Medical Center’s equity interest of approximately $7,898 and $7,184 at June 30, 2009 and 2008, respectively, is recorded within other assets. This interest includes $626 as the Medical Center’s share of net income and $2,916 as the Medical Center’s share of net loss for the years ended June 30, 2009 and 2008, respectively. The Medical Center’s share of net income or net loss is included in other operating revenues in the statement of revenues, expenses, and changes in net assets. ALNW uses the Medical Center’s purchasing system to take advantage of discounted purchases that the Medical Center receives.
The amounts paid for services purchased from and provided to ALNW by the Medical Center are shown above.
(h) King County
King County holds all investment funds on behalf of the Medical Center. King County also processes all actual payments to vendors outside of the UW Divisions. Additional detail describing the Medical Center’s position within King County is provided in note 1.
The Medical Center has agreed to provide services on behalf of King County for certain grants and contracts, for which they receive grant revenue from King County. Additionally, the Medical Center has long-term debt contracts with King County in the form of General Obligation Bonds. The terms of these agreements are described in more detail in note 9(a).
8210fs063009 Revised: 11/30/2009 4:58 PM drh
UNIVERSITY OF WASHINGTON
METROPOLITAN TRACT
FINANCIAL REPORT
JUNE 30, 2009
8210fs063009 Revised: 11/30/2009 4:58 PM drh
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT .................................................................................. 1
MANAGEMENT'S DISCUSSION AND ANALYSIS .......................................................... 2 - 5
FINANCIAL STATEMENTS
STATEMENTS OF NET ASSETS ......................................................................................................... 6
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS .......................... 7
STATEMENTS OF CASH FLOWS ............................................................................................. 8 and 9
NOTES TO FINANCIAL STATEMENTS .................................................................................... 10 - 17
SUPPLEMENTARY INFORMATION
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION ...... 19
DETAILS OF PROPERTY ................................................................................................................... 20
1
INDEPENDENT AUDITORS' REPORT
To the Board of Regents
University of Washington
Seattle, Washington
We have audited the accompanying statements of net assets of the University of Washington
Metropolitan Tract as of June 30, 2009 and 2008, and the related statements of revenues,
expenses, and changes in net assets, and cash flows for the years then ended. These financial
statements are the responsibility of University of Washington ("the University") management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the University of Washington Metropolitan Tract as of June 30, 2009
and 2008, and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
Management's discussion and analysis (on pages 2 through 5) is not a required part of the
financial statements, but is supplementary information required by the Governmental Accounting
Standards Board. We have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the
supplementary information. However, we did not audit the information and express no opinion
on it.
November 25, 2009
2 8210fs063009 Revised: 11/30/2009 4:58 PM drh
UNIVERSITY OF WASHINGTON
METROPOLITAN TRACT
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2009
The following discussion and analysis provides an overview of the financial position and
activities of the University of Washington's ("the University") investment in the University of
Washington Metropolitan Tract ("Metropolitan Tract") for the fiscal years ended June 30, 2009
and 2008. The Metropolitan Tract is a portfolio of real estate assets located in downtown Seattle
on approximately 11 acres of land. The Metropolitan Tract improvements consist of
approximately 1.5 million square feet of office space, 200,000 square feet of retail space,
92 residential apartments, nearly 2,000 parking stalls, and a 450 room luxury hotel. This
discussion has been prepared by University management and should be read in conjunction with
the financial statements and accompanying notes which follow this section.
Overview of the Financial Statements
The University's financial report of the Metropolitan Tract includes three financial statements:
the Statements of Net Assets, the Statements of Revenues, Expenses, and Changes in Net Assets,
and the Statements of Cash Flows.
