ML100810150

Submittal of Updated and Supplemental Information to the March 2005 University of Utah Application for a Renewed License in Response to Request Dated December 15, 2009. Part 2 of 2

ML100810150
Person / Time
Site:	University of Utah
Issue date:	03/10/2010
From:	Furse C Univ of Utah
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
TAC ME1599
Download: ML100810150 (115)

Text

Financial Statements

IFor Comparison Only]

2008 2007 ASSETS Current Assets Cash and cash equivalents (Notes 2 & 4) $ 516,750 $ 551,160 Short-term investments (Notes 2 & 4) 419.479 386,385 Receivables, net (Note 5) 288,776 273.385 Inventory (Note I) 35J153 32,374 Other assets (Note 6) 18,891 11,645 Total current assets 1,279,049 1.254.949 Noncurrent Assets Restricted cash and cash equivalents (Notes 2 & 4) 63,995 136.019 Restricted short-term investments (Notes 2 & 4) 25,343 813 Investments (Notes 3 & 4) 268,650 220,613 Restricted investments (Notes 3 & 4) 314.276 327,538 Restricted receivables, net (Note 5) 82,689 69,522 Donated property held for sale 1,969 23165 Other assets (Note 6) 73ý266 15.241 Capital assets, net (Note 7) .1,248,432 1.348.040 Total noncurrent assets 2.178,228 2,020,343 Total assets 3A457.277 3.275,292 LIABILITIES Current Liabilities Accounts payable 86,917 84,506 Accrued payroll 74,752 73.758 Compensated absences & early retirement benefits (Note 1) 4,966 4,509 Deferred revenue (Note 9) 31,947 26,609 Deposits & other liabilities (Notes 11 & 15) 123,175 87.299 Bonds, notes and contracts payable (Notes 14, 15, & 16) 25.497 24,847 Total current liabilities 347,254 3011,528 Noncurrent Liabilities Compensated absences & early retirement benefits (Note I) 39,101 37,123 Deposits & other liabilities (Notes II & 15) 12,617 28.074 Bonds, notes and contracts payable (Notes 14. 15, & 16) 371,264 391.082 Total noncurrent liabilities 422.982 456,*279 Total liabilities 770.236 757,80(7 NET ASSETS Invested in capital assets, net of related debt 993,443 927.224 Restricted for Nonexpendable Instruction 109,208 116,024 Research 36,132 37.334 Public service 53M8(4 56,241 Academic support 33.956 36.021 Scholarships 112.064 109,297 Other 6,455 7.038 Expendable Research 133,498 174,619 Public service 84.935 62.073 Academic support 48,127 53,837 Institutional support 49,663 50.133 Loans 34.978 35,987 Debt service 868 1,146 Capital additions 148.029 158.685 Other 28.395 15.725 Unrestricted 813,486 676.101 Total net assets $ 2.687,041 $ 2,517.485

[For Comparison Onlyl 2008 2007 OPERATING REVENUES AND EXPENSES Revenues Tuition and fees, net (Note 1) $ 160,915 $ 152.820 Patient services, net (Notes I & 13) 937,047 883,032 Federal grants and contracts 187.436 191,764 State and local grants and contracts 14,813 22,612 Nongovernmental grants and contracts 78.566 71,741 Sales and services, net (Note I) 472.607 420,813 Auxiliary enterprises, net (Note 1) 75,404 73,751 Other operat revenues .... -....... 70,320 67,136 Total operatin revenues 1,997.108 1,883,669 Expenses Compensation and benefits 1,226,252 1,133,059 Component units 287,603 250,279 Supplies 252,785 242,070 Purchased services 104,529 116,729 Depreciation and amortization 110.618 104,982 Utilities 56,958 51,131 Cost of goods sold 32.857 31.427 Repairs and maintenance 32,817 24.103 Scholarships and fellowships 24.556 23,766 Other operating expenses 148,065 115,358 Total operatingexpenses 2,277,040 2.092.904 Operating loss ......... (279,932) (209.235)

NONOPERATING REVENUES (EXPENSES)

State appropriations 294,907 265,924 Government grants 18,481 17,307 Gifts 74,449 82,094 Investment income 22,412 128,871 Interest (20,240) (18.229)

Other nonoperating expenses (13,525) (13,313)

Total nonoperating -revenues 376.484 462,654

............

Income before capital and permanent endowment additions 96552 253.419 CAPITAL AND PERMANENT ENDOWMENT ADDITIONS Capital appropriations 12,238 58,397 Capital grants and gifts 43.274 133.617 Additions to permanent endowments 17.492 17,185 Total capital and permanent endowment additions 73,004 209,199 Increase in net assets 169.556 462.618 NET ASSETS Net assets - beginning of year as adjusted (Note 21) 2,517,485 2,054,867 Net assets - end of year $ 2,687.041 S 2.517,485 21

IFmoCompmrison Onlyl 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from wition and fees S 159,0(X) $ 153,169 Receipts front patient services 938.762 865.626 Receipts from contracts and grants 273,833 289.067 Receipts from auxiliary and educational serv ice, 550.095 493.479 Collection of loans to students 4,724 6,368 Pay ments to suppliers (981,253) (814.824)

Payments for compensation and benefits (1.222.823) (1.1 18,223)

Payments for scholarships and fellowships (24.556) (23,766)

Loans issued to students (4,687) (7,812)

Other 84,038 50,603 Net cash used by operating activities (222,867) (11)6,313)

CASH FLOWS FROM NONCAPITAI. FINANCING ACTIVITIES State appropriations 294,907 265,924 Government grants 18.481 17,307 Gifts Endowment 18.527 16.278 Nonendowment 76,879 60,318 Other (13,125) (12,946)

Net cash provided by noncapital financing activities 395k669 346,881 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt 159,260 Capital appropriations 10.945 9.546 Gifts 17.747 20,144 Purchase of capital assets (180.069) (142,393)

Principal paid on capital debt (40,186) (721239)

Interest paid on capital debt (20,011) (18.084)

Net cash used by capital and related financing activities (211.574) (43,766)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 549,863 8721892 Receipt of interest and dividends on investments 62.666 60.272 Purchase of investments (680,191) ( 1,026,740)

Net cash used by investing activities (67.662) (93.576)

Net increase (decrease) in cash (106.434) 103.226 Cash - beginning of year 687.179 583.953 Cash - ending of year . 5807 .4 . $ 687.179 Continued on next page...

22

[For Comparison Only!

2008 2007

.........

RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (279.932) $ (209.235)

Adjustments Depreciation expense 110.618 104,982 Change in assets and liabilities Receivables, net (17,100) (28.363)

Inventory (2,779) (2,369)

Donated property held for sale Other assets (65.270) (2,887)

Accounts payable 2,411 21,012 Accrued payroll 993 11,629 Compensated absences & early retirement benefits 2.435 3,207 Deferred revenue 5,339 2,868

_ Deposits and other liabilities 20.418 (7.157)

Net cash used by operating activities $ (222.867) $ (106,313)

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Capital leases $ 20.389 $ 14,847 Donated property and equipment 8,475 8,299 Completed construction projects transferred from State of Utah (Note I) 1,292 48,851 Annuity and life income 163 163 Increase (decrease) in fair value of investments (42,130) 65,146 Total noncash investing, capital, and financing activities $ (11,811) $ 137.306 23

Notes to Financial Statements

1.

SUMMARY

OF SIGNIFICANT ARUP is a for-profit corporation that provides ACCOUNTING POLICIES clinical and anatomic pathology reference labo-ratory services to medical centers, hospitals, A. Reporting Entity clinics and other clinical laboratories through-out the United States, including UUHC. ARUP The financial statements report the financial activ- contracts with the Department of Pathology of ity of the University of Utah (University), including the University of Utah School of Medicine to pro-the University of Utah Hospitals and Clinics (UUHC). vide pathology consulting services. The fiscal The University is a component unit of the State of year end for ARUP is June 30. Other independent Utah (State). In addition, University administrators auditors audited ARUP and their report, dated hold a majority of seats on the boards of trustees of September 4, 2oo8, has been issued under sepa-two other related entities representing component rate cover.

units of the University.

All Governmental Accounting Standards Board Component units are entities that are legally sepa- (GASB) pronouncements and all applicable Finan-rate from the University, but are financially account- cial Accounting Standards Board (FASB) pronounce-able to the University, or whose relationships with ments are applied by the University, UURF and ARUP the University are such that exclusion would cause in the accounting and reporting of their operations.

the University's financial statements to be mislead- However, in accordance with GASB Statement No.

ing or incomplete. The relationship of the University 2o, Accounting and FinancialReporting for Propri-with its component units requires the financial ac- etary FundA and Other Governmental Entitie" That tivity of the component units to be blended with that UWe ProprietaryFundAccounting, the University has of the University. The component units of the Uni- elected not to apply FASB pronouncements issued versity are the University of Utah Research Founda- after November 30, 1989.

tion (UURF) and Associated Regional and University Pathologists, Inc. (ARUP). Copies of the financial re- Effective with the 2oo8 fiscal year, the University port of each component unit can be obtained from implemented the following new standards issued by the respective entity. the GASB:

- UURF is a not-for-profit corporation governed - GASB Statement No. 45, Accounting and Finan-by a board of directors who, with the exception of cial Reporting by EmployersforPoatemployment one, are affiliated with the University. The opera- BenefitA Other Than Penzion.. Dueto changes tions of UURF include the leasing and administra- in the University's health plan for retirees, the tion of Research Park (a research park located on effects of this standard were immaterial to the land owned by the University), the leasing of cer- University and therefore had no effect on the fi-tain buildings, and the commercial development nancial statements.

of patents and products developed by University personnel. As part of its mission to advance tech- - GASB Statement No. 48, SaleA and PledgeA of nology commercialization, UURF creates new cor- Receivable, and Future RevenueA and Intra-En-porate entities to facilitate the startup process. tity TranAferA of A-A~etA and Future Revenue,.

In general, these entities do not have assets. Ex- Implementation of this standard resulted in penses related to the companies are expensed as slight modifications to ,various disclosures in incurred. The fiscal year end for UURF is June 30. the Notes to the Financial Statements.

UURF is audited by other independent auditors and their report, dated September 29, 2oo8, has - GASB Statement No. 49, Accounting and Finan-been issued under separate cover. cial Reportingfor PollutionRemediation Obliga-tionz. This statement is not effective until fiscal 25

year 2009, however, the University early adopted quirements imposed by the provider have been met.

this standard in the current year. As of June 30, Patient revenue of UUHC and the School of Medicine 2008, the University did not have any remedia- medical practice plan is reported net of third-party tion obligations subject to the accounting and adjustments.

financial reporting obligations of this standard.

C. Inve~tment2 B. Ba~is of Accounting Investments are recorded at fair value in accordance All statements have been prepared using the eco- with GASB Statement No. 31, Accounting and Finan-nomic resources measurement focus and the accrual cial Reporting for Certain InveAtmentA and for Ex-basis of accounting. Operating activities include all ternal Investment PoolA. Accordingly, the change revenues and expenses, derived on an exchange ba- in fair value of investments is recognized as an in-sis, used to support the instructional, research and crease or decrease to investment assets and invest-public service efforts, and other University priori- ment income. The University distributes earnings ties. Significant recurring sources of the University's from pooled investments based on the average daily revenues are considered nonoperating as defined by investment of each participating account or for en-GASB Statement No. 34, Baoic FinancialStatementA dowments, distributed according to the University's

- and Management's DiscuAsion and AnalyiA - for spending policy.

