ML101030215

Response to: Washington State University - Request for Additional Information Regarding the Washington State University Triga Reactor License Renewal

ML101030215
Person / Time
Site:	Washington State University
Issue date:	04/07/2010
From:	Wall D Washington State Univ
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
TAC ME1589
Download: ML101030215 (105)

Text

WASHINGTON STATE rzUNIVERSITY Nuclear Radiation Center April 7, 2010 ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001

Reference:

Washington State University Docket No. 50-27, License No. R-76

Subject:

Response to: WASHINGTON STATE UNIVERSITY - REQUEST FOR ADDITIONAL INFORMATION REGARDING THE WASHINGTON STATE UNIVERSITY TRIGA REACTOR LICENSE RENEWAL (TAC NO. ME1589)

Washington State University (WSU) has applied to renew operating License Number R-76 (Docket number 50-27). As part of the license renewal process, the U.S. Nuclear Regulatory Commission has submitted a Request for Additional Information (RAI) to Washington State University in a letter dated December 9, 2009. The RAI subject matter regarding financial qualifications consisted of four questions with affiliated subparts. This letter provides responses to Questions 1, 2, and 3 of the Request for Additional Information of December 09, 2009. It has been determined that the response to Question 4 must be approved by the WSU Board of Regents. The response to Question 4 will be provided as soon as it is available.

The texts of the questions 1, 2, and 3 are reproduced below, along with by the respective responses.

I declare under penalty of perjury that to the best of my knowledge the foregoing is true and correct.

Date Executed -100., o Respectfully Submitted, Donald Wall, Ph.D.

Director Attachments cc Region IV Office Frank DiMeglio Linh Tran Jo Ann Simpson

/ c)'-ýz P.O. Box641300, Pullman, WA 99164-1 300

" Pi 509-335-8641

• Fax: 509-335-4433 - www.wsu.edu/nrc

RAI1

1. The U.S. Nuclear Regulatory Commission (NRC) staff will analyze the financial statements for the current year, which are required by 10 CFR 50.71(b), to determine if the applicant is financially qualified to operate the WSU TRIGA. Since WSU's financial statements are currently out of date, please provide a copy of the latest financial statements for the NRC staff's review.

Response to RAI 1.

The financial reports for Washington State University Fiscal Years 2008 and 2009, covering the period of July 1, 2007 through June 30, 2008, and the period of July 1, 2009 through June 30, 2009, respectively, are included with this document.

Electronic copies of the annual financial statements for fiscal years 2004 through 2009 may also be found at:

http://www.wsu.edu/.qenacct/finstat.htm

RAI 2

2. Pursuant to 10 CFR 50.33(f)(2), "[t]he applicant shall submit estimates for total annual operating costs for each of the first five years of operation of the facility."

Since the information included in the application for the WSU TRIGA is now out of date, please provide the.following, additional information:

(a) The estimated operating costs for the WSU TRIGA for each of the fiscal years (FY) 2012 through FY2016 (the first five year period after the projected license renewal).

(b) WSU's source(s) of funding to cover the operating costs for the above fiscal years (e.g. state-funded budget, etc.).

Response to RAI 2 (a).

The annual operating costs for the WSU reactor facility can be divided into categories for the purpose of calculating current costs, and projecting future costs. The cost categories that are used include personnel, department expenses, and utilities, and are summarized in Table 2.a.1.

The currently authorized number of Full Time Equivalent (FTE) employees at the WSU facility is 3.5 FTE. These positions are Director (1 FTE), Reactor Supervisor (1 FTE),

Reactor Technician (1 FTE), and Administrative Assistant (0.5 FTE). WSU is currently in the process of conducting a search to add an additional staff member, to be classified under the State of Washington civil service classification system as Research Technologist 3.

Estimated department expenses are based on prior year expenditures for items such as office and laboratory supplies, repair and component expenses, equipment purchases and wages for part-time student employees. The departmental expenses for FY 2009 totaled

$89,742. For purposes of estimating future expenses, the expense of $89,742 was increased at a rate of 4% per year, for every year through 2016. Utilities expenses are estimated based upon communications with the university utility supplier in 2007.

Page 1 of 10

Table 2.a.1 Estimated Operating Costs for the Years 2012 - 2016 WSU Fiscal Year Expense Category 2012 2013 2014 2015 2016 Personnel (a) $318,547 $331,288 $344,540 $358,322 $372,654 Department Expenses $100,948 $104,986 $109,185 $113,553 $118,095 Utilities $23,795 $24,747 $25,737 $26,766 $27,836 Total $441,495 $459,154 $477,520 $496,622 $516,486 (a) Includes both salary and benefit expense. Personnel expense was determined by holding all personnel expenses constant for 2010 and 2011, then incrementing each subsequent year by 4%.

Operating Costs The personnel expense for 2012 was determined by increasing the 2010 expense by 4%,

and then incrementing the expense by an additional 4% for each subsequent year.

Department expenses for 2012 were determined by incrementing the department expense for FY 2009 by 4 % for each year following 2009 through 2016. Utilities were likewise incremented up by 4% each year.

Department Expenses There is some flexibility in accrual of department operating expenses; generally, as service work for others increases, expenses also increase. As a result, department operating expenses scale with outside sources of income. As of January 31, 2010 the WSU/NRC has generated $111,954.80 income inrwork for others for FY 2010. Typical revenue derived from work for others over the last three fiscal years has been in the range of $200,000 - $250,000 per year. Revenue generated by work for others will be used to make up the difference between the state allocation and actual department expenses.

Response to RAI 2 (b).

Allocations The state allocation for personnel and expenses that is budgeted for FY 2010 is about

$328,918, as of February 1, 2010. The budgeted number sometimes makes small mid-year corrections, which account for a small percentage (generally less than 2%) of the total allocation. Changes can also result from changeover of personnel. The utilities cost is not charged directly against department allocations or accounts, but is an expense that is managed through the university central budget office. The cost for positions that are charged to the account that is funded by the state (Director (1 FTE), Reactor Supervisor (1 FTE) and Administrative Assistant (0.5 FTE)) are completely funded by the state. It is anticipated that a newly hired Reactor Operator will also be a state-funded civil service position. Any additional positions that might be added (e.g. additional Reactor Operators or research personnel) would be funded entirely by grants or funds generated by commercial work for others.

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Table 2.a.2 Estimated WSU Allocations For 2010 and 2012 - 2016 WSU Allocations per Fiscal Year (a)

Expense 2010 (c) 2012 2013 2014 2015 2016 Category Personnel $309,306 $321,678 $334,545 $347,927 $361,844 $376,318 (b)

Department $22,374 $24,200 $25,168 $26,174 $27,221 $28,310 Expenses Utilities $22,000 $23,795 $24,747 $25,737 $26,766 $27,836 Total $353,680 $369,673 $384,460 $399,838 $415,831 $432,464 (a) Utilities are included to illustrate the cost of operating the facility, but the funds are not directly allocated to the department. The cost is paid through the university accounting system.

(b) Includes salaries and benefits (c) Calculated as of January 31, 2010 Summary The 3.5 FTE (Director, Reactor Supervisor, Reactor Operator, Administrative Assistant),

some departmental operating expenses, and utilities are funded directly by the state.

Additional sources of income, such as work for others and grants have supplemented the allocation provided by the state. Additional staff positions are funded through extramural support (contracts, grants, etc.) that must be obtained before hiring additional personnel. It should be borne in mind that the.-difference, between direct state support and department expenses does not necessarily imply that there is a departmental operating deficit. The department routinely generates sufficient income from grants and contracts to cover all expenses in excess of those covered directly by the state.

RAI 3

3. The application references a decommissioning cost estimate developed by the Nuclear Division of Westinghouse Electric Corporation in 1989. The application states that "The 2000 inflation adjusted decommissioning costs are estimated to be

$4,994,615," and will be adjusted for inflation using the consumer price index. In order for the NRC staff to complete its review of the decommissioning cost estimate, please update the application by including the following additional information:

(a) A current decommissioning cost estimate (2011 dollars) for the WSU TRIGA to meet the NRC's radiological release criteria for decommissioning the facility for unrestricted use to comply with 10 CFR 50.75(d)(2). Accordingly, describe the basis on how the cost estimate was developed (if the 1989 Nuclear Division of Westinghouse Electric Corporation estimate is still the basis for the cost estimate, please so state), show costs specifically broken down into categories of labor, waste disposal, other items (such as energy, equipment, and supplies),

and include a contingency factor of at least 25 percent.

(b) A statement of the decommissioning method to be used (e.g. DECON, SAFSTOR, or other method).

(c) A description of the means of adjusting the cost estimate and associated funding level periodically over the life of the facility, to comply with 10 CFR 50.75(d)(2)(ii).

Since the application states that the cost "will be adjusted for inflation by the Page 3 of 10

consumer price index," confirm whether that is still the means of adjusting the WSU TRIGA's cost estimate and associated funding level over the life of the facility. If the consumer price index (CPI) is still the means of adjusting the cost estimate, provide a full identification of the specific U.S. Bureau of Labor Statistics CPI to be used (e.g., Producer Price Index, etc.). Also please provide a detailed numerical example updating the 2011 decommissioning cost estimate.

Response to RAI 3 Part (a)

The decommissioning cost estimate was provided by the Nuclear and Advanced Technology Division of the Westinghouse Electric Corp. The cover letter provided by the Manager of Installation and Construction Services is dated February 15, 1988, although this appears to be an error, as the document control number is 9022M;1 E-021489, indicating that the report was prepared on February 14, 1989. Additional correspondence in our files supports the February 14, 1989 date.

The cost categories are described in Table 4 of the 1989 Westinghouse cost estimate. A complete copy of the cost estimate, which describes work scope, and the bases for determining costs of various work components, is included with this document. The cost components are summarized in Table 3.a.1.

Table 3:a.1. Cost Components of the 1989 Decommissioning Cost Estimate Cost Category Estimated Cost ($) in 1989 Disposal of radioactive wastes $565,000 Labor $2,314,000 Tools, Equipment and Supplies (10% of $231,000 labor)

Misc, Overhead (Energy, Fees, Insurance, $231,000 Travel & Living, etc.) 10% of labor Subtotal $3,341,000 Contingency (15%) $501,000 Total Costs $3,842,000 Adjusting the subtotal of $3,341,000 for inflation to 2009 (the latest calendar year for which Consumer Price Index inflation values are available) gives an estimated decommissioning cost, without contingency, of $5,394,970. Adding a 25% contingency, $1,348,743 gives a total of $6,743,713 for calendar year 2009. The average CPI inflation rate for the years 1991 through 2008 is 2.6%. The date source is the U. S. Department of Labor Bureau of Labor Statistics Consumer Price Index - All Urban Consumers, which may be found at:

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

\

Using the average inflation value to adjust the decommissioning cost to 2011 gives a decommissioning cost of $7,093,119. The estimated costs for 2009, 2010, and 2011 are given in the following table.

Page 4 of 10

Table 3.a.2 Estimated Cost for Decommissioning for 2009, 2010, 2011 Based upon the 1989 Decommissioning Cost Estimate Calendar CPI Inflation Decommissioning 25% Total year Rate (a Cost Contingency 2009 2.7% $5,394,970 $1,348,743 $6,743,713 2010 2.6% $5,532,968 $1,383,242 $6,916,210 2011 2.6% $5,674,495 $1,418,624 $7,093,119 Please refer to the response for RAI 3, Part (c) for a complete numerical example updating the cost to 2011 dollars by the method described in NUREG-1 307.

The cost estimate that was provided by the Nuclear and Advanced Technology Division of the Westinghouse Electric Corp. has been adjusted for each year, starting in 1991, by multiplying the total cost provided in the cost estimate (including a 15% contingency fee) by the average December to December inflation adjustment that is annually reported by the Bureau of Labor Statistics (BLS). Continual adjustments have been made every year from 1991 through 2009 (the latest year for which BLS inflation values are available). The annual adjusted Estimated Cost for Decommissioning which has been tabulated and updated each year is included as an attachment to this document.

Reevaluation of Waste Disposal Cost Estimate Upon further examination, of current waste disposal costs, and comparing the annually updated WSU cost estimate on the basis of annual CPI incremental increases, it was decided to reevaluate the decommissioning cost estimate to determine whether a more comprehensive determination is warranted. As a result, WSU has recalculated the cost estimate, using some of the methodology described in NUREG-1 307, to the extent that it is applicable in the present cost estimating process, to estimate a reasonable bracket for decommissioning costs.

The current cost estimate for decommissioning is partly estimated according to the method provided in NUREG-1307, and corrected to 2011 dollars. This is done by using the formula to determine estimated cost in Year X as a function of estimated cost in 1986 dollars:

Estimated Cost (Year X) = [1986 $ Cost] x [A L, + B Ex + C Bx]

Where A, B, and C are the fractions of the total 1986 dollar costs that are attributable to labor (0.65), energy (0.13) and burial (0.22) respectively, and sum to 1. The factors Lx, Ex, and B, represent labor cost, energy cost, and burial/disposition cost adjustments from January 1986 to January of Year X (as indicated in Table 2.1 of NUREG-1 307).

The cost estimate that was developed for WSU for in 1989 was divided into five components:

1. disposal of radioactive wastes

2. labor

3. tools, equipment, and supplies

4. miscellaneous overhead (energy, fees, insurance, travel)

5. contingency Item 3, tools, equipment and supplies was provided as a scheduled rate of 10% of labor cost; Item 4 miscellaneous overhead (energy, fees, insurance, travel) is also assigned a Page 5 of 10

value of 10% of labor cost. For the purposes of the present estimate, labor, tools, equipment, and supplies will be lumped into a single category of labor, Lx, and Item 4, Miscellaneous Overhead will be treated as energy, Ex, cost.

NUREG-1 307 makes cost adjustments on the basis of January 1986 dollars, therefore the 1989 estimate is corrected to 1986 dollars, using inflation adjustors from the consumer price index for 1987, 1988, and 1989 (source: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt).

The adjustments for waste disposal are illustrated in Table 3.a.3 Table 3.a.3 Adjustment of Waste Disposal Cost from 1989 to 1986 Dollars year Inflationary adjustment (a) Estimated waste disposal cost 1986 $495,582 1987 4.40% $517,388 1988 4.40% $540,153 1989 4.60% $565,000 (a) inflation rate taken from Bureau of Labor Statistics Consumer Price Index Correcting waste disposal cost from 1986 to 2004 can be carried out by using waste disposal cost factors presented in Table 2.1 of NUREG-1 307 for PWR and BWR reactors with Direct Disposal by Vendors. The multiplier values for PWR and BWR disposal are 3.846 and 11.755, respectively. NUREG-1307 does not provide multiplier values for Research and Test Reactors (RTR), however the BWR waste disposal cost multiplication factor is considerably higher than for PWR, presumably due to the larger waste volumes associated with BWR vs. PWR. As a result, it seems more reasonable to use the PWR multipliers than BWR because the waste volume from an RTR would be smaller than for either a PWR or BWR. The cost range in 2004 dollars for Direct Disposal with Vendors is given by the expression (using the PWR multiplier):

3.846 x $495,582 = $1,906,008 Simply adjusting the 2004 disposal cost estimate to 2011 dollars (e.g. using the CPI) yields a waste disposal cost that is unrealistically low. Disposal costs have increased from 2004 to the present (2010). The 2010 cost schedule provided by U.S. Ecology Washington, Inc. for the Richland, Washington facility is included with this document as an attachment. The cost structure for waste disposal rates by U.S. Ecology is composed of four factors: (1) Volume, (2) Shipment, (3) Container, and (4) Exposure.

Table 3.a.4 Change In Waste Disposal Costs from 2004 to 2010 Volume (a) Shipment (b) Container (c)

Calendar year 2004 $56.6 $9,820 $4,930 Calendar year 2010 $130.6 $13,820 $9,210 Change +131% +41% +87%

(a) The Volume charge is in dollars per cubic foot.

(b) The Shipment charge is in dollars per manifested shipment.

(c) The Container charge is in dollars per container on each manifest.

The volume of waste to be disposed is not known at this time; therefore, using volume, shipment, and container rates to make a precise calculation is not justified. Using the Page 6 of 10

increase in the per-Container disposal rate increase (87%) as a median for the purposes of correcting disposal costs from 2004 to 2010, (which should capture a substantial fraction of the uncertainty in the number of shipments and the shipment volume due to the offsetting percent increases in these two cost contributors) a range for estimated disposal costs is given by:

$1,906,008 x 0.87 + $1,906,008 = $3,564,235 Due to the large change in waste disposal costs, the remainder of the cost estimating process will be conducted by applying Consumer Price Index and Labor Price Index incremental increases to the 1989 cost estimate, rather than forcing a solution to the cost estimate by stipulating that burial costs account for 22% of total decommissioning costs, as provided in NUREG-1 307. Using the 22% guideline to calculate the remainder of the cost contributors would lead to an estimated decommissioning cost of $16.2 million.

NUREG-1307 stipulates 1.984 as a regional cost adjustment factor for the Western U.S. for labor from a 1986 reference date to 2004. Using a total labor cost of $2,545,000 (including tools, equipment, and supplies), the correction, using the U.S. Social Security Administration Average Wage Index for 1989 to 1986 (http://www.ssa.qov/OACT/COLA/awidevelop.html) is illustrated in Table 3.a.5 Table 3.a.5 Inflationary Adjustment for Labor Cost From 1989 to 1986 Year Inflationary adjustment (a) Estimated waste disposal cost 1986 $2,193,117 1987 6.38% $2,333,038 1988 4.93% $2,448,057 1989 3.96% $2,545,000 Adjusting the 1'986 labor cost of'$2,193,117 to 2004 is given by

$2,193,117 x 1.984 = $4,351,144 Adjusting the 2004 labor cost to 2011 is provided in Table 3.a.6 Table1 3.a.6 Labor Cost Adjustment for the Period 2004 to 2011 Year Inflationary adjustment (a) Estimated labor cost 2004 4.649 $4,351,144 2005 3.659 $4,553,429 2006 4.596 $4,720,039 2007 4.538 $4,936,972 2008 2.300 $5,161,012 2009 (b) 3.95 $5,279,715 2010 (b) 3.95 $5,488,179 2011 (b) 3.95 $5,704,874 (a) The average wage index (AWl) taken from U.S. Social Security Administration for 2004 -

2008, which may be found at: http://www.ssa.gov/OACT/COLA/central.html (b) The AWl for 2009 - 2011 is the average of the years 2004 - 2008 The energy cost that was provided in the 1989 cost estimate was $231,000. Correcting the 1989 energy cost to 1986, followed by correction to 2004, then to 2011 is done in a manner Page 7 of 10

similarly to the correction for labor cost. Table 3.a.7 provides the energy cost correction for the year 1989 to 1986.

Table 3.a.7 Inflationary Adjustmentfrom 1989 to 1986 Dollars year Inflationary adjustment (a) Estimated waste disposal cost 1986 $202,619 1987 4.40% $211,534 1988 4.40% $220,842 1989 4.60% $231,000 Correcting the 1986 energy cost to 2004, using the adjustment factor for a PWR, of 1.483 gives the energy cost for 2004: $202,619 x 1.496 = $300,484. Correcting the 2004 energy cost to 2011 dollars is illustrated in Table 3.a.8 Table 3.a.8 Inflationary Adjustment from 2004 to 2011 Dollars year Inflationary adjustment (a) Estimated labor cost 2004 3.3 $300,484 2005 3.4 $310,400 2006 2.5 $320,953 2007 4.1 $328,977 2008 0.1 $342,465 2009 (b) 2.7 $342,807 20-10 (b) 2.6 $352,064 2011 (b) 2.6 $361,217 The individual cost components are summarized in Tables 3.a.9 and 3.a.10. Table 3.a.9 uses the correction factors for a- PWR reactor to estimate waste disposal cost. Table 3.a. 10 uses the correction factor for a BWR for waste disposal cost, but incorporates a $5,500,000 cap for disposal cost. Communication with U.S. Ecology Washington, Inc. of the Richland, Washington facility indicated that waste disposal cost would be capped at $5,500,000.

Table 3.a.9 Cost Estimate Using PWR Waste Disposal Cost Correction Factor Cost Category Estimated Cost ($) in 2011 Disposal of radioactive wastes $3,564,235 Labor $5,704,874 Energy $361,217 Subtotal $9,732,284 Contingency (25%) $2,407,582 Total Costs $12,037,908 Page 8 of l0

Table 3.a. 10 Cost Estimate Using BWR Waste Disposal Cost Correction Factor with $5,500,000 Waste Disposal Cost Cap Cost Category Estimated Cost ($) in 2011 Disposal of radioactive wastes $5,500,000 Labor $5,704,874 Tools, Equipment and Supplies (10% of $361,217 labor) $361,217 Subtotal $11,668,049 Contingency (25%) $2,891,523 Total Costs $14,457,614 The possible range for decommissioning costs given by these calculations is then approximately $12,000,000 - $14,500,000, for work commencing in 2011.

Response to RAI 3 Part (b)

The cost estimate that was provided by the Nuclear and Advanced Technology Division of the Westinghouse Electric Corp. was based on the DECON alternative for decommissioning.

Part (c)

Over time, the largest perturbation on the cost estimate has been an increase in the waste disposal costs. The annual periodic increase in the cost estimate when using the CPI has yielded cost estimate values for labor, energy, and materials that are reasonably similar to the method employed following NUREG-1307. Beginning in 2011, the values in Table 3.a.9 will be used for baseline planning for decommissioning cost estimate, with the values for labor and energy (with materials included in labor) indexed annually by the BLI published CPI or Social Security Administration AWl values. Waste disposal costs will be determined according to the standard published rates for waste disposal.

Page 9 of 10

ESTIMATED COST OF DECOMMISSIONING The estimated cost of decommissioning reported to the NRC for 1990 was $3,842,000. The following table shows the estimated cost for 1991 and beyond.

Inflation Adjusted Year Inflation Rate Decommissioning Cost 1991 3.1% $3,961,102 1992 2.9% $4,075,973 1993 2.7% $4,186,025 1994 2.7% $4,299,047 1995 2.5% $4,406,524 1996 3.3% $4,551,939 1997 1.7% $4,629,322 1`998 1.6% $4,703,391 1999 2.7% $4,830,382 2000 3.4% $4,994,615 2001 1.6% $5,074,528 2002 2.4% $5,196,317 2003 1-.9% $5,295,047 2004 3.3% $5,469,784 2005 3.4% $5,655,756 2006 2.5% $5,797,150 2007 4.1% $6,034,833 2008 0.1% $6,040,868 2009 2.7% $6,203,972 From the Consumer Price Index, average of all items.

www.bls.gov/cpi/#data Select "Tables" from the list beside "Average Price Data" Select "Table Containing History of CPI-U U.S. All Items Indexes and Annual Percent Changes From 1913 to Present" Page 10 of 10

US ECOLOGY WASHINGTON, INC.

RICHLAND, WASHINGTON FACILITY RADIOACTIVE WASTE DISPOSAL SCHEDULE OF CHARGES EFFECTIVE JANUARY 1. 2010 SCHEDULE A, ELEVENTH REVISION Note: Rates in this Schedule A are subject to adjustment in accordance with the rate adjustment mechanism adopted in the Washington Utilities and Transportation Commission's Sixth Supplemental Order in Docket No. UR-950619 as extended by Commission Order in Docket Nos. UR-010623 and UR-010706 and TL-070848.

A. SITE AVAILABILITY CHARGE

1. Rates Block Block Criteria Annual Charqe per Generator 0 No site use at all .................................................................................................................................................................. $234 1 Greater than zero but less than or equal to 10 ft3 and 50 mR/h ............................................................................................. 448 3

2 Greater than 10 ft" or 50 mR/h* but less than or equal to 20 ft and 100 mR/h" .................................... 860 3 Greater than 20 ft3 or 100 mR/h= but less than or equal to 40 ft3 and 200 mR/h ............................................................. 1.652 4 Greater than 40 ft3 or 200 mR/h* but less than or equal to 80 ft3 and 400 mR/h* ............................................................... 3,171 5 Greater than 80 ft3 or 400 mR/h* but less than or equal to 160 ftW and 800 mR/h. ............................................................. 6,089 6 Greater than 160 ft3 or 800 mR/h" but less than or equal to 320 ft3 and 1,600 mR/h. ...................................................... 11,681 7 Greater than 320 ftW or 1,600 mR/h" but less than or equal to 640 ft and 3,200 mR/h' ................................................... 22,428 8 Greater than 640 ft3 or 3,200 mR/h* but less than or equal to 1,280 ft3 and 6,400 mR/h* ................................................. 43,058 3 3 9 Greater than 1,280 ft or 6,400 mR/h" but less than or equal to 2,560 ft and 12,800 mR/h* ............................................ 82,671 10 Greater than 2,560 ft3 or 12.800 mR/h" but less than or equal to 5.120 ft3 and 25.600 mR/h' ....................................... 128,350 11 Greater than 5,120 ft3 or 25.600 m R/h" ......................................................................................................................... 128,350

• For purposes of determining the site availability charge, mR/hour is calculated by summing the mR per hour at container surface of all containers received during the year.

2. Exemptions

a. As to waste which is generated by educational research institutions for research, medical or educational purposes, such institutions shall be placed in a rate block for the site availability charge which is one (1) lower than what would otherwise apply through application of the block criteria shown above. "Educational research Institution" means a state or Independent,not-for-_rofit. Post-secondaryeducationalInstitution.

b. As to waste which arises as residual or secondary waste from brokers' provision of compaction or processing services for others, if application of the block criteria shown above would place a broker in a rate block for the site availability charge which is greater than Block No. 7, such broker shall be placed in the rate block which is the greater of (i) Block No. 7, or (i0)the block which is two (2) lower than what would otherwise apply through application of the block criteria shown above.

'Brokers' are those customers holding the *broker" classification of site use permits issued by the Department of Ecology.

3. Payment Arrangements

a. Initial Determination Initial determination as to the applicable rate block for each customer shall be based on projections provided by customers prior to the beginning of each calendar year. For those customers who do not intend to ship waste to the facility during the calendar year (those assigned to block No. 0) and for those customers who are initially determined to fall into block Nos. 1-2, the entire site availability charge for the year,will be due and payable as of January 1. For those customers who are initially determined to fall into block Nos. 3-8, the entire site availability charge will also be due and payable as of January 1, although those customers may make special arrangements with the Company to pay the charge in equal installments at the beginning of each calendar quarter.

For those generators who are initially determined to fall in block Nos. 9-11, 1/12 of the site availability charge will be due and payable as of the beginning of each calendar month. These customers may pay in advance if they wish.

b. Reconciliation The site availability charge is assessed on the basis of actual volume and dose rate of waste delivered during the calendar year.