The Statements of Net Assets (Balance Sheets) present the financial condition of the
Metropolitan Tract at the end of the last two fiscal years and report all assets and liabilities. A
summarized comparison of the Metropolitan Tract's assets, liabilities, and net assets as of
June 30, 2009 and 2008, follows:
Statements of Net Assets
2009 2008 % Change
ASSETS:
Cash 868,297$ 447,059$ 94.2%
Other Current Assets 6,796,384 8,037,062 -15.4%
Total Current Assets 7,664,681 8,484,121 -9.7%
Property 234,856,090 229,594,397 2.3%
Less accumulated depreciation and amortization (117,605,720) (109,405,609) 7.5%
Other Assets 4,653,594 4,391,542 6.0%
Total Long-Term Assets 121,903,964 124,580,330 -2.1%
Total Assets 129,568,645 133,064,451 -2.6%
LIABILITIES:
Current Liabilities 11,809,492 13,424,651 -12.0%
NET ASSETS 117,759,153$ 119,639,800$ -1.6%
3 8210fs063009 Revised: 11/30/2009 4:58 PM drh
Current assets consist primarily of a receivable due from Unico. Total current assets decreased
by 9.7%, to $7.7 million at June 30, 2009. The decrease relates primarily to lower receivable
balance from Unico due to market factors of declining lease rates, increased vacancy, and longer
lease up periods and a decrease in receivables from Rainier Tower Sublease tenants, which
relates to a retro-active rent increase that was assessed at the end of the prior year and is
discussed in Note 2 of the notes to the financial statements.
The University records other assets, which consist of deferred financing fees and deferred rent
receivable; deferred financing fees relate to the credit line obtained for the Cobb Building
redevelopment and anticipated future capital improvements as discussed further below, and the
deferred rent receivable results from the straight-line recognition of revenue on the Rainier
Tower Sublease. Total deferred rent and other assets as of June 30, 2009 and 2008, were
$2,628,807 and $2,090,781, respectively.
Property increased by 2.3% or $5.3 million primarily due to routine investment in tenant
improvements necessary for the buildings to remain competitive in the market.
The difference between total assets and total liabilities – net assets, or "equity" – is one indicator
of the current financial condition of the Metropolitan Tract. As of June 30, 2009, assets
exceeded liabilities by $117.8 million, a $1.9 million (1.6%) decrease compared to June 30,
2008. The largest portion of net assets is held in the investment of property and buildings. Total
property assets decreased as depreciation exceeded funds reinvested into the properties. The
annual distribution to the University Building Fund of $8 million and the decrease in rent
revenues contributed to the reduction in total net assets. Current liabilities decreased by 12% due
to the timing of payables and due to the lack of additional borrowing on the line of credit during
2009.
As part of the Unico Lease, Unico prepares a rolling five-year capital improvement budget which
is a continuation of a program initiated in 2000. The budget includes both capital projects
intended to enhance the value or increase the useful life of the property as well as tenant
improvements made either to accommodate specific needs of a tenant or to improve space to
attract new tenants. Capital projects conducted on the Metropolitan Tract during the current year
totaled $2,648,212. In addition, the University funded tenant improvements related to leasing on
the Metropolitan Tract of $2,613,482. Remaining projects either approved or underway as of
June 30, 2009, total approximately $8.3 million.
In 2004, the University obtained a variable rate credit line in the amount of $25 million for a ten-
year term. This credit line enables the University to continue to make planned capital
improvements to the Metropolitan Tract buildings if cash flow is insufficient, and it will provide
financial flexibility to meet unanticipated capital repairs. It will also allow the Metropolitan
Tract to take advantage of investment opportunities in other redevelopment projects. As of
June 30, 2009 and 2008, the outstanding balance on the line of credit was $8.5 million. As of
June 30, 2009 the effective interest rate on the line of credit was 2.04%, which is based on
6-month LIBOR plus 80 basis points.