State and Local Government., and required by GASB Statement No. 35, Basic FinancialStatementA - and A portion of the University's endowment portfolio is Management'A Discuwfion and Analy.AiA -for Public invested in "alternative investments". These invest-CollegeA and UniversitieA. Operating revenues in- ments, unlike more traditional investments, gener-clude tuition and fees, grants and contracts, patient ally do not have readily obtainable market values and services, and revenue from various auxiliary and typically take the form of limited partnerships. See public service functions. Nonoperating revenues Note 19 for more information regarding these invest-include state appropriations, gifts, and investment ments and the University's outstanding commitments income. Operating expenses include compensa- under the terms of the partnership agreements. The tion and benefits, student aid, supplies, repairs and University values these investments based on audited maintenance, utilities, etc. Nonoperating expenses financial statements, generally as of December 31, primarily include interest on debt obligations. progressed to the University's financial statement date by taking into account investment transactions Prior to the current, fiscal year revenues from Pell subsequent to the audited statements.

grants and certain governmental grants were includ-ed in operating revenue. These revenues have been D. AllowanceA reclassified as nonoperating revenue and compara-tive information reclassified accordingly. In accordance with GASB Statement No. 34, certain expenses are netted against revenues as allowances.

When both restricted and unrestricted resources The following schedule presents revenue allowances are available, such resources are spent and tracked for the years ended June 30, 2008 and 2007:

at the discretion of the department subject to donor restrictions, where applicable.

Revenue Allowance 20o8 2007 Tuition and fees $ 21,919,239 $ 18,101,747 In accordance with GASB Statement No. 33, Account-Patient services 48,537,228 40,797,926 ing and FinancialReportingfor Nonexchange Trans-Sales and services 23,769 3,530 actions, the University recognizes gifts, grants, ap-Auxiliary enterprises 804,377 750,806 propriations, and the estimated net realizable value of pledges as revenue as soon as all eligibility re-26

E. Inventorie.s benefit, as well as health care and life insurance pre-miums, which is approximately 5o% of their early Bookstore inventories are valued using the retail in- retirement salary, until the employee reaches full ventory method. All other inventories are stated at social security retirement age. In accordance with the lower of cost or market using the first-in, first- GASB Statement No. 47, Accounting for Termination out method or on a basis which approximates cost BenefitA, the amount recognized on the financial determined on the first-in, first-out method. statements was calculated at the discounted present value of the projected future costs. A discount rate F Research and Development CotýA of 4.052% was used and is based on the average rate earned by the University on cash management in-Research and development costs of ARUP are ex- vestments for the fiscal year. The funding for these pensed as incurred. These costs for the year ended early retirement benefits is provided on a pay-as-you-June 30, 2oo8, were approximately $8,380,000. go basis. For the year ended June 30, 2008, these ex-penditures were approximately $2,039,000.

G. Compen~atedAbAenceu & Early Retirement Benefit. H. Construction Employees' vacation leave is accrued at a rate of The Utah State Division of Facilities Construction eight hours each month for the first five years and and Management (DFCM) administers most of the increases to a rate of 16.67 hours7.75463e-4 days <br />0.0186 hours <br />1.107804e-4 weeks <br />2.54935e-5 months <br /> each month after construction of facilities for state institutions, fifteen years of service. There is no requirement to maintains records, and furnishes cost information use vacation leave, but a maximum of thirty days for recording plant assets on the books of the Uni-plus one-year accrual may be carried forward at the versity. Interest expense incurred for construction beginning of each calendar year. Employees are re- of capital facilities is considered immaterial and is imbursed for unused vacation leave upon termina- not capitalized. Construction projects administered tion and vacation leave is expended when used or by DFCM are not recorded on the books of the Uni-reimbursed. The liability for vacation leave at June versity until the facility is available for occupancy.

30, 2008, was approximately $40,801,000.

L Diiclo-Aurez Employees earn sick leave at a rate of eight hours each month, with an accumulation limit of 1,040 Financial information for fiscal year ended June hours. The University does not reimburse employees 30, 2007 is included for comparison only and is not for unused sick leave. Each year, eligible employees complete. Certain reclassifications have been made may convert up to four days of unused sick leave to to the prior year financial statements to conform to vacation leave based on their use of sick leave dur- the current year presentation. Complete information ing the year. Sick leave is expended when used. is available in the separately issued financial state-ments for that year.

In addition, the University may provide early retire-ment benefits, if approved by the Administration 2. CASH, CASH EQUIVALENTS, AND and by the Board- of Trustees, for certain employees SHORT-TERM INVESTMENTS who have attained the age of 6o with at least fifteen years of service and who have been approved for the Cash and cash equivalents consists of cash and University's early retirement program. Currently, short-term investments with an original maturity of lo0 employees participate in the early retirement three months or less. Cash, depending on source of program. The University pays each early retiree an receipts, is pooled, except for cash and cash equiva-annual amount equal to the lesser of 20% of the re- lents held by ARUP and when legal requirements dic-tiree's final salary or their estimated social security 27

tate the use of separate accounts. The cash balances administration to be separately invested or which are are invested principally in short-term investments separately invested to meet legal or donor require-that conform to the provisions of the Utah Code. It ments. Investments received as gifts are recorded at is the practice of the University that the investments fair value on the date of receipt. If fair value is not ordinarily be held to maturity at which time the par available, investments received as gifts are recorded value of the investments will be realized. at a nominal value. Other investments are also re-corded at fair value.

The Utah State Treasurer's Office operates the Utah Public Treasurer's Investment Fund (PTIF) which is UURF receives, in exchange for patent rights, com-managed in accordance with the State Money Man- mon stock of newly organized companies acquiring agement Act. The State Money Management Council these patents. Inasmuch as the stock is ordinarily provides regulatory oversight for the PTIF. The PTIF not actively traded, the fair value is generally not is available for investment of funds administered by ascertainable and any realization from the future any Utah public treasurer. sale of the stock is often uncertain. Therefore, such stock is recorded by UURF at a nominal value. Those Short-term investments have original maturities stocks that are publicly traded are recorded at their longer than three months and remaining maturities fair value on June 30, 2008.

of one year or less.

University personnel manage certain portfolios, At June 30, 2008, cash and cash equivalents and while other portfolios are managed by banks, invest-short-term investments consisted of: ment advisors or through trust agreements.

According to the Uniform Prudent Management of Cash and Cash Equivalents Institutional Funds Act (UPMIFA), Section 51-8 of Cash $ (3,563,463) the Utah Code, the institution may appropriate for Money market funds 1,983,738 expenditure or accumulate so much of an endow-Time certificates of deposit 50,717,860 ment fund as the University determines to be pru-Commercial paper 9,436,549 dent for uses, benefits, purposes, and duration for Obligations of the U.S.

which the endowment was established.

Government and its agencies 336,799,634 Utah Public Treasurer's Investment Fund 185,370,920 The endowment income spending policy at June 30, Total (fair value) $ 580,745,238 2008, is 4% of the twelve quarter moving average of the market value of the endowment pool. The spend-Short-term Investments ing policy is reviewed periodically and any neces-Time certificates of deposit $ 203,895 sary changes are made. In general, nearly all of the U.S. Agencies 59,516,091 University's endowment is subject to spending re-U.S. Treasuries 368,593,698 strictions.

Corporate notes 16,508,376 Total (fair value) $ 444,822,060 The amount of net appreciation on investments of donor-restricted endowments available for autho-rization for expenditure at June 30, 2oo8, was ap-3- INVESTMENTS proximately $92,257,ooo. The net appreciation is a component of restricted expendable net assets.

Funds available for investment are pooled to maxi-mize return and minimize administrative cost, ex-cept for funds that are authorized by the University 28

At June 30, 2008, the investment portfolio composi- At June 30,2008, the carrying amounts of the Univer-tion was as follows: sity's deposits and bank balances were $56,624,250 and $59,468,5O0, respectively. The bank balances Investments of the University were insured for $2oo,ooo, by the U.S. Treasuries $ 139,007,485 Federal Deposit Insurance Corporation. The bank Corporate notes and bonds 5,675,486 balances in excess of $200,000 were uninsured and Asset backed securities 79,283 uncollateralized, leaving $59,268,501 exposed to Mutual funds 425,479,000 custodial credit risk. The University's policy for re-Common and preferred stocks 12,684,902 ducing this risk of loss is to deposit all such balances Total (fair value) $ 582,926,156 in qualified depositories, as defined and required by the Act.

4. DEPOSITS AND INVESTMENTS Investments The State of Utah Money Management Council The Act defines the types of securities authorized (Council) has the responsibility to advise the State as appropriate investments for the University's non-Treasurer about investment policies, promote mea- endowment funds and the conditions for making sures and rules that will assist in strengthening the investment transactions. Investment transactions banking and credit structure of the State, and review may be conducted only through qualified deposito-the rules adopted under the authority of the State of ries, certified dealers, or directly with issuers of the Utah Money Management Act (Act) that relate to the investment securities.

deposit and investment of public funds.

These statutes authorize the University to invest in Except for endowment funds, the University follows negotiable or nonnegotiable deposits of qualified the requirements of the Act (Utah Code, Section 51, depositories and permitted negotiable agreements; Chapter 7) in handling its depository and investment commercial paper that is classified as "first tier" by transactions. The Act requires the depositing of Uni- two nationally recognized statistical rating orga-versity funds in a qualified depository. The Act de- nizations, one of which must be Moody's Investors fines a qualified depository as any financial institu- Service or Standard & Poor's; bankers' acceptances; tion whose deposits are insured by an agency of the obligations of the United States Treasury including federal government and which has been certified by bills, notes, and bonds; bonds, notes, and other evi-the State Commissioner of Financial Institutions as dence of indebtedness of political subdivisions of the meeting the requirements of the Act and adhering to State; fixed rate corporate obligations and variable the rules of the Council. rate securities rated "A" or higher, or the equivalent of "A" or higher, by two nationally recognized statis-For endowment funds, the University follows the re- tical rating organizations; shares or certificates in quirements of the UPMIFA, State Board of Regents' a money market mutual fund as defined in the Act; Rule 541, Management and Reporting of Institu- and the Utah State Public Treasurer's Investment tional Inve-tmenti (Rule 541), and the University's Fund (PTIF).

investment policy and endowment guidelines.