Assessment of additional amounts, or refunds of overpaid amounts, will be made as appropriate to reconcile the initial determination regarding applicable rate block with the actual volume and dose rates during the calendar year.

(OVER)

I.11 Washington State University Nuclear Radiation Center, Pullman, Washington 99164-1300 / 509-335-8641 March 7, 1989 William C. Leslie Nuclear andAdvanced Technology Division Westinghouse Electric Corp.

P. 0. Box 355 Pittsburgh, PA 15230-0355

Dear Mr. Leslie:

Thank you very much for the copy of the decommissioning cost estimate for the Washington State University reactor facility. I have no questions-about your proposal at this time. I-iill. keep you informed as to the intentions of the University concerning decommfssionihng...

Sincerely, W.E. Wilson Associate Director WEW: crc

A Westinghouse Energy Systems Nuclear and Advanced Technology Division Electric Corporation Box 355 Pittsburgh Pennsylvania 15230-0355 February 15, 1988 MKTG-89-777 Dr. William E. Wilson Associate Director, Nuclear Engineering Washington State University Nuclear Radiation Center Pullman, Washington 99164-1300

Dear Dr. Wilson:

Enclosed is the budgetary estimate for the decommissioning of the Washington State University reactor facility. This estimate i's, resultant of the discussions held over the past sleveral, months, and I sincerely hope is meets your- requ~irement-s- and, expectati'ons.

Should you have any comments or concerns with this estimate, please bring them to my attention for resolution. If there is a need for any further assistance, I would be pleased to provide it.

Very truly yours, William C. Leslie, Manager Installation & Construction Services Nuclear & Advanced Technology Division

/enclosure cc: K. M. Baughman

0 Westin ouse Power Systems Nuclear Technology Systems Division Electric Corporation Box 355 Pittsburgh Pennsylvania 15230-0355 August 2, 1988 PSD-IC-88-47 Dr. William E. Wilson Associate Director, Nuclear Engineering Washington State University Nuclear Radiation Center Pullman, Washington 99164-1300

Dear Dr. Wilson:

Enclosed is the original copy of the Washington State University SAR I received from you on June 28, 1988. The information, derived from- th-1is document. will. be very instrumental in-produc'in'the-, costE studyl you- requested.

For your information, a new regulation has been issued by the NRC (effective July 28, 1988) prohibiting test, training, and research reactors from electing to go to a SAFSTOR mode. In vkew of this regulation, our cost study will reflect decommissioning the WSU reactor with the site meeting Reg. Guide 1.86 as an end product. It is anticipated that this cost study will be done in the fourth quarter of 1988.

In the interim, please feel free to contact me should you have any questions, comments, or further information that may be applicable to the WSU reactor.

Very truly yours, William C. Leslie, Manager Installation & Construction Services Power Systems Division

/enclosure cc: K. M. Baughman

1 Activities and Manpower Requirements for DECON at a Research Reactor DECON is the decommissioning alternative that leads to the earliest termination of the owner's nuclear license. This alternative involves the immediate removal of all radioactive materials down to levels which are considered acceptable to permit the property to be released for unrestricted use. Planning and preparation activities, DECON activities, and the schedule and manpower requirements for DECON are presented below.

Planning and Preparation Activities Effective planning and preparation work before final reactor shutdown is vital to successful completion of DECON activities at the research reactor facility. Planning and preparation for DECON is accomplished during the 12 months prior to final reactor shutdown.

Planning and preparation activities include the following:

o satisfying regulatory requirements o gathering and analyzing data o developing detailed, work plans and.procedures o designing, procuri'ng, and' testi'ng- special" equipment o selecting and training staff o selecting specialty contractors o installing additional HEPA filters and temporary equipment These activities are discussed in the following paragraphs.

Satisfying Regulatory Requirements The major requirements are: 1) providing the necessary documentation for amending the facility operating license to "possession-only" status, and 2) obtaining an NRC dismantling order.

In requesting an amended license, the licensee must provide:

0 a description of the current facility status 9022M: lE-021489 l

'i 0 an inventory of the onsite radioactive materials 0 a description of the proposed decommissioning activities 0 a description of the proposed measures to prevent criticality and to minimize radioactive releases o any proposed changes to the technical specifications (e.g., deletion of specifications relating solely to plant operation) o safety analyses of both the proposed activities and the proposed specification changes.

An NRC dismantling order is required for DECON. The request for such an order must include a decommissioning plan providing:

o a description of the. ultimate. facility status o a description of the decommissioning activities (including radioactive material disposal and site decontamination) and the associated environmental. and. safety precautions o a safety analysis of the plan and any resultant releases o a safety analysis of the plant in its ultimate status.

In addition to the aforementioned documentation, the licensee must submit a radioactive waste handling plan, a quality assurance plan, an environmental report, and security and safeguards plans. Updated information concerning the financial qualification of the licensee may also be required.

Gathering and Analyzing Data. A large body of data is gathered and analyzed during the planning and preparation phase of decommissioning. This data helps satisfy the regulatory requirements discussed in the previous paragraphs, particularly the inventory of radioactive materials and the various safety analyses. In addition, they provide the bases for planning the decommissioning tasks and for selecting the appropriate methods and equipment.

9022Mv: lE-0214892 2

Included in this activity is a comprehensive survey of radiation dose rates and contamination levels in the facility. This survey, taken after final reactor shutdown, provides information for determining decontamination and temporary shielding requirements. It also provides initial data on radiation dose rates likely to be encountered during the various decommissioning tasks.

Developing Detailed Work Plans and Procedures. Detailed work plans and procedures are developed based on the information gathered during data gathering and resultant analyses and provided to the NRC with the license amendment and dismantling order requests. These detailed plans and procedures contain all the information required to actually carry out the decommissioning tasks.

They address the following items:

o decommissioning methods o schedules and sequences. of events radioactive waste management o contamination control o radiological and'industrial safety o equipment requirements.

Quality assurance, security, and'envi'ronmental constraints are also considered. The plans and procedures cover all aspects of the decommissioning project.

Designing, Procuring, and Testing Special Equipment. Any special equipment required to complete the decommissioning project is identified during planning and preparation. Designs and specifications are prepared for each item required. When the item is procured, it is inspected to verify that it meets specifications and complies with applicable QA and safety requirements. It is then tested to ensure that it performs as required. The testing also serves to train personnel in the use of the equipment and to provide pertinent data on its operation.

Selecting and Training Staff. At the start of planning and preparation, a decommissioning organization is created for the facility. Staff requirements are identified, and critical positions are filled with key engineering and 9022M: l E-021489 3

operating personnel. The personnel are trained as required to fulfill their roles in the organization; special emphasis is given to the use of new and unique equipment and procedures. Organization of the decommissioning staff is discussed in detail later in this section.

Selecting Specialty Contractors. During planning and preparation, the decommissioning planning staff identifies and selects the specialty contractors required to decommission the facility. These contractors perform unique services outside of the expertise or capability of the staff. After the needs are identified, contractors are invited to bid on the required work packages. Contractual agreements are concluded prior to the start of the actual decommissioning, if possible, to ensure the uninterrupted completion of the project. Specialty contractor requirements are also discussed later in this section.

Installing Additional HEPA Filters. Prior to the start of the actual decommissioning tasks, HEPA filters are installed outboard of the blower in the HVAC exhaust system of t h~e ReactorB' 'uillding-. Thes'e- fi'iters 're-i'ns'ta4lled to lessen the atmospheric release of airborne radioactivity generated during DECON, because many of the tasks are expected to generate airborne contamination that exceeds that produced duri'ng normal plant operation.

Additional temporary equipment may be7 i' stal'l'ed at this time to preclude the spread of contamination.

DECON Activities The activities and requirements of DECON for the research reactor are discussed in this section, including decontamination, disassembly and disposal, quality assurance, environmental surveillance, specialty contractors, and essential systems and services.

Decontamination. Decontamination is necessary to remove the radioactive contamination from selected systems and components. The objectives of the decontamination effort are twofold: first, to reduce the radiation levels throughout the facility in order to minimize personnel exposure during disassembly; and second, to attempt to clean as much material as possible to 9022M: 1E-021489 4

unrestricted levels, thereby permitting salvage of valuable material and reducing the quantities of material that must be packaged and shipped to a disposal site.

Disassembly and Disposal. Disassembly of the research reactor is started after the reactor is defueled, systems and components are decontaminated, and temporary shielding is installed where a comprehensive radiation survey indicates the need.

The exact component removal sequence within a given system or locality is dictated by the component's accessibility and the anticipated personnel exposures during removal. When possible, items that contribute significantly to the general level of exposure in the work area are either removed first or are temporarily shielded while the work goes on. Systems are unbolted at flanges when possible and cut into manageable sections, using an appropriate cutting device (plasma-arc torch, oxyacetylene torch, or power hacksaw).

Piping is cut into lengths compatible with standard shipping boxes.

Similarly, tanks and poo.1: lifners are- cut' into plate segments appropri*-t'efy sized.

Packaging of radioactive materials, for disposal, i~s accompl'ished in accordance with DOT and NRC regulations. Containers are lined with shi'el'ding materi-al when necessary to reduce surface dose rates to acceptable levels. Some items, such as a heat exchanger, may have openings welded shut and be shipped using the outer shell of the exchanger as the container.

Shipping of packaged contaminated materials from the facility to a waste burial site is accomplished using a trucking company that specializes in transporting special materials. The volume of materials to be transported and the number of shipments required are estimated in table 2 and was taken from the "Final Report Decommissioning of the Ames Laboratory Research Reactor, January 1982."

The reactor is postulated to be removed with as little as possible remote cutting.. Remote cutting will be used to disconnect certain components and to cut components into manageable and shipable sizes.

9022M:IE-021489 5

Small contaminated equipment is removed and packed in standard shipping boxes. Large contaminated equipment having no external smearable contamination is sealed by welding steel plates over all openings. Such equipment is then shipped to a burial ground, using the outer shell as the packaging. Contaminated equipment that is too large to be shipped as a unit is cut up either into segments that will fit into standard shipping boxes or into segments that can be sealed with welded steel plates.

Contaminated concrete is removed using a concrete spallers, jack hammers and concrete cutting equipment. All contaminated or neutron-activated concrete is removed. Core boring and sampling is performed to determine the extent of concrete removal. The rubble is packaged in standard shipping boxes for disposal.

Quality Assurance. An extensive quality assurance program is carried on throughout the decommissioning effort to assure that all applicable regulations are met, to assure that the work is performed according to plan, to assure that the work dbe'snrfodt efdng'er pub*lic safety,, and: to a*ssure the-safety of the decommissioning staff.

During the 12-month period prior to shutdown, QA personnel are active in the following areas:

0 reviewing decommissioning plans for quality assurance involvement o preparing inspection/test procedures as work plans are developed o reviewing designs of test equipment for quality input o ordering any inspection/test equipment required to perform the quality assurance/quality control function o receiving procured equipment and verifying acceptance o qualifying suppliers for fabrication of radioactive shipping containers 9022M: l E-021489 6

o preparing inspection/test procedures to be imposed on contractors o preparing inspection plans for shipment of radioactive materials, containers, trucks, etc.

o finalizing the formal quality assurance plan.

The QA efforts during the actual DECON period include the following:

o performing QA functions for procurements o qualifying suppliers o auditing all project activities 0 monitoring worker performance for compliance with work procedures o verifying compl'i*ance- ofr rdiida'c*tiV"e slp*pe&mts with appropriate procedures and regulations o performing dimensional, visual, nondestructive examinations or other required inspect-i-on, s~e-rv-i.ees' t&o assure compliance with work plans o maintaining auditable files on the QA audits 0 preparing a final report on overall performance of the DECON program with regard to the QA function Environmental Surveillance. An abbreviated version of the environmental monitoring program carried on during plant operation is continued during the DECON period. The purpose of the program is to identify and quantify any releases of radioactivity to the surrounding areas resulting from the DECON activities. For emergency situations involving releases from events such as fires or malicious acts that may necessitate prompt emergency action to minimize the risk to the public, additional short-term surveillance efforts are required.

9022M:lE-021489 7

After DECON is complete, a reduced 1-year follow-up program of environmental monitoring is carried out by the same organization that performed the earlier program.

Specialty Contractors. The only specialty contractor requirement during DECON of the research reactor is limited in scope to a hauling contractor, for transport of packaged radioactive materials to a disposal site. An estimated amount of waste shipments and disposal costs are shown in table 2 and was taken from the "Final Report Decommissioning of the Ames Laboratory Research Reactor, January 1982". If following DECON the facility is demolished, landscaping contractors are also required.

Essential Systems and Services. All or parts of certain facility systems and services must remain in place and in service until all radioactive material is either removed from the facility or secured on the site, to prevent the release of significant quantities of radionuclides (or other hazardous materials) to the environment. Some systems and services are required for cleanup and disassembly acfivifivts-. O.tiieig' r6vipd'ep-s-rnh-l heaTthýanfd.,

safety protection. The required systems and services are li~sted' in Table 1 together with the justification for retaining each.

As di smantl ement and decontamitnatibon' are, compietred iln, a&reas, wi thin. the facility, the essential systems and services in these areas are deactivated and, if contaminated, removed as required. Continuous service to the remaining work areas is maintained as long as necessary.

DECON Schedule The schedule and sequence of DECON tasks is shown in Figure 1. Initial planning for DECON of the research reactor facility begins about 12 months before final shutdown of the reactor.

After final shutdown, the reactor is defueled, and the spent fuel is shipped to an offsite repository. A logical pattern for cleanup, decontamination, dismantlement, packaging, and shipment is followed with the tasks associated with the research reactor. DECON at the research reactor is completed in approximately 8 months.

9022M:lE-021489 8

DECON Staff Requirements and DECON Costs In this section, the DECON costs, the organization of the decommissioning staff and the types and numbers of decommissioning workers needed for DECON are discussed.

Cost of DECON The estimated cost of DECON for the research reactor, including a 15%

contingency is summarized in Table 4.

Organization of the Decommissioning Staff. The decommissioning staff for the research reactor is organized as shown in Figure 2 with a manloading shown in Table 3. Ultimate responsibility for decommissioning activities rests with the university administration (the licensee). It is postulated that, for decommissioning of the reference research reactor, two staff committees oversee the operations and safety tasks. The operations branch, under a decommissioning superintendent;- pOlf*ns'hand'p1erff6r-s thedeFc'ommissrioning, activities while overseeing financial, security, and safety functions. The safety branch, under a health physicist, plans and conducts radiological and industrial safety programs. As shown. in Figure 2, the quality assurance supervisor interacts with both- the opera-tri*ons, and safety personnel while reporting to the staff committees, but he is directly responsible to the university administration.

DECON tasks, with few exceptions, are performed on a single 8-hour shift, five days per week. Each task presented in Figure 2 is postulated based on a crew size that provides a reasonably constant manpower loading for the bulk of the decommissioning project.

The crew on the basic working unit includes a crew leader, a utility operator, laborers, and the necessary craftsmen and health physics technicians. To the extent possible, decommissioning staff positions are filled with facility operations and maintenance personnel already familiar with the research reactor. In this way, effective and efficient task performance is obtained.

9022M:lE-021489 9

Use is made of student labor where knowledgeable personnel are available. The specific crew makeup for a given decommissioning task is tailored to fit the need.

The personnel interactions, activities, and responsibilities of key staff members are described below.

Reactor Administration and Operations Committee This committee advises university administration on matters under its jurisdiction. Its main function is to provide overall planning and direction to the decommissioning superintendent and financial branch while interacting with the other facets of the organization.

Decommissioning Superintendent This person plans and oversees all day-to-day decommissioning activities.

Responsibilities include- d"i"ectinn clrb..We-d . s snuphrve health physics branch.

Decommissioning Crew Leader This individual directs a work crew in the performance of the actual decommissioning tasks.

Craft Supervisor This person is responsible for maintenance of essential plant equipment and services as well as for assigning craft labor to particular decommissioning tasks. He instructs craftsmen in their assigned tasks and ensures the availability of tools and supplies.

9022M: 1E-021489 10

Security SuDervisor This person is responsible for site security during decommissioning. This includes supervising the security personnel and, if necessary, providing liaison with offsite civil authorities. The security shift supervisor directs shift activities.

Contracts and Accounting Specialist An experienced accountant, this individual is responsible for the financial aspects of the project. He prepares procurement documents and contracts and, with approval from the reactor administration and operations committee, disburses funds. Responsibilities include the maintenance of up-to-date financial accounts, while providing the committee with regular summary reports.

Quality Assurance Supervisor Responsible for preparing andiTmplemehntinfg: VWequaViy; as-'u---e : pTan fbr decommissioning, this person works with all branches of the organization to implement the plan. To ensure the independence of the quality assurance program, he reports directly to the universi'ty admini,stration.. He supervises a quality assurance unit, whtch- maiin*t-a.i-nis aud61 and6 job per formanceL reco~rd&s and verifies that established safety review procedures are followed.

University Radiation Safety Committee This committee advises university administration on matters of radiological and industrial safety. It provides overall planning and direction to the health physicist and interacts with the decommissioning superintendent on matters of safety. Coordination is made with the reactor administration and operations committee on interrelated matters.

Health Physicist This person recommends and enforces safety policy, both radiological and industrial. Responsibilities include maintenance of radiation exposure records, implementation of the environmental survey program, ensuring 9022M: 1E-021489 11

compliance with work procedures, and training and assigning health physics technicians to specific work tasks. In addition, the health physicist is responsible for the development and implementation of the in-plant radiation protection program, the survey instrumentation program including calibration, bioassay of personnel, airborne radioactivity monitoring, and ALARA planning.

Note: The source of information for this text is "Technology, Safety and Costs of Decommissioning Reference Nuclear Research and Test Reactors".

9022M: 1E-021489 12

FIGURE 1 WASHINGTON STATE UNIVERSITY DECOMMISSIONING SCHEDULE MONTHS 1 ~ J 4 56 7 8 9 1011121314151617181920 LuIwim1w1u2u11n1Iui1mIwfw!w1w~uJ~w1ujbuImJud1ua 1.REPARE DECON PLAN 2.PREPARE LICENSE DOC. IIEIUIEIEIEI i [

3.REGULATORY REVIEW 4.DETAIL WORK PACKAGES

:

5.EQUIP. & SERVICES a~IE 6.STAFFING & TRAINING a a *,aaaaaaaaaaaaaaa 7.INSTALL TEMP. EQUIP. -..  : aaaaaa 8.DEFUELING 9.RADIATION SURVEY 1O.GENERAL CLEANUP 1 1.REMOVE REACTOR COMP.

12.REMOVE CONCRETE POOL 13.REMOVE MECH. EQUIP 14.REMOVE PIPING aaaaaaaa~

a a aa a, a, 3

a, 3 aaaaaa aa a, a a a a aa a, aa 15.REMOVE I & C SYSTEMS a a aa a, aa aa a,

aa aa aa a,

a a a a a a, aa ,a a, 16.REMOVE ELEC. SYSTEMS a a ,a a, aa aa aa a,

a, aa a

a a

a 17.REMOVE HVAC SYSTEMS 18.PACK & SHIP WASTES 19.FINAL RADIATION SURVEY - L- L- L L~........ ~- A a.- a- .a.- A. A. A.- A A

FIGURE 2 WASHINGTON STATE UNIVERSITY DECOMMISSIONING ORGANIZATION U NIVEFRSITY ADMINISTRATION UNIVERSITY RADIATION REACTOR ADMINISTRATION SAFETY COMMITTEE & OPERATIONS COMMITTEE I

I DECOMMISSIONING I

I SUPERINTENDENT

TABLE 1 Systems and Services Required During Decommissioning System or Service Justification Normal and Emergency Operation of electrical equipment including Electric Power HVAC, lighting, and radiation monitoring HVAC Systems Ventilation and confinement of radioactive contami nation Demineralized Water System Maintain purity of reactor tank water during defueling and reactor vessel/internals removal Service Water System Decontamination, cleanup, fire protection, Compressed Air Systems Operation of pneumatic controls and tools; (control and se.rvice). personnel fresh air supply Communications Systems Facilitate and coordinate decommissioning activities Radwaste Systems Treatment of radioactive liquids, solids, and gases Fire Protection System Health and safety Security Systems Public safety and plant protection considerations Radiation Monitoring System Personnel safety Anti-C Protective Clothing Health and safety Laundry Facilities 9022M:IE-021489

TABLE 2 REPRESENTATIVE AMOUNT OF WASTE SHIPMENTS AND TOTAL DISPOSAL COSTS COSTS, $f:-.

NUMBER OF Ci PACKAiGING TRANSP. & DISPOSAL TOTAL SHIPMENTS CASK RENTAL 6881 80 315 170 565

TABLE 3 REPRESENTATIVE MAN LOADING FOR DECOMMISSIONING A RESEARCH REACTOR CLASSIFICATION MONTH TOTAL SK/MM TOTAL 1 2 3 4 5 6 7 8 9.10 It 12 13 14 15 16 17 18 19 20 MAN-MONTHS $K DECOMMISSIONING SUPERINTENDENT 1 1 1 1 1 1 1 1 1.1 1 1 1 1 1 1 1 1 1 1 20 13 260 MECHANICAL ENGINEER I I I I I I I I I I I 1 I I I I I I 1 1 20 8.7 174 ELECTRICAL ENGINEER I 1 1 1 1 1 1 1 1 1 1 1 1 13 B.7 113.1 LICENSING SPECIALIST I 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1ti 20 8.7 174 HEALTH PHYSICIST I I I I I I I I I I I I I I I I I 1 1 20 8.7 174 CONTRACTS SPECIALISTS I I I I I I I I I I I I I1 1 16 8.7 139.2 QUALITY ASSURANCE ENGINEER I I I 1 I I 1 I I I I I 1 1 1 1 1 1 1 1 20 8.7 174 SECURITY SUPERVISOR 1 I I I I I I 1 1 9 5.2 46.8 SECURITY PATROLMEN 3 3 3 3 3 3 3 3 3 27 3.5 94.5 SECRETARY I I I I 1 I 1 I I I I 1 1 1 1 1 1 1 20 1.7 34 CONTROL ROOM OPERATOR I I 1 1 1 1 1 1 1 9 5.2 46.8 CRAFT 10 10 1 01 0 15 20 25 20 10 130 5.2 676 HEALTH PHYSICS TECH. 4 4, 4 4 4 4 4 4 4 4 40 5.2 208 2,314

TABLE 4 REPRESENTATIVE ESTIMATED COSTS COST CATEGORY ESTIMATED COST DISPOSAL OF RADIOACTIVE WASTES LABOR 2,314 TOOLS, EQUIPMENT AND SUPPLIES 231 10 % OF LABOR MISC. OVERHEAD (ENERGY, FEES, 23 1 INSURANCE, TRAVEL/LIVING, ETC.)

10% OF LABOR J

3.341 CONTINGENCY (15%) 50 1 TOTAL DECON COSTS 3,842

-n '...d *0

~

• ~ ~ ~ ~ ~

.- * *.. ~. - j l; '

BOARD OF REGENTS ADMINISTRATIVE OFFICERS Francois X. Forgette, Chair of the Board Barry E. Johnston, Assistant Vice President for Business & Finance Michael C. Worthy, Vice Chair of the Board Wade J. Davis, Executive Director of Business Services/Controller Constance M. Niva, Past Chair of the Board KennethAIhadeff ACADEMIC DEANS Scott E.Carson Erica Austin, Dean, Murrow College of Communication Harold A. Cochran Daniel J. Bernardo, Dean, College of Agricultural, Human, and Elizabeth A. Cowles Natural Resource Sciences Derick En'Wezoh, Student Regent Patricia Butterfield, Dean, College of Nursing Laura M. Jennings Candis Claiborn, Dean, College of Engineering and Architecture V. Rafael Stone Linda Kirk Fox, Associate Vice President and Dean, WSU Extension Howard Grimes, Vice President for Research and Dean, Graduate School Elson S. Floyd, Secretary Ex-Officio Michael Griswold, Dean, College of Sciences Gregory P. Royer, Treasurer Ex-Officio James P. Kehrer, Dean, College of Pharmacy,.

Christine Gregoire, Governor, State of Washington, Advisory Member Ex-Officio Judy N. Mitchell, Dean, College of Education Muriel Oaks, Dean, Distance and Professional Education EXECUTIVE OFFICERS & CHANCELLORS Bryan K. Slinker, Interim Dean, College of Veterinary Medicine Elson S. Floyd, President Eric Spangenberg, Dean, College of Business Warwick M. Bayly, Provost and Executive Vice President Joseph A. Starratt, Dean of Libraries John Fraire, Vice President for Enrollment Management Libby Walker, Interim Dean, University Honors College John C. Gardner, Vice President for Economic Development & Paul Whitney, Interim Dean, College of Liberal Arts Extension Howard Grimes, Vice President for Research & Dean of the LEGAL COUNSEL Graduate School Antoinette "Toni" Ursich, Division Chief, WSU Division of the Office Larry James, Associate Executive Vice President of the Attorney General Joan King, Executive Director of Planning and Budget Heather Lopez, Director of Internal Audit Officer list effective as of October 31, 2008 Viji Murali, Vice President for Information Services & Chief Information Officer Timothy L. Pavish, Vice President for University Relations Gregory P. Royer, Vice President for Business and Finance James Sterk, Director of Intercollegiate Athletics Michael J. Tate, Vice President for Student Affairs, Equity & Diversity Brenda Wilson-Hale, Vice President for Development & CEO of the WSU Foundation Harold A. Dengerink, Chancellor, WSU Vancouver Brian Pitcher, Chancellor, WSU Spokane Vicky-Carwein, Chancellor, WSU Tri-Cities

4, - V

'5, CONTENTS 2 Message from the President

.3 Management's Discussion and Analysis 12 Independent Auditor's Report 13 Statement of Net Assets 14 Statement of Revenues, Expenses, and Changes in Net Assets 15 Statement of Cash Flows 17 Notes to the Financial Statements 33 Enrollment and Degrees Conferred Financial Report 2008-For intormation about the linancial data included in this report, contact:

Business Services/Controller Washington State University PO Box 641025.

Pullman, Washington 99164-1025 509-335-2022 You may view the tinancial repo t at wwwA.wsu.edu/-.genaccl/finstat.hbtm.

For information about enrollment, degrees awarded, research, or academic programs at WSU, contact:

Institutional Research Washington State University PO Box 641009 Pullman, Washington 99164-1009 509-335-4553 or Visit the WSU home page at www.wsu.edu.

1!09 125466

Message from the President I am delighted to share Washington State University's annual report on the 2008 fiscal year with you. This publication provides in-depth information about the fiscal health and operations of WSU during the period beginning July 1, 2607 and concluding June 30, 2008.

The new five-year Strategic Plan adopted by the Board of Regents in 2008 guides the University in its continuing quest to serve students, the citizens of Washington and the greater world. WSU fulfills its distinctive role as the state's land-grant research university through exceptional teaching and research, combined with relevant outreach and engagement.