4 8210fs063009 Revised: 11/30/2009 4:58 PM drh
Statements of Revenues, Expenses, and Changes in Net Assets
2009 2008 % Change
OPERATING REVENUES:
Total operating revenues 27,788,627$ 27,374,585$ 1.5%
OPERATING EXPENSES:
Total operating expenses 12,769,890 12,165,483 5.0%
OPERATING INCOME BEFORE
DEPRECIATION 15,018,737 15,209,102 -1.3%
Depreciation and amortization 8,493,587 7,990,979 6.3%
OPERATING INCOME 6,525,150 7,218,123 -9.6%
Other revenues and expenses (405,797) (568,102) -28.6%
DISTRIBUTION TO UNIVERSITY
BUILDING FUND (8,000,000) (8,000,000) 0.0%
CHANGES IN NET ASSETS (1,880,647) (1,349,979) 39.3%
TOTAL NET ASSETS:
Beginning of year 119,639,800 120,989,779 -1.1%
End of year 117,759,153$ 119,639,800$ -1.6%
Operating revenues increased by 1.5% to $27.8 million for the fiscal year ended June 30, 2009,
compared to $27.4 million for the prior year. The comparable revenues year over year resulted
from offsetting factors within the office space and hotel portfolios. In the office space portfolio,
the contrasting effect of leases signed in 2006 and 2007 at higher rates offset by slower lease up,
rate declines, and higher vacancy in 2008-2009 resulted in an overall increase in total revenue
from the Unico Lease and the Rainier Tower Sublease of $1 million, or 4.5% The Fairmont
Olympic Hotel's revenues decreased during fiscal year 2009 by $0.9 million, or 19.0%, due to
significant decreases in occupancy and room rates during the first six months of calendar 2009;
this result related to both the national luxury hospitality industry and the increase in the supply of
hotel rooms in the Seattle market. Hotel rental income to the University decreased from $4.6
million in 2008 to $3.7 million in the current year; a decrease of 19.0%.
Operating expenses increased by 5% to $12.8 million for the fiscal year ended June 30, 2009,
compared to $12.2 million for the prior year. The increase is due primarily to an increase in the
Rainier Tower Sublease rental payments to Unico that resulted from a land value adjustment
made in the prior year. The land value adjustment occurs every ten years.
5 8210fs063009 Revised: 11/30/2009 4:58 PM drh
Depreciation and amortization expenses increased by 6.3% to $8.5 million for the fiscal year
ended June 30, 2009, compared to $8.0 million for the prior period. The increase resulted from
continued investment into the fixed asset infrastructure of the Metropolitan Tract.
Other revenues and expenses, which primarily includes interest expense, increased from
$568,102 of expense in 2008 to $405,797 of expense in 2009. The fluctuation resulted from a
significant decrease in the 6-month LIBOR rate upon which the line of credit is indexed.
As in past years, $8.0 million was distributed to the University Building Fund.
Summary
The Metropolitan Tract is a significant and valuable real property asset in downtown Seattle.
The location and prominence of its buildings will provide long-term benefit to the University,
provided that prudent management is undertaken by the leaseholders and appropriate investment
is made in its maintenance, repair and refurbishment. Challenges related to the age of the
buildings and maintaining stable occupancy will be met through sustained focus on attracting
and retaining quality tenants, continued implementation of the on-going capital improvement
program, and repositioning opportunities that give life to old buildings such as the Cobb
Building renovation – strategies that will result in a secure and productive investment for the
University.