The UPMIFA, Rule 541, and the University's endow-Deposits ment guidelines allow the University to invest en-dowment funds (including gifts, devises, or bequests Custodial Credit Risk: Custodial credit risk for de- of property of any kind from any source) in any of the posits is the risk that, in the event of a bank failure, above investments or any of the following subject to the University's deposits may not be returned. satisfying certain criteria: professionally managed pooled or commingled investment funds registered 29

with the Securities and Exchange Commission or The University's participation in mutual funds may the Comptroller of the Currency (e.g., mutual funds); indirectly expose it to risks associated with using or professionally managed pooled or commingled in- holding derivatives. However, specific information vestment funds created under 501(f) of the Internal about any such transactions is not available to the Revenue Code which satisfy the conditions for ex- University.

emption from registration under Section 3(c) of the Investment Company Act of 1940; any investment Intere.t Rate RiAk: Interest rate risk is the risk that made in accordance with the donor's directions in a changes in interest rates will adversely affect the written instrument; and any alternative investment fair value of an investment. The University's policy funds that derive returns primarily from high yield for managing its exposure to fair value loss arising and distressed debt (hedged or non-hedged), private from increasing interest rates is to comply with the capital (including venture capital, private equity, Act or the UPMIFA and Rule 541, as applicable. For both domestic and international), natural resources, non-endowment funds, Section 51-7-11 of the Act re-and private real estate assets or absolute return and quires that the remaining term to maturity of invest-long/short hedge funds. ments may not exceed the period of availability of the funds to be invested. The Act further limits the The PTIF is not registered with the SEC as an invest- remaining term to maturity on all investments in ment company. The PTIF is authorized and regu- commercial paper, bankers' acceptances, fixed rate lated by the Act, Section 51-7, Utah Code Annotated, negotiable deposits and fixed rate corporate obliga-1953, as amended. The Act established the Council tions to 270-365 days or less. In addition, variable which oversees the activities of the State Treasurer rate negotiable deposits and variable rate securities and the PTIF and details the types of authorized in- may not have a remaining term to final maturity ex-vestments. Deposits in the PTIF are not insured or ceeding two years. For endowment funds, Rule 541 otherwise guaranteed by the State, and participants is more general, requiring only that investments be share proportionally in any realized gains or losses made as a prudent investor would, by considering on investments. the purposes, terms, distribution requirements, and other circumstances of the endowments and by exer-The PTIF operates and reports to participants on an cising reasonable care, skill, and caution.

amortized cost basis. The income, including gains and losses, net of administration fees, of the PTIF are As of June 30, 2oo8, the University had investments allocated based upon the participant's average daily with maturities as shown in Figure j.

balance. The fair value of the PTIF investment pool is approximately equal to the value of the pool shares.

Figurei. Investment Maturities (in years)

Investment Type Fair Value Lessthan:i 1-5 6-1o More than io Money market mutual funds $ 1,699,834 $ 1,699,834 Time cerificates of deposit 203,895 203,895 Commercial paper 9,436,549 9,436,549 Utah Public Treasurer's Investment Fund 185,370,920 185,370,920 U.S. Treasuries 507,601,183 368,593,698 $ 139,007,485 U.S. Agencies 396,315,725 396,315,725 Corporate notes and bonds 22,183,862 16,508,376 5,670,486 $5,000

-Asset backed securities 79,283 79,283 Mutual bond funds 123,484,325 4,484,264 $ 119,000,061 Totals Totals $ 1,246,375,576 $ 978,128,997 $ 149,241,518 $ 119,000,061 $5,000 30

Credit Ri~k: Credit risk is the risk that an issuer or Concentration of Credit Riik: Concentration of other counterparty to an investment will not fulfill credit risk is the risk of loss attributed to the mag-its obligations. The University's policy for reducing nitude of a government's investment in a single is-its exposure to credit risk is to comply with the Act, suer. The University's policy for reducing this risk of the UPMIFA, and Rule 541, as previously discussed. loss is to comply with the Rules of the Council or the UPMIFA and Rule 541, as applicable. Rule 17 of the At June 30, 2008, the University had investments Council limits non-endowment fund investments in with quality ratings as shown in Figure2. a single issuer of commercial paper and corporate obligations to 5-1o% depending upon the total dollar CuAtodial Credit Ri.k: Custodial credit risk for in- amount held in the portfolio.

vestments is the risk that, in the event of a failure of the counterparty, the University will not be able For endowments, the University, under Rule 541, is to recover the value of its investments that are in permitted to establish its own investment policy the possession of an outside party. The University's which adheres to the guidelines established by UP-policy for reducing its exposure to custodial credit MIFA. Accordingly, the University's Pool Asset Allo-risk is to comply with applicable provisions of the cation Guidelines allocates endowment funds in the Act. As required by the Act, all applicable securities following asset classes:

purchased were deliveredversus payment and held in safekeeping by a bank. Also, as required, the own-Asset Class Target Allocation Allocation Range ership of book-entry-only securities, such as U.S. Global Marketable Treasury or Agency securities, by the University's Equities 45% 20% - 60%

custodial bank was reflected in the book-entry re- Global Marketable cords of the issuer and the University's ownership Fixed Income 30% 25% - 50%

was represented by a receipt, confirmation, or state- Alternatives 25% 5% - 30%

J ment issued by the custodial bank.

The University diversifies assets among multiple in-At June 30, 2oo8, the University's custodial bank was vestment managers of varying investment styles to both the custodian and the investment counterparty the extent that such diversification can be expected for $871,221,8o8 of U.S. Treasury and Agency securities to reduce risk without sacrificing expected invest-purchased by the University and $32,695,1oo. of U.S. ment return, or that such diversification may pro-Treasury securities were held by the custodial bank's duce greater investment return without incurring trust department but not in the University's name. any greater risk.

Figure2. Quality Rating Investment Type Fair Value AAA/A-i A Unrated No Risk Money market mutual funds $ 1,699,834 $ 326,162 $ 1,373,672 Time cerificates of deposit 203,895 $ 203,895 Commercial paper 9,436,549 9,436,549 Utah Public Treasurer's Investment Fund 185,370,920 185,370,920 U.S. Treasuries 507,601,183 $ 507,601,183 U.S. Agencies 396,315,725 396,315,725 Corporate notes and bonds 22,183,862 22,178,862 5,000 Asset backed securities 79,283 79,283 Mutual bond funds 123,484,325 123,484,325 Totals $1,246,375,576 $ 406,078,436 $ 22,462,040 $ 310,233,917 $ 507,601,183 31

5. RECEIVABLES Accounts, pledges, and interest receivable include hospital patient accounts, medical services plan ac-counts, trade accounts, pledges, interest income on investments, and other receivables. Loans receiv-able predominantly consist of student loans.

Allowances for doubtful accounts are established by charges to operations to cover anticipated losses from accounts receivable generated by sales and ser-vices and student loans. Such accounts are charged to the allowance when collection appears doubtful.

Any subsequent recoveries are credited to the al-lowance accounts. Allowances are not established 7. CAPITAL ASSETS for pledges or in those instances where receivables consist of amounts due from governmental units or Buildings; infrastructure and improvements, which where receivables are not material in amount. includes roads, curbs and gutters, streets and side-walks, and lighting systems; land; equipment; and The following schedule presents receivables at June library materials are valued at cost at the date of ac-30, 2oo8, including approximately $25,759,000 and quisition or at fair market value at the date of dona-

$56,930,000 of noncurrent loans and pledges receiv- tion in the case of gifts. Buildings, infrastructure able, respectively: and improvements, and additions to existing assets are capitalized when acquisition cost equals or ex-ceeds $5o,ooo. Equipment is capitalized when ac-Accounts $ 368,317,794 quisition costs exceed $5,ooo for the University or Contracts and grants 37,944,936

$l,ooo for UUHC. All costs incurred in the acquisi-Notes 99,431 Loans tion of library materials are capitalized. All campus 32,190,854 Pledges 61,929,965 land acquired through grants from the U.S. Govern-Interest 6,376,721 ment has been valued at $3,000 per acre. Other land 506,859,701 acquisitions have been valued at original cost or fair Less allowances for market value at the date of donation in the case of doubtful accounts (135,394,818) gifts. Buildings, improvements, land, and equip-Receivables, net $ 371,464,883 ment of component units have been valued at cost at the date of acquisition.

6. DEFERRED CHARGES AND Capital assets of the University and its component OTHER ASSETS units are depreciated on a straight-line basis over their estimated useful lives. The estimated useful lives of The costs associated with issuing long-term bonds University assets extends to forty years on buildings, payable are deferred and amortized over the life of fifteen years on infrastructure and improvements, the related bonds using the straight-line method, twenty years on library books, and from five to fifteen which approximates the effective interest method. years on equipment. The estimated useful lives of In addition, goodwill associated with the purchase component unit assets extend to fifty years on build-of certain health clinics and prepaid rent for the ings and improvements and from three to eight years Huntsman Cancer Hospital are amortized using the on equipment. Land, art and special collections, and straight-line method. construction in progress are not depreciated.

32

At June 30, 2008, the University had outstanding adjustments, and death benefits to plan members and commitments for the construction and remodeling of beneficiaries in accordance with retirement statutes.

University buildings of approximately $33,451,000.

The Systems are established and governed by the Capital assets at June 30, 2oo8, are shown in Figure3. respective sections of Chapter 49 of the Utah Code Annotated, 1953, as amended. The Utah State Retire-

8. PENSION PLANS AND ment Office Act provides for the administration of RETIREMENT BENEFITS the Utah Retirement Systems and Plans under the direction of the Utah State Retirement Board (Board)

As required by State law, eligible nonexempt employ- whose members are appointed by the Governor. The ees (as defined by the U.S. Fair Labor Standards Act) Systems issue a publicly available financial report of the University are covered by either the Utah State that includes financial statements and required and School Contributory or Noncontributory or the supplementary information for the Systems. A copy Public Safety Noncontributory Retirement Systems of the report may be obtained by writing to the Utah and eligible exempt employees (as defined by the Retirement Systems.

U.S. Fair Labor Standards Act) are covered by the Teachers Insurance and Annuity Association-Col- Plan members in the State and School Contributory lege Retirement Equities Fund (TIAA-CREF), Fidelity Retirement System are required to contribute 6.oo%

Investments (Fidelity), or the Vanguard Group, Inc. of their annual covered salaries, all of which is paid (Vanguard). Eligible employees of ARUP are covered by the University, and the University is required to by a separate defined contribution pension plan and contribute 9.73% of their annual salaries. In the State a profit sharing plan. and School Noncontributory Retirement System and the Public Safety Noncontributory Retirement Sys-The University contributes to the Utah State and tem, the University is required to contribute 14.22%

School Contributory and Noncontributory and the (with an additional 1.50% to a 4 01(k) salary deferral Public Safety Noncontributory Retirement System program) and 26.75%, respectively, of plan members' (Systems) that are multi-employer, cost sharing, de- annual salaries. The contribution requirements of fined benefit pension plans. The Systems provide the Systems are authorized by statute and specified refunds, retirement benefits, annual cost of living by the Board and the contribution rates are actuari-ally determined.