This report reflects another remarkable year of achievement in all three areas. Among the highlights:

" The University established a School for Global Animal Health in its College of Veterinary Medicine to provide innovative solutions to global infectious diseases through research, education, global outreach and application of disease control at the animal-human interface. A $25 million grant from the Bill & Melinda'Gates Foundation will help construct the-school's $35 million research building. Veterinary pathologist Dr. Guy-Palmer, a member of the'National Academy of Science's Institute of Medicine, is the school's director.

" An internationally recognized microbiologist, Dr.. Birgitte Ahring, joined the University as director of the Center for Bioproducts and Bioenergy and as the Battelle Distinguished Professor, based at WSU Tri-Cities. Much of the Center's research occurs at the Bioproducts, Sciences, and Engineering Laboratory, a $24.8 million facility opened in spring 2008 at the Tri-Cities campus. BSEL is a partnership of WSU and the Pacific Northwest National Laboratory, operated by Battelle for the U.S. Department of Energy.

• The University embarked on a 10-year, $200 million plan to meet the living needs of this generation of incoming students and the next. We broke ground in May for the first new residence hall to be built on the Pullman campus since 1971, with completion scheduled. by fall of 2009.

• Enrollment figures showed increased student numbers at all WSU campuses, a record influx of freshmen and higher numbers of minority students. The growth was driven by thefirst class of freshmen at WSU Tri-Cities, continued strong freshman. enrollment at WSU Vancouver and the largest freshman class ever at the Pullman campus. Academic qualifications continued to increase as well. "

• Research and philanthropic funding both increased substantially during the 2008 fiscal year. Faculty members received nearly $156 million in new research grant awards, an increase of some 16 percent. Private support rose substantially with.

a record $143,692,185 in gifts, grants, pledges and revocable commitments, a 56 percent increase.

• Construction continued on influential new or remodeled buildings including the College of Nursing building on the Riverpoint campus in Spokane, the Compton Union Building and Biotechnology Life Sciences Building in Pullman, and the Undergraduate Classroom Building at WSU Vancouver.

Washington State University is dedicated to its mission as a leading land-grant research university, advancing knowledge through creative research and scholarship, extending knowledge through innovative educational programs and applying knowledge through local and global engagement. I invite you to learn more about the ways in which the University contributes to a bright future for the state's residents.

Sincerely, Elson S. Floyd, Ph.D.

President Washington State University 2 Washington State University

Management's Discussion and Analysis Management's Discussion and Analysis Introduction The following discussion and analysis provides an overview of the financial position and operations of Washington State University (the University) for the year ended June 30, 2008. This overview has been prepared by management and should be read in conjunction with the University's financial statements and accompanying notes.

Founded in Pullman in 1890 as the state's land-grant research university, Washington State University today has campuses in Pullman, Spokane, Tri-Cities and Vancouver. Ten regional learning centers and award-winning Distance Degree Programs offer access to the University's degrees statewide and around the world. Enrollment exceeds 25,000 students who are served by over 2,400 faculty and 3,600 staff members. Among the University's faculty are eight members of the National Academy of Sciences and National Academy of Engineering.

Considered one of the country's top public research universities, the University has ten academic.icolleges, an Honors College and the Graduate School. The colleges- include: Agricultural, Human, and Natural Resource Sciences; Business; Education; Engineering and Architecture; Liberal Arts; Nursing; Pharmacy; Sciences; Veterinary Medicine; and the new Edward R. Murrow College of Communication. The University offers more than 250 fields of study including more than 150 majors plus many minors, options and certificate programs. Bachelor's degrees are available in all major areas with master's and doctoral degrees available in most. Professional degrees are offered in pharmacy and veterinary medicine. Last year, over 5,900 degrees, including bachelor's;' master's,.professiohal and doctoral degrees, were corifer'-ed.

The University is known for research strengths in such diverse areas as biotechnology, reproductive biology, shockphysics, viticulture, sleep research, wood technology, computer chips and advertising's impact on healthy decision-making. Research stations are located in Lind, Long Beach, Mount Vernon, Othello, Prosser, Puyallup and Wenatchee. There are extension offices in all 39 Washington counties.

Using the Financial Statements The.financial statements presented in this report encompass the University and its discretely presented component units.

The Management's Discussion and Analysis, however, focuses only on the University: The University's financial reports include the Statement of Net Assets, the Statement of Revenues, Expenses, and Changes in Net Assets, and the Statement of Cash Flows. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles and focus on the University as a whole.

Financial Highlights Overall, the University's financial position improved during the year ended June 30, 2008:

" Assets increased by $104 million to end the year at $1.9 billion.

" Liabilities increased by $32 million to end the year at $435 million.

" Net assets, which represent the residual of assets after deducting liabilities, increased by $72 million to end the year at $1.4 billion.

Other significant changes to operations were as follows:

" Revenues from all sources totaled $900 million, an increase of $57 million over fiscal year 2007.

• Expenses totaled $828 million, an increase of $85 million over last year.

" Capital assets, net of depreciation, increased by $111 million.

2008 Finandal Report

Management's Discussion and Analysis Condensed Financial Information and Analysis FinancialPosition-Statementof Net Assets The Statement of Net Assets is a snapshot ofithe University's financial position at fiscal year end. It lists the University's assets (economic resources), liabilities (creditors' claims) and net assets (residual interest in assets after paying creditors) based on end-of-year data.

Assets are: classified as current, non-current or capital. Current assets are expected to benefit the University within 12 months and include cash, accounts receivable, inventories, prepaid expenses and investments that can easily be converted into cash to meet University expenses. Non-current assets include endowment fund assets, student loans receivable and investments expected to be held more than one year. Capital assets include construction in-progress, library materials, furniture and equipment, land, buildings and improvements and are reported net of accumulated depreciation.

Liabilities are classified as current or non-current. Current liabilities are claims that are due and payable within 12 months and include payroll and:benefits, amounts payable to suppliers for goods and services receivedand debt principal payments due within one year. Non-current liabilities are obligations payable beyond ore year and include bond obligations, installment contracts, leases and earned but unused vacation and sick'leave.

Net assets are divided into five categories:

° Invested In capital assets--net of related debt: represents the University's capital assets net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or impr6pemeht of those assets.

" Restricted-non expendable net assets: University endowment funds, Land Grant Endowment funds and similar funds for which cdonors or outside sources have stipulated as a condition of the gift that the principal be maintained in perpetuity.

" Restricted-loans: funds that have been established for the explicit purpose of providing student support as prescribed by statute or granting authority.

• Restricted-expendable net assets: funds that are subject to externally imposed restrictions governing their use, such as scholarships, fellowships, research, loans, pr6fe'ssorships, cap'ital frojects and debt service.

° Unrestricted net assets: represents those assets that are available to the University for any lawful purpose.

Summarized Statements of Net Assets As of June 30, 2008 and June 30, 2007 June 30, 2008 June 30, 2007 Change Assets C. uurrent-assets. .. '! . . *,$- 221',948,0793/4.-) $'262,948;284*$ (41,000,205):

Non-current assets 508,744,789 475,333,704 33,411,085 Total ass ets f d$r 18at4,120 $ 1,032,208, 1,743,409,332 11,212 Total assets $ 1,874,102,200 $ 1,770,490,038 S 103,612.162 Liabilities Current liabilities ~ 78,277,541 68, -76,54. 9,516,007-'t Non-current liabilities 356,731,853 334,680,423 22,051,430

/ Total liabilities $ 435,009,394 $ 403,4j1,957 S 31,567,437~

Net assets Invested in captalnasset, netnof 'bt -" $ 875,094,055, 839 8" 868002 $ 36,008,053 Restricted nonexpendable, endow ments 371,529,761 348,845,062 22,684,699 25,743,086 '* Y25043,487.7, Th699,599,,'

Restricted, lon Restricted expendable 97,039,962 87,044,382 9,995,580 Unrestricted ,,: .,'. . 69 685 2 . 67, 6 029,1 8 2,656;794 Total net assets $1,439,092,806 $1,367,048,081 $ 72,044,725 4 Washington State Uijiversity

Significant Changes in the Statements of Net Assets

" Current assets decreased by $41 million. Several bond funded construction projects were completed or were very close to completion during the year and invested bond proceeds were liquidated and spent on the construction costs, resulting in a decrease of $49 million in cash and investments. In addition, accounts receivable increased by $9 million of which $8 million were construction costs paid on state funded projects that had not been reimbursed by the state at June 30.

" Capital assets, net of depreciation, increased by $ 111 million. This increase reflects continued large capital projects underway across campus to. build new facilities and renovate others. Additions to construction in progress and buildings were $96 million, net of depreciation. Land increased by $9 million.

" Current liabilities increased by $9 million. $8 million was accrued construction costs payable at year-end. In addition, deferred revenues were up by $2 million, reflecting increased revenues for the Alive program and increased season ticket sales for Athletics. Other short term liabilities decreased by $1 million.

" Non-current liabilities increased by $22 million.reflecting $26 million of new revenue bonds issued to. finance the construction of a new residence hall, net of principal. reductions of $8 million. In addition, accrued leave, deferred compensation and pension liabilities increased by $4 million. . *... ..

° Net assets increased by $72 million.

Financial Health and Flexibility There are a number of ratios used by the debt rating agencies to gauge financial health and flexibility. One of the more significant ratios used to measure operating flexibility is the ratio of expendable net assets to total expenses. Expendable net assets (defined as restricted expendable net assets plus unrestricted net assets) can be accessed relatively quickly and spent to satisfy current obligations. This ratio indicates how long the University could function using its expendable reserves without relying on additional assets generated by operations. The University had sufficient expendable net assets in 2008 to cover 4.5 months of operations, unchanged from 2007. .

Another between popular 0.4 timesratio, used to 1.2 to measure times would bedebt cushion,, is the ratio of expendable net assets (as-defined above) to debt. A ratio considered good coverage by one of the major rating agencies. The University's debt cushion remained constant at 0.9 times in 2008 and 2007.

Results of Operations-Statements of Revenues, Expenses, and Changes in Net Assets The Statement of Revenues, Expenses, and Changes in Net Assets is 'the University's equivalent of an income statement. It shows the sources and amounts of revenues earned and nature and amount of expenses incurred during the year, classified as operating, non-operating or other.

Operating revenues are the inflows of funds from providing goods and services to the University's customers. They include tuition and fees, grant and contract payments, and sales and service revenue generated by student housing, student dining and other University enterprises. Operating expenses are the funds used in generating operating revenues and in carrying out the University's mission.

Non-operating revenues are revenues earned for which goods and services are not provided and include state appropriations, current-use gifts and grants that are designated for purposes other than capital construction, land grant endowment income, endowment distributions and investment income. Non-operating expenses include interest expense on long-term debt.

Other revenues and expenses include capital appropriations, capital gifts or grants, additions to permanentendowments and gains or losses on the disposal of capital assets.

2008 Financial Report

Management's Discussion and Analysis Statements of Revenues, Expenses and Changes in Net Assets For the Years Ended June 30, 2008 and June 30, 2007 June 30, 2008 June 30, 2007 Change Operating revenues (expenses)

Operatngrevenues -492739 $53,393482-$598,257" Operating expenses (813,258,070) (731,535,717) (81,722,353)

Non-operating revenues (expenses)

Nori-operating '" ' <$?.353,867,64u 16,52;459,. SC,37,015,187>

Non-operating expenses (15,132,229) (11,710,908) (3,421,321)

Ne p6"ratingrev~enuesw. 87547~$ O1151$ 3 9 ,8ý Inýcýme(Loss) before other revenues, expenses, gains, $ "0 $ 2 I-sses andltransfers 4"A60,086 $ 26,999,316 $ (22,139,230) 0 ne $ 7,18;6 S 73,069 -277 $ '*(5,884,638) increase In'net assets $ ...:72,044,725 S. 100,068, 593 $ (28,023,868)

Net'assets, _beginnin of9year V//$326, ,488 .

Net assets, end of year "-1,439,092,806 S 1,367,048,081 Significant ,halnges in the Statement of Revenues, Expenses and ChanjesiinlNet Assets Operating revenues increased by $26 million. Tuition and fees were up $12 million due to a 7% tuition rate increase and a 5%

increase in enrollment. Increased sales by the colleges of Veterinary Medicine and Agricultural, Human, and Natural Resource Sciences contributed to a $2 million increase in sales and services by educational departments. Rate and enrollment increases caused auxiliary enterprise revenues to go up by $7 million. Increases in federal and local grants accounted for the remainder of the increases.

Operating expenses increased by $82 million. The largest increases were in salaries and benefits expenses. Salaries were up by

$28 million. The state authorized a 4% pay increase in 2008. Benefit costs increased by $16 million as a result of a 14% increase in health care premiums, more temporary employees qualifying for health care benefits, and increases in the rates for PERS retirement contributions. Payments for goods and services increased by $15 million, primarily as a result of increased energy costs. Depreciation expense increased by $7 million for the current year as a result of a change in accounting principle and by

$7 million as a result of the cumulative effect of the change.

Net non-operating revenues increased by $33 million. Gifts and contributions were up by $7 million as the Washington State University Foundation geared up for a new capital campaign. State and federal appropriations increased $26 million.

Investment income increased by $9 million. These increases were offset by increased interest expense on bond debt of $3 million and a decrease in.other non-operating revenue of $6 million.

Other revenues decreased by $6 million. State capital appropriations decreased by $13 million as the capital projects funded by them were completed. Capital grants and gifts increased by $7 million, which included a $4 million gift of land received in 2008.

Washaington State University

I Revenues from all Sources For the Years Ended June 30, 2008 and June 30, 2007 2008 2007 Sales and Sales and services of services of educational educational Other departments Other departmernts Gifts and revenues7 2% Gifts and revenues 7 2%

contributions 3% Federal contributions 4% ( Federal 4% . .. . . . P propriation 2% appropriation State capital 1% State capital 1%

appropriations appropriations Investment Investment income, income, net of expense net of expense m% 7%

As the above graphs show, the University has a diversified revenue base. No single source of revenue generated more than 27% of the total fiscal year revenues for 2008 and 2007. State operating appropriations were S245 million, comprising 27% of total revenue for 2008. The University relies on this state funding which subsidizes its instructional activities allowing for lower tuition rates.

Grants and contracts generated $190 million or 21% of total revenue. These funds support the University's research activities which allow students to work with nationally recognized faculty as part of their educational experience.

Income from gifts, capital grants and contributions totaled $34 million (4% of total revenue). This was an increase of

$14 million over 2007. This was a result of the new fund-raising campaign underway by the Washington State University Foundation. These funds support all types of University activities and generate millions of dollars for student scholarships.

Auxiliary enterprises generated $95 million in revenues, representing 11% of the total revenue. This was an increase of 1% over 2007 or $7 million. Auxiliary enterprises are essential supporting activities, such as university residences, intercollegiate athletics, and the student union.

2008 Financial Report (7

Management's Discussion and Analysis Operating Expenditures by Program For the Years Ended June 30, 2008 and June 30, 2007 2008 2007 Scholarship & Scholarship &

other student aid other student aid 5% 5%

Other Other 6% 6%

Operation & Operation &

maintenance maintenance of plant of plant 7% 7%

Institutiona Institutional support support 6% 6%

SItudent.

stervices Academic Public 3% Academi(

support service support service 8% 5% 8% 5%

The above graphs demonstrate that while 2008 expenditures have increased over 2007, they have done so evenly across programs. The increases have been largely due to campus-wide cost increases. Salaries and benefits increased as a result of state mandated increases in wage rates and health care premiums. In addition, energy cost increases affected the entire university.

(Note: For the purposes of these graphs, depreciation has been allocated to the programs.)

Capital Assets and Long-Term Debt Activities Capital Assets At June 30, 2008, the University had $1,143,409,332 invested in capital assets, net of accumulated depreciation.

This represents an increase of $111,201,282, or 10.8%, over last year, as shown in the table below:

June 30, 2008 June 30, 2007 Change Land $ 40,529,152 $ 31,181,772 $ 9,347,380 Construction in progress 205,341,501 122,367,525 82,973,976 Buildings 711,096,800 696,503,126 14,593,674 Other improvements and infrastructure 95,385,972 98,339,221 (2,953,249)

Equipment 44,499,176 38,875,696 5,623,480 Library resources 46,556,731 44,940,710 1,616,021 Total Capital Assets, net $1,143,409,332 $ 1,032,208,050 $ 111,201,282 8 Washington State University

In the current fiscal year, the University purchased land for $5 million andreceived a gift of land valued at $4 million.

At year-end, several large construction projects were underway. Nearing completion were the renovations to the Compton Union Building and to Martin Stadium. Just beginning construction was the Olympia Avenue Student Residence. Other projects in process included the Biotechnology Life Sciences building and the Library Road improvements, both scheduled to be completed in 2009. On other campuses, projects in the works included the new Nursing Building in Spokane and the Vancouver Undergraduate Classroom Building. The result of these activities is an increase in construction in progress of

$83 million.

Construction projects completed during fiscal year 2008 included the renovation of the Rotunda Dining Center, the North Fairway Road improvements, the expansion and improvements to the golf course, and the remodel and expansion of the Firstenburg Student Commons in Vancouver. The completion of these projects increased buildings by $29 million. Depreciation expense increased by,$ million for the current year as a result of a change in accounting principle and by $7 million as a result of the cumulative effect of the change Improvements decreased by $2 million due to a reclassification of two projects begun as im prroveiments. but increased scope'added them to buildings.

.*-..-The'-University s construction proects in process at year-end included:..

Cost In $

Campus/Project Description ,.'Compoeted'" ',,Financing Sources Millions apuE'ane,z 6

F nina[phase of construction of the 108,000 square foot F..,?, A"*,

• *' * *'

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• A E'*#** *,,,

i i eiAcaleCenter to provide classroomsr computer labs, campus and nurslinghbraries, student services, studenltstudy

ýspaces, and academic, public service and administrative offices; suppor.tingt en-rolment growth while consolidating support and  ; .. .  ;,',.". A 1 aca(demic a',:d., f spa"eesýan d e imrinating off-campus leased space  :

A.A A . ,A,V _., .. .

Constctio0,.of 80,000,square foot Nursing Building to replace cirrent off-campus space with cutting-edge on-campus teaching facilities, increasing graduate and undergraduate nursing student capacity and:facilitating cdoser collaboration November 2008 State appropriations 34.6 with major regional hospital/medical complexes, enhancing the campus's emphasis on biomedical research.

Pullman:

A'AAAAAA4 A A.A,.AA.A.AV <A A 1 A Renovation of the 235,000 square foot Compton Union A AAA....A A\A .AAAAAAA ..AA AA

~A, A AAA'. A Building (student union) to replace utilities, renovate facilities relocate student bookstore and enrhance comfort',efficiency and ,~ugu~0Q8 .'.' '. Bond p~oc&dsAA - ~86 0~

functionality,for students '. "  :-~~'> A>AAAAAA A>..'

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A Renovation of Martin Stadium to improve game day experience for football fans by expanding circulation space, restrooms and concession areas and relocating the main entry August 2008 Bond proceeds 24.2 gates to enhance access and aesthetics.

Coi strr ctior of th'e 130,000 square foot Biotechn'ology/Life.'~

Science~s Bu ilding to house interdisciplinary)'programrs in theA Ahum an healthr fields ri su~pport of the University's biotec~hnology strategic initiative,, providing administrative' offices for the Center, ,]UnDe 2 0 09

-j. AAA,'A,*,'.<ASta te

a ppro pria tio0ns A*<*';:.¢AA ,:A'7<2 7; i

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for Biotechnology and School of Molecular'.Biosciences, andX.'> '* *>'.

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.*;:,-"' ' : : :.:;'* ,*: : A**> A!*::i';;.,;.*,;<<i:,

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research labhs*.core labsconference rooms an d 'office space for.>  :*<';*;A: ,:;A ':' A! ;

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faculty and postdoctoral students.A Design and construction of Library Road Improvements to improve traffic circulation, enhance pedestrian movements and safety, develop open spaces and deconstruct Administration December 2009 State appropriations 15.0 Annex Building.

ADesigriard c6onstructiono(f the Olympia Ave~nueA Student Housing, the first'student housing facility comAktid on- the

,August*2009, -,;,>, ,,AA,,.*B on d~proceed.......,.,.A,,,,,,>26.0*,

AtWSL Pullman campus since, 971. This-proect is anticpati~ng- '

m~Taterials palettAe.

Pre-design of the new building to house WSU's School for Global Animal Health. The new facilities will support the school's infectious disease research and diagnostic programs. State appropriations, Planned at approximately 40,000-45,000 gross square feet, the March 2012 35.0 private gift .

Phase I building program currently includes biological research laboratories for 12-15 principal investigators.

2008 Finandal Report .9

Management's Discussion and Analysis

-1 Cost in $

Campus/Project Description Completed Financing Sources Millions Vancouver:

Design and cntruction f 58,000 square foot Undergraduate

~Classroom'.Building to provide classroom comptdiriter labs Ags 09W;)tt prpitos. 80.

Tiinsupport.ofthstrateic initatv to 1, l,,tiscraI into,

'afour-year r)Ajj* h Design work for 56,250 square foot Applied Technology State appropriations Building to provide research and teaching space for Computer May 2011 to be determined42.5 Sciences and Electrical Engineering.

Construction projects completed during the fiscal year included:

Financing . Estimated Cost Campus/Project Description Complete Sources In $ Millions Pullman: .

'Renovation of the 30,000 square foobt Rotunda ,DlnhigiýCentr'"..

• 4.to update the facility; iiiiprove utilities, accessibility ad-safety"aind.'. March 2008'7 .136d-.roceeds 1.

..'enhance student dinin options.~~~.'7.

Replacement and expansion of Golf Course to improve student practicetofacility course provideand expand capabilities a regional amenity forto a championship staff students,faculty, 18-hole May 2008 Private gifts 8.4 and community.

Vancouver:

.Remodel and expansio6n-of FirstenburgStudent Commons~t ib, .' (~

B convert former Bookst6re'Buildlng into' a' studen.t..lo.....n.g.eanspa lingand recreation in Augunst.

,resources. 2007* sf'c ,:3 stexpans outdoo'r

'Otudentgovernmentciounse

,fforstuporioftohe .pvuvercampu oteotiative ,'..'.,.,'.*-.' 'prive gift Other WSU Locations

.Construction of the Prosser Agricultural Technology Building ptOprovide office, support and climate itcontrolledlcomputeir',

Octobr. S areas and current and future laboratory space in support of.

the University s Center for Precision Agricultural Systemrs Find 2007'~~~Saeaporain .~K4~~25 AgWeatherNet -programs in' researcheducation and outreah ',i Long-Term Debt At June 30, 2008, the University had $299,364,810 in outstanding debt, representing an increase of $16,946,729, or 6%, in debt from the prior year. The table below summarizes outstanding debt:

June 30,2008 June 30, 2007 Change

.General obhliation bonds payable. ,, ': $ '. 51,467,666.;$ S.6,5802.,644 $ (5,331978)

Revenue bonds payable, net 234,461,349 211,589,662 22,871,687, lese 7'Oa 13 435;795~ .'~4O575 ~5990 Total debt $ 299,364,810 $ 282,418,081 $16,946,729 The University issued $26 million in May of 2008 to fund construction of the first new residence hall on the Pullman campus, since 1971. :This project is scheduled to be completed in August 2009 and revenues from t~he Housing and Dining System have been pledged to meet debt service.

The University's bond rating on the bcnd issue was Aaa by Moody's Investors Services due to the purchase of municipal bond insurance from an insurer with a Aaa financial strength rating, with an underlying rating of A2. The University/s long-term rating was affirmed at Aa3 by Moody's in-April 2008.

",4.

10 Washli gton State University

Economic Outlook The State of Washington's general fund revenue collection forecasts for the 2007-09 biennium have been adjusted downward significantly from initial forecasts at the start of the biennium. Revenue projections have been reduced in each quarter beginning with November 2007. While the University's state operating budget for fiscal year 2008 remained intact without suffering any reductions, the University is expecting operating budget reductions during fiscal year 2009. The reduction amount expected to be proposed by the governor, based on December 2008 data, is $10.5 million. Additional reductions are a possibility ifWashington's revenue forecasts continue to decline during 2009. Also, due to revenue forecast reductions for the upcoming 2009-11 biennium, the University expects significant state operating budget reductions for the nextbiennium. The amount of the reductions will not be known until the Washington Legislature adopts its 2009-11 biennium budget during the 2009 legislative session.

State appropriations for operations will continue to be a significant portion of the University's financial support in fiscal year 2009. The appropriation for operations, as of December 2008, is $253.8 million and reflects an'increase of $4.2 million from fiscal year 2008 (a 1.6% increase). If the $1 0.5 million expected reduction is enacted by the Legislature in 2009, the fiscal year 2009 appropriation will be 97.4% of the fiscal year 2008 appropriation. Capital appropriations are approved for a two-year period and the appropriations for the 2007-09 biennia were $219.9 million. Federal appropriations for the University's land.

grant programs are expected to remain near a $9.0 million funding level;..

As in prior years, student tuition and fees will be increased, with a portion of the incremental revenue used for'financial aid.

Tuition rates will be increased by 7% for resident and non-resident students for all progr~ams'except Pharm acyl which will be raised 10%. Enrollment is expected to be 4.9 % higher than 2008, at.23,425 annual average full time equivalents for the four-campus system. Overall, the University expects net tuition and fee revenues to provide $168.5 million to support operations, an 8.2% increase over 2008.

Federal sponsored research and other programs are the largest portionof externally funded grant expenditures. Federal.

funding supported 66.9% of University projects, and 33:1% were supported by non-federal funding in 2008. Research project expenditures were nearly flat between 2008 and 2007, whereas non-research project expenditures significantly increased by almost 11%. Federal non-research programs and non-federal sponsored programs, both research and non-research, have grown in recent years, offsetting the slow-down in federal sponsored research programs. Growth in overal! sponsored-projects for the past two years has been near 4% and the growth was associated.primarily With non-research sponsored projects. This trend is expected to continue in fiscal year 2009, although non-federal research has been growing during this fiscal year. The longer-term outlook is more uncertain due to possible federal funding constraints and deficits and the economic conditions nation-wide, which could constrain both federal and non-federal project activities.

Private gift support is expected to continue to grow, with a target of $100 million during fiscal year 2008, which is a 25%

increase over last year's goal. The University is working closely with the WSU Foundation in the planning stages of a major fund-raising campaign.

Washington State Auditor Brian Sonntag INDEPENDENT AUDITOR'S REPORT January 8, 2009 Board of Regents Washington State University Pullman, Washington We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Washington State University as of and for the year ended June 30, 2008, which collectively comprise the University's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Washington State University Foundation. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Washington State University Foundation, is based on the report of the other auditors.