See Notes to Financial Statements
6 8210fs063009 Revised: 11/30/2009 4:58 PM drh
UNIVERSITY OF WASHINGTON
METROPOLITAN TRACT
STATEMENTS OF NET ASSETS
June 30, 2009 and 2008
ASSETS 2009 2008
Current AssetsCash held in trust 868,297$ 447,059$ Tenant improvements receivable 33,906 Due from Unico Properties, LLC 6,551,581 7,025,921 Other receivables associated
with the Rainier Tower Sublease 834,835 Due from Fairmont 101,986 Other assets 142,817 142,400
Total current assets 7,664,681 8,484,121
Property, net 117,250,370 120,188,788 Deferred costs, net 2,024,787 2,300,761 Deferred rent 2,020,619 1,734,708 Other assets 608,188 356,073
Total assets 129,568,645$ 133,064,451$
LIABILITIES
Current LiabilitiesAccounts payable and other liabilities 2,049,271$ 2,872,804$ Funds due to the University 135,412 1,587,774 Line of credit 8,500,000 8,500,000 Deferred revenue 1,025,324 364,588 Deposits payable 99,485 99,485
Total current liabilities 11,809,492 13,424,651
NET ASSETS
Invested in capital assets 111,250,370 114,188,788 Restricted 7,601 632,356 Unrestricted 6,501,182 4,818,656
Total net assets 117,759,153 119,639,800
Total liabilities and net assets 129,568,645$ 133,064,451$
See Notes to Financial Statements
7 8210fs063009 Revised: 11/30/2009 4:58 PM drh
UNIVERSITY OF WASHINGTON
METROPOLITAN TRACT
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
For the Years Ended June 30, 2009 and 2008
2009 2008
Operating RevenuesUnico leases 14,479,625$ 14,741,328$ Fairmont Olympic Hotel 3,722,965 4,594,213 Rainier Tower Sublease 9,070,951 7,801,453 Other operating revenue 515,086 237,591
Total operating revenues 27,788,627 27,374,585
Operating ExpensesLeasehold excise taxes 2,211,665 2,566,384 Real estate related costs 10,558,225 9,599,099
Total operating expenses 12,769,890 12,165,483
Operating income before depreciation and amortization 15,018,737 15,209,102
Depreciation and Amortization 8,493,587 7,990,979
Net operating income 6,525,150 7,218,123
Other Revenues (Expenses)Loan maintenance fee (25,094) (27,187) Interest expense (381,900) (549,509) Interest income 1,197 8,594
Total other revenues (expenses) (405,797) (568,102)
Net income 6,119,353 6,650,021
Distribution to University Building Fund (8,000,000) (8,000,000)
Change in net assets (1,880,647) (1,349,979)
Total net assets, beginning of year 119,639,800 120,989,779
Total net assets, end of year 117,759,153$ 119,639,800$
See Notes to Financial Statements
8 8210fs063009 Revised: 11/30/2009 4:58 PM drh
UNIVERSITY OF WASHINGTON
METROPOLITAN TRACT
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2009 and 2008
2009 2008
Cash Flows From Operating ActivitiesCash received from tenants and others 29,275,077$ 27,210,728$ Payments made to vendors (9,411,982) (11,908,741) Payments made to employees (2,110,339) (1,986,787) Payments for leasehold excise taxes (2,211,665) (2,566,384)
Net cash flows from operating activities 15,541,091 10,748,816
Cash Flows From Capital and Related Financing ActivitiesImprovements made to long-lived assets (5,261,694) (11,372,215) Interest expense (381,900) (549,509) Loan maintenance fee (25,094) (27,187)
Net cash flows from capital and related financing activities (5,668,688) (11,948,911)
Cash Flows From Noncapital Financing ActivitiesDistribution to University Building Fund (8,000,000) (8,000,000) Borrowings on line of credit 6,000,000 Borrowing from and repayments to the University (1,452,362) 1,587,774
Net cash flows from noncapital financing activities (9,452,362) (412,226)
Cash Flows From Investing ActivityInterest received 1,197 8,594
Net change in cash 421,238 (1,603,727)
Cash, beginning of year 447,059 2,050,786
Cash, end of year 868,297$ 447,059$
See Notes to Financial Statements
9 8210fs063009 Revised: 11/30/2009 4:58 PM drh
UNIVERSITY OF WASHINGTON
METROPOLITAN TRACT
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2009 and 2008
(Continued)
2009 2008
Cash Flows From Operating ActivitiesNet operating income 6,525,150$ 7,218,123$ Adjustments to reconcile net operating income to net
cash flows from operating activitiesDepreciation and amortization 8,493,587 7,990,979 Deferred costs - prepaid commissions (736,254) Changes in operating assets and liabilities
Prepaid expenses and receivables 868,741 331,816 Due from Unico Properties LLC 474,340 (581,939) Deferred rent (285,911) (575,290) Other assets (270,032) (195,147) Due from Fairmont (101,986) Accounts payable and other liabilities (408,153) (2,789,738) Deferred revenue 245,355 86,266
Net cash flows from operating activities 15,541,091$ 10,748,816$
Reconciliation of Net Operating Income to Net
10 8210fs063009 Revised: 11/30/2009 4:58 PM drh
NOTES TO FINANCIAL STATEMENTS
Note 1. Metropolitan Tract Ownership and Operation
The University of Washington Metropolitan Tract ("the Metropolitan Tract"), located in
downtown Seattle, comprises approximately 11 acres of developed property, including office
space, retail space, residential apartments, parking, and a luxury hotel. This land was the original
site of the University of Washington ("the University") from 1861 until 1895 when the
University moved to its present location on Lake Washington. Since the early 1900s, the
Metropolitan Tract has been leased by the University to entities responsible for developing and
operating the property.