Figure3. Beginning Balance Additions Retirements Ending Balance Buildings $ 1,310.915,276 $ 48,938,551 $ 1,359,853,827 Infrastructure and improvements 156,032,004 6,403,651 162,435,655 Land 17,267,135 1,611,300 18,878,435 Equipment 536,739,203 59,115,327 $ 32,066,585 563,787,945 Library materials 148,723,428 5,027,708 146,775 153,604,361 Art and special collections 43,518,035 4,129,126 11,000 47,636,161 Construction in progress 104.385,913 119,210.524 32,944,642 190,651,795 Total cost 2,317.580,994 244,436,187 65,169,002 2,496,848,179 Less accumulated depreciation Buildings 525,209,026 45,612,105 570,821,131 Infrastructure and improvements 85,371,495 8,933,074 94,304,569 Equipment 369,728,047 49,558,249 30,205,958 389,080,338 Library materials 88,839,919 5,761,994 94,601,913 Total accumulated depreciation 1,069,148,487 109,865,422 30,205,958 1,148,807,951 Capital assets, net $ 1,248,432,507 $ 134,570,765 $ 34,963,044 $ 1,348,040,228 33

TIAA-CREF, Fidelity, and Vanguard provide individ- ue paying social security taxes, ARUP makes contri-ual retirement fund contracts with each participat- butions each pay period amounting to 8.io% of their ing employee. Employees may allocate contributions compensation and do not have any social security by the University to any or all of the providers and tax contributions made by ARUP on their behalf. All the contributions to the employee's contract(s) be- minimum service and vesting requirements relating come vested at the time the contribution is made. to pension contributions have been eliminated for Employees are eligible to participate from the date all employees and contributions become vested at of employment and are not required to contribute to the time the contribution is made.

the fund. Benefits provided to retired employees are based on the value of the individual contracts and Contributions to the profit sharing plan are at the the estimated life expectancy of the employee at re- discretion of ARUP and are made subject to certain tirement. For the year ended June 30, 2008, the Uni- tenure-based and hours-worked thresholds. Employ-versity's contribution to these defined contribution ees are fully vested in the profit sharing plan after pension plans was 14.20% of the employees' annual five years of service.

salaries. Additional contributions are made by the University based on employee contracts. The Univer- For the years ended June 30, 2008, 2007, and 2006, sity has no further liability once contributions are the University's contributions to the Systems were made. Certain UUHC employees hired prior to Janu- equal to the required amounts, as shown in Figure4.

ary 1, 2001, were fully vested as of that date. Employ-ees hired subsequent to January 1, 2oo0, are eligible 9. DEFERRED REVENUE to participate in the plan one year after hire date and vest after six years. The University's contribution Deferred revenue consists of summer session tuition for these health clinic employees was 3.00% of the and fees, advance payments on grants and contracts, employees' annual salaries. advance ticket sales for various athletic and cultural events, and results of normal operations of auxiliary The ARUP defined contribution pension and profit enterprises and service units.

sharing plans provide retirement benefits for all em-ployees. Effective August 4, 2007, ARUP implement- io. FUNDS HELD IN TRUST ed a change in the defined contribution pension plan BY OTHERS which allows employees to choose whether to contin-ue to pay into the federal social security tax system Funds held in trust by others are neither in the pos-or to participate in an enhanced ARUP retirement session of nor under the management of the Uni-program. For those who choose to continue to pay so- versity. These funds, which are not recorded on cial security taxes, ARUP makes contributions each the University's financial records and which arose pay period amounting to 5.oo% of their compensa- from contributions, are held and administered by tion and ARUP continues to make matching social external fiscal agents, selected by the donors, who security tax contributions. For those who discontin- distribute net income earned by such funds to the Figure,4. 2008 2007 2oo6 State and School Contributory Retirement System $ 1,555,310 $ 1,581,565 $ 1,489,378 State and School Noncontributory Retirement System 25,209,056 24,259,347 22,257,303 Public Safety Noncontributory Retirement System 316,579 328,163 289,291 TIAA-CREF- 63,247,520 70,903,307 65,126,133 Fidelity 7,457,205 Vanguard 1,808,724 Pension plan 7,280,524 3,498,662 3,140,908 Profit sharin*g plan 7,036,696 6,050,982 4,723,787 Total contributions $ 113,911,614 $ 106,622,026 $ 97,026,800 34

University, where it is recorded when received. The The estimated self-insurance claims liability is fair value of funds held in trust at June 30, 2o08, was based on the requirements of GASB Statement No.

$90,822,788. lo, Accounting and FinancialReporting for RiLAk Fi-nancing and Related Insurance IA&ue., as amended In addition, certain funds held in trust by others are by GASB Statement No. 30, RiLk FinancingOmnibus, comprised of stock, which is reported at a value of which requires that a liability for claims be reported

$9,622,820 as of June 30, 2oo8, based on a predeter- if information prior to the issuance of the financial mined formula. The fair value of this stock as of June statements indicates that it is probable that a li-30, 2008 cannot be determined because the stock is ability has been incurred at the date of the financial not actively traded. statements and the amount of the loss can be rea-sonably estimated.

ni. RISK MANAGEMENT Changes in the University's estimated self-insur-The University maintains insurance coverage for ance claims liability for the years ended June 30 are commercial general liability, automobile, errors and shown in Figure5.

omissions, and property (building and equipment) through policies administered by the Utah State The University has recorded the investments of the Risk Management Fund. Employees of the Univer- malpractice liability trust funds at June 30, 2008, sity and authorized volunteers are covered by work- and the estimated liability for self-insurance claims ers' compensation and employees' liability through at that date in the Statement of Net Assets. The in-the Workers' Compensation Fund of Utah. come on fund investments, the expenses related to the administration of the self-insurance and mal-In addition, the University maintains self-insurance practice liability trust funds, and the estimated pro-funds for health care, dental, and auto/physical dam- vision for the claims liability for the year then ended age, as well as hospital and physicians malpractice are recorded in the Statement of Revenues, Expens-liability self-insurance funds. The malpractice li- es, and Changes in Net Assets.

ability self-insurance funds are held in trust with an independent financial institution in compliance 12. INCOME TAXES with Medicare reimbursement regulations. Based on an analysis prepared by an independent actuary, The University, as a political subdivision of the State, the administration believes that the balance in the has a dual status for federal income tax purposes.

trust funds as of June 30, 2oo8, is adequate to cov- The University is both an Internal Revenue Code er any claims incurred through that date. The Uni- (IRC) Section 115 organization and an IRC Section versity and UUHC have a "claims made" umbrella 501(c)(3) charitable organization. This status ex-malpractice insurance policy in an amount consid- empts the University from paying federal income tax ered adequate by its respective administrations for on revenue generated by activities which are directly catastrophic malpractice liabilities in excess of the related to the University's mission. This exemption trusts' fund balances. does not apply to unrelated business activities. On these activities, the University is required to report and pay federal and state income tax.

Figure5.

2oo8 2007 Estimated claims liability - beginning of year $ 66,157,336 $ 54,505,514 Current year claims and changes in estimates 147,574,679 153,046,890 Claim payments, including related legal and administrative expenses (143,202,964) (141,395,068)

Estimated claims liability - end of year $ 70,529,051 $ 66,157,336 35

UURF is not subject to income taxes under Section B. Charity Care 501(c)(3) of the Internal Revenue Code.

UUHC maintains records to identify and monitor ARUP is also not subject to income taxes based on a the level of charity care it provides. Based on estab-private letter ruling from the Internal Revenue Ser- lished rates, the charges foregone as a result of char-vice stating that certain income providing an essen- ity care during the year ended June 30, 2oo8, were tial governmental function is exempt from federal in- approximately $27,829,000.

come taxes under Internal Revenue Code Section 115.

14. LEASES

13. HOSPITAL REVENUE A. Revenue A. Net PatientService Revenue UURF receives lease revenues from noncancellable UUHC reports net patient service revenue at the sublease agreements with tenants of the Research estimated net realizable amounts from patients, Park and from tenants occupying six buildings owned third-party payors, and others for services rendered, by UURF. The lease revenue to be received from these including estimated retroactive adjustments under noncancellable leases for each of the subsequent five reimbursement agreements with third-party payors. years is $6,5oo,ooo, and for eighteen years there-Retroactive adjustments are accrued on an estimated after, comparable annual amounts. Most lease rev-basis in the period the related services are rendered enue is subject to escalation based on changes in the and adjusted in future periods as final settlements Consumer Price Index (CPI). Since such escalations are determined. Charity care is excluded from net are dependent upon future changes in the CPI, these patient service revenue. escalations, if any, are not reflected in the minimum noncancellable lease revenues listed above.

UUHC has third-party payor agreements with Medi-care and Medicaid that provide for payments to At June 30, 2oo8, the historical cost of land and UUHC at amounts different from established rates. buildings held for lease and the related accumulated Inpatient acute care services rendered to Medicare depreciation were $39,153,488 and $12,323,859, re-and Medicaid program beneficiaries are paid at pro- spectively.

spectively determined rates per discharge. These rates vary according to a patient classification sys- B. Commitments tem that is based on clinical, diagnostic, and other factors. Outpatient services rendered to Medicaid The University leases buildings and office and com-program beneficiaries and certain outpatient ser- puter equipment. Capital leases are valued at the vices and defined capital costs related to Medicare present value of future minimum lease payments.

beneficiaries are paid on a cost reimbursement ba- Assets associated with the capital leases are re-sis. Medicare reimbursements are based on a tenta- corded as buildings and equipment together with tive rate with final settlement determined after sub- the related long-term obligations. Assets currently mission of annual cost reports by UUHC and audits financed as capital leases amount to $7,420,000 thereof by the Medicare fiscal intermediary. and $88,o65,655 for buildings and equipment, re-spectively. Accumulated depreciation for these The estimated final settlements for open years are buildings and equipment amounts to $556,5oo and based on preliminary cost findings after giving consid- $50,024,845, respectively. Operating leases and re-eration to interim payments that have been received lated assets are not recorded in the Statement of Net on behalf of patients covered under these programs. Assets. Payments are recorded as expenses when incurred and amount to approximately $26,309,626 for the University and $5,1o8,023 for component 36

units for the year ended June 30, 2008. Total oper- The State Board of Regents issues revenue bonds to ating lease commitments for the University include provide funds for the construction and renovation of approximately $12,049,426 of commitments to com- major capital facilities and the acquisition of capital ponent units. equipment for the University. In addition, revenue bonds have been issued to refund other revenue Included in the above component unit tease expens- bonds and capitalized leases.

es are leases by ARUP for its principal laboratory and office buildings, under long-term agreements, The revenue bonds are special limited obligations from a real estate investment trust in which one of of the University. The obligation for repayment is its directors is a shareholder. The agreements have solely that of the University and payable from the initial terms of fifteen years with two five-year re- net revenues of auxiliary enterprises and UUHC, stu-newal options and include rent increases of two to dent building fees, land grant income, and recovered three percent annually in the sixth and eleventh indirect costs. Neither the full faith and credit nor years from the commencement of the lease. Total the taxing power of the State or any other political lease payments for the year ended June 30, 2008 subdivision of the State is pledged to the payment were $4,811,812. of the bonds, the distributions or other costs associ-ated with the bonds.

Future minimum lease commitments for operating and capital leases as of June 30, 2008 are shown in Figure 6. In 1985, the State Board of Regents authorized the University to issue Variable Rate Demand Industrial

15. BONDS PAYABLE AND OTHER Development Bonds (University Inn Project - 1985 LONG-TERM LIABILITIES Series) for the Salt Lake City Marriott - University Park Hotel, separate from the University. The bonds The long-term debt of the University consists of are payable from the revenues of the hotel and the bonds payable, certificates of participation, capital University has no responsibility or commitment for lease obligations, compensated absences, and other repayment of the bonds. The outstanding balance of minor obligations. the bonds at June 30, 2008, is $5,6oo,ooo.

Figure 6. Fiscal Year Operating Capital 2009 $ 25,259,903 $ 14,208,656 2010 22,341,808 11,962,653 2011 19,829,233 9,784,566 2012 16,963,371 7,732,049 2013 14,622,137 5,306,211 2014- 2018 43,714,329 4,911,628 2019-2023 20,765,407 2,883,041 2024 - 2028 5,317,368 144,378 2029 - 2029 31,964 Total future minimum lease payments $ 168,845,520 56,933,182 Amount representing interest (6,462,427)

Present value of future minimum lease payments $ 50,470,755 37

The Series 19 9 7 A Auxiliary and Campus Facilities the principal amount plus accrued interest. If any Revenue Bonds currently bear interest at a weekly Series 2oo6B bonds cannot be remarketed to new rate in accordance with the bond provisions. When holders, the tender agent is required to draw on an a weekly rate is in effect, the Series 1997A Bonds are irrevocable standby bond purchase agreement to pay subject to purchase on the demand of the holder at a the purchase price of the bonds delivered to it. The price equal to principal plus accrued interest on sev- standby bond purchase agreement is with DEPFA en days notice and delivery to the University's tender Bank and is valid through October 25, 2013. Through agent. The University's remarketing agent is autho- June 30, 2008, no funds have been drawn against the rized to use its best efforts to sell the repurchased standby bond purchase agreement. The interest re-bonds at a price equal to ioo percent of the principal quirement for the Series 2oo6B Bonds is calculated amount by adjusting the interest rate. If any Series using an annualized interest rate of 7.00%, which is 19 9 7 A Bonds cannot be remarketed to new holders, the rate in effect at June 30, 2008.

the tender agent is required to draw on an irrevoca-ble standby bond purchase agreement to pay the pur- The University has received funding from the U. S.

chase price of the bonds delivered to it. The standby Department of Health and Human Services, through bond purchase agreement is with JPMorgan Chase the Utah State Department of Health (Department),

Bank and is valid through July 30, 2o0o. Through for medical education. The receipt of such funds was June 30, 2008, no funds have been drawn against the inconsistent with the timing requirements of the standby bond purchase agreement. The interest re- plan administered by the Department. The Depart-quirement for the Series 199 7 A Bonds is calculated ment has requested that those funds be returned using an annualized interest rate of i.6o%, which is during fiscal year 2009. Accordingly, the University the rate in effect at June 30, 2008. has recorded a current liability for the amount due the Department in the amount of $32,830,770.