We conducted our audit-in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 audit and the report of the other auditors provide a reasonable basis for our opinions.

As discussed in Note 1, the financial statements of Washington State University 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 of the state of Washington that.is attributable to the transactions of the University. They do not purport to, and do not, present fairly the financial position of the state of Washington as of June 30, 2008, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of Washington State University, as of June 30, 2008, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The management's discussion and analysis on pages 3 through 11 is not a required part of the basic financial statements but is supplementary information required by 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.

Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the University's basic financial statements. The accompanying information listed as supplemental information on page 33 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to 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.

Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building; P.O. Box 40021

• Olympia, Washington 98504-0021 * (360) 902-0370 * (866) 902-3900

• TDD Relay (800) 833-6388 FAX (360) 753-0646

• http://www.sao.wa.gov 12 Washington State University

Statements Washington State University University Foundation Assets Statement of Net Assets 2008 2008 Current assets As of June 30, 2008 Cash and casheqquivalents,, a- ,' -,$ 64,059614 $: 806572.

Prepaid expenses 818,939 Net accounts receivable 54,764,148 . 121,150 a-PFledges receivable, j <a-~ 16ý25a3'a a ,41,a..caa..ý<a~ar.a.7 Due from Washington State University 650,811

..,1nvestments,>cbure ntportion o - . -:-* '>.-, .. . , '. , ' .a >>'.-', ., , , -- . , 85,-53 l 1. ,, .-

Subtotal current assets 221,948,079 17,831,979 Non-current assets Longterminvstmets a' a'a -- a '---a-a -. .a a.aaa~ -:,a,,a61,501,267 . .'

Endowment investment 393,624,951 285,355,432 Deposits in escrow ~ - 4,590,418 Due from WSU Foundation 2,040,814 Assets held in trust by WSU Foundation 23,607,753 Non current accoUnts receivable --. .7,78 48

Assets held in trust 44,335,717

.... Net loans receivabl e a>. , . , . - ,,a- ,- , ,u

.a- ,,aa

. . , .. a a a 23,379,586 2 159,318 Capital assets, net of accumulated depreciation 1,143,409,332 Subtotal non-current assets - 1,652,154,121 339,728,535 Total assets .- $1,874,102,200: '357,560,514 Liabilities Current liabilities

'a unts payable and accrued liabilities - , ,$ 57,2&,,7 a $ 1,?;3<

Due to WSU Foundation 650,811 Due to Washington State University a < a ;a :7a'a,**:>>

- aaa-a,, <:a-'a><V:a,  :.* ) a- -25,648,566, Deposits 3,001,182

Assets'held for other organ zations - ,  : , ,7001201-.,

Deferred revenue, current portion 7,812,065

.:-Long-term debtcurrent.portion .: ,% - a  :, :: <7. -a-a' , . ' .a- - a 9,585,407 Subtotal current liabilities 78,277,541 45,785,112 Non-current liabilities

~aAccrued leave" ,..a,272-,239,'aaa7 -- - aaa - a.- 3S.

Deferred compensation 2,702,893 Deposits held in custd frohrs -aa~-aa ~a,>,a

-- --- aa a ~ 461,17 1 5j Pension obligation 4,192,966 a MDeferred revenue,,.. a...'.> -, '--7,a:. ... .... . ,. a-.,, -.. -a-a,

. ,.-. .- ,- . 9.638,178 9 8.-

Long-term debt 289,779,402 Subtotal non-current liabilities 356,731,853 Total liabilities $ 435,009,394 $ 45,785,112 Net Assets Invested in capital assets, net :ofrelated 'debt a- a 'a a 7

- ,a-

-',a-a a a a a'875,094,055 Nonexpendable 371,529,761 239,144,583 a,.Loans ~~ .a>2. 7 ,.a - - ~a'a a - a-a-a, 25,7,43,086 Expendable 97,039,962 72,474,467 Totaanrestricteas- 156,352, a Total net assets $ 1,439,092,806 $ 311,775,402 Total liabilities and net assets $ 1,874,102,200 $ 357,560,514 The footnote disclosures are an integralpart of the financialstatements.

2008 Financial Report

Statements Washington State University Statement of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, 2008 University Foundation Revenues 2008 2008 Operating revenues

~'~Net tuitiofn &fee revenue. ~ 1 . ~, "~~>155,785,301 1 Federal grants and contracts 111,917,032

,State grants and contracts >', ~ .V: ~ ~ '~ ;45,724,050>ý 2..a.,

Local grants and contracts 32,016,820 Sales and services of education'al .derthmets ik. ,:, `- g,17,781,972 Auxiliary enterprises 95,146,152

-~Other oeairvnu-s IlS( . 1 "1011I 412 ,'-f Total operating revenues 479,382,739 Expense "

Operating expenses Saare and',>jJwages 382,876,620 l' 1 Benefits 109,312,200 Scholarships aridfellowships 1 41,734,573 >

Utilities 32,508,495 '

Paymenits to suppie~rs V a11'2 1 130,494,37l Purchased services 50,030,577 Other oprati~ngxeses 11743,3901'11~1Aa Depreciation 64,557,828

- ýtTotap oeratng exenses . -- . 1 .,"8133,2558, 0707 1 1 Net operating loss (333,875,331)

Non-operating revenues (expenses) 12State appropriations 1 1- . . . . . . . . . 019 , .245,464 Federal appropriations 10,858,709

<11n

<*"">

S1S '*"*' * *>'** """* ""% - 4, o.*: * . ** 5 "*.*7>

• • -., ' * / ' *. - a';  ;,. .;," =*"** ....... *** * **;% **;3 fnerto aitlases'eatddh 45 132,229).~

Gifts

.....

and:&S:

contributions

.:... *-,2Y'-,i":)S

,> ' - , " ' ' '"" "" -,-' ." ,-'* '*,

• '. ,, *v 2," *- -,'<", " " - ,'

26,742,533

,a*,,.** * ,r

$ - 26,969,567 a",-

'* . .* .* .*,--

. Investment incom e, net of expenseg1. , * ,11 -. ,a-,  :, I 191 1'S1: a ., /,I 66,786,25" (2,191,196)'

Support provided to/for Washington State University, net (36,848,313)

Fun d raising (6,,17I4,31:-)

General and administrative expenses (3,615,379)

Other noni-operatincg revenues (expenses)  : : .,, I,  :,I .  : 11 '4 016,128 ' 1 -3,743,066 Total non-operating revenues (expenses) 338,735,417 (18,116,565)

Income before other revenues, expenses, gains or losses 4,860,086 (18,116,565)

Other revenues, expenses, gains or losses pi 1 I3/4, , -'ar'59,763,378 Capital grants & gifts 7,202,691 a4Adtions toprmanent r- endowmens->-&.

,"a'"', ,a aaIl.aa 218,570 %521,3A9,j47,1 Total other revenues 67,184,639 21,389,471 Increase In net assets 72,044,725 3,272,906 Netassets f.:1assetsa, j..a.aiaOS...4, of XUa a ' . ."~ a,7048',081' '".a-L 308,502,496z-3 Net assets, end of year $1,439,092,806 $ 311,775,402 The footnote disclosures are an integralpart of the financial statements.

.14 Washington State University

I Washington State University Statement of Cash Flows For the Year Ended June 30, 2008 Cash flows from operating activities 2008 JA~uitio andf~ees ~7 172,323,380 Grant and contracts 189,572,616

_Payments to suppliers- ~ .~~.. (118,712,98b Payments for utilities (32,375,389) 1Purchased services (50,659,263),,

Payments to employees (381,611,450) 7Payments for btnefits '~'Q '- > -f'.PP1§ 1/27 (105,392,012)§ Other operating expenses (1,756,054)

Payments for s~cholarships and fellowships  :(58,161,7172)~

Loans issued to students (4,756,770)

Collctio of loas t std 3;306,442' Auxiliary enterprise receipts 95,836,114 Sae n srieof edu)CatiOnal departments~ 17,540,887 Other receipts 20,024,793 Net cash used by operating activities (254,821,466)

Cash flows from noncapital financing activities State appropriations -7,*,,*, .,.*:,*,:.*<*,*--**,,

7 -7777

,777 *-,:, 77, 7. 77 / 7

, *,:*,236,009 -937 Federal appropriations 11,766,922 Gifts for other than capital purposes Private gifts 777 7777~'124,196,071 Additions to permanent endowment 218,570 Agency fund receipts,~'~- .<~ ~~ -777 ~~

77 7728,057,29Sj Agency fund disbursements (128,045,582)

Other non-operatingd rvnoues ,i 7 . 271,074,360 Net cash provided by noncapitail financing activities 273,277,029 Cash flows from capital and related financing activities Proceeds capita 777 debt77 Capital appropriations 61,409, 309 7

Capital'granis an gifts recive '-7 W'7' -'7 777 7 7.7 '~~~'1'- -'2-'213,401' -

Purchases of capital assets (170,727,490)

'Principail paid on capital debt and leases ~~~~/7, ~ ~ ~

771(0,,473,95 ~

77777777'7-7 ' 3)

Interest paid on capital debt and leases (15,25.8,832)

Net cash used by capital and related financing activities (105,415,006)

Cash flows from investing activities

'P7 roceeds-fr6m sles .6tinvetmen~its;~:7 7~'

Purchases of investments (345,083,781) 1

~~ 7 .7 . 77 77777.~< 38,948,432 Net cash provided by Investing activities 60,956,890

,Net ncrease7(decreas) incashand cashýnqiui\aahenit 7 7,,.

Cash-beginning of year 90,062,167 Cash-end of year $ 64,059,614 The footnote disclosures are an integral part of the financialstatements.

2008 Financial Report 1

Statements Washington State University Statement of Cash Flows-continued Reconciliation of net loss to net cash used by operating activities 2008 Operating loss $ (333,875,331)

Adjustments to reconcile net loss to net cash used by operating activities

---

I ---- ---- 64,557 Changes in assets and liabilities Changes in assets "epoSIP(2 023' 737)0 Prepaid expenses (118,038)

Net accounts receivable (9,671,320)

I 's m' current Porin066 2 o~~

7

~ 7

' 5

~85729 Changes In liabilities

~'~Aconspyable and acudlbites ,7 17,989,303 Deferred revenue 2,020,293 Due to WSUF ~ ~ ~ "'1(61 7,249j Deposits 806,205 current ,1 ,1~o5u Corio

,-Lonq term debt, Lease obligations, current portion (16,016)

Net cash used by operating activities (254,821,466)

Significant noncash transactions oss ort dispzn opsi -

Amortization expense - l7.~;77 (51,8 91)

Donated land ' 'J4,u83,040 Th e footnote disclosures are an integral part of the financial statements.

Notes to the Financial State me nts Notes to the Financial Statements June 30, 2008 These notes form an integral part of the financial statements.

1. Summary of Significant Accounting Policies Financial Reporting Entity Washington State University ("the University"), an agency of the State of Washington, is a comprehensive degree-granting research university. It is governed by a ten member Board of Regents, appointed by the governor and confirmed by the state senate. The University is included in the general-purpose financial statements of the state.

Nature of Operations The-University was created as a land grant public university by the Washington State Legislature in 1890. The University opened its doors January 13, 1892, on land donated by the citizens of Pullman. Today, Washington State University has campuses in Pullman, Spokane, the Tri-Cities and Vanc'ouver, with extension offices and learning centers across the state. The University's 25,352 undergraduate, graduate and professional students have the opportunity to work one-on-one with internationally acclaimed professors and researchers. The primary missions of the University are instruction, research and public service.

Reporting Entity The financial reporting entity is Washington State University and the WSU Foundation as a discretely reported component unit.

Component Unit The WSU Foundation ("the Foundation") is a legally separate, tax-exempt entity, and serves contractual asset management functions in support of the University's mission. The Foundation is a significant component unit based on the criteria of GASB Statement 39.

This report presents the Foundation's financial condition and activities as a discretely presented separate component unit-in the University's financial statements.

The Foundation reports its financial results in accordance with Financial Accounting Standards Board (FASB) pronouncements and guidance.

As such, certain revenue recognition criteria and presentation features are different from GASB. No modifications have been made to the' Foundation's financial information in the University's financial statements for these differences. The Foundation presents information about its financial position and activities according to the following three classes of net assets, depending on the existence and nature of donor restrictions.

Under FASB, the Foundation's net assets are described as follows:

- Unrestricted net assets-Support received that is not subject to donor-imposed restrictions and over which the Board of Directors has discretionary control.

- Temporarily restricted net assets-Support received subject to donor-imposed use restrictions or time restrictions.

• Permanently restricted net assets-Support received subject to donor-imposed restrictions stipulating that funds be invested in perpetuity.

For presentation purposes, in the University's financial statements, temporarily restricted net assets have been shown as expendable net assets and permanently restricted net assets have been shown as nonexpendable net assets.

The Foundation's financial statements can be acquired at the following address:

WSU Foundation PO Box 641925 Pullman, WA 99164-1925 ' .

Financial Statement Presentation

.. The financial statements are presented in accordance withgenrerally accepted accountihg pranciple'sand the"GovernmentalAccouriting Standards Board (GASB).

Y Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged in BusinessjType Activities (BTA). In

. accordance with BTA reporting, the Un iversity presents a Managiment's;Discussion'and Analyis; a Statement of Net Assets; a Statement of Reven'ties, Expenses,"and Changes in Net Assets;;a Statement of Cash Flows; and Noteý to the Finandial Statements. The financial statements are ,

,prepard usingthe economic resources nfeasurement focus and'thejkccrual basis of accounting Under the accrual bass revenues are recogniZed when earned and expenses are recorded when an obligation has been incUrred. .

0208flnf" 1ciaIRepqrt (it

Notes to the Financial Statements Elimination of Inter-fund Transactions During the course of operations, numerous transactions occur between individual funds for goods provided, services rendered or interfund loans.

For the financial statements, the interfund receivables and payables have been eliminated.

Designated auxiliary enterprises have revenue and expense transactions, which are treated as though the University were dealing with private vendors. For all other funds, transactions that are reimbursements of expenses are recorded as reductions of expense.

Cash, Cash Equivalents and Investments Cash balances in excess of current requirements are pooled and invested in Treasury securities, time deposits, deposits with theWashington State Local Government Investment Pool (LGIP), federal agency bills and notes. Cash equivalents are short term, highly liquid investments convertible to known amounts of cash without change in value or risk of loss. Interest income earned on the investment pool is distributed on a quarterly basis based on daily cash balances in various funds. Cash, cash equivalents and investments are stated at fair value.

Accounts Receivable Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff.

This also includes amounts due from the federal government, state and local governments or private sources in connection with reimbursement.

of allowable expenditures made pursuant to the University's sponsored agreements. Accounts receivable are shown net of estimated uncollectible amounts.

Inventories Inventories are stated at cost using various methods in the separate enterprise and internal service funds.

Capital Assets .

Land, buildings and equipment are recorded at cost, or if acquired by gift, at fair market value at the date of the gift. Capital additions, replacements and major renovations are reflected as expenditures and capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. In accordance with the state capitalization policy, only fixed assets with a unit cost of

$5,000 or greater are capitalized. Depreciation is computed using the straight line method over the estimated useful lives of the assets, geneially.

15 to 50 years forbuildings and components, 20 to. 25 years for infrastructure and land improvements, 20 years for library resources and 5 to 7 years for equipment.

Deferred Revenues Deferred revenues occur when funds have been collected in advance of an event, such as summer semestertuitiori and c'ertain auxiliary activities prior to the end of the fiscal year but related to the subsequent fiscal year.

Tax Exemption The University is a tax-exempt organization under the provisions of Section 115(a) of the Internal Revenue Code and is exempt from federal income taxes on related income.

Net Assets The University's net assets are classified as follows:

- Invested in CapitalAssets--Net of Related Debt. This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurredbut not yet expended for capital assets, such amounts are not included as a component of capital assets.

- Restricted Net Assets-Nonexpendable. This consists of endowment and similar type funds for which donors or other outside sources have stipulated as a condition of the gift instrument that the principal is to be maintained inviolate and in perpetuity and invested for the purpose of producing present and future income which may either be expended or added to the principal.

- Restricted Net Assets-Loans. The loan funds are established for the explicit purpose of providing student support as prescribed by statute or granting authority.

• Restricted Net Assets-Expendable. These include resources for which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by third parties.

- UnrestrictedNet Assets. These represent resources derived from student tuition and fees, state appropriations, and sales and services of educational departments and auxiliary enterprises.

Washihgton State University

Classification of Revenues The University has classified its revenues as either operating or non-operating revenues according to the following criteria:

Operating Revenues. This includes activities that have the characteristics of exchange transactions such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises and (3) most federal, state and local grants and contracts.

Non-operating Revenues. This includes activities that have the characteristics of non-exchange transactions, such as gifts and contributions, state appropriations and investment income.

Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances'in the Statement of Revenues, Expenses and Changes'in Net Assets. Scholarship discounts and allowancesare the differe6ce between the published charge for goods and services provided by the University and the amount that is paid by students or third parties making payments on the students' behalf. To the extent that revenues are used to satisfy tuition and fees and other student charges, the Universit has recorded a scholarship discount and an allowance. Discounts and allowances for the year ending June 30, 2008 are $51,174,107.

New Accounting Pronouncements In August 2004, the GASB issued Statement No. 45, Acc'ounting and Findncial.Repo&tingby Employers for.PostErnploymenf Benefits Other Than Pensions. Statement No. 45 requires accrual-based measurement, recognition and disclosure of other post employment benefits (OPEB) expense, such as retiree medical and dental costs, over the employees' years of service, along with the related liability, net of any plan assets. During fiscal year 2008, the State of Washington implemented GASB 45. Required disclosure information is not available for component units of the state and as a result, the obligation is not recorded on the University's financial statements.

The University has adopted GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfels* of Assets and" Future Revenues, which includes provisions for disclosure of revenues pledged to meet future debt obligations. Disclosure of the University's pledged revenues in included in Note 18.

Reclassifications , ..

. For comparative purposes in the Management's Discussion and Analysis-section, certainaccounts in the prior year financial statements have' been reclassified to conform to the presentation in the current year financial statements.

2. Cash, Cash Equivalents and Investments Cash As of June 30, 2008, the carrying amount of-the University's change funds, petty cash and bank demand deposit accounts with financial institutions is $28,804,039 as represented in Table 1.

Table 1: Cash and Cash Equivalents

>Cash, ,~- < S~~',28,8104,039 Cash equivalents 34,806,923 Cash and cash equivalents $64,059,614 Custodial Credit Risks-Deposits Custodial credit risk for bank demand deposits is the risk that in the event of a bank failure the University's deposits may not be returned to it.

All cash, except for change funds and petty cash held by the University, is insured by the Federal Deposit Insurance Corporation (FDIC)or by collateral held by the Washington Public Deposit Protection Commission (PDPC). The majority of WSU demand deposits are with the Bank of America.

',2008 Financial Report

Notes to the Financial Statements Investments Investments are classified as cash equivalents, short-term investments or long-term investments, or endowment investments. University invested assets include operating funds, current use gift funds, proceeds from bond issues dedicated to specific capital projects and University endowment and trust funds. The carrying amount of University invested assets includes cash equivalents and permanent fund investments as represented in Table 2.

Table 2: University Investments by Type Maturity Less than 1 More than 10 Effective Credit University investments Fair value year 1-5 years 6-10 years . years, duration rating Cash equivalents

,Commercial paper ~. ,$,1,479,642 '$~ 1,479,642 <N . .0, ~VO03 .,, A-i]

Repurchase agreements 4,196,142 4,196,142 000 NR 52 4 US Agency obligationsA,-'2N'

?tosdujtoes~~'.4~2k 4,430,150,.~ 4,430,150 U7; AAAN\w~

Other-Bank short term 749,150 749150 000 MR investment fund Local Governmentw .. ~ 2,5,3>.29139/ ,.. ., ,, ci ~

0, NR Investment Pool , ,0 Total cash equivalents. $ 34,806,923-Current Investments US agency obligations $ 85,53 Ji1i1.' ', 855 3 1 NN , ',11. 0,39,. 3/4 ;:..

Total current Investments $ 85,531,111 Non-current Investments Operating funds US agency obligations $ 30,666,754 .,- . N $30,666,754 ,  : -

N , .1.23,, AAA Mortgage pass throughs 19,745,084 $ 19,745,084 180 . AAA

'iFixed incomermiutual fundsL.: -10,138,2806' N;,'- 10;138,280 . `*.;`.5 ÷ Subtotal non-current 60,550,118 operating fund investments Miscellaneous 951,149 Total non-current Investments $ 61,501,267 0.71 University endowments

,U~~sto~~cks A ~~~'266,945,1 . N'CNN).N'I'N

-US fixed income 4,704,359 131,386 635,471 $ 3,549,175 388,327 6.54 AAA

,ie oegnoe1;9141576N NN. NN il 1,914,576< >NN5~.42N Aa3/A+~

-US equity 5,633,590

.2  :-Foreignequity N:,

7 838 42

, ,1 Np N . N/N,N:.N N 'NNNNNN ""  ; N 'NNNN N

-Private equity 3,434,844

.:-HedgeN.N fund 8,167,931 .N )N NWNN

-Timber 349,618

,NN.NN' * '*"

-elestate  : ' N NN:

I N-.N:NA

/NNN *N 2N*

. ',*:.'x::;-'

'-.*

,2678,718 ....".. NNNNN

. N*;* I',~

"N::;-* * '%::.t.

N .. NNNN

. :NNNb-N NNNN N.NN:- * -NN$NNNN

• 'N NNQNNN °' 'N..-...'

• . N N '3/4* 'NI-N VN'N-N.<i- NNJN

' N*** N.',;

-Oil & gas 1,091,837 fCommodities N2'31~N/NNNN 2,84 tNN Total endowment $ 38064683 Investments igtrades en N N N N N3,551N NNN NNt N/

Total University Investments $219,907,535 2 Washington State University

University Endowments The University contracts with the WSU Foundation for the management of privately endowed assets. University and Foundation endowments are pooled and invested with the objectives of long-term capital appreciation and stable but growing income stream. The fair market values of the University endowment investments at June 30, 2008 were $38,068,236.

Permanent Fund The University's land grant investments, referred to as the permanent fund, are described in Table 3 and the net asset value in Note 6.

Transactions in process are not represented in Table 3.

Table 3: Permanent Fund University permanent fund Investments Fair value Average duration Credit rating Mnyrnarket~funcl,ý 80 3,23 ./ 0.-'~

• Commingled monthly bond fund 353,752,815 4.43 Aal/Aa2 Cashstat trau4e at' 44 641,959 Total permanent fund investments $ 355,198,013, Interest Rate Risk-Investments Through its investment policies, the University manages exposure to fair value losses arising from increasing interest ratesby limiting the modified duration of the operating portfolio to 1.1 years and by cash matching the dedicated bond portfolios to the anticipated construction schedules of the underlying projects.

Current use gift funds are segmented into short-term, intermediate-term and long-term pools. University policies limit the portfolio average maturity of the short-term pool to one year or less, the portfolio average maturity of the intermediate-term pool to three years or less and the portfolio average maturity of the long-term pool to ten years or less.

University endowments fall under the Foundation investment policy, which employs broad asset class diversification to ýcontrol overall endowment fund volatility, and limits fixed income investments to a maximum of 15% of total endowment fund assets.

Concentration of Credit Risk-investments State law limits University operating investments to the highest quality sectors of the domestic fixed income market and specifically excludes corporate stocks, corporate and foreign bonds, futures contracts, commodities, real estate, limited partnerships and negotiable certificates of deposit. University policy does not limit the amount the University may invest in any one issuer.

Custodial Credit Risk-Investments Custodial credit risk for investments is the risk that in the event of the failure of the counterparty to a transaction, the University will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. At June 30, 2008, $146,048,882 of the University's operating fund investments, held by Bank of New York Mellon in the bank's name as agent for the University, and $166,814 of endowment assets, held in street name by E*trade for the account of the University, are exposed to custodial credit risk as described in Table 4.

Table 4: Investments exposed to Custodial Credit Risk University Investment type Fair Value

',Cornmerclal pape,, 1479,642, Repurchase agreements 4,196,142 USagency discount notes 1,-10,15 US agency obligations 116,197,864 Mortgage Pass'Throughs 41 _,__________:_:9,745,084 Subtotal 146,048,882 Total Investments exposed to custodial credit risk $ 146,215,696 2008 Finandal Report *21

Notes to the Financial Statements Foreign Currency Risk-Investments University endowment exposure to foreign currency risk at June 30, 2008, is described in Table 5 and is limited by Foundation investment policy.

Table S: University Foreign Currency Risk Foreign currency Fair Value 2Eu6i t7,lI ~ ,,' 1,835,607T Japan (Yen) 1,388,574 Australia (Dollar) 674,515 heth(le~sstbar',5%$HY>1 Total foreign currency  ;. 5 8,955,871 Investment Expenses Under implementation of GASB 35, investment income for the University is shown net of investment expenses. The investment expenses incurred at June 30, 2008 were $325,916,

3. Accounts Receivable At June 30, 2008, accounts receivable are as follows.

Student tuition and fees, H> p. 10 76t Due from the federal government 12,974,005

• Due from the o~ffice'of the state traue1 t 2r '<i9,132,5.52 Due from other state agencies 4,729,361 Interest and*,vidnds receivable ,,, ,. /, ,.-' . . ,2,849,077/'

Auxiliary enterprises 5,288,543 Due from other governments j ',47 41 ,,,,

821

Other 1,113,501 Subtotal accounts-sreceivable&4 &..2"2&<,-s, - 6'2,9 6'5&582636;'

Allowance for doubtful accounts (1,818,488)

Accounts receivable, net $ 54,764,148

4. Student Loans Receivable Student loans receivable consisted of the following at June 30, 2008.

.Fed.a.... ogra.., ... . $ $ .. 888.70. .

Institutional loans 212,241

• .Subtotal , ,% * , ,o:, ',:,*- .o,,*:- -*: .. . ..... ,*  :* - 24.100 9 2..

Allowance for doubt accounts (721,356)

Loans receivable, net $23,379,586 22 Washington State University

5. Inventories Irventories, stated at cost using various methods: First-in, First-out (FIFO), Last-in, First-out (LIFO) or Weighted Average, consist of the following at June 30, 2008.

Location Valuation method Amount Athletics FIFO $ 597 263 Bulletin office FIFO 471,411 Central stores FIFO 399572 Facilities operations Weighted Average 1,449,407 Ferdinand s FIFO 5,9,11142

,Housing and dining LIFO 753,507 Mýo tor, pool FIFOCY i59,647-,

University publishing FIFO 2,489,526.