On July 18, 1953, the University leased a significant portion of the office, retail, and parking
facilities to Unico Properties LLC (formerly known as Unico Properties, Inc.) ("Unico"). The
lease expires on October 31, 2014 ("the Unico Lease"). In 2004, the Unico Lease was amended
to exclude the Cobb Building, and a new lease for the building was signed with Unico. In 1995,
the University assumed a sublease for a portion of Rainier Tower, one of the Unico controlled
buildings on the Metropolitan Tract, and directly controls approximately 380,000 square feet of
office space referred to as the Rainier Tower Sublease.
On January 18, 1980, the Board of Regents entered into a lease ("the Hotel Lease") with the
Urban Four Seasons Hotel Venture for the Olympic Hotel property, which expires in 2040. The
hotel was operated as the Four Seasons Olympic Hotel until July 31, 2003. On August 1, 2003,
the remaining lease term was assigned to LHCS Hotel Holding (2002), LLC. The hotel was
renamed the Fairmont Olympic Hotel and is now managed by Fairmont Hotels and Resorts.
On September 18, 2007, Legacy REIT, a publicly traded Canadian real estate investment trust
and parent company of LHCS Hotel Holding (2002), LLC, was purchased by Cadbridge
Investors, LP, a limited partnership consisting of Cadim (a division of the Caisse de depot et
placement du Quebec) and Westmont Hospitality Group. The tenant under the Hotel Lease
remains the same, and the management of the hotel by Fairmont Hotels and Resorts did not
change.
The Metropolitan Tract is managed by the University under the authority of state law, which
contains certain restrictions on the disposal of property and use of income. These restrictions
include a prohibition on the sale of land and a limitation that lease terms extend no more than
80 years.
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Note 2. Summary of Significant Accounting Policies
Basis of Accounting
These financial statements present only a selected portion of the activities of the University. As
such, they are not intended to and do not present either the financial position, results of
operations, or changes in net assets of the University. The financial statements have been
prepared in accordance with governmental accounting principles generally accepted in the
United States. The financial statements have been presented using the economic resources
measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are
recognized when earned and expenses are recorded when an obligation has been incurred.
Significant revenue recognition and related expense policies are as follows:
All revenues from real estate rentals are reported as operating revenues and recognized as
earned in accordance with the lease agreements.
Rent abatements represent annual rent reductions allowed to Unico to compensate for
improvements made in prior years.
Land and buildings are recorded at appraised value as of November 1, 1954, with
subsequent additions at cost.
Expenses from employee wages and benefits, materials and supplies, and other
miscellaneous expenses are reported as operating expenses.
Cash Held in Trust
Cash held in trust represents operating cash for the Rainier Tower Sublease held in a financial
institution. Cash balances held in this trust and other cash balances may exceed federally insured
limits during the year.
Due from Unico Properties, LLC
As discussed in Note 1, the University leases a portion of the Metropolitan Tract to Unico.
Under the terms of the Unico Lease, payments (other than quarterly payments of $250,000) are
required once a year and are due each March 1 for the previous lease year ending December 31.
Accordingly, there is a balance due from Unico at June 30, for the first half of the current lease
year.