The Hospital Revenue Bonds Series 2oo6B currently bear interest at a daily rate in accordance with the bond provisions. When a daily rate is in effect, the Series 2oo6B Bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest. The University's remarketing agent is authorized to use its best efforts to sell the repurchased bonds at a price equal to ioo percent of 38

The following schedule lists the outstanding bonds payable and certificates of participation of the University at June 30, 2008:

Date Maturity Interest Original Current Balance Issue Issued Date Rate Issue Liability 6/3o/2oo8 Auxiliary and Campus Facilities Series 1987A- Refunding 3/1/87 2014 3.750% - 6.750% $ 11,140,000' $ 235,000. $ 1,050,000 Series 1997A - Revenue 7/31)/97 2027 Variable 52,59(,000 1,190,000 10,000,000 Series 1998A - Revenue & Refunding 7/1/98 2016 4.100% - 5.250% 120,240,000 22,972 53,687,274 Series 1999A - Revenue 5/1/99 2014 4.000% - 4.800% 5,975,000 442,267 2,982,234 Series 2001 - Revenue 7/18/01 2021 3.500% - 5.125% 2,755,000 118,698 2,092,173 Series 2005A - Refunding 8/2/05 2021 3.000% - 5.000% 42,955,000 2,703,056 42,961,100 Hospital Series 1998A - Revenue 6/1/98 2013 5.250% - 5.375% 25,020,000 3,232,594 3,232,594 Series 2005A - Revenue & Refunding 7/14/05 2018 4.500%- 5.000% 30,480,000 71,675 32,326,434 Series 2006A - Revenue & Refunding 10/26/06 2032 4.000% - 5.250% 77,145,000 108,382 82,125,098 Series 2006B - Revenue 10/26/06 2032 Variable 20,240,000 20,240,000 Research Facilities Series 2004A - Revenue 6/30/104 2019 3.000% - 4.700% 9,685,000 552,279 7,565,902 Series 2005A - Revenue 2/15/05 2025 3.000% - 5.000% 5,515,000 214,885 5,060,896 Series 2005B - Refunding 6/07/05 2020 3.000% - 5.000% 20,130,000 1,475,308 16,742,019 Series 2007A - Revenue 6/28/07 2022 4.600% - 4.740% 10,000,000 495,000 9,420.00 Certificates of Participation Series 2007 4/3/07 2027 4.000% - 5.500% 42,450,000 721,730 41,589.777 Total $ 11,583,846 $ 331,075,501 UURF has purchased three buildings with two mortgages that are guaranteed by the University. The remaining amounts of the mortgages are $5,755,536 at 8.87% interest and $2,828,953 at 7.15% interest. The mortgages will be paid off on April 1, 2o20 and September i, 2o21, respectively. In addition, UURF agreed to bear 42.04% of the cost to renovate the building at 417 Wakara Way for the Health Science Center. The remaining balance of debt related to those costs is $3,167,714 at interest rates ranging from 3.00% to 4.70%.

The following schedule summarizes the changes in long-term liabilities for the year ended June 30, 2oo8:

Beginning Additions Reductions Ending Current Balance Balance Portion Bonds payable $ 302,423,548 $ 12,937,824 $ 289,485,724 $ 10,862,116 Certificates of participation 42,677,861 1,088,084 41.589,777 721,730 Capital leases payable 55,277,595 $ 20,389,309 25,196,149 50,470,755 12,533,154 Notes and contracts payable 15.549,775 849,271 1,185,005 15,214,041 1,379,715 Total long-term debt 415,928,779 21,238,580 40,407,062 396,760,297 25,496,715 Compensated absences 41,632,191 31,578,884 29,143,491 44,067,584 4,966,130 Deposits & other liabilities 96,699,286 126,438,838 87,346,301 135,791,823 123,174,904 Total long-term liabilities $ 554,260,256 $ 179,256,302 $ 156,896,854 $ 576,619,704 $ 153,637.749 39

Maturities of principal and interest requirements for long-term debt payable are as follows: Amount Function (in thousands)

Instruction $ 282,156 Payments Research 212,235 Fiscal Year Principal Interest Public service 416,931 2009 $ 25,496,715 $ 18,393,270 Academic support 78,307 2010 24,722,221 17,340,647 Student services 20,252 2011 25,464,800 16,309,694 Institutional support 63,929 2012 22,277,604 15,264,687 Operation & maintenance of plant 56,004 2013 20,600,783 14,360,831 Student aid 38,588 2014-2018 82,674,286 59,966,793 Other 442,392 2019-2023 77,765,066 40,217,701 Hospital 666,246 2024 -2028 75,509,695 21,769,999 Total $ 2,277,040 2029 -2032 42,249,127 3,901,443 Total $ 396,760,297 $ 207,525,065

18. PLEDGED BOND REVENUE Interest related to bonds systems with pledged reve-The University issues revenue bonds to provide nues amounts to $173,844,181 and is included in the funds for the construction and renovation of ma-interest amounts in the above schedule.

jor capital facilities and the acquisition of capital equipment for the University. Investors in these

16. RETIREMENT OF DEBT bonds rely solely on the net revenue pledged by the following activities for the retirement of outstand-In prior years, the University defeased certain reve-ing bonds payable.

nue bonds by placing the proceeds of new bonds and various bond reserves in irrevocable trusts to pro-Auxiliary EnterpriLe6 - is comprised of spe-vide for all future debt service payments on the old cific auxiliary enterprises, namely: University bonds. Accordingly, the trust account assets and the Bookstore, Housing and Residential Education, liability for the defeased bonds are not included in University Student Apartments, Commuter Ser-the University's financial statements. The total prin-vices, Jon M. Huntsman Center, Rice-Eccles Sta-cipal amount of defeased bonds held in irrevocable dium, and the Olpin Student Union Building.

trusts at June 30, 2008, is $58,540,000.

These auxiliaries provide on-campus services for the benefit of students, faculty and staff. In addition to the net revenues of these auxiliaries,

17. FUNCTIONAL CLASSIFICATION student building fees, state land grant income OF EXPENSES and a subsidy from the federal department of Housing and Urban Development are pledged to The following schedule presents operating expenses the retirement of all Auxiliary Campus and Fa-by functional classification for the year ended June cility bonds.

30, 2008:

Univernity of Utah Ho.pitalA & Clinics - is com-prised of the University Hospitals, the Universi-ty Neuropsychiatric Institute, and other clinics that provide health and psychiatric services to the community.

40

Reimbursed Overhead - is the revenue generated 30, 2008, which has affected the University's invest-by charging approved facilities and administra- ment portfolio.

tion rates to grants and contracts.

21. PRIOR PERIOD ADJUSTMENT Figure 7 presents the net revenue pledged to the appli-cable bond system and the principal and interest paid In fiscal year 2002, the State of Utah issued bonds to for the year ended June 30, 2008. finance construction of the Huntsman Cancer Hos-pital. The University entered into an operating lease

19. COMMITMENTS AND agreement with the State where the lease payments CONTINGENCIES were equal to the debt service of the bonds. Lease ex-pense was recorded on a cash basis but should have Under the terms of various limited partnership been amortized over the life of the bonds.

agreements approved by the Board of Trustees or by University officers, the University is obligated to In fiscal year 2oo8, the University determined that make periodic payments for advance commitments the lease transaction had been recorded incorrectly to venture capital and private equity investments. As resulting in a prior period adjustment to beginning of June 30, 2008, the University had committed, but net assets. Because fiscal year 2007 amounts are not paid, a total of $17,659,128 in funding for these presented, for comparison only, the adjustment was alternative investments. made to fiscal year 2007 beginning net assets and operating expenses. Operating expenses were in-2o. SUBSEQUENT EVENTS creased in fiscal year 2007 by $517,918.

On October 7,2008, the University issued $9,36o,ooo The adjustments of $18,i56,16o reduced fiscal year of Research Facilities Revenue Refunding Bonds, 2007 beginning net assets from $2,073,023,227 Series 2oo8A. Principal on the bonds is due annu- to $2,054,867,o67. A corresponding liability of ally commencing April i, 2009 through April i, 2022. $18,674,079 was also recorded for the fiscal year Bond interest is due semiannually commencingApril 2007 restatement. Ending net assets for fiscal year 1, 2009 at rates ranging from 3.25% to 5.00%. Pro- 2007 were previously reported as $2,536,158,678, but ceeds from these bonds will be used to fully refund have likewise been reduced by $18,674,079 to reflect Research Facilities Revenue Bonds, Series 200 7 A. this adjustment and are reported as $2,517,484,599 in the Statement of Net Assets and the Statement of The financial markets have experienced volatility Revenues, Expenses, and Changes in Net Assets.;

and downward pressure on asset value since June Bond Systems Figure7.

Auxiliary &Campus Facilities Hospital Research Facilities Revenue Operating revenue $ 65,294.285 $ 768,272,427 $ 59,857,357 Nonoperating revenue 5,629,038 7,629,076 Total revenue 70,923,323 775,901,503 59,857,357 Expenses Operating expenses 54,067,211 705,370,663 49,698,404 Nonoperating expenses 193,339 Total expenses 54,067,211 705,564,002 49,698,404 Net pledged revenue $ 16,856,112 $ 70,337,501 $ 10,158,953 Principal paid and interest expense $ 11,045,819 $9,175,277 $7,975,198 41

THE UNIVERSITY OF UTAH I Governing Board. and Officer.