Veernay opita n pharmacy FIFO7.'"' 848,183~

Veterinary microbiology/pathology FIFO 1,830,674 Total $ 16,774,267

6. Endowment Land Grant and Permanent Funds The University has two land grant endowments and two permanent funds established by legislation. The University's two land grant endowments total 151,188 acres of timber, agricultural, and grazing lands managed by the Washington State Department of Natural Resources. The income from this land is added to the-Agricultural College Permanent Fund, established under RCW 43.79.136, andthe Scientific School Permanent Fund, established under RCW 413.79.110. The Washington State Investment Board manages these two permanent funds for the sole benefit of the University. All distributed income is used for capital projects. The fair value of investments for the two permanent funds totaled $355,198,013 at June 30, 2008. The net asset value is $355,556,716 after the settlement of all pending transactions, receivables and payables.

... R......

2008 Finandal Report .(. 3

Notes to the Financial Statements

7. Capital Assets Following are the changes in capital assets for the year ended June 30, 2008.

Beginning Additions/

balance transfers Retirements Ending balance Nondepreclable capital assets

,~Land 2 'i8772 S 1,3607 S (988;) S ,JC40,529,152 Construction in progress 122,367,525 82,973,976 0 205,341,501 Total nondepreciable capital assets 153,549,297 93,310,013 (988,657) 245,870,653 Depreciable capital assets Builing 1,159,622,828 56,98191 (827,393) 1,21 5ý9, ;626 Other improvements and infrastructure 178,460,988 4,453,088 (606,466) 182,307,610 EquiadetK-2,j --- 1771264,247~' (,9,66).

Library resources 106,953,699 5;864,050 (463,584) 112,354,165 Subtotal 1,622,301,762 84,726,371 (7,791,809) 1,699,236,324 Less accumulated depreciation

.222 504,96;826.

Other improvements and infrastructure 80,121,767 7,118,144 '(318,273) 86,921,638 Equipment ~ 138; 88,551 119?6,1 95 (5,502,999), 144,881,747 Library resources 62,012,989 4,248,028 (463,583) 65,797,434 Total accumulated depreciation 743,643,009 64,557,828 (6,503,192) 801,697,645 Total depreciable capital assets, net 873,658,753 20,168,543 (1,288,617) . 897,538,679 Total capital assets $ 1,032,208,050 $ 113,478,556 $(2,277,274) $ 1,143,409,332 The current year depreciation expense was $64,557,828. During the current fiscal year, the University changed its method of calculating depreciation on selected buildings. The book value of these buildings was broken down into their component pieces to more accurately reflect the useful life based on the University's historical experience. The cumulative effect of this change was an increase in depreciation expense for the year of $6,970,000.

8. Accounts Payable.

At June 30,2008, accounts payable are the following.

• cos o payable.,, ,.,., ....... :.,.: .. -. r4' * *..'-$.: $ 34,766,570 Contract retainage 4,632,222 Pa u pyroll S57,829284, Accounts payable, net S 57,228,076 Washington State University

9. Deferred Revenue Deferred Revenue is comprised of receipts which have not yet met revenue recognition criteria.

Current deferred revenue

~At l~let ic I. 2821 957~

ý ALIVE! program 499,388

~Pre-paidTri-Cities BSLbuilding r~ent 32,0 Housing and dining services 1,539,837 sess on *Sum240er02 402,060 Parking . -246,723 S§2ubtotal 7,812,06 5 Non-current deferred revenue Pire*a*d Triteme s BSFIbU*ildng rent " ,. "9;638,178' Total deferred revenue. $ 17,450,243

10. Risk Management The University, in accordance with state policy, self-insures unemployment compensation for all employees. The University assesses all funds a monthly payroll expense for unemployment compensation for all employees. Payments made for claims from July 1, 2007 through June 30, 2008 were $419,636. Cash reserves for unemployment compensation for all employees at June 30, 2008 were $2,619,416.

The University purchases commercial insurance property insurance for auxiliary enterprise buildings that were acquired with bond proceeds when the bond agreement requires the University to insure property and earnings. The University assumes its potential property losses for most other buildings and contents. Liability exposures are insured through the State of Washington self-insurance liability pool.

11. Compensated Absences The accrued leave liability balance as of June 30, 2008 is $35,272,239. The components of this liability include vacation leave earned and unused for exempt professionals, civil service employees and faculty on annual appointments; sick leave earned and unused limited to an estimate of fifteen times the prior three-year average of the amount paid at the time of separation; and earned and unused compensated leave for civil service employees.

For reporting purposes, all vacation leave is shown as a non-current liability. Employees are limited by statute as to how many hours they may carry forward.

A i, c c ed n n u a l e a S 26, 314 , 668 Accrued sick leave 8,599,935

~Accrued ,. 35 36 Total accrued leave liability $ 35,272,239

12. Deferred Compensation The University administers a limited number of contractual deferred agreements. The deferred compensation obligation for these agreements as of June 30, 2008 was $2,702,893.

The University offers all employees qualified deferred compensation plans created under Internal Revenue code sections 403b and 457. The plans are available to all state employees and permit them to defer a portion of their salary until future years. The state of Washington administers.these plans on behalf of the University's employees; the University does not have legal access to these funds.

2008Financial Report

Notes to the Financial Statements

13. Revenue Bond Obligations Bonds payable consist of revenue bonds issued by the University for construction and renovation of auxiliary facilities as well as the University's share of Washington State general obligation bonds issued for the construction of academic buildings.

State law requires the University to reimburse the state for debt service payments relating to its portion of Washington State general obligation bonds from the proceeds of timber sales and other revenues.

The University has pledged the net revenues from the Housing and Dining System, Intercollegiate Athletics, the Parking System and special student fees to retire the related revenue bonds.

On May 2, 2008, the University's Board of Regents approved the Series Resolution authorizing the issuance of revenue bonds for the construction of a new residence hall on the Pullman campus. On May 14, 2008, the Housing and Dining System issued $26,185,000 in revenue bonds, with interest rates of 3.5% to 5%, pursuant to the approved Series Resolution and a Master Resolution adopted by the Board of Regents on August 26, 1994 and amended and restated on May 7, 2004 and May 2, 2008. The bonds were issued at a premium of.$469,854 with issuance costs of $695,684.

Bonds outstanding at June 30, 2008 are:

Schedule of Debt Service Revenue Bond Obligations Fiscal year Principal Interest Total 2009 , $~ 3,740,000 $11,505,462 S'$, 11i5,245,462) 2010 5,530,000 11,497,211 17,027,211 2011 , - . . 'o 5,780,000 1,252,864 117;032,864,-

2012 6,040,000 10,995,293 17,035,293

'"2013 ,' 6,310,000, "10,721,554 ,~17,031,554" 2014-2018 36,395,000 48,699,358 85,094,358

~

'i20.19-2023i *!*'i .. -~~ -

7<...... ... N . .4 7...

27 -22 46,37, 000'-" 38,672,681 85,047,681 2024-2028 46,910,000 26,477,651 73,387,6511

'2029-2033 " 1 P< , 43,590,oo00 j15,166,466' 58,756,466 2034-2038 31,925,000 6,070,781 37,995,781 209-'2043-'

Sub>203total *,. ,*',,' -.

7,415,000,i','1 247,415,000 1-91,2 87,394

.,.,8,, 4,, 1 7'1 6,71 762394-'

Sub total 240,010,000 191,246,715 431,256,715 Less other adjustments:

Bond Discounrtsand Issue Costs . ,  ;,,'4,354,252)

Bond Premiums 1,629,199 1,629,199 De'ferred Costs of, Refunnidin ' $ (283,599)

Total $234,461,348 $191,246,715 $425,708,063 Schedule of Debt Service State of Washington General Obligation Bonds Fiscal Year Principal Interest Total 200 < '$74 -~',

2557,2;ý52ý5,' 1517 $ <686,726,.

2010 3,062,040 2,334,160 5,396,200 201 291, 0ý,1 2,1 78,695. 5~,091,746, 2012 2,640,000 2,052,540 4,692,540 2013u 'i'-,' 0,00~  ;-1;924;520,. ~4,624,520' 2014-2018 15,330,000 7,433,035 22,763,035 2024-2028 7,335,000 758,388 8,093,388 Total $ 51,467,666 $22,849,451 $ 74,317,117 26 Washington State University

LB Schedule of Long-Term Debt Balance Balance Total Amount Outstanding Outstanding Current Revenue Bonds: Issued 6/30/07 Additions Reductions 6/30/08 Portion Housig andDiniDg,SystemRevenuev $! 1 7,670,000 , ,',l-20,00-' , $ (355,000),$ $; 765,000 ,

• 375',000

,iBonds, Sýres.,1 999,Jisbued 1999, due ,C '....y..p..,<

Housing and Dining System Revenue 22,230,000 18,680,000 (685,000) 17,995,000 715,000 Refunding Bonds, Series 2001, issued 2001, due serially to 2024, interest rates 4.125% to 5.10%

.:Housing andD ining,Sstem Revenue 16,6bO 000 15,705 000 *' (615000) 'I 51090 000 635 000

.Bods>,Seri s260~4,4ssued 2004, due serially to 2024, interest rates2 .60% .".'

Housing and Dining System' Revenue 16,305,000 16,185,000 (100;000) 16,085,000 100,000 Refunding Bonds, Series 2005, issued 2005, due serially to 2030, interest rates 3.00% to 4.75%

-Housing'and Dining System Revenue - 26 185;000 , - $ 26,185,000 ,- C ' 26,185,000

,',Bonds; Series 2008, issued2008, due . .

2serially.,to 2038, interest rates 3.125%/

Recreation Center Revenue Bonds, 46 930,000 42,370,000 (895,000) 41,475,000 935,000 1998, issued 1998, due serially to 2032, interest rates 4.50% to 5.15%

_.Stude'nt FeeR~evenueBonds 'Series 89 745,0_00 89,745,000 89,745,'0001

,..,2006A and 2OO6B1 isssued 2006- due  :-'.2+2,., , ." ,: " ,C,.C.,.*>  ::>. .:. ,.. . ..

9, ilyto 2038, interest rates < . C. b> C ,< < .' ... ,<.'.

Athletic Facilities Revenue Bonds, 24,095,000 24,095,000 (360,000) 23,735,000 570,000 Series 2007, issued 2007, due serially to 2032, interest rates 4.00% to 5.50%

Parking System Revenue Bonds, 10,2851,000 ',3/4 655,000 - '(320,000) " 335,000 "~335,000~

21999, issued 1999, due serially toC - C ' 'V

""2009, irnterest ratesý95% to 5100% C1C.CV, *. I ..

Parking System Revenue Refunding 8,840,000 8,670,000 (70,000) 8,600,000 75,000 Bonds, 2005, issued 2005, due serially to 2024, interest rates 3.00% to 4.40%

State of Washington General Obligation Bonds SeisAise 92t 01 due $15,59578789 2,442,644' - S (779,978)' 1,662,666 1I 817,:575 serially to 2010, interest rates 5.25%

to"5:75%

Series BK, issued 1987 to 2002, due 30,279,000 3,255,000 (2,200,000) 1,055,000 1,055,000 serially to 2008, interest rates 4.00%

to 6.75%

'.Series 1990A due serialy to 2010,-. . 200Q0,000 - 495000 A--

(155000) 340,000 .,165,000",

interest r ate 6.75%j Series 1991 B, due serially to 2015, 2,180,000 1,165,000 (100,000) 1,065,000 110,000 interest rates 5.375% to 5.70%

Series HE-W.5, issud 1 992 to 1997ý 27,600,000"" 18,560,000 9 '(1,095,000) 17,465,000 1,4,6 dueeserially to .2022,interest rates Series 2001 A, due serially to 2025, 19,190,000 16,300,000 (545,000) 15,755,000 575,000 interest rates 5.00% to 5.625%

,',Series 2001 C,*due serially too2026, 10,050,000 8 8,'600 00 (280,000) 8 350,000 2 0006 interest 525V 50%es,*4bto? ,6,,,.0,,N... .'.., , , .. , ... ,

Series 2002A, due serially to 2026, 6,770,000 5,955,000 (180,000) 5,775,000 185,000 interest rates 4.0% to 5.0%

Capital leases $ 14,025,775 $ 1,349,195 $ (1,939,175) $ 13,435,795 $ 1,829,475 Other adjustments:

7Bond disu*Cnts andissue Costs - S' (3,850,455),'j ,, (697;559) $ 193,7 62 $ C(4,354,252) $" (215,423):

Bond premiums 1,196,845 471,120 (38,766) 1,629,199 52,696

• Deeredcosts of refundin s . >C ... ,(2981 ,,728) 9c'

'< ... l58129 1... , (2,823,599) , (163;916),;

Total $392,549,878 $282,418,081 $27,307,756 $(10,361,028) $299,364,809 $ 9,585,407 2008 Financial Report 27

Notes to the Financial Statements

14. Leases Payable The University finances some fixed asset purchases through the Washington State Treasurer's leasing program. The University also has leases for office equipment with various vendors. These leases qualify as operating leases. As of June 30, 2008 the minimum lease payments under capital leases, together with the present value of the net minimum lease payments and operating lease obligations, are shown in the table below.

Leases Payable Capital Operating Fiscal Year Leases Leases 2009-. S 2,418,859>$21 37?1 635.`

2010 2,248,330 1,298,934 2011~ 2,097,21 852,083-,

2012 1,990,534 .709,344

,~213~ i~~~4' 1,772,626. .~36ýý59 2014-2018 5,603,571 251,908 Total nimk m leaseparents .. .7 .` 16 3 1361 {,.85236336 Amount representing interest (2,695,341)

Net present value , $ 13,435,795 $ 4,852,363*

15. Pension Plans The University offers two contributory pension plans: the Washington State Public Employees Retirement System (PERS) plan, a defined benefit retirement system, and the Washington State University Retirement Plan, consisting of a defined contribution plan modified with a supplemental payment plan, when required.

The University employs approximately 5,693 full-time employees eligible for participation in one of the two retirement plans.

The payroll for employees covered by PERS was $117,616,162 and the payroll for employees covered by the Washington StateUniversity Retirement Plan was $219,925,855.

Public Employees Retirement'System Plan Description. PERS is a multi-employer mandatory retirement plan for all eligible civil service employees. Employees hired into an eligible position prior to October 1, 1977, are enrolled in Plan 1 while employees hired into an eligible position on or after October 1, 1977 are enrolled in Plans 2 or 3. Retirement benefits are vested after five years of eligible service. Plan 3 has a defined contribution component that members may elect to self-direct as established by the Employee Retirement Benefits Board. 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, PO Box 48380, Olympia, Washington 98504-8380.

Funding Policy. The Office of the State Actuary, using funding methods prescribed by statute, determines actuarially required contribution rates for PERS. The basic contribution rates, established by the legislature, match the actuarially determined rates considered necessary to fully fund the tier one system by June 30, 2024 and to continue to fully fund the tier two systems. Plan I members are required to contribute 6% of their annual covered salary. Contributions for Plan 2 members are determined by the aggregate method and ray vary over time. The contribution rate for Plan 2 employees at June 30, 2008 was 4.15%. The contribution rate for the University at June 30, 2008 for all PERS plans was 6.1 3%.

The summary of rates for the year are as follows:

Employee University Plan 1 6.00% 6.13%

Plan 2 4.15% 6.13%

Plan 3 5% to 15% 6.13% "

Employee and employer contributions for the year ended June 30, 2008, were $4,561,676 and $5,775,034 respectively.

The pension benefit obligation is a standardized disclosure measure of the present value of pension benefits, estimated to be payable in the future as a result of employee service to date. The pension benefit obligation as of 2004 for PERS as a whole, determined through an actuarial valuation performed as of that date, was $20,686,000,000. The PERS net assets available for benefits on that date (valued at market) were

$19,905,000,000 leaving an unfunded pension benefit obligation of $781,000,000. Information for WSU as a stand-alone entity is not available.

Ten-year historical trend information showing the PERS progress in accumulating sufficient assets to pay benefits when due is presented in the State of Washington June 30, 2008, Department of Retirement Systems Comprehensive Annual FinancialReport.

Washington State University

Washington State University Retirement Plan Plan Description. Faculty, professional and other staff are eligible to participate in the Washington State University Retirement Plan (WSURP).

The Teacher's Insurance and Annuity Association (TIAA) and the College Retirement Equities Fund (CREF) are the companion organizations through which individual retirement annuities are purchased. Employees have at all times a 100% vested interest in their accumulations.

TIAA-CREF benefits are payable upon termination at the member's option unless the participant is re-employed in another institution which participates in TIAA-CREF.

The plan has a supplemental payment component that guarantees a minimum retirement benefit goal based upon a one-Lime calculation at each employee's retirement date. The University makes direct payments to qualifying retirees when the retirement benefitprovided by TIAA-CREF does not meet the benefit goal. Employees are eligible for a non-reduced supplemental payment after the age of 65 with ten years of full-time service.

The minimum retirement benefit goal is 2% of the average annual salary for each year of full-time service up to a maximum of 25 years. However, if the participant does not elect to make the 10% TIAA-CREF contribution after age 50, the benefit goal is 1.5% for-each year of full-time service for those years the lower contribution rate is selected.

No significant changes were made in the benefit provisions for the year.

Contributions. Contribution rates for~the WSURP (TIAA-CREF), which are based upon age,.,are 5%, 7.5% or 10% of salary and are matched by the University. Employee and employer contributions for the year ended June 30, 2008 were each $18;271,572. .

The Washington State University Retirement Plan (supplemental payment) is financed on a pay-as-you-go basis. Supplemental payments made by the University for the year ended June 30, 2008 were $691,643.

At the latest valuation July 1, 2007, the total unfunded pension benefit obligation under the Washington State University Retirement Plan (supplemental payment plan) was $9.6 million, consisting of $4.8 million~for retirees and beneficiaries currently receiving benefits and $4.8 million for current employees..- . . * ... . * . * --

Other Post-Employment Benefits During the 2008 fiscal year, WSU adopted GAS8 StAtement No.4S, Ac'counting and FinancialReporting by Employers for PostemploymentBenefits Other than Pensions. This statement establishes standards for. the measurement, recognition, and, display of other post-employment benefits (OPEB) expenditures and related liabilities (assets), note disclosures, and required supplementary information in the financial reports of the state and local governmental employers. GASB Statement No. 45 requires systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employees' years of service. GASB Statement No. 45 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 state of Washington funds OPEB obligations at a state-wide level on a pay-as-you-go basis. Disclosure information, as required under GASB Statement No. 45, does not exist at department levels, and asa result, the AAL is not available for the University. The state of Washington's

Comprehensive Annual Financial Report,(CAFR) includes the state's measurement and recognition of OPEB expense/expenditures, liabilities, note disclosures, and required supplementary information specified by GASB Statement No. 45.

FederalRetirement Plans Selected positions related to the College of AgriculturalHuman, and Natural Resource Sciences are eligible to participate in two federal retirement systems maintained by the Office of Personnel Management. .

Civil Service Retirement System The Civil Service Retirement System (CSRS) is a defined benefit.retirement plan for employees with federal appointments hired prior to January 1, 1984, and who chose not to transfer to Federal Employees Retirement System (FERS). Retirement benefits are vested after an employee completes five years of eligible service.

Employee and employer contributions for the 32 enrolled employees on June 30, 2008 were $194,789 and $194,789 respectively.

Federal Employees Retirement System The Federal Employees Retirement System (FERS) is a defined benefit retirement plan for employees with federal appointments hired after December 31, 1983, and those Civil:Service Retirement System (CSRS) employees choosing to transfer into this system. Retirement benefits are vested after an employee completes five years of eligible service.

Employee and employer contributions for the 23 enrolled employees on June 30, 2008 were $14,905 and $208,675 respectively.

The rates at June 30, 2008 are as follows:

Employee University CSRS 7.00% 7.00%

FERS 0.80% 11.2%

2008 Pinancial Report 9

Notes to the Financial Statements

16. Segment Information Revenue bonds are issued from time to time to build new facilities. Net revenues are pledged to cover the cost of debt service. For financial report display, the following are WSU segments:

Wilson Compton Union Building (CUB)

The Wilson Compton Union Building (the CUB) is an auxiliary enterprise of Washington State University (WSU) thatprovides various services to the student of WSU. The CUB houses retail food outlets, banks and the bookstore. It offers a variety of meeting rooms from small conference space to ballrooms. It also has office space for student government.

Housing and Dining System The Housing and Dining System is a self-sustaining auxiliary enterprise of Washington State University (WSU). The Housing and Dining System operates residence halls, apartment complexes and food services on WSU campuses. -

Parking Services, Transportation'and Visitor Center Parking Services, Transportation and Visitor Center (Parking Services) provides permits for available campus parking areas, maintains the parking lots and issues fines for parking violations. It also operates the Visitor Center located at the entrance to Pullman. Parking Services is a separate auxiliary enterprise of Washington State University (WSU).

Student Recreation Center The Student Recreation 'Center was formed in 1998 to construct and operate a health club-type facility for eligible students and associated members of Washington State Univ&sity (WSU). The Student Recreation Center has over 200 pieces' of cardio and weight equipment, 7 courts for basketball, volleyball and badminton, rollerhockey, indoorsoccer, floor hockey and inline skating, 4 racquetball courts, 5-lane lap pool, leisure pool, 53-person spa, activity rooms, elevated 4-lane running/walking track and more. Over 3,000 students use the facility each day and over 80%

of students access the facility each semester.

IntercollegiateAthletics The Intercollegiate Athletic Department is a unit of Washington. State University (WSU) and manages all intercollegiate athletic programs. WSU is a member of the Pacific 10 Conference and the National Collegiate Athletic Association.

Presented on page 31 are the condensed -financial statements as auidited by LeMaster Daniels, PLLC.

17. Operating Expenses by Program In the Statement of Revenues, Expenses and Changes in Net Assets, Operating Expenses are displayed by natural classifications, such as salaries, benefits and goods and services. The table below summarizes Operating Expenses by Program for the year ended June 30, 2008.

Operating Expenses by Program Compensation Supplies and Scholarships and Depreciation Total and benefits services fellowships 77,543,3,on 14,465,,925-s .-. , -t ', 192,009,671 Research 104,797,625 46,683,139 $ 4,943,737 156,424,501

Public srv'ice.' 2J,'31,970,773/ 10,084,418 ' ,,,., 42,055,191 Academic support 46,018,981 14,708,331 60,727,312

' services1*-Ki . .3,731,450  %'Stu6dent 83,748 5O,.'i-. ' 1981 2215,198 Institutional support 33,463,295 14,047,808 47,511,103

,"fOperatioh'and maintenance of plant, , " 242803,278 :  :-25,81,8244; CK:2' - -":,50622,102 Other operating expenses 10,352,011 32,000,212 42,352,223 yAuxiar' enterpses . , , , ." , 44,855,364 53 236,741 ",. -

-"'Y"- enterprises 98,092,15 Student financial aid net, i.e. 36,790,836 36,790,836 scholarships included Toeciatloperating $ 42 , 2 48,070 S Sn 4 Total operating expenses $ 492,188,821 ,$ 214,776,848 S 41,734,573 $ 64,557,828 $813,25,070 I30 Washington State University

I Segment Information Wilson Compton Parking Student Union Housing and Transportation *Recreation Intercollegiate Building Dining System & Visitor Center Center Athletics Condensed Statement of Net Assets Assets Curn ast 10,038,6 -;,854,325ý -ý2316,751 $,3,701;451 .,16,3ý68,b&

Noncurrent assets

,lase,

.apit 'nto 85,936,835 " 73,822,515 ~j~15,695,590, ' 35,183,709 >'~32,83~1,57.12 Other noncurrent assets 4,737,855 2,145,865 Total assets $ 95,975,448 $115,414,695 $118,012,344 $41;031,025 .$ 49,199,647 Liabilities Noncurrent liabilities Lon ter.5l debt 70,929,118 7'$',K7;74,643-- .39,.334,990 22, 757, Other liabilities 2,336,968 2101,983

,1,499,975 Total liabilities $93,203,859 $ 86,528,521 $ 10,354,446 " $40,932,736 $ 32,152,748 Net assets Invested in capital assets,*iiet of related debt $ 116,099 519,728,8711 $ 5 ,87'0,532 . $ (5,086,282) .5.. 7,159,329' Restricted, expendable 5,486,493 5,897,090 7,160,899

>SUnrestricted (2,831,003) ,931,763, 787,363 5,1184,57] 2,726,671 Designated 2,328,450 s~,7 59 5 2,8,4886:1 74 2 ,57859829 17,046 899,'

Total liabilities and net assets $95,975,448 $115,414,695 $ 18,012,341 $41,031,025 $ 49,199,647 Condensed Statement of Revenues, Expenses and Changes in Net Assets

,S$ ,513,823 $ 4 2,485,081 $ .23,620,909 .5$ .5,001,848 '$ 38,236,108 Operating expenses (1,160,750) (35,188,602) (2,499,890) (2,012,549) (34,611,975)

'~sDepreciation expense '*p, ',(21,170); (3,461,077) (579,334) (949,192) , (581,91 7)

Operating income (loss) (668,097) 3,835,402 541,685 2,040,107 3,042,216

• N*o.noperati'ng revenues (expense .(29,021) (2,416,804) (456720)

(45.5.5 i5 '(1,942,052) 630,5 71~

Other - transfers among funds 499,852 305,000 (33,012) n'crease:(decrse)1in net assets 5.5 ~

'*r*-7(197,*266)7

..

f23,LS98::  ?.5.5 85.4.515 ***' 65 P043* *-3672787 Net assets, beginning of year 2,968,855 27,162,576 7,572,480 33,246 13,374,112 Net assets, end of year $ 2,771,589 $ 28,886,174 '$ 7,657,895 $ 98,289 $ 17,04,899 Condensed Statement of Cash Flows

.5;Netah'fiolws provided by perating activities.$cl' (493282 $..10,703,979,7 '.926,-219. $'"*.15.~$ 32231 Net cash flows used by capital and related (48,462,104) 9,928,725 (1,170,127) (3,366,154) (14,393,209) financing activities cs*iowh*fI p rovided by93e.ng actNvetaiities 7 ,479 48;i5, (1 5, '9 32 117,606 14,64, Net increase/decrease in cash and (287,907) 2,616,900 (145ý576) (196,689) 3,513,401 cash equivalents

• Cash and cash equivalents, beg inning of year 7204860

ý'6 2,533,260 '1,265,826*

1,.52,116.006

:5,776,275 Cash and cash equivalents, end of year $ 432,579 $ 5,150,160 $ 1,970,430 $ 1,069,137 $ 9,289,676 2008 Financial Report 1ý

Notes to the Financial Statements

18. Pledged Revenues The 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.

For Year Ending June 30, 2008 Current year Total future Source of revenue revenues Current year revenues2 Term of Account pledged pledged (net)1 debt service pledged Description of debt commitment 3 522 *, Student Fees and earnr $4,801,531 $183,155,902 ' Student fee revenue bonds --L038 7-on invested fees ~ ,,,,issuedfoirthe renovation f; 522 Student Fees and earnings $5,484,608 1,585,530 38,072,329 Athletics revenue bonds 2031 on invested fees issued for the renovation and expansion of Martin Stadium

'_522 "'-" Student Fees and- earnings3* 238018  :-3,008,270 , 72 189 925" Recreatio*enter revenue 2032 conrsir~uciti6%f the Studfent.

ecrea ioi$Cn, er-528 Parking System revenues, 1,309,595 770;321 12,405,615 Parking System revenue 2024 net of operating expenses bonds issued for construction of the parking garage

,;*;:573

• • :Housing and Dining* . 10,922 481 4,058,128 125,432,944 Housing andDining re.enuiý 20

• • Project not complete yet, so no revenues

'Operating revenue net of operating expenses 2

Total future principal and interest payments on the debt

'Ending year of commitment

19. Contingent Liabilities There is a class action lawsuit filed against the state of Washington on behalf of certain employees alleging improper denial of healthcare benefits. Although WSU has not been named as a defendant in the lawsuit, some of the class members are current or former employees of WSU.