In July 2009, Unico agreed to pay 75% of rent due to the University on a quarterly basis through
June 30, 2011 instead of the $250,000 quarterly payment currently required under the lease. In
exchange, the University agreed to a partial waiver of the Lease’s non-compete provision,
allowing Unico to provide property management services to one commercial office building in
the central building district of Seattle. This agreement does not change how lease revenue from
Unico is recognized in the financial statements.
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Other Receivables Associated with the Rainier Tower Sublease
Amounts paid relative to the operations of the Rainier Tower Sublease are deferred and
amortized over the periods benefited. This also includes amounts due from sublease tenants.
Under the terms of the Rainier Tower Sublease, Unico can increase the annual lease rate every
ten years based on certain changes in land valuation. In June 2008, an increase was determined
for the period November 2007 through June 2008 totaling $1,140,826. This amount is reflected
as additional real estate related costs in 2008. The University billed the sublessees a portion of
this increase with a balance receivable of approximately $834,000 as of June 30, 2008. The
receivable balance was fully collected in 2009.
Deferred Costs
Costs incurred in connection with obtaining new subleases in the Rainier Tower are deferred and
amortized over the terms of the subleases. Accumulated amortization totaled $3,071,604 and
$2,795,629 at June 30, 2009 and 2008, respectively.
Deferred Rent
For Rainier Tower subleases (subleases entered into within the premises under the Rainier Tower
Sublease) that contain fixed escalations of the minimum annual lease payment during the
original term of the lease, rental income is recognized on the straight-line basis over the lease
term, including the construction period. The difference between rental income and the amount
currently receivable is recorded as deferred rent.
Deferred Revenue
Tenant rent payments made in advance are deferred until the period to which the payments
relate. Breakdown of the deferred revenue as of June 30, 3009 and 2008, is as follows:
2009 2008
Associated with the Rainer Tower Sublease
$ 620,490
$ 364,588
Fairmont 361,391
Unico 43,443
$ 1,025,324
$ 364,588
Property and Depreciation
Property is recorded at cost. Depreciation is recorded on a straight-line basis over the estimated
useful lives of the assets as follows:
Buildings 50 - 60 years
Modernizations 20 years
Tenant alterations The lease term
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Income Taxes
As part of the University, the Metropolitan Tract is exempt from federal income taxes, except in
the event of unrelated business income.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Due to their short-term nature, the fair values of cash, receivables, funds due to the University,
and other payables (including the line of credit) approximate carrying value.
Note 3. Funds Held By or Due to the University
Funds held by the University are funds invested in pooled investments with the University. The
University combines most short-term, available cash balances from various departments into the
invested funds pool, which is comprised of various U.S. government securities, corporate bonds,
corporate stocks, money market funds, foreign government bonds, tax-exempt bonds, and
venture capital investments. For purposes of the statements of cash flows, all funds held by the
University are considered cash equivalents.
The University allocates investment earnings to the departments based on relative amounts
invested at rates determined and approved by the University. For the years ended June 30, 2009
and 2008, the Metropolitan Tract earned 2.0% and 4.25%, respectively, on funds held by the
University. Principal amounts invested in the pooled investments are guaranteed by the
University. As of June 30, 3009 and 2008, the Metropolitan Tract had no funds held by the
University.
Funds due to the University represent short-term operating funds borrowed from the University's
pooled investment account. For the years ended June 30, 2009 and 2008, the University charged
the Metropolitan Tract an annual interest rate of 2.0% and 4.25%.
Note 4. Restricted Funds
Restricted funds consist of contributions to the New Building Fund, which are restricted to future
reimbursements of authorized capital expenditures paid by Unico pursuant to the Unico Lease.
14 8210fs063009 Revised: 11/30/2009 4:58 PM drh
Note 5. Property
The University reviews long-lived assets for impairment whenever events or changes in
circumstances have indicated that the carrying amount of the assets might not be recoverable.
There were no such impairments as of June 30, 2009 or 2008.