UTAH STATE BOARD OF REGENTS UNIVERSITY ADMINISTRATION led H. Pitcher Michael K. Young Chair Pre-Aident Bonnie Jean Beesley A. Lorris Betz Vice Chair Senior Vice Presidentfor Health ScienceA David W. Pershing Jerry C. Atkin Senior Vice Pre-Aidentfor Academic AffairA Janet A. Cannon Jack W. Brittain Rosanita Cespedes Vice PreAidentfor Tech Venture Development France A. Davis Arnold B. Combe Katharine B. Garff Vice PreAidentforAdministrativeService-A Greg W. Haws Fred C. Esplin Meghan Holbrook Vice Pre.Aidentfor InAtitutional Advancement David 1. Jordan Joan E. Gines Nolan E. Karras Interim Vice Pre-Aidentfor Human ReAourceA Robert S. Marquardt Stephen H. Hess Anthony W. Morgan Chief Information Officer Basim Motiwala John K. Morris Marlon 0. Snow Vice PreAident/GeneralCoun.Ael Teresa L. Theurer Thomas N. Parks Joel D. Wright Vice PreAidentfor ReAearch John H. Zenger Barbara H. Snyder Vice PreAidentfor Student AffairA William A. Sederburg Kim Wirthlin CommisAioner of Higher Education Vice PreAidentfor Government RelationA BOARD OF TRUSTEES FINANCIAL AND BUSINESS SERVICES Randy L. Dryer Jeffrey J. West Chair A~A.ociate Vice PreAidentfor Financialand BuAineAA ServiceA H. Roger Boyer Theresa L. Ashman Vice Chair Controller/DirectorFinancial Management Stephen P. Allen Timothy B. Anderson AAaociate Directorfor FinancialAccounting C. Hope Eccles and Reporting Clark D. Ivory Barbara K. Nielsen Michele Mattsson A-Aociate Directorfor ComplianceAccounting Scott S. Parker and Reporting Patrick Reimherr Lorena Riffo-Jenson James M. Wall Spencer F. Eccles Treo~urer Laura Snow Secretary 42

ANNUAL FINANCIAL REPORT PREPARED BY; The University of Utah I Controller's Office 201 South Presidents Circle, Room 408 1 Salt Lake City, Utah $4112-9023 (801) 581-5077 1Fax (801) 585-5257 UINIII I¶

©t U1J¶N

THE UNIVERSITY OF UTAH

tI

MeAAage from the PreAident As Utah's flagship institution of higher education, the University of Utah stands tall among the nation's top universities. The University's "reach" is vast-posi-tively influencing intellectual, economic, and cultural life for all Utah's citizens and communities, and indeed for countless people throughout the nation and world. Our international focus on research and teaching; our interdisciplinary infrastructure; and our centers of excellence in business, science, law, medicine, technology, and the arts are contributing to the greater good. In addition, new and evolving partnerships on campus and with communities and state govern-ment are creating world-class synergy while simultaneously enhancing student engagement. Together, this sense of academic synergy is empowering us to meet the challenges presented by an ever-shrinking globe and to take full advantage of the extraordinary opportunities this changing world offers.

The extent of the University's reach and the synergism it fosters are perhaps best epitomized in the recent announcement that Dr. Mario R. Capecchi, distinguished professor of human genetics and biology at the University of Utah's Eccles Institute of Human Genetics and a Howard Hughes Medical Institute Investigator, has won the 2007 Nobel Prize in Physiology or Medicine. The prize recognizes Dr.

Capecchi's pioneering development of a gene-targeting technique that has revolutionized the study of mam-malian biology and allowed the creation of animal models for hundreds of human diseases. His groundbreaking work will have an incalculable impact on generations to come-enabling people across the globe to live healthi-er, longer, and more productive lives. Upon receiving notification of this award, Dr. Cappechi stated that "this is a tremendous honor for our University, our Department of Human Genetics, for all the members of my laborato-ry, past and present who have contributed to this work."

We celebrate this pinnacle of scientific achievement for one of our own, and recognize that it resulted from years of dedicated work and collaboration that was, at the time, less widely known. There are many great examples of other promising, but less widely known, projects and initiatives taking place throughout the University-in class-rooms, libraries, laboratories, clinics, and offices. We are working collectively to improve the future. Of numer-ous examples that could be cited, I highlight just two:

We are in the midst of a University-wide initiative to reach out to former U students who have completed most of their coursework but-for whatever reasons-have not completed their bachelor's degrees. This ini-tiative provides academic advising, offers individualized connections with academic programs and depart-ments, and perhaps most important, makes available a team of University agencies that can identify finan-cial resources, child care options, and career opportunities to facilitate success.

We have identified more than 4,000 students who, in the last lo years, completed 90 or more credits at the University, but did not complete their degree. We are seeking them out and inviting them back. They deserve the opportunity to reach their dreams.

We are also in the midst increasing our commitment to a sustainable environment in new and exciting ways. In the academic realm, we have augmented opportunities for students and faculty to be involved in environmental issues and dialogue. In addition to an undergraduate Environmental Studies program, an Environmental Communication division within the Communication Department, and the Wallace Stegner Center, we have established a new Environmental Humanities graduate program. After completing this program, graduates are empowered with the experience and knowledge to enter a number of fields-aca-2

demic, governmental, media, legal, and business-that require expertise in environmental theory, sustain-ability, and policy.

We havealso established an Office of Sustainability to support our commitment to becoming a more sus-tainable campus. University students played a key role in instigating and writing a proposal for establish-ment of this office. The office will be a focal point for promoting practices and policies, such as the exist-ing recycling and utility conservations programs, to help the University operate more efficiently and reduce the U's impact on both the natural environment and the surrounding community. It will produce a baseline ecological footprint analysis, identify future sustainability targets, and will also promote sustain-ability-related curriculum while working toward use of the campus itself as a laboratory for sustainability in teaching and research.

I am pleased to report that the University remains in good financial condition, thanks to the efforts and generos-ity of a broad community of students, faculty, administrators, staff, alumni, and friends. I believe the accompa-nying statements detailing our assets, revenues,, endowments, investments and other financial statistics pres-ent a positive picture. Like any picture, however, it represents a limited view of its subject. As you review this report I urge you to also contemplate the extraordinary enterprise it represents. The University of Utah is dedi-cated in the fullest sense to the greater good through teaching, research, and public service. Its reach is truly astounding.

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STATE OF UTAH

....... DEPUTY STATE AUDITOR:

Office of the State Auditor Joe Christensen, CPA UTAH STATE CAPITOL COMPLEX

'...EAST OFFICE BUILDING, SUITE E3 10 FINANCIAL AUDIT DIRECTORS:

P.O. BOX 142310 H. Dean Eborn, CPA SALT LAKE CITY, UTAH 84114-2310 Deborah A. Empey, CPA (801) 538-1025 Stan Godfrey, CPA G. Johnson, CPA Fn Jon T. Johnson, CPA Austo UTAH STATE AUDITOR Independent State Auditor's Report To the Board of Trustees, Audit Committee, and Michael K. Young, President University of Utah We have audited the accompanying basic financial statements of the University of Utah (hereinafter referred to as the "University"), a component unit of the State of Utah, as of and for the year ended June 30, 2007, as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the University of Utah, Hospitals and Clinics or the University's blended component units, which represent approximately 21% ($688,998,000) of total assets and 42% ($1,006,499,000) of total revenues of the University.

Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Utah Hospitals and Clinics and the component units, is based on the reports of the other auditors. The prior year partial comparative information has been derived from the University's 2006 financial statements and, in our report dated September 29, 2006, we expressed an unqualified opinion, based on our audit and the reports of other auditors, on the financial statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the blended comfponent units were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2007, and the changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

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In accordance with Government Auditing Standards,we have also issued our report dated October 26, 2007 on our consideration of the University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

The accompanying management's discussion and analysis, as listed in the table of contents, is not a required part of the financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the inform/ation and express no opinion on it.

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Auston G. Johnson, C Utah State Auditor October 26, 2007 5

t INTRODUCTION tradition of excellence in teaching and advancement of medical science and patient The following discussion and analysis provides care-consistently ranking among the best health an overview of the financial position and care systems in the western United States.

activities of the University of Utah (University) for the year ended June 30, 2007, with selected The University consistently ranks as one of the comparative information for the year ended June nation's top universities by various measures of 30, 2oo6. This discussion has been prepared by quality, both in general academic terms and in management and should be read in conjunction terms of strength of offerings in specific with the financial statements and the notes academic disciplines and professional subjects.

thereto, which follow this section. Excellence in research is another crucial element in the University's high ranking among The University is a comprehensive public educational institutions. Research is central to institution of higher learning with approximately the University's mission and permeates its 28,600 students, 2,300 faculty members and more than 2o,ooo supporting staff. The University schools and colleges.

offers a diverse range of degree programs from In addition to the academic schools, colleges, and baccalaureate to post-doctoral levels, through a departments, the University operates the framework of 15 schools, colleges and divisions, University of Utah Research Foundation (UURF), a and contributes to the state and nation through separately incorporated entity that specializes in related research and public service programs.

applied research, the transfer of patented technol-The University also maintains a prestigious ogy to business entities, leasing and administra-health care complex through its University of Utah Hospitals and Clinics (UUHC). The UUHC tion of Research Park (a research park located on consists of three hospitals and numerous land owned by the University), and the leasing of specialty clinics. The UUHC is an integral part of certain buildings. Also, a wholly-owned, separate-the University's health care system that also ly incorporated enterprise, the Associated includes the University's School of Medicine and Regional and University Pathologists, Inc. (ARUP) the Colleges of Health, Nursing, and Pharmacy. provides pathology services to regional and The University's health care system has a national customers.

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FINANCIAL HIGHLIGHTS Changes in Net Assets; and the Statement of Cash Flows.

The University's financial position remained strong at June 30, 2007, with assets of $3.3 billion Revenues and expenses are categorized as operat-and total liabilities of $.7 billion. Net assets, which ing or nonoperating and other net asset additions represent the residual interest in the University's as capital contributions or additions to permanent assets after liabilities are deducted, increased by endowments. Significant recurring sources of the

$463.1 million to $2.5 billion at June 30, 2007. University's revenues, including state appropria-tions, gifts and investment income, are considered Changes in net assets represent the total activity nonoperating, as defined by GASB Statement No.

of the University, which results from all revenues, 34, Basic Financial Statement6 - and expenses, gains and losses, and are summarized Manaqement'iDiscu,"ion andAnaly6i, -for State for the years ended June 30, 2007 and 2006 in and Local GovernmentA. Nonoperating revenues Figure i. totaled $480.7 million and $342.5 million for the years ended June 30, 2007 and 2006, respectively.

Fiscal year 2007 revenues before change in fair Nonoperating expenses, which include interest value of investments increased 17.3%, or $371.9 expense, totaled $30.9 million and $33.6 million million, while expenses increased 8.o%, or $157.0 for the years ended June 30, 2007 and 2006, million. This resulted in a net gain before changes respectively.

in fair value of investments of $398.0 million for fiscal year 2007, as compared to $183.1 million for Also, as required by GASB Statement No. 34, schol-fiscal year 2006. arships and fellowships applied to student accounts are shown as a reduction of student The University invests its endowment funds to tuition and fee revenues, while stipends and other maximize total return over the long term, within payments made directly to students are presented an appropriate level of risk. The success of this as scholarship and fellowship expenses. For the long-term investment strategy is evidenced by years ended June 30, 2007 and 2006, scholarship returns averaging 7.7% during the past ten years. and fellowship expenses totaled $23.8 million and

$21.6 million, respectively. In addition, scholar-ships and fellowships in the amount of $18.9 mil-USING THE FINANCIAL lion and $17.5 million for the years ended June 30, STATEMENTS 2007 and 2006, respectively, are reported as a reduction of tuition and fees and auxiliary enter-The University's financial report is prepared in prises revenue.

accordance with Governmental Accounting Standards Board (GASB) principles and includes Other appropriate revenue items have also been three financial statements: the Statement of Net reduced by the allowance for uncollectible Assets; the Statement of Revenues, Expenses, and amounts which is estimated each fiscal year.

Figure 1.