Accordingly, it is possible that the state could assess the University with a material share of any amount paid in the event of a settlement or judgment. Due to the status of the lawsuit, the impact upon WSU cannot be assessed with reasonable certainty at present.

732 Washington State University

II Supplementary Information Enrollment and Degrees Conferred Academic year 2008 2007 2006 2005 2004 Fall enrollment (headcount)

>Unler~adluatehieadlciOut, - " 21 -149) 19,554 -~ 19,585 19,281 '18;746' Graduate headcount 3396 3,320 3,219 3,228 3,239

&'Professiona liac ' ý807 -78b "7401r" ' 732 '"' 727ý.

Total headcount 25,352 23,655 23,544 23,241 22,712 Fall enrollment (full-time equivalent)

Graduate FTE 3,396 3,499 3,414 3,500 3,585

• ProfessionalFTE'-" E'- - - ,' ,'," -r 807 1:320',

-: 1 Y219 '1,154, "'-< 1 017j*

Full-time equivalent 23,386 22,036 21,985 21,784 21,236 Freshman admission Information App ~""'"'~11',527, 9,314" 9,193 ,'- 9,508 9,182~

Acceptances 8,850 7,177 6,793 7,148 7,206 MatriCJ"ants 41329 2,861 2,8910, 3,123 3,042 Degrees conferred

• ,Baccalauri'eate - " .. 0 " -48184*- 4,797- 4,508 A 4,133 '4,223.

Masters 724 702 741 730 752 18 '170, 180" Professional 188 219 169 174 160 Source: Washington State University Institutional Research Tuition and Fees, ndergraduate  :

Academic year , ":Resident Non-Resident Room and Board' 2~2008-09 ," - '$6 720[ $ 17,756 $7,73 2007-08 $6,290 $16,604 ' $7,316 p2006-07 - - P$'~$15,527"' $6,590 2005406 $5,506 $14,514 $6,280 W4_20005  :  : * $5,154' $13,572< *=,-'.'W'.;: '$64031 -

'Standard room including double occupancy plus level 2 meal plan Source: Washington State University Institutional Research 2008 Financial Report 3

I RaganU-1,2E 5" 5 BOARD OF REGENTS ADMINISTRATIVE OFFICERS -..

Michael C. Worthy, Chair of the Board Barry E. Johnston, Assistant Vice President for Business & Finance Laura M. Jennings, Vice Chair of the Board lWade J. Davis, Executive Director of Business Services/Controller Francois X. Forgette, Past Chair of the Board "

Theodor Baseler ACADEMIC DEANS Scott E. Carson Erica Austin, Dean, Murrow College of Communication Harold A. Cochran Daniel J. Bernardo, Dean, College of Agricultural, Human, and Elizabeth A. Cowles Natural Resource Sciences Derick En'Wezoh, Student Regent Patricia G. Butterfield, Dean, College of Nursing Constance M. Niva Candis S. Claiborn, Dean, College of Engineering and Architecture V. Rafael Stone Douglas L. Epperson, Dean, College of Liberal Arts Lenoar "Len" Foster, Interim Dean, College of Education Elson S. Floyd, Secretary Ex-Officio Howard Grimes, Vice President for Research and Dean, Graduate Gregory P. Royer, Treasurer Ex-Officio School Christine Gregoire, Governor, State of Washington, Advisory Michael D.Griswold, Dean, College of Sciences Member Ex-Officio James P. Kehrer, Dean, College of Pharmacy Muriel K. Oaks, Dean, Distance and Professional Education EXECUTIVE OFFICERS & CHANCELLORS Bryan K. Slinker, Dean, College of Veterinary Medicine Elson S. Floyd, President Eric R. Spangenberg, Dean, College of Business Warwick M. Bayly, Provost and Executive Vice President Joseph A. Starratt, Dean of Libraries John Fraire, Vice President for Enrollment Management Elizabeth A. Walker, Interim Dean, University Honors College John C. Gardner, Vice President for Economic Development &

Global Engagement LEGAL COUNSEL Howard D. Grimes, Vice President for Research & Dean of the Antoinette "Toni" Ursich, Division Chief, WSU Division of State Graduate School Attorney General Office Larry James, Associate Executive Vice President Joan King, Executive Director of Planning and Budget Officer list effective as of June 30, 2009 Heather Lopez, Director of Internal Audit Viji Murali, Vice President for Information Services & Chief Information Officer Timothy L. Pavish, Vice President for University Relations Gregory P. Royer, Vice President for Business and Finance James Sterk, Director of Intercollegiate Athletics Michael J. Tate, Vice President for Student Affairs, Equity &

Diversity Brenda Wilson-Hale, Vice President for University Development &

CEO of the WSU Foundation Harold A. Dengerink, Chancellor, WSU Vancouver Brian Pitcher, Chancellor, WSU Spokane Vicky Carwein, Chancellor, WSU Tri-Cities

.4 4 4. 4 .4 4 444 444 4 4 4 4, 4 557 4 44

'54.4 4 4 F:

44 -7 '.4 CONTENTS 2 Message from the President 3 Management's Discussion and Analysis 11 Independent Auditor's Report "

'12 Statement of Net Assets 13 Statement of Revenues, Expenses, and Changes in Net Assets 14 Statement of Cash Flows 16' Notes to the Financial Statements 32 Enrollment and Degrees Conferred Financial Report 2.009 For informalion aboult the financial data included in this reporl, contact:

Business Services/Controller Washington State University PO Box 641025 Pullman, Washington 99164-1025

- 509-335-2022 You may view the financial report at sww.wsu.edu/.-ge nacct/finstat.htm.

For information about enrollment, degrees awarded, research, or academic programs at WSU, contact:

Institutional Research Washington State University PO Box 641009 Pullman, Washington 99164-1009 509-335-4553 or Visit the WSU home page at wXwj.wsu.edcj.

,r10 1e 61 7

I.

Message from the President It is an honor for me to share with you Washington State University's annual report for the 2009 fiscal year. This publication provides in-depth information about the fiscal health and operations of WSU during the period beginning on July 1, 2008, and concluding on June 30, 2009.

The year provided many indicators of substantial institutional strength. Some of the highlights include:

• Gene and Linda Voiland donated an unprecedented $1 7.5 million-to the School of Chemical Engineering and Bioengineering to advance research and to hire faculty in the areas of renewable fuels and sustainable energy. Yong Wang, an internationally known researcher in catalysis and biorenewable energy, joins the WSU faculty as the first Voiland Distinguished Professor.

Demand for a WSU education remained: high. Record enrollment figures showed increased student numbers at all-WSU campuses, a record influx of freshmen, and higher numbers of minority students, Enrollment increased 3.9 percent statewide, from 24,396 in fall 2007 to 25,352 in fall 2008..

To recognize high academic achievement, the WSU Office of Admissions announced that Washington students who rank in the'top ten percent of their high school class or who have at least a 3.5 GPA at the time of application would be assured admission.

WSU graduate student numbers continued to climb for fall 2008, with 3,396 graduate students, up two percent. The

.increase was primarily on the Pullman and Spokane campuses.

WSU Distance Degree Programs experienced a 22percent'increase in online students in fall 2008, following an average five percent annual increase over the previous six years. The prbgram, one of the nation's most successful, enhances our ability to ensure student access to a quality WSU education.

• Washington State University completed its extensive self-review for renewed accreditation, which was received in positive fashion from the Northwest Commission on Colleges and Universities.............:-. . -

° The Carnegie Foundation for the Advancement of Teaching classifies WSU in the elite group of Research Universities with Very High Research Activity. In December 2008, this Foundation awarded WSU its Community Engagement Classification in the dual categories of curricular engagement and outreach and partnerships.

• In September 2008, the extensively renovated Compton Union Building opened, while construction proceeded apace on our Olympia Avenue residence hall; the first to be built on the Pullman campus since 1971.

- We are building for the future statewide with a new $34 million Nursing Building at WSU Spokane, a new $28 million Undergraduate Classroom building at WSU Vancouver, and $72 million Biotechnology/Life Sciences Building on the Pullman campus. Additional important facilities are on the drawing board.

Toward the end of the 2009 fiscal year, WSU was asked by the state to cut its budget and return $10.5 million which had been previously allocated to the University. This reduction was part of a statewide action to address declining state revenues.

Despite this financial challenge, Washington State University remains dedicated to its mission as a leading land-grant research university to advance knowledge through creative. research and scholarship, extend knowledge through innovative education, and apply knowledge through local and global engagement. Through our research and-scholarly endeavors, WSU enhances.

the lives of people around the globe and contributes to the economic and academic vitality of the state, nation, and world.

Sincerely, Elson S. Floyd, Ph.D.

President Washington State University ,

- Washigton State University

Management's Discussion and Analysis Management's Discussion and Analysis Introduction The following discussion and analysis provides an overview of the financial position and operations of Washington State University (the University) for the year ended June 30, 2009. This overview has been prepared by management and should be read in conjunction with the University's financial statements and accompanying notes.

Founded in Pullman in 1890 as the state's land-grant research university, Washington State University today has campuses in Pullman, Spokane, Tri-Cities and Vancouver. Ten regional learning centers and award-winning Distance Degree Programs offer access to the University's degrees statewide and around the world. Enrollment exceeds 25,300 students who are served by over 2,300 faculty and 3,600.staff members. Among the University's faculty are nine members of the National Academy of Sciences and National Academy of Engineering and the Institute of Medicine.

Considered one of the country's top public'research universities, the University has ten academic colleges, an Honors College and the-Graduate School. The colleges include: Agricultural, Human, and-Natural Resource Sciences; Business; Communications; Education; Engineering and Architecture; Liberal Arts; Nursing; Pharmacy; Sciences; and Veterinary Medicine.

The University offers more than 250 fields of study including more than 150 majors plus many minors, options and certificate programs. Bachelor's degrees are available in all major areas with master's and doctoral degrees available in most. Professional degrees are offered in Pharmacy and Veterinary Medicine. Last year, 6,004 degrees, including bachelor's, master's, professional and doctoral degrees, were conferred.

The University is known for research strengths in such diverse areas as biotechnology, reproductive biology, shock physics, viticulture, sleep research, wood technology, computer chips and advertising's impact on healthy decision-making. Research stations are located in Lind, Long Beach, Mount Vernon, Othello,, Prosser, Puyallup, and Wenatchee. There are extension offices in all 39 Washington counties.

Using the Financial Statements The financial statements presented* in this report encompass the University and its discretely presented component units. The management's discussion and analysis, however, focuses only on the University. The University's financial reports include the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows.

The financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) pronouncements which establish standards for external financial reporting for public colleges and universities. GASB standards require that financial statements be presented to focus on the University as a whole.

Financial Highlights Overall, the University's financial position improved during the year ended June 30, 2009:

" Assets increased by $66 million to end the year at $1.94 billion.

- Liabilities decreased by $4.5 million to end the year at $430 million.

" Net assets, which represent the residual of assets after deducting liabilities, increased by $71 million to end the year at

$1.5 billion.

Other significant changes to operations were as follows:

• Revenues from all sources totaled $906 million, an increase of $6.2 million over fiscal year 2008.

" Expenses totaled $835 million, an increase of $7.1 million over last year.

" Capital assets, net of depreciation, increased by $99 million.

2009 Finandal-Retxrt

Management's Discussion and Analysis Condensed Financial Information and Analysis FinancialPosition-Statementof Net Assets The Statement of Net Assets is a snapshot of the University's financial position at fiscal year end. It lists the University's assets (economic resources), liabilities (creditors' claims) and net assets (residual interest in assets after paying creditors) based on end-of-year data.

Assets are classified as current, non-current or capital. Current assets are expected to, benefit the' University within 12 months and include cash, accounts receivable, inventories, prepaid expenses and investments that can easily be co'nverted into cash to meet University expenses. Non-current assets include endowment fund assets, student loans receivable and investments expected to be held more than one year. Capital assets include construction in-progress, library materials, furniture and equipment, land, buildings and improvements and are reported net of accumulated depreciation.,.

Liabilities are classified as current or non-current. Current liabilities are claims that are due and payable within 12 months and include payroll and benefits, amounts payable to suppliers for goods and services received, and debt principal payments due within one year. Non-current liabilities are obligations payable beyond one year and include borad obligations, installment contracts, leases and earned but unused vacation and sick leave.

Net assets are divided into five categories:

Invested I In capital assets-net of related debt: represent the University's capital assets net of accumulated

• depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets.

• Restricted---non expendable net assets: University endowment funds, Land Grant Endowment.funds and similar funds for which donors or outside sources have stipulated as a condition of the gift that the principal be maintained in perpetuity.

• Restricted-loans: funds that have been established for the explicit purpose of providing student support as prescribed by statute or granting authority.

• Restricted-expendable net assets: funds that are subject to externally imposed restrictions governing their use, such as scholarships, fellowships, research, loans, professorships, capital projects, and debt service.

• Unrestricted net assets: represent those assets that are available to the University.for any lawful purpose.

Summarized Statements of Net Assets As of June 30, 2009 and June 30, 2008 June 30, 2009 June 30, 2008 Change Assets Current assets $. 196,065,095 S .221,;948,079', "$ (25;882,984)'.,

Non-current assets 502,206,13S 508,744,789 (6,538,654)

'CAPital'assets,';net of depreciation -,1,940,763648 1,18402,332 99,054,3167 Total assets $1,940,734,878 $1,874,102,200 $ 66,632,678 Liabilities

• Current liabilities,. 78,075,065 78,277,5431 S (202,479)

Non-current liabilities 352,437,1 74 (4,294,679)

KTotal liabilities $4J30,52,i3 $ ,4.ý5, 009,394; Net assets Invested in ca p)ta asesnt0fe $ 954,11 1,654 S. 875,1094,,055' S 79,01 7,S99 Restricted nonexpendable, endowments 384,438,746 371,529,761 12,908,985

.Restrictd, loan "26,936,183 25 25,7. 3,086~ , 1,193,097',

Restricted expendable 72,703,636 97,039,962 (24,336,326)

Unrestotaled 72,032,432 49,60.,94 214,4,83 Total net asset $1,510,222,639 $1,439,092,806 $71,129,833 4 Washrington State University

Significant Changes in the Statements of Net Assets

" Current assets decreased by $26 million. Several bond funded construction projects were completed during the year and invested bond proceeds were liquidated and spent on the construction costs resulting in a decrease of $27 million in cash and investments. In addition, accounts receivable increased by $1 million.

" Capital assets, net of depreciation, increased by $99 million. This increase reflects the continuing construction costs

• of several large building and infrastructure projects across the campuses. Complete or nearly complete were the new

• Biotechnology/Life Sciences building, the Vancouver Undergraduate Classroom Building, the Olympia Avenue residence hall and the Library Road infrastructure project.

Non-current liabilities decreased by $4 million: With no new bonds issued in 2009, bonds payable decreased by $9 million, the result of principal repayments. The University's net pension obligation increased by $5 million as calculated by the State Actuary, based on forecasts of lower earnings on retirement accounts which may increase the supplemental liability.

• Net assets increased by $71 million.

Financial Health and Flexibility There are a number of ratios used by the debt rating agencies to gauge financial health and flexibility. Orie of the more significant ratios used to measure operating flexibility is the ratio of expendable net assets to total expenses. Expendable net assets (defined as restricted expendable net assets plus unrestricted net assets) can be accessed relatively quickly and spent to satisfy current obligations. This ratio indicates how long the University could function using its expendable reserves without relying on additional assets generated by operations. The University had sufficient expendable net assets to cover 2.7 months of operations in 2009, a decrease from 2008 which was 4.5 months. This decreasewas the direct result of the recession and the decrease in investment earnings.

Another popular ratio, used to measure debt cushion, is the ratio of expendable net assets (as defined above) to debt. A ratio between 0.4 times to 1.2 times would be considered good coverage by one of the major rating agencies. The University's debt cushion decreased to 0.6 times in 2009, down from 0.9 times in 2008. Again, this decrease is also a result of the poor economy.

Results of Operations-Statements of Revenues, Expenses, and Changes in Net Assets The Statement of Revenues, Expenses, and Changes in Net Assets is the University's equivalent of an income statement. It shows the sources and amounts of revenues earned and nature and amount of expenses incurred during the year, classified as operating, non-operating or other.

Operating revenues are the inflows of funds from providing goods and services to the University's customers. They include tuition and fees, grant and contract payments, and sales and service revenue generated by student housing, student dining and other University enterprises. Operating expenses are the funds used up in generating operating revenues and in carrying out the University's mission.

Non-operating revenues are revenues earned for which goods and services are not provided and include state appropriations, current-use gifts and grants that are designated for purposes other than capital construction, land grant endowment income, endowment distributions and investment income. Non-operating expenses include interest expense on long-term debt.

Other revenues and expenses include capital appropriations, capital gifts or grants, additions to permanent endowments and gains or losses on the disposal of capital assets.

2009 Financial Report CS1

Management's Discussion and Analysis Statements of Revenues, Expenses and Changes in Net Assets For the Years Ended June 30, 2009 and June 30, 2008 June 30, 2009 June 30, 2008 Change Opeirating reveuiues (exp enses)

Operating revenues $ 496,314,915 S 464,801,208 S 31,513,707 Operating expenses (813456,820) 8,0 70) (82,139,764)

Net operating Income (loss) $ (325,342,919) $ (348,4S6,862) $ 23,113,943 Non-operating revenues/expenses Non-operatin revenues g $ 308,605,098 $ 368,449,177 $ (59,844,079)

No'n-opsr'atihg expenses, ,(1 3,869,984) (15,132,229) 1,262,245 Net non-op~erating revenues $ 294,735,114 $ 353,316,948 $ (58,581,834)

.!n-rio~ne(loss).before other revenues, expense~s,:.gains,  :.:.< $ (06785 ' 4,860,086 $ (35,4678 91) olsses and tra'nsers . .~.

Other revenues $ 101,737,638 $ 67,184,639 $ 34,552,999 Incrase In net assets - ,$-

Net assets, beginning $ 1,439,092,806 $ 1,367,048,081 Net assets, end of year $1,510,222,639 $ 1";439,092,806 In accordancewith GASB guidance, the University reclassified Federal PELL grants ,from operatingrevenues to non-operatingrevenues in

'2009. and restated 2008 for comparison purposes.

Signifi cant Changes in the Statement of Revenues, Expenses and Changes in Net Assets Operating revenues increased by $32 million. Student enrollment increased by 956 students and coupled with a 7% increase in the tuition rate resulted in $1 7.5 million more dollars in Tuition and Fees. Auxiliary enterprises revenue increased by 6% or $6 million due to the increased enrollment and an increase of 8.8% in the Housing and Dining rate and because of the reopening of the remodeled student union building in the fall of 2008. Increases in federal and local grants accounted for the remainder of the increases.

Operating expenses increased overall by $8 million. Salaries were up by $13 million due to an authorized 4% pay increase in the fall of 2008. This increase was largely offset by a 4.4% reduction in benefits expense as a result of a $4 million adjustment reducing deferred compensation liability. Utilities expense decreased by $5 million as result of decrease natural gas costs and a change in telecommunication billing. Payments for goods and services decreased by $3 million primarily as a result of a State imposed freeze on travel and equipment purchases. Scholarships and fellowships were up by $4 million as a result of more students qualifying for financial aid. Depreciation increased by $3 million as new buildings and infrastructure were added.

Net non-operating revenues decreased by $60 million. Gifts and contributions were down by $6 million and investment income decreased by $47 million due to the recession in the economy. Federal appropriations decreased by $2 million. Other non-operating revenues decreased by $5 million.

Other revenues increased by $34.5 million. State capital appropriations increased by $34.5 million largely due to the appropriation of the Vancouver Applied Technology Building to be completed in September of 2011.

Operating Performance Rating agencies use a number of ratios to assess operating performance. One of the ratios more commonly used by Moody's is annual operating margin, which compares operating surplus (or deficit) to operating revenues. Moody's definition of operating revenues includes several non-operating revenues in determining margin and an estimated spending rate of the University's investments rather than actual investment income. This ratio indicates the extent to which the University is balancing revenues with expenses and growing its resource base. In spite of the difficult economic conditions, the University's annual operating margin in 2009 was -3.34% which was an improvement over fiscal year 2008's annual operating margin of -5.05%.

r6) . Washington State University

I Revenues from all Sources For the Years Ended June 30, 2009 and 2008 2009 2008 Sales and Sales and services of services of educational educational Other departments Other departments Gifts and revenues 7 2% Gifts and revenues 2%

contributions 2%/o Federal contributions 3% ( Federal 3% . ' appropriation 4% ... . appropriation State capital <1% State capital 1%

appropriations appropriations 7%  ;

Investment Investment income, income, net of expense! net of expense 2% 7%

As the above graphs show, the university has a diversified revenue base. No single source of revenue generated more than 27%

of the total fiscal year revenues for 2009 and 2008. State operating appropriations were $246.5 million comprising 27% of total revenue for 2009. The university relies on this state funding which subsidizes its instructional activities allowing for lower tuition rates.

Grants and contracts generated $201 million or 22% of total revenue. This was an increase of $11 million over 2008. These funds support the university's research activities which allow students to work with nationally recognized faculty as part of their educational experience.

State capital appropriations totaled $94.2 million (11% of total revenue). This was an increase of $ 34.5 million over 2008. This was largely the result of the new funding for the Vancouver Undergraduate Classroom Building to be completed in May 2011 and the Biotechnology/Life Sciences Facility, completed in June 2009.

Auxiliary enterprises generated $101 million in revenues representing 11% of the total revenue. This was an increase of $6 million over 2008. Auxiliary enterprises are essential supporting activities, such as university residences, intercollegiate athletics, and the student union.

2009 Financial Report (

Management's Discussion and An a Iys is Operating Expenditures by Program For the Years Ended June 30, 2009 and June 30, 2008 2009 2008 Scholarship & Scholarship &

other student aid other student aid 5% 5%

Other Other 5% 6%

Operation & Operation &

maintenance maintenance of plant of plant 6% 7%

Institutiona Institutional support support 6% 6%

Academic Public Academic Public support service support service 8% 6% 8% 5%

The above graphs demonstrate that during 2009 expenditures increased in the Research and Public Service areas by 1% each.

Overall, expenditures increased by $8.4 million. Expenditures for research increased by $9.4 million, or 1% of total due to an increase in grants and contracts, including stimulus grants. The net change in all other operating expenditures consisted of increases in instruction costs and scholarships offset by decreases in nearly all other program areas.

(Note: for the purposes of these graphs, depreciation has been allocated to the programs.)

Capital Assets and Long-Term Debt Activities Capital Assets At June 30, 2009, the University had $1,242,463,648 invested in capital assets, net of accumulated depreciation. This represents an increase of $99,054,316, or 8.6%, over last year, as shown in the table below:

June 30, 2009 June 30, 2008 Change Land $ 39,647,948 $ 40,529,152 $ (881,204)

Construction in progress 72,250,029 205,341,501 (133,091,472)

Buildings 891,980,115 711,096,800 180,883,315 Other improvements and infrastructure 136,418,947 95,385,972 41,032,975 Equipment 54,210,625 44,499,176 9,711,449 Library resources 47,955,984 46,556,731 1,399,253 Total Capital Assets, net $ 1,242,463,648 $ 1,143,409,332 $ 99,054,316

ý_8 Washington State University

At year-end, several large construction projects were underway. Nearing completionwere the construction of the Olympia Avenue Student Housing Building, the Library Road Infrastructure project, and the Vancouver Applied Technology Classroom Building.

Construction projects completed during fiscal year 2009 included the renovation of the Compton Union Building, the renovation to Martin Stadium, construction of the Biotechnology/Life Sciences building, and the construction of the Riverpoint Nursing Building in Spokane. These and other capital projects increased buildings and infrastructure by $88 million. Equipment, much of it purchased in conjunction with the construction projects, increased by $10 million.

The University's construction projects in process at year-end included:

Cost in $

Cam.pus/Projet Description Completion Date Financing Sources Millions Spokane:

Constructionof the 55 000-70 000 square foot Boioedicail A :  : December 2013 State appropriations '$45.0

• ..4*::;

• ,!*'2 .

and Health Sciencesý Building Phase I to provide basic and clinical research laboratory space, core research and teaching acilite inldn iarium and gross anatomy laboratory; and adin~istrativ s~upport spaces including offices and conference.

.rooms...

Pullman:

Construction of the 40,000-45,000 square foot Global Animal March 2012 Bond proceeds and 35.0 Health Building Phase I to provide facilities for infectious disease".' private gifts

," research and diagnostic programs.

, Construction of the 77,250 square foot Veterinary.Medical  : Aucust,2012 Bion proceeds 969.

0 Res'ea~rch Buildingj to provide properly equipped Arid environmentally controlled, state-of-the-art biomredical research and suýpport sae for the health sceience teachingiand rAeserch progtramns Design and construction of Library Road Improvements to December 2009 State appropriations 15.0 improve traffic circulation, enhance pedestrian movements and safety, develop open spaces and deconstruct Administration Annex Building.

Vancouver-..

si.n and construction

.. of 58,000 squaie iootUn'd ad:a'r e .i';4 May 2011 State appr opriati ons. 28.0 Classr'oom Building to provide classroomss andj comnputer labs in r!Of thle strategic initiative to develo 'this4campus into a four-

.I:spp,6 Design work for 56,250 square foot Applied Technology Building September 2011 State appropriations 42.5 to provide research and teaching space for Computer Sciences and and bond proceeds Electrical Engineering.