Property consists of the following at June 30:
Note 6. Leasing Commissions
During the fiscal year ended June 30, 2008, the University signed several new lease agreements
under the Rainier Tower Sublease. The University used the services of leasing agents to execute
these new leases and agreed to pay leasing commissions. A total of $736,000 was paid in 2008
to the leasing agents for their services in connection with these new lease agreements. No new
lease agreements were signed and no leasing commissions were paid during the fiscal year ended
June 30, 2009.
2009 2008
Land $ 9,974,594 $ 9,974,594
Land improvements 793,423 793,423
Buildings 95,503,891 95,503,891
Tenant alterations 43,461,770 40,848,288
Modernizations 85,122,412 82,474,201
234,856,090 229,594,397
Less accumulated depreciation and
amortization
(117,605,720)
(109,405,609)
$ 117,250,370 $ 120,188,788
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Note 7. Lease Agreements
Minimum future rental income under noncancellable lease agreements with Unico and the
Fairmont Olympic Hotel are as follows for the years ending June 30:
2010
$ 2,414,000
2011 2,414,000
2012 2,414,000
2013 2,414,000
2014 2,414,000
Thereafter 37,643,333
$ 49,713,333
A significant portion of annual rental income consists of rents based on a percentage of Unico's
revenues. Rent revenues recognized in 2009 and 2008 from Unico (excluding the Cobb Building
rent income) were $14,305,851 and $14,567,551, respectively.
The base rental income on the Fairmont Olympic Hotel is subject to change on an annual basis,
as set forth in the lease. At the end of each lease year, the annual rent is adjusted for a
percentage of revenues, not below an annual minimum of $1,260,000. As of June 30, 2009, the
University held an advance lease payment of $361,391 received from the Fairmont Olympic
Hotel (which is included with deferred revenue).
Note 8. Commitments to Unico for Rainier Tower Sublease
On July 18, 1953, the University leased a significant portion of the office, retail, and parking
facilities to Unico. The Unico Lease expires in 2014. In 1995, the University assumed a
sublease for a portion of Rainier Tower, one of the Unico controlled buildings on the
Metropolitan Tract, and directly controls approximately 380,000 square feet of office space
referred to as the Rainier Tower Sublease. The University hired GVA Kidder Mathews, an
independent third party, to manage the space.
Total future minimum obligations due to Unico related to the Rainier Tower Sublease are as
follows for the years ending June 30:
2010 $ 4,988,376
2011 4,988,376
2012 4,988,376
2013 4,988,376
2014 4,988,376
Thereafter 1,662,792
$ 26,604,672
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The minimum future revenues related to the subleasing of the Rainier Tower space are as follows
for the years ending June 30:
2010 $ 6,549,868
2011 5,672,304
2012 5,400,786
2013 5,564,437
2014 5,491,976
Thereafter 18,459,628
$ 47,138,999
Rent expense related to the Rainier Tower Sublease was $4,988,381 and $4,417,968 for the years
ended June 30, 2009 and 2008, respectively.
Note 9. Cobb Building
In July 2004, the University amended the existing Unico Lease (see Note 1) to exclude the Cobb
Building. At the same time, the University entered into a new 45 year lease with Unico ("the
Cobb Lease"). The Cobb Lease provides for Unico to implement a $38.5 million redevelopment
and conversion of the Cobb Building from obsolete medical office space to 92 rental residential
units. In accordance with the new lease agreement, the University invested a total of
approximately $7.9 million in the development. The University receives annual ground rent of
$154,000, receives no other rent, and has no additional obligation or liability for development
costs or on-going operating expenses. The Cobb Lease also includes lease buyout rights in 2014,
2024, and 2034.
Note 10. Future Capital Expenditures
In 2009, the Board of Regents approved future capital improvement expenditures related to the
Metropolitan Tract of approximately $2.2 million and tenant improvements of approximately
$4.8 million. These expenditures were approved to maintain the competitiveness of the
properties within the Metropolitan Tract.