2007 2006 (in thousands)

Total revenues before change in fair value of investment $2,521,256 $2,149,334 Total expenses 2,123,266 1,966,26 Increase in net assets before change in fair value of investments 397,990 183,068 Increase in fair value of investments 65,146 27,250 Increase in net assets $ 463,136 $ 210,318 8

STATEMENT OF NET ASSETS The Statement of Net Assets presents the finan-cial position of the University at the end of the f is-cal year and includes all assets and liabilities of the University. The difference between total assets and total liabilities is net assets and is one indicator of the current financial condition of the University, while the change in net assets is an indicator of whether the overall financial condi-tion has improved or worsened during the year.

Assets and liabilities are generally measured using current values except for capital assets, which are stated at historical cost less an allowance for depreciation. A summarized com- ries. Current assets represent approximately 7.6 parison of the University's assets, liabilities and months of total operating expenses (excluding net assets at June 30, 2007 and 2oo6 is shown in depreciation). Current cash and investments Figure2. totaled $937.5 million at June 30, 2007 and $822.9 million at June 30, 2oo6. Net receivables A review of the University's Statement of Net increased from $233.2 million at June 30, 2006 to Assets at June 30, 2007 and 2006, shows that the $273.4 million at June 30, 2007.

University continues to build upon its strong financial foundation. This strong financial posi- Current liabilities consist primarily of trade tion reflects the prudent utilization of its finan- accounts, accrued compensation, deposits, and cial resources, including careful cost controls, other liabilities, which totaled $301.5 million at management of its endowment funds, utilization June 30, 2007, as compared to $270.2 million at of debt and adherence to its long range capital June 30, 2oo6. Current liabilities also include plan for the maintenance and replacement of the deferred revenue, and the current portion of physical plant. bonds payable. Total current liabilities increased

$31.3 million during fiscal year 2007.

Current assets consist primarily of cash, operat-ing investments, trade receivables and invento-Figure 2, 2007 2006 (in thousands)

Current assets $1,254,949 $1,094,249 Noncurrent assets Endowment and other investments 684,983 474,858 Receivables 69,522 51,985 Capital assets, net 1,248,432 1,137,791 Other 17,406 18,620 Total assets 3,275,292 2,777,503 Current liabilities 301.528 270,175 Noncurrent liabilities 437,605 434,305 Total liabilities 739,133 704,480 Net assets $2,536,159 $2,073,023 9

ENDOWMENT AND SIMILAR broad diversification of the investments with a long-term goal of maximizing returns within INVESTMENTS acceptable risk levels for investment of endow-The University's endowment funds consist of true ment funds. Endowment funds that are invested in endowments, term endowments, and quasi-endow- the University's endowment pool are invested on a ments. True endowments (also known as perma- unit basis similar to mutual funds where new dol-nent endowments) are those funds received from lars buy shares in the pool.

donors with the stipulation that the principal Fiscal year 2007 represented the end of a very good remain inviolate and be invested in perpetuity to five year period with respect to investment per-produce income that is to be expended for the pur-poses specified by the donor. Term endowment formance for the University's endowment funds.

The five year average annualized return was 11.5%

funds are similar to true endowments, except that, through the end of the fiscal year. Prudent spend-upon the passage of a stated period of time or the ing and the structure of the University's portfolio occurrence of a particular event, all or part of the principal may be expended. Quasi-endowments should minimize the impact of any short term mar-consist of institutional funds that have been allo- ket swings. For the year ended June 30, 2007, the cated by the University for long-term investment University of Utah endowment pool returned 17.0%

compared to 9.6% for the year ended June 30, 2006.

purposes, although such funds are not subject to donor restrictions requiring the University to pre- These results reflect the heavy weighting of equi-ties in the asset allocation of the pool and compare serve the principal in perpetuity. Programs sup-ported by endowment funds include scholarships, favorably to broad indexes such as the S&P 5oo and Lehman Brothers Aggregate Bond (2o.6% gain fellowships, professorships, research efforts and other important programs and activities. and 6.1% gain, respectively, for fiscal year 2007).

The net gain on the endowment pool for the year The University has implemented investment ended June 30, 2007 totaled $52.6 million com-guidelines for the University's Endowment Pool pared to a gain of $24.6 million for the year ended that are designed to maximize long-term results. June 30, 2oo6.

The assets are strategically allocated to provide for 10

Payout from the endowment pool is subject to a Capital additions totaled $426.o million in fiscal spending policy which determines a distribution year 2007, as compared to $165.2 million in fiscal rate that will be used to allocate funds to year 2oo6. Capital additions primarily comprise University departments based on the total market replacement, renovation, and new construction of value of the pool. The purpose of the spending pol- academic, research, and health care facilities, as icy is to establish a distribution rate that over time well as significant investments in equipment.

will generate returns adequate to continue support Capital asset additions are funded by capital for future expenses in perpetuity assuming moder- appropriations, bond proceeds, gifts which were ate levels of inflation. During the year ended June designated for capital purposes, and unrestricted 30, 2007, the spending policy was 4.0% of the net assets.

twelve quarter moving average of unit market val-ues. Construction in progress at June 30, 2007, totaled

$92.0 million that includes projects in numerous The endowment pool is managed on a total return buildings across the campus. Significant projects basis where funds available for distribution are include: a new patient services wing of the derived from dividends earned, interest and unre- University Hospital; continued renovation of the alized gains. While the endowment pool earned Marriott Library; geology and geophysics office,

$11.9 million in fiscal year 2007, the University dis- lab, and classroom facilities; and equipment for a tributed $13.6 million to operations. The differ- new cogeneration power plant.

ence of $1.7 million was allocated from unrealized gains. The University takes seriously its role of financial stewardship and works hard to manage its finan-Since endowment funds are invested for long-term cial resources effectively, including the prudent results rather than short-term annual returns, it is use of debt to finance capital projects. The debt important to reflect on the longer investment hori-rating of the University is an important indicator zon. Over the past ten years, the University's of success in this area. The underlying bond rat-endowment pool has earned an average total ings from Standard and Poor's and Moody's return of 7.7%, paid out an average of 4.1%, and Investors Service for the Auxiliary and Campus reinvested the balance representing an average of Facilities Bonds are AA/Aa2, the Hospital Revenue 3.6%. The reinvested funds enabled higher bal-Bonds are AA/Aa2, the Research Facilities Revenue ances, thus yielding greater returns to keep pace Bonds are AA-/Aa3, and the Certificates of with inflation of program expenses. Endowments Participation are AA-/Aa3, respectively. These rat-provide crucial support for the University's quality ings are considered high investment grade quality academic programs and accessibility to these pro- and position the University, if deemed necessary, grams for all students.

to obtain future debt financing at low interest rates and reduced issuance costs.

Gifts to the endowment and similar funds at the University totaled $25.1 million and $19.3 million Bonds payable totaled $302.4 million and $210.9 for the fiscal years 2007 and 2oo6, respectively.

million at June 30, 2007 and 2006, respectively.

Two new Hospital bond series were issued in fiscal CAPITAL AND DEBT ACTIVITIES year 2007; the Hospital Revenue and Refunding Bonds Series 20o6A and the Hospital Revenue One of the critical factors in continuing the quali- Bonds Series 2oo6B. Proceeds from these bonds ty of the University's academic and research pro- were used to finance a portion of the costs of the grams is the development and renewal of its capi- acquisition, construction, equipping and furnish-tal assets. The University continues to implement ing certain Hospital facilities and to refund cer-its long-range plan to modernize its complement of tain outstanding hospital revenue bonds. Research older teaching and research facilities, balanced Facilities Revenue Bond Series 2007A was also with new construction.

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issued, the proceeds of which were used to acquire, Changes in Net Assets presents the University's refurbish and equip a building for research pur- results of operations. A summarized comparison poses. In addition, Certificates of Participation of the University's revenues, expenses, and were issued to refinance certain energy saving changes in net assets for the years ended June 30, projects and to construct a new power plant. The 2007 and 2006 is shown in Figure3.

original purpose of all bond debt is to provide funds for the construction and renovation of major One of the University's greatest strengths is the capital facilities and the acquisition of capital diverse streams of revenues which supplement its equipment for the University. student tuition and fees, including voluntary pri-vate support from individuals, foundations, and An institution's ratio of unrestricted operating rev- corporations, along with government and other enues to bonds, notes and contract debt is a valu- grants and contracts, state appropriations, and able indicator of its ability to finance its outstand- investment income. The University will continue ing debt. At June 30, 2007, the University has 3.8 to aggressively seek funding from all possible times the unrestricted operating revenue neces- sources consistent with its mission, to supple-sary to meet its debt requirements. ment student tuition, and to manage prudently the financial resources realized from these efforts NET ASSETS to fund its operating activities.

Net assets represent the residual interest in the Significant recurring sources of the University's University's assets after liabilities are deducted. revenues are considered nonoperating, as defined by GASB Statement No. 34. Graph 1 (operating Inveted in capitalao&etA, net of relateddebt repre- revenue) and Graph 2 (nonoperating revenue) are sents the University's capital assets net of accumu- illustrations of revenues by source, which were lated depreciation and outstanding principal bal- used to fund the University's operations for the ances of debt attributable to the acquisition, con- year ended June 30, 2007 (amounts are presented struction or improvement of those assets. in thousands of dollars).

Restricted nonexpendable net a&A.AetA are the The University continues to face significant finan-University's permanent endowment funds. cial pressure, particularly in the areas of compen-sation and benefits, which represent 53.4% of Restricted expendable net a&.et6 are subject to total expenses, as well as in the areas of technolo-externally imposed restrictions governing their gy and utility costs. To manage this financial use. This category of net assets includes $113.2 pressure, the University continues to seek diversi-million of quasi-endowments. fied sources of revenue and to implement cost containment measures.

Although unres6trictednet a.&4etA are not subject to externally imposed stipulations, substantially all Tuition and state appropriations are the primary of the University's unrestricted net assets have sources of funding for the University's academic been designated for various academic and programs. Student tuition and fees, net of research programs and initiatives, as well as capi- allowances for scholarships and fellowships, tal projects. increased $10.4 million, or 7.3% to $152.8 million in fiscal year 2007. State appropriations increased 8.o% or $20.1 million to $269.7 million STATEMENT OF REVENUES, in fiscal year 2007.

EXPENSES, AND CHANGES IN NET ASSETS While tuition and state appropriations fund a sig-nificant percentage of the University's academic The Statement of Revenues, Expenses, and and administrative costs, private support has 12

Figure 3.

2007 2006 (in thousands)

Operating revenues Tuition and fees $ 152,820 $ 142,432 Patient services 883,032 821,704 Grants and contracts 298,986 300,744 Sales and services 420,813 382,902 Auxiliary enterprises 73,751 70,433 Other 67,136 72,116 Total operating revenues 1,896,538 1,790,331 Operating expenses 2,092,386 1,932,667 Operating loss (195,848) (142,336)

Nonoperating revenues (expenses)

State appropriations 269,700 249,608 Gifts 82,094 26,248 Investment income 128,871 66,620 Interest expense (18,229) (14,801)

Other (12,651) (18,798)

Net nonoperating revenues 449,785 308,877 Capital appropriations 58,397 9,014 Capital and endowment grants and gifts 150,802 34,763 Total capital and endowment revenues 209,199 43,777 Increase in net assets 463,136 210,318 Net assets - beginning of year 2,073,023 1,862,705 Net assets - end of year $2,536,159 $2,073,023 Graph 1. OPERATING REVENUES Graph 2.