Construction projects completed during the fiscal year included:

Cost In $

Campus/Project Description Completion Date Financing Sources Millions Pullman-Renovation of the 235,O000square foot Copo 1.1 ul ig -i A tqs2008'. od.rog~d $6 4

(student union).to replace utilities, renovate facilities, relocate tu eh~t . .

bookstore and ehance comfort, efficiency an* functioaityo: for  :

Renovation of Martin Stadium to improve game day experience for August 2008 Bond proceeds. 24.2, football fans by expanding circulation space, restrooms and concession areas and relocating the main entry gates to enhance access and aesthetics.

Construction of the 130,000 square foot Biotechnology/Llfe :,  :'i* ne'200:j> State appropriatio ns... 72.7, Sciences Building to house interdisciplinary programs in the human health fields in support of the University's biotechnology4

~~ic strategic

ý< ,-~initiative, B'i.

- - J, providing qx** e administrative i':**offices i " *for the

• Center for !:~!-i,:'t* ::.iii::% *:i, % **ii~ii!i!!::'i:.:i!i;:'i'*t !!iti:!:::i:**:#* :::,::..

{i* i*!giii Biotechnology and School of Molecular Biosciences, and research lascore labs, conference rooms and office space for faculty andl p Jostdotral studlents.4 Spokane:

Construction of 80,000 square foot Nursing Building to replace Spring 2009 State appropriations 34.6 current off-campus space with cutting-edge on-campus teaching facilities, increasing graduate and undergraduate nursing student capacity and facilitating closer collaboration with major regional hospital/medical complexes, enhancing the campus's emphasis on biomedical research.

2009 Finandal Report 9

t M anagem ent's Discussion and Analysis Long-Term Debt At June 30, 2009, the University had $290,573,000 in 'outstanding debt, representing a decrease of $8,791,810, or 3%, from the prior year. The table below summarizes outstanding debt:

June 30, 2009 June 30, 2008 Change Genera oblgation bonds , payablera.0 $ 47-1 -SO9

-- >51,467,666 S '4342,54 Revenue bonds payable, net 231,047,991 234,461,349 (3,413,358)

TCoitalleases 22,399,91 1 7 293,435,795 (1,035,878)

Total debt $ 290,S73,000 $ 299,364,810 $ (8,791,.81 0)

Economic Outlook In the recently adopted 2009-11 biennial operating budget, the State of Washington addressed an estimated budget shortfall of $9 billion. For the University, the net effect of the shortfall was a $54.2 million or 10.4% reduction of state operating support for the biennium. Since the initial 2009-11 budget was adopted, Washington's revenue forecasts have been adjusted downward. As of November 2009, the State projects an additional $2.6 bIillion shortfall that must be addressed in the 2010 legislative session. The impact on the University will not be known until the Washington Legislature adopts its 2010 supplemental operating budget.

The State's capital budget remained 'strong, with the university receiving appropriations and bonding authorit, for the two-year biennial period of $196.8 million. Federal appropriations for the University's land grant programs are expected to remain near a

$9 million funding level.

Student tuition and fees will increase, with a portion of the incremental revenue used for financial aid. Tuition rates will increase by 14% for resident students and increase between 5% and 10% for other student categories. Enrollment is expected to be 2.8% higher than 2009, at 23,962 annual average full time equivalents fOr:the four-campus system. Overall, the University expects net tuition and fee revenues to provide $191.3 million to support operations, a 10% increase over 2009.

'Federal sponsored research and other programs are the largest portion of externally funded grant expenditures. 66% of University projects were supported by federal funding and 34% by non-federal funding in 2009. Federal research project expenditures increased only slightly between 2008 and 2009; whereas non-research project expenditures significantly increased by almost 16%. Federal non-research programs and non-federal sponsored programs, both research and non-research, have grown in recent years, offsetting the slow-down in federal sponsored research programs. Current trends indicate that federally sponsored research programs will likely grow at a faster rate in 2010. The longer-term outlook is more uncertain due to possible feeral funding constraints and dficits and the e'onomic conditions nation-wide, which couild impact both federal and non federal Project activities . ,. , -

Washington State Auditor Brian Sonntag INDEPENDENT AUDITOR'S REPORT January 11,2010 Board of Regents Washington State University Pullman, Washington We have audited the acco mpanying financial statements of the business-type activities and the discretely presented component unit of Washington State University as of and for the year ended June 30, 2009, which collectively comprise the University's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Washington State University Foundation. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Washington State University Foundation, is based on the report of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporLting 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 audit and the report of the other auditors provide a reasonable basis for our opinions.

As discussed in Note 1, the financial statements of Washington State University 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 of the state of Washington that is attributable to the transactions of the University. They do not purport to, and do not; present fairly the financial position of the state of Washington as of June 30, 2009, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of Washington State University, as of June 30, 2009, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

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 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.

The information identified in he' table of contents as.EnrollrrentWnd Degrees confe purposes ofadditional ina s and is not a required part of the basic financial statements of the University. Such information has not been subjectedo the auditing procedures app ed n the audit of the basic financial statements and,.accordingly, we'express no'opinion on it.

Sne y ' .' - 7. : .';"-. " .... ..

.*.,,*. ...

Sincei ely,

.BRIAN SONNTAG, CGFM STATE AUDITOR

-Insurance Building, P.O. Box 40021

• Ol0ypia,.Washington 98S04-0021 (360) 902-0370 o (866) 902-39004 TDD Relay (800):833-16-8 FAX (360) 753-0646. http://www.sao.wa.gov

..... .. ,..,. . , .! . . * .*

-200) Finltiaiwl-Neiort'

State me nts Washington State University University Foundation Assets Statement of Net Assets 2009 2009 Current assets As of June 30, 2009 C:ash and cash equivalents . 73145..7 Prepaid expenses 691,120 Ine~ntories Net accounts receivable 55,909,369 90,073 Pledges receivable 18,780,269 Due from Washington State University 1 34,041

.stmentsal current aprtion:

Subtotal current assets "196,065,095 19,735,840 Non-current assets 4 ogterm) investments 60,669,823 Endowment investment 396,750,695 223,015,063 4?Deposits in escrow Assets held in trust by WSU Foundation 15,790,111

ýNon current. accounts receivable Assets held in trust 35,787,859

.:Net'loan reeivab e:.4.~> .~. .

.22,344,8116ý Capital assets, net of accumulated depreciation 1,242,463,648 3,484,754 Subtotal non-current assets 1,744,669,783 268,984,947 Total assets $ 1,940,734,878 288,720,787 Liabilities Current liabilities Accouints payable and accrued liabilities, S 6,090,246? ' 15505,513 IJ Due to WSU Foundation 134,041 Due to Washington State University '::1 5,790;'1,11i 2:'.

Deposits 3,496,433 Assetshl 'for other organizations 585,732 Deferred revenue, current portion 8,189,073 termdebtcurenft portionl Subtotal current liabilities 78,075,065 31,881,356 Non-current liabilities ue~l~v.....:.........

..

.... 36,78',9 Deferred compensation 1,086,483 in :ýif'stody for others>

hebiseld 5,944,652, Pension obligation 9,273,035

.:,,:.::De erred revenue:, 8,940,278

, Long-term debt 280,407,728 Subtotal non-current liabilities 352,437,1 74 Total liabilities $ 430,512,239 $ 31,881,356 Net Assets lnved in s'sets, net of relate d debt

`apital :9S54,111,654 ,

Nonexpendable 384,438,746 249,254,985 26,936,'183' 2' Expendable 72,703,636 5,803,966 Tnrentrste s 72,032,6420 $ 1,780,480 Total net assets $ 1,510,222,639 $ 256,839,431 Total liabilities and net assets $ 1,940,734,878 $ 288,720,787 The footnote disclosures are an integralpart of the financial statements.

Washington State University

!I Washington State University Statement of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, 2009 University Foundation Revenues 2009 2009 Operating revenues FNet tuition & fee revenae S 173,288,111 Federal grants and contracts 98,599,184 St~gat ntsaidonrcts.. 50,118,401.

Local grants and contracts 34,674,054

Saes ervces6ff~tinaldepar.tmients nd 18 90,211 Auxiliary enterprises 101,126,381 "Oher operating reve~nues ' ~19,599,573 Total operating revenues 496,314,915 Expense Operating expenses Salaries and wages .6.3 ,067,669 Benefits 104,430,971 Scholarslhips an d fil 6d'ship 45,472,848 Utilities 27,566,220 P~aym enfts to su ppliers, 127,320,123, Purchased services 50,925,456

'Other operating expenses' 1,381,296- .  :

Depreciation 68,493,251 Ttal op'erating 'expens~es' ~~~~~~~~~8 J657,. 83 ,4 .****v *,,*:.,.***:,. .. ,*..

Net operating loss (325,342,919)

Non-operating revenues (expenses)

Statý~p 4' ialion'o ?6,598,1762.

Federal appropriations 8,611,351 Interest on capital assets-related debt (13,869,984)

Gifts and contributions 21,037,229 $ 28,613,457 Investment income, net of xee" 19,675,446 ' (60, 363, 967)

Support provided to/for Washington State University, net (28,426,917)

General and administrative expenses (3,030,370)

Ier. non . operaLi~ re eh (xeries Total non-operating revenues (expenses) 294,735,114 (67,308,563)

Income before other revenues, expenses, gains or losses (30,607,805) (67;308,563)

Other revenues, expenses, gains or losses

ý.apilal app ropriat[ions ,94,290,006 Capital grants & gifts 7,059,474 11378,6318 12,372,597 Total other revenues 101,737,638 12,372,597 Increase In net assets 71,129,833 (54,935,966)

Net assets Net asstsen A, of year Net assets, end of year $1,510,222,639 $ 256,839,436 The footnote disclosures are an integral part of the financial statements.

2009 Financial Report 13

Statements Washington State University Statement of Cash Flows For the Year Ended June 30, 2009 2009 Cash flows from operating activities Tuition and fees $ 194,501,751 Grant and contracts 204,578,704 Payments to suepplier (127,6 8,;4 98)1 Payments for utilities (27,424,161)

Purchafsed servic es )7 Payments to employees (397,065,551)

(99431i376)

Other operating expenses (1,372,143)

Payments for scholarshipsýý !)dl eliowships (65,872,477)

Loans issued to Students (1,931,571)

.'.Collection of: loans to students- 71..."- .: .:::

2,775,034".

Auxiliary enterprise receipts 99,859,848 18,745,940 Other receipts 16,525,456 Net cash used by operating activities (235,315,449)

Cash flows from noncapital financing activities State, appropriations 24 , 199,287' Federal appropriations 8,348,802 Gifts for other than capital purposes Private gifts 18,904,494 Additions to permanent endowment 388,158

.Agenc~y fund r~eceipts 7 I43,20S;543:

Agency fund disbursements (142,8921 73) 0,.:ther non-operatinq revenues 2,288228.

Net cash provided by noncapital financing activities 273,642,339 Cash flows from capital and related financing activities Proceeds of capital debt Capital appropriations 93,525,348 Capital grants and gillsev-ei~ 2,842,7 Purchases of capital assets (168,230,592) ri iipaid on caota debi~d leases-(9,893,49

.'verert paid onr capital debt'and leases (1 3,844,753)j Net cash used by capital and related financing activities (94,626,264)

• Cash flows from inve.iting activities" Proceeds from sales of investmenets '256,745ý412 SPurchases of investments a (217,129,067)

'*.t

*i*::*ii*:29,'45,9

i*: . t39.[ ..

. et cash provided by investing activities o69,07.5,T 684 ,: ,

t icrease -dcrease)in csh and, cas,, equiva ents 712,Z763'0 Cash--beginning of year - 64,059,614; Cash-end of year-, $, 76,835,9024 The footncte disclosures ore an integralpart of the financialstateifents.

~loo... pte-s.' u - ent 51 5, 1'

-2

!i Washington State University' Statement of Cash Flows-continued Reconciliation of net loss to net cash used by operating activities 2009 Operating loss $ (325,342,919)

Adjustments to reconcile net loss to net cash used by operating activities Depredai~on expe'nseý 3/468,493 251 Changes in assets and liabilities Changes in assets Deposits'in .EscroW, (2,060,272)

Prepaid expenses 127,818 Neiacunslnveretories.a 18,1845 Net accounts receivable (1,1 4S,221)

Investments K,25,425;1561 Changes in liabilities Accounts payable ardaccrued liahilities (1,1 37,830).ý Deferred revenue (320,893)

Due tWU (S1 6,770)

Deposits 495,252 Long termi debt, current portion 579,866 Lease obligations, current portion 68,524 Net cash used by operating activities (235,315,449)

Significant noncash transactions Lossron capitalasetse Amnortization expense

Notes to the Financial Statements Notes to the Financial Statements June 30, 2009 These notes form an integral part of the financial statements.

1. Summary of Significant Accounting Policies Financial Reporting Entity Washington State University ("the University"), an agency of the State of Washington, is a comprehensive degree-granting research univedrsity. It is governed by a ten member Board of Regents, appointed by the Governor and confirmed by the State senate. The University is included in the general-purpose financial statements of the State.

Nature of Operations . ,

The University was created as a land grant public university by:the Washington State Legislature in 1890. The University opened its doors January 13, 1892, on land donated by the citizens of Pullman. Today, Washington State University has campuses in Pullman, Spokane, the Tri-Cities.

and Vancouver, with extension offices and learning centers across the state. Washington State University's 25,352 undergraduate, graduate and professional students have the opportunity to work one-on-one with internationally acclaimed professors and researchers. The primary missions of the University are instruction, research and public service.

Reporting Entiy The financial reporting entity is Washington State University and the WSU Foundation.as a discretely reported component unitý Component Unit The WSU Foundation ("the Foundation") is a legally separate, tax-exempt entity,and serves contractual asset management functions in support of the University's mission. The Foundation is a significant component unit based on the criteria of GASB Statement 39. This report presents the Foundation's financial condition and activities as a discretely presented separate component unit in the University's financial statements.

The Foundation reports its financial results in accordance with Financial Accounting Standards Board (FASB) pronouncements and guidance.

As such, certain revenue recognition criteria and presentation features are different from GASB. No modifications have been made to the Foundation's financial information in the University's financial statements for these differences. The Foundation presents information about its financial position and activities according to the following three classes of net assets, depending on the existence and nature of donor restrictions.

Under FASB, the Foundation's net assets are described as follows:

" Unrestricted net assets-Support received that is not subject to donor-imposed restrictions and over which the Board of Directors has discretionary control.

" Temporarily restricted net assets-Support received subject to donor-imposed use restrictions or time restrictions.

• Permanently restricted net assets-Support received subject to donor-imposed restrictions stipulating that funds be invested in perpetuity.

For presentation purposes, in the University's financial statements, temporarily restricted net assets have been shown as expendable net assets and permanently restricted net assets have been shown as nonexpendable net assets.'

The Foundation's financial statements can be acquired at the following address:

WSU Foundation PO Box 641925 Pullman, WA 99164-1925 Financial Statement Presentation The financial statements are presented in accordance with generally accepted accounting principles and the Governmental Accounting Standards Board (GASB).

Basis of Accounting For financial reporting purposes, the University is considered a special-purpose government engaged in Business Type Activities (BTA). In accordance with BTA reporting, the University presents a Management's Discussion and Analysis; a Statement of Net Assets; a Statement of Revenues, Expenses and Changes in Net Assets; a Statement 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. Pursuant to GASB Statement 20, the University has elected not to apply any Financial Accounting Standards Board pronouncements issued after November 20, 1989.

16 Washington State University

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Bond premiums/discounts, issuance costs, and gains or losses on refundings are deferred and amortized over the term of the bonds using the effective interest method. Unamortized balances are presented as reductions of the face amount of bonds payable. Related amortization is included in interest expense in the statements of revenues, expenses, and changes in net assets.

Interest is capitalized on assets acquired or constructed with tax-exempt financing. The amount of interest to be capitalized is calculated by offsetting interest expense incurred while activities necessaryto get the asset ready for its intended use are in progress, with interest earned on invested proceeds over the same period. The net capitalized interest for fiscal year 2009 was $1,905,061.

Elimination of Inter-fund Transactions During the course of operations, numerous transactions occur between individual funds for goods provided, services rendered or interfund loans.

For the financial statements, the interfufnd receivables and payables have been eliminated.

Designated auxiliary enterprises have revenue and expense transactions, which are treated as though the University Were dealing with private vendors. For all other funds, transactions that are reimbursements of expenses are recorded as reductions of expense.

Cash, Cash Equivalents and Investments Cash balances in excess of current requirements are pooled and invested in Treasury securities, time deposits, deposits with the Washington State

• Local Government Investment Pool (LGIP), federal agency bills and notes. Cash equivalents are short term, highly liquid investments convertible to known amrounts of cash without change in value or risk of loss. Interest income earned on the investment pool is distributed on a quarterly

• basis based on daily cash balances in various funds. Cash, cash equivalents, and investments are stated at fair value.

Accounts Receivable Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. This also includes amounts due from the federal government, state and local governments or private sources in connection with reimbursement of allowable expenditures made pursuant to the University's sponsored agreements. Accounts receivable are shown net of estimated uncollectible amounts.'

Inventories Inventories are stated at cost using various methods in the separate enterprise and internal service funds.

Capital Assets Land, buildings and equipment are recorded at cost, or if acquired by gift, at fairmarket value at'the date of the gift. Capital additions, replacements and major renovations are capitalized. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. In accordance with the state capitalization policy, only fixed assets with a unit cost of $5,000 or greater are capitalized.

Depreciation is computed using the straight line method over the estimated useful lives of the assets, generally 15 to 50 years for buildings'and components, 20 to 25 years for infrastructure and land improvements, 20 years for library resources and 5 to 7 years for equipment.

In accordance with GASB Statement 42, the University reviews assets for impairment whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable. Impaired assets are reported at the lower of cost or fair value. At June 30, 2009, no assets had been written down.

Deferred Revenues Deferred revenues occur when funds have been collected in advance of an event, such as summer semester tuition and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent fiscal year.

Tax Exemption The University is a tax-exempt organization under the provisions of Section 115(a) of the Internal Revenue Code and is exempt from federal income taxes on related income.

2009 Finandial Report

Notes to the Financial Statements Net Assets The University's net assets are classified as follows:

" Invested in CapitalAssets-Net of Related Debt. This represents the University's total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet.expended for capital assets, such amounts are not included as a component of capital assets.

" Restricted Net Assets-Nonexpendable. This consists of endowment and similar type funds for which donors or other outside sources have stipulated as a condition of'the gift instrument that the principal is to be maintained inviolate and in perpetuity and invested for the purpose of producing present and future income which may either be expended or added to the principle.

" Restricted Net Assets-Loans. The loan funds are established for the explicit purpose of providing student support as prescribed by statute or granting authority.

" Restricted Net Assets-Expendable. These include resources for which the University is legally or contractually obligated to spend resources in accordance with restrictions imposed by third parties.

" UnrestrictedNet Assets. These represent resources derived from student tuition and fees, state appropriations) and sales and serAces, of educational departments and auxiliary enterprises.

Classification of Revenues The University has classified its revenues as either operating or non-operating revenues according to the following criteria:

Operating Revenues. This includes activities that have the characteristics of exchange transactions such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises and (3) most federal, state and local grants and contracts.

Non-operating Revenues. This includes activities that have the characteristics of non-exchange transactions, such as gifts and contributions, state appropriations and investment income.

Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from. students, are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses and Changes in Net Assets. Scholarship discounts and allowances are the difference between the published charge for goods and services provided by the University and the amount that is paid by students or third parties makingpayments on the students' behalf. To the extent that, revenues are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship discount and an allowance. Discounts and allowances for the year ending June 30, 2009 are $60,380,017.

New Accounting Pronouncements On July 1, 2007, the University adopted GASB Statement No. 49, Accounting and FinancialReporting 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 staternent, the University has identified a number of small sites for which it may have pollution remediation liabilities but none are material.

In November 2007, GASB issued Statement No. 52, Land and Other Real Estate Held as Investments by Endowments. Statement No. 52 requires that land held for investment by endowments be reported at fair value rather than historical cost. The University has.reviewed its land holdings and determined that noneof its land is held for investment.

Reclassifications For comparative purposes in the Management's Discussion and Analysis section, certain accounts in the prior year financial statements have been reclassified to conform to the presentation in the current year financial statements.

(18) ,Wa'shington State University

,_

r

J

2. Cash, Cash Equivalents and Investments Cash As of June 30, 2009, the carrying amount of the University's change funds, petty cash and bank demand deposit accounts with financial institutions is $26,479,900 as represented in Table 1.

Table 1: Cash and Cash Equivalents S. .......

• .. . .. . .. . . . . .. . .. ... .. .. . 200 9,

~Cash $;26,479;900.

S, Cash equivalents 50,088,203 Deposis ith fiS(Ila 9~t 2,67,821 Cash and cash equivalents $76,835,924 Custodial Credit Risks-Deposits Custodial credit risk for bank demand deposits is the risk that in the event of a bank failure the University'sdeposits may not be returned to it.

All cash, except for change funds and petty cash held by the University, is insured by the Federal Deposit Insuraince'Cdrp6ration(FDlCtor by collateral held by the Washington Public Deposit Protection:Corrimission (PDPC): The majority of WSUdemand deposits are with the Bank of America.

University Endowments The University contracts with the WSU Foundation for the management of privately endowed assets. University and Foundation endowments are pooled and invested with the objectives of long-term capital appreciation and stable but growing income stream. The fair market values of the University endowment investments at June 30, 2009 were $28,599,270.

Land Grant and Permanent Fund .- .. . -.

The University has two land grant endowments and two permanent funds established by legislation; The University's two land grantendowments total 151,188 acres of timber, agricultural, and grazinglands managed by the Washington State Department of Natural Resources. The income from this land is added to the Agricultural College Permanent Fund, established under RCW 43.79.136, and the Scientific School Permanent Fund, established under RCW 43.79A110. The Washington State Investment Board manages these two permanent funds for the sole benefit of the University. All distributed income is used for capital projects. The fair value is $368,151,425 after the settlement of all pending transactions, receivables and payables, as shown in Table 2.

Table 2: Permanent Fund University permanent fund investments Fair value Average duration Credit rating

ýMoneymarketfbnd S, - 240,4217: 0-N/A Commingled monthly bond fund 366,929,177 4.38 AA3 Pending trades 436,212 Total permanent fund Investments $ 368,151,425 Endowment investments consist of University-held endowments valued at $28,599,270 (pertable 3) and the permanent fund of $368,151,425,:

for a total of $396,750,695.

2009) Financial Report 19

Notes to the Financial Statements Investments Investments are classified as cash equivalents, short-term investments or long-term investments, or endowment investments. University invested assets include operating funds, current use gift funds, proceeds from bond issues dedicated to specific capital projects and University endowment and trust funds. The carrying amount of University invested assets includes cash equivalents and permanent fund investments as represented in Table 3.

Table 3: University Investments by Type Maturity Less than More than 10 Effective Credit University investments Fair value 1 year 1-5 years 6-10 years years duration rating Cash equivalents A 18,500,00 009 nr US Agency obligations- 1,819,065 1,819,065 0.02 AAA Discount notes Other-.Bank shot tern iifi ,419,558 0.00 nr investm,"en'tfunrd~

Local Government Investment 24,349,580 24,349,580 0.14 nr Pool Total cash equivalents $ 50,088,203 Current investments US Agenqy,,obligationhs 4S,872?,598 45,872,598 -

0.45 AMA Total current $ 45,872,598 investments Non-current investments Operating funds

US:government treasuries 25,273,652 2.15 MAA US agency obligations 7,562,687 7,562,687 1.41 AAA age~sthp

.Mort g 16,88S,990 16,885,990 '1.27 'AAA Fixed income mutual funds 9,996,345 9,996,345 2.59 AAA Subtotal non-current 59,718,674 operating fund investments Miscellaneous 951,149 Total non-current $. 60,669,823 investments University endowments US stocks $ 836,530

-US fixed income 3,724,594 508,448 453,516 $ 2,556,803 205,827 5.15

-Foreign fixed income 1,425,540 1,425,540 7.75 A

-US equity 3,209,603

-Foreign equity 5,275,504

-Private equity 3,663,174

-Hedge funds 7,076,963

-Timber 486,864

-Real estate 1,626,886

-Oil & gas 956,896

-Commodities 316,716 Total endowment $ 28,599,270 Investments Total University Investments $ 185,229,894 Washington State University

Interest Rate Risk-Investments Through its investment policies, the University manages exposure to fair value losses arising from increasing interest rates by limiting the modified duration of the operating portfolio to 1.1 years and by cash matching the dedicated bond portfolios to the anticipated construction schedules of the underlying projects.

Current use gift funds are segmented into short-term, intermediate-term and long-term pools. University policies limit the portfolio average maturity of the short-term pool to one year or less, the portfolio average maturity of the intermediate-term pool to three years or less, and the portfolio average maturity of the long-term pool to ten.years or less.

University endowments fall'under the Foundation investment policy, which employs broad asset class diversification to control overall endowment fund volatility, and limits fixed income investments to a maximum of 15% of total endowment fund assets.

Concentration of Credit Risk-investments State law limits University operating investments to the highest quality sectors of the domestic fixed income market and specifically excludes corporate stocks, corporate and foreign bonds, futures contracts, commodities, real estate, limited partnerships and negotiable certificates of deposit. University policy does not limit the amount the University may invest in any one issuer.

Custodial Credit Risk-Investments Custodial credit risk for investments is the risk that in the event of the failure of the counterparty ,toa .transaction, the University will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. At June 30, 2009, $116,750,522 of the University's operating fund investments, held by Bank of New York Mellon in the bank's name as agent for the University, and $836,530 of endowment assets, held in street name by E'trade for the account of the University, are exposed to custodial credit risk as described in Table 4.

Table 4: Investments exposed to Custodial Credit Risk University Investment type Fair value

ti:*fi*-. n'de'p**sit: .,- 18,500,00 US agency discount notes 1,819,06S u goveneteasur.es .... ,,.25;273,652 US agency obligations 53,435,285 5Mortgagepass through 16,885,990 Subtotal 115,913,992

.:US common nstock ______ 530__

Total investments exposed to custodial credit risk $ 116,750,522 Foreign Currency Risk-investments University endowment exposure to foreign currency risk at June 30, 2009, is described in Table 5 and is limited by Foundation investment policy.

Table 5: University Foreign Currency Risk Foreign currency Fair value China (Yuan) 356,306, Australia (Dollar) 375,987 UK (Pound) 814,621 Japan (Yen) 875,522

_Luro 1,025,799 Other (less than 5%) 2,414,676 Total foreign currency $ 5,862,911 Investment Expenses Under implementation of GASB 35, investment income for the University is shown net of investment expenses. The investment expenses incurred at June 30, 2009 is $422,076.