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Note 11. Line of Credit
In July 2004, the University obtained a variable rate revolving credit line of $25 million for the
Metropolitan Tract. Deferred financing fees of $175,000 were paid, recorded as other assets, and
are being amortized on a straight-line basis over the ten-year term. The credit line which had an
initial termination date of June 30, 2009, is secured by future revenues of the Metropolitan Tract.
The termination date of the credit line can be extended annually in one year increments and has
now been extended to June 30, 2010. The termination date can be extended, upon approval of
the lender, to June 30, 2014. Each advance drawn on the credit line accrues interest based on
6 month LIBOR plus 80 basis points. The rate as of June 30, 2009 and 2008 was 2.04% and
3.90%, respectively.
During the fiscal year ended June 30, 2008, the University borrowed $6 million on the line of
credit. The balance unpaid on the line of credit as of June 30, 2009 and 2008, was $8.5 million.
The interest incurred on the line of credit during the years ended June 30, 2009 and 2008, was
$279,051 and $422,117, respectively. As of June 30, 2009, $16.5 million was available on the
credit line.
Note 12. Related Party Transaction
Unico leased office space on the Metropolitan Tract to University departments during fiscal
years 2009 and 2008. The total rent related amounts paid to Unico by University departments
was $1,655,000 and $2,404,000 for 2009 and 2008, respectively.
8210fs063009 Revised: 11/30/2009 4:58 PM drh
S U P P L E M E N T A R Y I N F O R M A T I O N
19
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
Our audits were made for the purpose of forming an opinion on the 2009 and 2008 basic
financial statements taken as a whole. The additional information that follows on page 20 is
presented for purposes of additional analysis and is not a required part of the basic financial
statements. This additional information is the responsibility of University of Washington
management. Such additional information has been subjected to the procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
November 25, 2009
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UNIVERSITY OF WASHINGTON METROPOLITAN TRACT
DETAILS OF PROPERTY
Year Ended June 30, 2009
(With Comparative Totals for 2008)
Cobb Building
Cobb Re-
Development
Skinner
Building
Puget Sound
Plaza IBM Building Rainier Tower Financial Center Olympic Hotel Olympic Garage
2009
Total
2008
Total
Buildings, tenant alterations and modernizations
Buildings 751,994$ -$ 2,037,004$ 9,113,065$ 8,412,874$ 42,878,840$ 16,983,859$ 12,535,102$ 2,791,153$ 95,503,891$ 95,503,891$
Tenant alterations 1,109,349 7,004,620 7,807,518 6,860,317 11,621,933 9,058,033 43,461,770 40,848,288
Modernizations 2,035,975 7,916,494 17,350,946 14,025,732 12,501,433 19,684,242 11,607,590 85,122,412 82,474,201
3,897,318 7,916,494 26,392,570 30,946,315 27,774,624 74,185,015 37,649,482 12,535,102 2,791,153 224,088,073 218,826,380
Less accumulated depreciation and amortization
Buildings 751,994 2,037,000 7,455,009 5,782,793 23,163,890 10,355,478 8,725,216 2,255,755 60,527,135 58,981,888
Tenant alterations 1,109,349 4,432,872 5,822,695 4,944,487 8,985,110 4,939,686 30,234,199 27,144,174
Modernizations 1,418,002 821,448 5,258,139 5,893,309 3,973,342 4,859,010 3,878,198 26,101,448 22,562,174
3,279,345 821,448 11,728,011 19,171,013 14,700,622 37,008,010 19,173,362 8,725,216 2,255,755 116,862,782 108,688,236
Net investment 617,973$ 7,095,046$ 14,664,559$ 11,775,302$ 13,074,002$ 37,177,005$ 18,476,120$ 3,809,886$ 535,398$ 107,225,291 110,138,144
Land 9,974,594 9,974,594
Land improvements 793,423 793,423
Less accumulated depreciation (742,938) (717,373)
Net land improvements 10,025,079 10,050,644
Net investment including land
and land improvements 117,250,370$ 120,188,788$