2009 Financial.Report

Notes to the Financial Statements

3. Accounts Receivable At June 30, 2009, accounts receivable are as follows.

Student tuition' and'fees 113,61 3,708 Due from the federal government 8,341,565 Durmte office of the state treasurer '22,536,2114 Due from other state agencies 4,669,809 Intret~~ anddividends receivale '1,158,093 Auxiliary enterprises 6,383,394

'222,744 Other 1,07S,451 t.,Subtot~l acicunits reei - bl6,e :

Allowance for doubtful accounts (2,091,609)

Accounts, receivable, net $S$,909,369

4. Student Loans Receivable Student loans receivable consisted of the following at June 30,.2009.

S 2,828,635" Institutional loans 204,785 23,033,420, Allowance for doubt-accounts (688,604)

Loans receivable, net $22,344,816

5. Inventories Inventories, stated at cost using various methods: First-in, First-out (FIFO), Last-in, First-out (LIFO), or Weighted Average, consist of the following at June 30, 2009.

Location Valuation method Amount Athletics' . .  :. . FIFO $ 568,949 Bulletin office FIFO 481,257 Central stores FIFO 379,856..

Facilities operations Weighted Average 1,487,895 F din s ..F**and's FIFO 5,865,200,,

Housing and dining LIFO 752,896 Moor pool,.~ - FIFO, 71,187.

University publishing FIFO 2,095,511 K.Veterinairy hospital and pamc:K. FIFO .

Veterinary microbiology/pathology FIFO 2,081,800 Othe inventory FIFO $1,932,516,8 Total $ 16,7S6,084 22 Washington State University

6. Capital Assets Following are the changes in capital assets for the year ended June 30, 2009.

Beginning Additions/

balance transfers Retirements Ending balance Nondepreciable capital assets

~Land . (1 3739,4246 5,1,620,65) 392,267,98 Construction in progress 205,341,501 (133,091,472) 72,250,029 Total nondepreciable capital assets 245,870,653 (132,352,026) (1,620,650) 111,897,977 Depreciable capital assets

Buildings 1,215,,93ý626r, 224,'01 3,597 '(6,418,479) 1',432,788,744 Other improvements and infrastructure 182,307,610 49,626,867 (807,917) 231,126,560

... . .

189,380,923, 25,783,7120 (10,552,966) 204,611,077 Library resources 112,354,165 r 5,806,189 .(166,649) 11 7,993,705 Subtotal 1,699,236,324 365,229,773 (17,946,011) 1,986,520,086 Less accumulated depreciation

.Buildin....... 504,096,826'` 046,6 (3,775,1165) :540,708,6143 Other improvements and infrastructure 86,921,638 8,593,892 (807,917) 94,707, 613 (I9,86,750)

Library resources 65,797,434 4,406,936 (166,649) 70,037,721 Total accumulated depreciation 801,697,645 68,493,251 (14,236,481) 855,954,415 Total depreciable capital assets; net 897,538,679 236,736,522 (3,709,530) 1,1 30,565,671 Total capital assets $ 1,143,409,332 $ 104,384,496 $ (5,330,180) $ 1,242,463,648 The current year depreciation expense was $68,493,251.

7. Accounts Payable At June 30,2009, accounts payable are the following.

'Accounts ýpayable 3,3,0 Contract retainage 6,820,371 Pa1,737,568.

Accounts payable, net $ 56,090,246 2009 Financial Reportt-23

Notes to the Financial Statements

8. Deferred Revenue Deferred Revenue is comprised of receipts which have not yet met revenue recognition criteria.

Current deferred revenue Athletics ALIVE! program 697,371 Executive MBA program 15,000 Pr-ad'r-iisBE building rent 5010,000, Housing & dining services S1525,627

,- . 7, , . .

Sum~meresion Parking 247,953 Subtotal~j.$

. 8,189,073 Non-current deferred revenue Pro-paid Tn-Cities BSEL buildingrenrt, 8; 940,2 78, Total deferred revenue $17,129,351

9. Risk Management The University, in accordance with state policy, self-insures unemployment compensation for all employees. The University assesses all funds a monthly payroll expense for unemployment compensation for all employees. Payments made for claims from July 1, 2008 through June 30, 2009, were 5526,1 01. Cash reserves for unemployment compensation for all employees at June 30, 2009,were $2,557,282.

The University purchases commercial insurance property insurance for auxiliary enterprise buildings that were acquired with bond proceeds when the bond agreement requires the University to insure property and earnings. The University assumes its potential property losses for most other buildings and contents. Liability exposures are insured through the State of Washington self-insurance liability pool.

10. Compensated Absences The accrued leave liability balance as of June 30, 2009 is $36,784,998. The components of this liability include vacation leave earned and unused for exempt professionals, civil service employees and faculty on annual appointments; sick leave earned and unused limited to an estimate of fifteen times the prior three-year average of the amount paid at the time of separation; and earned and unused compensated leave for civil service employees. . .

University employees accrue annual leave at rates based on length of service and sick leave at the rate of one day per month for full time employees.

For reporting purposes, all vacation leave is shown as a non-current liability. Employees are limited by statute as to how many hours they may carry forward.

.'annudal leave. S 27,411,049,.:

Accrued sick leave 9,164,966 Accred compredatory leave 2036,78,983 Total accrued leave liability $ 36,784,998

11. Deferred Compensation The University administers a limited number of contractual deferred agreements. The deferred compensation obligation for these agreements as of June 30, 2009 was $1,086,483.

The University offers all employees qualified deferred compensation plans created under Internal Revenue Code Sections 403b and 457. The plans are available to all state employees and permit them to defer a portion of their salary until future years. The state of Washington administers these plans on behalf of the University's employees; the University does not have legal access to these funds.

24 Washington State University

A

12. Bonds Payable Bonds payable consist of revenue bonds issued by the University for construction and renovation of auxiliary facilities as well as the University's share of Washington State general obligation bonds issued for the construction of academic buildings. These obligations have fixed interest rates ranging from 2.6% to 6.75% and mature serially through 2038.

State law requires the University to reimburse the state for debt service payments relating to its portion of Washington State general obligation bonds from tuition, the proceeds of timber sales and other revenues.

The University has pledged the net revenues from the Housing and Dining System, Intercollegiate Athletics' the Parking System and special student fees to retire the related revenue bonds.

In prior years, the University issued bonds to advance refund some revenue bonds. The assets used to defease these bonds and the liability for the defeased bonds are not included in these financial statements. At June 30, 2009, the total outstanding principal balance of defeased bonds was

$14,725,000.

Future debt service requirements at June 30, 2009 are as follows Schedule of Debt Service:

Revenue Bond Obligations Revenue bond obligations State of Washington general obligation bonds Fiscal year Principal Interest Total Principal Interest, Total

200 $. 5;s30,000 S? '11,497,211 S < .3,062,040 S 2,334,160 2011 5,780,000 11,252,864 17,032,864 2,913,052 2,1 78,695 S,091,747 6,040,000" I-10,995,293 1 7,035,293' 2,640,000 2,052,54'0 4,692,54 2013 6,310,000 10,721,554 17,031,554 2,700,000 1,924,520 4,624,520 2014 .6,605,000 10,423,529 17,028,5S2 2,91.0,000 1,791;240 4,701,240:,

2015-2019 38,175,000 46,899,845 85,074,845 15,460,000 6,661,682 22,121,682 2020-2024 48,7s5,000 36,325,233 85,040,233 12,285,000 2,984,875 15,269,878 2025-2029 45,620,000 24,151,857 69,771,857 5, 155,000 396,588 5,551,588 2030-2034 13,058,567 :52968,567 2035-2039 33,585,000 4,415,300 38,000,300 Sub total 236,270,000 179,741,253 416,011,253 47,125,092 20,324,300 67,449,392 Less other adjustments Bond discounts and (4,138,829) (4,138,829) issue costs Bond premiums 1,576,503 1,576,503 Deferred costs of (2,659,683) (2,659,683) refundings Total $231,047,991 $179,741,253 $ 410,789,244 $ 47,125,092 $ 20,324,300 $ 67,449,392 2009 Financial Report 25

Notes to the Financial Statements

13. Leases Payable The University finances some fixed asset purchases through the Washington State Treasurer's leasing program. The University also has leases for office equipment with various vendors. These leases qualify as operating leases. As of June 30, 2009 the minimum lease payments under capital leases, together with the present value of the net minimum lease payments and operating lease obligations, are shown in the table below.

Leases Payable Fiscal year Capital Operating leases Leases

. . '$ .2,437,S,27; S. 2,227,**81,

ýoo0 2011 2,286,414 1,847,291 2,1 79,732 2013 1,907,714 1,047,429 2014 26,136 I'1,7 2015-2019 4,079,704 .963,562

.,ý2020-2.024' Total minimum lease payments 14,617,227 8,204,965 Amount representing interest (2,217,310)

Net present value $12,399,917 $ 8,204,965

14. Schedule of long Term Debt Schedule of Long-Term Debt Total amount Balance Additions Reductions Balance Current Issued outstanding outstanding portion 6/30/08 6/30/09

."$ 278188SI000 I$ 234,461,349 S'(..13,413,358)r$ 231,04,7,991 Revenue and Refundilng Bonds' $1 r*5205,233 Payable State of Washington General 113,664,878 51,467,666 (4,342,574) 47,125,092 3,062,040 Obligation Bonds Payable Capial.leases 13,435,795$ 974,610 (2,010,53) f4,897,9999 Net Pension Obligation 4,192,966 5,816,000 (735,931) 9,273,035 Total $ 392,549,878 $ 303,557,776 $ 6,790,660 $ (10,502,401) $299,846,035 $ 10,165,272

15. Pension Plans ,

The University offers two contributory pension plans: the Washington State Public Employees Retirement System (PERS) plan, a defined benefit retirement system, and .the Washington State University Retirement Plan, consisting of a defined contribution plan modified with a supplemental payment plan, when required.

The University employs approximately 5713 full-time employees eligible for participation in one of the two retirement plans.

The payroll for employees covered by PERS was $95,625,154 and the payroll for employees covered by the Washington State University Retirement Plan was $231,339,676.

2 Washington State University

Public Employees Retirement System Plan Description. PERS is a multi-employer mandatory retirement plan for all eligible civil service employees. Employees hired into an eligible position prior to October 1, 1977, are enrolled in Plan 1 whileemployees hired into an eligible position on or after October 1, 1977 are enrolled in Plans 2 or 3. Retirement benefits are vested after five years of eligible service. Plan 3 has a defined contribution component that members may elect to self-direct as established by the Employee Retirement Benefits Board. 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, PO Box 48380, Olympia, Washington 98504-8380.

Funding Policy. The Office of the State Actuary, using funding methods prescribed by statute, determines actuarially required contribution rates for PERS. The basic contribution rates, established by the legislature, match the actuarially determined rates considered necessary to fully fund the tier one system by June 30, 2024 and to continue to fully fund the tier two systems. 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 was 5.45%. The contribution rate for the University at June 30, 2009 for all PERS plans was 8.31%.

The summary of rates for the year are as follows' Employee University

,:Plan 1 6.00% 8.31%

Plan 2 5.45% 8.31%

Plan 3 .9 .'5% to 15% 8.31%

Employee and employer contributions for the year ended June 30, 2009, were $3,763,672 and $7,946,450 respectively.

The pension benefit obligation is a standardized disclosure measure of the present value of pension benefits, estimated to be payable in the future as a result of employee service to date. The pension benefit obligation as of 2007 for PERS as a whole, determined through an actuarialF valuation performed as of that date, was $26,124,000,000. The PERS net assets available for benefits on that date (valued at market) were

$29,080,000,000. Information for WSU as a stand-alone entity is riot available.

Ten-year historical trend information showing the PERS'progress~in accumulating sufficient assets to pay-benefits when due, is presented in the State of Washington June 30; 2009, Department of Retirement Systems Comprehensive AnnualFinancialReport.

Washington State University Retirement Plan Plan Description. Faculty, professional and other staff, are eligible to participate in the Washington State University Retirement Plan (WSURP).

The Teacher's Insurance and Annuity Association (TIAA) and the College Retirement Equities Fund (CREF) are the companion organizations through which individual retirement annuities are purchased. Employees have at all times a 100% vested interest in their accumulations.

TIAA-CREF benefits are payable upon termination at the. member's option unless the participant is re-employed in another institution which

-participates in TIAA-CREF.

The Plan has a supplemental payment component that guarantees a minimum retirement benefit goal based upon a one-time calculation at each employee's retirement date. The University makes direct payments to qualifying retirees when the retirement benefit provided by TIAA-CREF does not meet the benefit goal. Employees are eligible for a non-reduced supplemental payment after the age of 65 with ten years of full-time service.

The minimum retirement benefit goal is 2% of the average annual salary f6r each year of full-time service up to a maximum of 25 years. However, if the participant does not elect to make the 10% TIAA-CREF contribution after age 49, the benefit goal is 1.5% for each year of full-time service for those~years the lower contribution rate is selected.

No significant changes were made in the benefit provisions for the year.

Contributions. Contribution rates for the WSURP (TIAA-CREF), which are based upon age, are 5%, 7.5% or 10% of salary and are matched by the University. Employee and employer contributions for the year ended June 30, 2009 were each $19,249,386.

The Washington State University Retirement Plan (supplemental payment) is financed on a pay-as-you-go basis. Supplemental payments made by the University for the year ended June 30, 2009 were $735,931.

At the latest valuation July 1, 2009, the total unfunded Actuarial Accrued Liability (UAL) benefit obligation under the Washington State University Retirement Plan (supplemental payment plan) was $40 million. The annual Required Contribution (ARC) by the University is $9 million.

2009 Financial Report 27)

Notes to the Financial Statements Other Post-Employment Benefits During the 2008 fiscal year, WSU adopted GASB Statement No.45, Accounting and FinancialReporting by Employers for Postemployment Benefits Other than Pensions. This statement establishes standards for.the measurement, recognition, and display of other post-employment benefits (OPEB) expenditures and related liabilities (assets); note disclosures, and required supplementary information in the financial reports of the state and local governmental employers. GASB Statement No. 45 requires systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employees' years of service. GASB Statement No. 45 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 state of Washington funds OPEB obligations at a state-wide level on a pay-as-you-go basis. Disclosure information, as required under GASB Statement No. 45, does not exist at department levels, and as a result, the AAL is not available for the University. The state of Washington's Comprehensive Annual. Financial Report (CAFR) includes the state's measurement and recognition of OPEB expense/expenditures, liabilities, note disclosures, and required supplementary information specified by GASB Statement No. 45.

FederalRetirement Plans Selected positions related to.the College of Agricultural, Human, and Natural Resource Sciencesare eligible to participate in two federal retirement systems maintained by the Office of Personnel Management.

Civil Service Retirement System Civil Service Retirement System (CSRS) is a defined benefit retirement plan for employees with federal appointments hired prior to January 1, 1984, and chose not to transfer to Federal Employees Retirement System (FERS). Retirement benefits are vested after an employee completes five years of eligible service.

Employee and employer contributions for the27 enrolled employees on June 30, 2009, were $164,885 and $194,789 respectively.

FederalEmployees Retirement System The Federal Employees Retirement System (FERS) is a defined benefit retirement plan for employees with federal appointments hired after.

December 31, 1983, and those Civil Service Retirement System (CSRS) employees choosing to transfer into this system. Retirement benefits are vested after an employee completes five years of eligible service.

. Employee and employer contributions for the 20 enrolled employees on June 30, 2009, were $1 3,419 and $187,869 respectively.

The rates at June 30, 2009, are as follows:

Employee University CSRS .. 7.000/6 . 7.00%

FERS 0.80% 11.2%

16. Segment Information Revenue bonds are issued from time to time to build new facilities. Net revenues are pledged to cover the cost of debt service. For financial report display, the following are WSU Segments:

Wilson Compton Union Building (CUB)

The Wilson Compton Union Building (the CUB), is an auxiliary enterprise of Washington State University (WSU) that provides various'services to the students of WSU. The CUB houses retail food outlets, banks and the bookstore.lt offers a variety of meeting rooms from small conference space to ballrooms. It also has office space for student government.

Housing and Dining System The Housing & Dining System is a self-sustaining auxiliary enterprise of Washington; State University (@SU). The Housing & Dining System operates residence halls, apartment complexes and food services on WSU campuses.

ParkingServices, Transportationand Visitor Center Parking, Transportation and Visitor Center (Parking Services), provides permits for available campus parking areas, maintains the parking lots and issues fines for parking violations. It also operates the Visitor Center located at the entrance to Pullman. Parking Services is a separate auxiliary enterprise of Washington State University CNSU). The Director of Parking, Transportation and Visitor Center is responsible for managing parking operations of the Pullman campus.

Student Recreation Center The Student Recreation Center was formed in 1998 to construct and operate a health club-type facility for eligible students and associated members of Washington State University (WSU). The Student Recreation Center has over 200 pieces of cardio and weight equipment, 7 courts.

for basketball, volleyball and badminton, roller hockey, indoor soccer, floor hockey and inline skating, 4 racquetball courts, S-lane lap pool, leisure pool, 53-person spa, activity rooms, elevated 4-lane running/walking track and more. Over 3,000 students use the facility each day and over 80%

of students access the facility each semester.

IntercollegiateAthletics The Intercollegiate Athletic Department is a unit of Washington State University (WSU) and manages all intercollegiate athletic programs. WSU is a member of the Pacific 10 Conference and the National Collegiate Athletic Association.

Presented on page 29 are the condensed financial statements as audited by LeMaster Daniels, PLLC.

2.8') Washington State University

Segment Information Wilson Parking Student Compton Union Housing and Transportation & Recreation Intercollegiate Building Dining System Visitor Center Center Athletics Condensed Statement of Net Assets' Assets

• Curiieif'assets $~ .88142 $.16316,174 S 2,164,731 S 5,965,331>. 11,310,447.

Noncurrent assets Capital ass'ets net of accurn ijlated ,33,324 40,843,957:

Other noncurrent assets 5,987,058 Total assets $ 98,246,283 $ 119,648,535 $ 17,413,079 $ 40,499,535 $ 52,154,404 Liabilities

.Currenliabilities. .6,1J47,46 S 14,85,552 $ 10329 .... ,616,67 8702,391 Noncurrent liabilities 38,-40,9 2? 179,401

.7 88e751168 *.term 6,752,7.18* ,429' Other liabilities 2,156,591 1,372,874 ý4,382,191 Total liabilities $ 94,898,624 $ 85,714,861 $ 9,865,648 $ 40,021,966 $ 35,263,983 Net assets Invested in capital asset n te(491,328)$  : 28463591 $ 88843 S (4,850,995Y S 18,069,556 debt .

Restricted, expendable 1,689,935 1,053,606 10,258,854 Unrestricted 2,149,052 544,012 158,588' 5,328,564 11,437,989)

Designated 3,872,465 Total net assets  :  : 3,347,65 ,::233;933,674 7,547,461 .477,569 16,890,421, Total liabilities and net assets $ 98,246,283 $ 119,648,535 $ 17,413,079' $40,499,535 $52,154,404 Condensed Statement of Revenues, Expenses and Changes in Net Assets Operating revenues ( 7,202,802 S779 46,821;7,74 3,633,671 S~ 5, 389, 71 1 (36,907,95S Operating expenses (2,887,729) (35,839,603) (2,709,972) (2,102,253) (3d,927,745)

(2772672) (4,104,433)  :(582,969) (947,019) (1,582,829)

Operating income (loss) 1,542,401 , 6,877,718 340,730 2,340,439 397,381 Nonoperating revenues (expenses)

(4,359,717) (2,135,218) (451,194) (1,961,19) (593,536)

Other-transfers among funds 3,393,386 305,000 39,677 Increase. (decrease) in flet.assets::S, 576,070 S,,047,500 "(110,464) " ~379,280 '(156,478)

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Net assets, beginning of year 2,771,589 28,886,174 7,657,895 98,289 17,046,899 Net assets, end of year $ 3,347,659 $ 33,933,674 $ 7,547,431 $

• 477,569 $ 16,890,421 Condensed Statement of Cash Flows Net cash flows provided by OPeratig19,*. 2,93 1,5 582- $ 11,955,626 $ 1,038,324 S 3,295,282 $ :2,399,275 actiivities Net cash flows used by capital and related (10,751,296) (32,189,022) (1,118,700) (3,329,270) (8,787,614) financing activities Net cash flows provided by investing .. ;6,988,976 19,960,566 - 66,201 -. ., .13,263: ,2-82: 532.

activities :f *~'2""

Net cash flows form noncapital financing 3,393,386 305,000 39,677 activities l'Ifiýraedces in" cash and cash' 2,52,4 8<2,7 5~- 275' -~',~,,~i; 30)

'(3,527j1 Cash and cash equivalents, beginning of 3,481,152 5,150,160 1,970,430 1,069,137 9,289,676 year Cash and cash equivalents, end of year $ 6,043,800 $ 5,182,330 $ 1,956,255 $ 1,048,412 $ 5,762,546 2009 Finandal Reiort

Notes to the Financial Statements

17. Operating Expenses by Program In the Statement of Revenues, Expenses and Changes in Net Assets, Operating Expenses are displayed by natural classification, such as salaries, benefits and .goods and services. The table below summarizes Operating Expenses by Program for the year ended June 30, 2009.

Operating Expenses by Program Compensation Supplies and Scholarships and Depreciation Total and benefits . services fellowships Ilinstmuction~ 5'14,489,13 $ 1 98; 925,784 Research 108,306,214 52,235,954 $ 5,286,959 165,829,127 Pulblic Service 32,499,833 8,603,935 41,ý103,768, Academic support 43,915,413 59,750,472 Student services ,18,23706 3,24, 21',561,317, Institutional support 36,458,267 1,0,166,755 46,625,022 Operation & mraintenanfe 6ftplanti 41,529,1V64 Other operating expenses 10,006,338 26,81 0,278 36,816,616 Auxilary enterprises.. .

.47,97,6 00,837,424 Student financial aid net, 40,185,889 40,185,889 i.e. scholarships included Depteciation g W n $68,493,251 $68,4963,251 Total operating expenses $ 500,498,641 $207,193,094 $ 45,472,848 $ 68,493,251 $821,657,834

18. Pledged Revenues The 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.

For Year Ending June 30, 2009 Currnt year Total futuzc-'e Source of revenue rewvnues Current year revehIues 'Term of pledged pledged (net)' debt serusce pledged' Description of'debt c fcommfitment3 Stuiden~t Fees and carnincgs $ ~5,21 197.S 4,801,S30 S:: :35.1 Student feep e*eoe bo ds issue d for,'

,372,: 2038 on'rnvcsted fc*s tire renovation ~of the Coropton Unions.

Student Fees and earnings 2,888,456- 1'585,944 36,486,386 Athletics revenue bonds issued for the 2031 on invested fees renovation and expansion of Martin Stadium Sonvei~t~s-es and :ar':ings:. 3,S10,910  : 3,007,100 69,1 82,825 Reb*onn*isentsued;'ve'ni.e b2** issui -032 on inv-st-d foes fo the cosruto of the Student Recreation Center. .*. s..'.'

Parkirig System revenues, 1,711,274 772,061 11,-633,554 Parking System revenue bonds issued for. . '2024 net of operating expenses construction of the parking garage Hoýusing and Dinino, 15 5529,570 5 1078,827 -1 ""*.54:..

S , ::::fo*th Dining revenue bonds iss.ed '2038.

-,ienuels net of npelatin g for the construction 'and reno~vation o yarious student housingi pro ects'

.- Operating reyenue net of operating expenses

.Total future principal and interest payments on the debt Ending year of commitment 4-,'i rnt Sttltuest

19. Contingent Liabilities There is a class action lawsuit filed against the state of Washington on behalf of certain employees alleging improper denial of healthcare benefits. Although WSU has not been named as a defendant in the lawsuit, some of the class members are current or former employees of WSU.

Potentially, the state could assess the University with a material share of any amount paid in the event of a settlement or judgment. Due to the status of the lawsuit, the impact upon WSU cannot be assessed with reasonable certainty at present.

Additionally, the University is engaged in various legal actions in the ordinary course of business. Management does not believe the ultimate outcome of these actions will have a material adverse effect on the financial statement.

20. Subsequent Events In October 2009, the University's Student Recreation Center issued $38,425,000 in revenue refunding bonds. The bonds are beingissued for the purpose of refunding the 1998 bonds to achieve debt service savings and to pay the'costs of issuing the bonds. This will result in an in-substance defeasance of the 1998 revenue bonds.

In December 2009, the University issued $111,665,000 in revenue bonds to finance the costs of construction of three new buildings. The bonds are special revenue fund obligations of the University, payable from revenues and investment earnings from the Trust Land Permanent Funds held in trust by the State for the University. Revenues from the Permanent Funds have been pledged to make the debt payments for'as long as the bonds are outstanding. $97 million of the bonds are taxable "Build American" bonds and are eligible for a subsidy from the Federal gov&nment to be used toward the debt service.

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Supplementary Information Enrollment and Degrees Conferred Academic year 2009 2008ý- 2007 2006 2005 Fallenrollment Und;qraat(headcount):(headcount) 2 4 222 9,554 9,281

Graduate head count 1,39,6 3,330 3,320 3,219 3,228 ro.essicnal hen*o 80?.......784. 781 7402" 732-.

re-taI hea OCObnFt 25 3',32 24,396 23,655  : ,3,544 23,241 Fallenrollment.(fiUllmeequivalent -

6$ndergrndd~e FIE 18,904 /,898 1,7 >745 17,21 7 Graduate 'and professional FTE 5,19 Q86 '472 ,60 J'-", 567

. FullItir-ve~equivale,"t-, ) i::. } .. 24,097, 22,98 22,005 21,985 2.1 784 SFeshiman adlniAom, irnfrmation Applica*tions 11,983 10853 9,314 '9j 93 9.508 Acceptanres 8,677 8,240 '7,177 6,793 .. 7,1, 8

',14 3 477 i2,861.< 2,890 3,123

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.4,907 4,818 4,797 4,508 4 '1,33 Masters 711 724 702 741 ' .730 Doctoral .17 1 ' " ' lo.

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Professional '91188 219 169 174 Source: Washington State,.Universit, Institutional Research,.

i" TUition and'IFes, Undergiradua AcaemIc year' Resident Non-Resident . .Rooma*nd Board'

.20691 S18,67 ,j, S 98,886 S6,720 $17,756 $7,38 ,

2007-08 S6,2900 $16,604 S 7,316.

2*06-07 $ 5,527'. $6,590',

2005-06 $5,506 $14,514 $6,280

'Standard room induding double occupancy plus level 2 meal plan SSource:,Washington State University Institutional'Research 32Q'-2 Wirvasht K ,i" JS .,. , S ngtOn State* University.:

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