NONOPERATING REVENUES Auxiliary Other Enterprises , Tu tuonandF Nongovernmental '

Grants & Contracts Governmental Grants & Contracts U Tuition and Fees $152,820 M State Appropriations $269,700 J Patient Services $883,032 m Governmental Grants & Contracts $227,245 J Gifts $82,094 J Nongovernmental Grants & Contracts $71,741 N Investment Income $128,871 8 Sales and Services $420,813

• Auxiliary Enterprises $73,751

. Other $67,136 13

been, and will continue to be, essential to the Net investment income for the years ended June University's academic success. Private support in 30, 2007 and 2006, consisted of the following the form of gift revenues for operations increased components:

by 212.8%, or $55.8 million, to $82.1 million in fis- 2007 2006 cal year 2007. These positive results are indicative (in thousands) of the University's continued emphasis on fund Interest and dividends, net $ 63,725 $39,370 raising to support critical projects and initiatives. Net increase in fair value of investments 65,146 27,250 Revenues for grants and contracts remained sta- Net investment income $128,871 $66,620 ble with a slight decrease of o.6%, or $1.8 million, to $299.0 million in fiscal year 2007, primarily Net investment income totaled $128.9 million in related to research programs. Grant and contract fiscal year 2007, as compared to $66.6 million in revenues are generated by a broad base of schools, fiscal year 2006, which is an increase of $62.3 mil-colleges, and research units across the University. lion. Moreover, as discussed previously, the The University receives revenues for grants and University's endowment investment policies are contracts from government and private sources, designed to maximize long-term total return which provide for the recovery of direct costs and while its income distribution policies are facilities and administrative (indirect) costs. designed to preserve the value of the endowment portfolio and to generate a predictable stream of Patient care revenues increased 7.5% or $61.3 mil- spendable income. The income distribution from lion to $883.0 million in fiscal year 2007. The the University's endowment portfolio for the sup-majority of these revenues relate to patient care port of operating activities, in accordance with services, which are generated within UUHC under the University's spending policy, totaled $13.6 mil-contractual arrangements with governmental lion in fiscal year 2007, as compared to $12.0 mil-payers and private insurers. Revenues sustained lion in fiscal year 2006. In addition, in fiscal year a relatively constant rate of growth over the last 2007, $1.3 million was returned to endowment few years, primarily resulting from a growth in principal.

patient volume, demand for specialty services pro-vided by outpatient clinics and moderate price Capital appropriations received from the State in increases for patient services. fiscal year 2007, which totaled $58.4 million, 14

funded a portion of building renovation projects. retaining an outstanding faculty and staff and the Other revenues include capital grants and gifts compensation package is one way to successfully and additions to permanent endowments totaling compete with peer institutions and nonacademic

$15o.8 million for the fiscal year ending June 30, employers. The resources expended for compen-2007. sation and benefits increased 8.5%, or $89.2 mil-lion, to $i.i billion in fiscal year 2007. Of this A comparative summary of the University's increase, compensation increased 8.3%, or $67.7 expenses for the years ended June 30, 2007 and million, as a result of annual increases and the 2oo6 follows: hiring of additional employees. The related 2007 2006 employee benefits increased 9.3% or $21.5 million.

(in thousands)

Operating In addition to their natural classification, it is Compensation also informative to review operating expenses by and benefits $1,133,059 $1,043,826 function. A comparative summary of the Component units 250,279 227,340 University's operating expenses by functional Supplies 242,070 228,806 classification for the years ended June 30, 2007 Purchased services 116,729 103,443 and 2006 follows:

Depreciation and amortization 104,982 97,475 2007 2006 Utilities 51,131 52,238 (in thousands)

Cost of goods sold 31,427 29,165 Instruction $ 264,901 $ 248,885 Repairs and Research 217,805 215,018 maintenance 24,103 21,004 Public service 381,863 354,797 Scholarships Academic support 71,286 66,299 and fellowships 23,766 21,624 Student services 18,743 18,246 Other 114,840 107,746 Institutional support 43,983 35,780 Total operating 2,092,386 1,932,667 Operations and maintenance of plant 49,934 48,335 Nonoperating Student aid 33,945 32,071 Interest and other 30,880 33,599 Other 391,705 361,568 Total expenses $2,123,266 $1,966,266 Hospital 618,221 551,668 Total operating The University is committed to recruiting and expenses $2,092,386 $1,932,667 f,. 11 'h1 l ap ot of Goods Cost o Sold S -- Repairs & Maintenance Amortization Utilities Scholarship & Fellowships EXPENSES Depreciation & /ro£ -// Interest 8 Compensation and Benefits S1,133,059 Purchased Services /

I Component Units $250,279 N Supplies $242,070

/i Purchased Services $116,729

• Depreciation and Amortization S104,982 a Utilities $51,131

..J Cost of Goods Sold $31,427 8 Repairs and Maintenance $24,103 8 Scholarships and Fellowships $23,766 8 Interest $18,229 8 Other $127,491 15

Instruction, research, and public service expenses while at the same time evaluating the need for increased 5.6%, or $45.9 million, to $864.6 mil- additional infrastructure to support modest and lion in fiscal year 2007. Academic and institu- sustainable growth in the future. In addition to tional support expenses increased 12.9%, or $13.2 these factors, the State recently passed legisla-million, to $115.3 million in fiscal year 2007. tion that makes it easier for non-resident stu-dents to qualify for in-state tuition. This may STATEMENT OF CASH FLOWS have a negative short-term impact on tuition rev-enue, but it is likely to have a positive long-term The Statement of Cash Flows provides additional effect on recruiting and related tuition revenue.

information about the University's financial results, by reporting the major sources and uses The State is one of the healthiest in the nation; of cash. balancing fiscal prudence with the need to invest in its future. A large revenue surplus in fiscal The University's cash and cash equivalents year 2007 contributed to an excellent year for increased $103.2 million due primarily to higher education and the coming year is likely to increased patient services revenue, state appro- have the same positive impact for the University.

priations, gifts, and the sale and maturity of At the same time, the State has launched the Utah investments. This positive flow of funds was off- Science Technology and Research (USTAR) initia-set by funds used for personal services and the tive. This initiative provides funding for "strate-purchase of investments. The University's signif- gic investments at the University of Utah and icant sources of cash provided by noncapital Utah State University to recruit world-class financing activities, as defined by GASB researchers, build state-of-the-art interdiscipli-Statement No. 9, include state appropriations and nary research and development facilities, and to private gifts used to fund operating activities. form first-rate science, innovation, and commer-cialization teams across the State. This initiative focuses on leveraging the proven success of CURRENT FACTORS HAVING Utah's research universities in creating and com-PROBABLE FUTURE FINANCIAL mercializing innovative technologies which will SIGNIFICANCE generate more technology-based start-up firms, higher paying jobs, and additional business activ-The University's undergraduate enrollment has ity leading to a state-wide expansion of Utah's tax declined somewhat for the second year in a row. base"'. The University has had great success in Graduate enrollment continues to gradually attracting world-class researchers with a proven increase. Enrollment at the undergraduate level track record of developing intellectual property to is dependent on two factors, pool and participa- participate in this initiative.

tion, that are both heavily influenced by factors within the State of Utah. The available pool of The UUHC and the ARUP continue to be recog-potential students, age i8 through 29, is in the nized as leaders in their respective fields.

midst of a modest decline, but that trend is Financial position for each remains strong and is expected to reverse within the next five years as expected to remain so. Despite a strong outlook K-8 students move into and through high school though, UUHC anticipates a negative impact from in record numbers. The participation rate is like- recent Medicare/Medicaid changes. The Centers wise lower in large part due to the State's robust for Medicare and Medicaid Services (CMS) (a divi-economy and remarkably low unemployment sion of the Department of Health and Human rates. While both factors are currently dampen- Services (DHHS)) issued a proposed rule in ing enrollment numbers, both are likely to ease January 2007 to change the way Medicaid funds within the next five years. The University is, in flow to state-owned facilities effective October i, the meantime, adjusting its recruiting strategy 2007. Congress subsequently passed legislation

which imposed a moratorium on the new funds University intends to undertake various construc-flow mechanism. This moratorium will be in tion projects, in some cases partially gift-funded, effect until May 2oo8 and unless new legislation to support these critical areas.

is enacted, the CMS rule will become effective. If the new rule, as currently written, becomes effec- Awards for sponsored programs, which include tive, next May we estimate that UUHC will experi- basic research, continue to be strong. The initia-ence a significant reduction in Medicaid rev- tives resulting from the USTAR project will cer-enues. UUHC is working with other medical cen- tainly have a positive impact on those results as ters to educate legislators on the impact to the the number of research faculty increases. At the patient population and to medical education if same time, however, efforts to restrain federal these funds are no longer available. spending and increased competition for research funding are likely to constrain growth in research During fiscal year 2oo6, the University's support. The University has completed its negoti-Huntsman Cancer Institute (HCI) and the ation for the new facilities and administration Huntsman Cancer Hospital (HCH) applied for and rate study. As a result, the new rate for reim-received significant funding from CMS, in the bursed overhead on federally sponsored research form of a forgivable loan. Late in the 2007 fiscal projects increases to 50.5% from 49.5% effective year, the University received notice from DHHS beginning in July of 2008.

that the forgiveness provisions of this loan had been met. In the 2008 fiscal year, the loan pro- Overall, the University's outlook for the foresee-ceeds will be used to retire certain debt issued to able future is positive not only as a result of its finance HCI and HCH facility construction, which strategic leadership and prudent fiscal manage-will significantly reduce the University's debt ment, but also as a beneficiary of a strong state service payments. However, with the need for economy.

expanded research, patient care, and student life facilities, comes the need to issue debt to support construction. Within the next 1-3 years, the 1 http://ustar.utah.gov/about/index.html 17

I C,>"-

1*

Fiaca Statement THE UNIVERSITY OF UTAH I Statement of Net Assets (in thouwandA of dollarm)

As of June 30

[For Comparison Only]

2007 2006 ASSETS Current Assets Cash and cash equivalents (Notes 2 & 4) $ 551,160 $ 558,042 Short-term investments (Notes 1, 2 & 4) 386,385 264,883 Receivables, net (Note 5) 273,385 233,208 Inventory (Note 1) 32,374 30,005 Other assets (Note 6) 11,645 8,111 Total current assets 1,254,949 1,094,249 Noncurrent Assets Restricted cash and cash equivalents (Notes 2 & 4) 136,019 25,911 Restricted short-term investments (Notes 1, 2 & 4) 813 865 Investments (Notes 3 & 4) 220,613 158,628 Restricted investments (Notes 3 & 4) 327,538 289,454 Restricted receivables, net (Note 5) 69,522 51,985 Donated property held for sale 2,165 2,732 Other assets (Note 6) 15,241 15,888 Capital assets, net (Note 7) 1,248,432 1,137,791 Total noncurrent assets 2,020,343 1,683,254 Total assets 3,275,292 2,777,503 LIABILITIES Current Liabilities Accounts payable 84,506 63,494 Accrued payroll 73,758 62,129 Compensated absences & early retirement benefits (Note 1) 4,509 4,223 Deferred revenue (Note 9) 26,609 23,742 Deposits & other liabilities (Notes II & 15) 87,299 95;355 Bonds, notes and contracts payable (Notes 14, 15, & 16) 24,847 21,232 Total current liabilities 301,528 270,175 Noncurrent Liabilities Compensated absences & early retirement benefits (Note 1) 37,123 34,202 Deposits & other liabilities (Notes 11 & 15) 9,400 9,019 Bonds, notes and contracts payable (Notes 14, 15, & 16) 391,082 391,084 Total noncurrent liabilities 437,605 434,305 Total liabilities 739,133 704,480 NET ASSETS Invested in capital assets, net of related debt 927,224 828,988 Restricted for Nonexpendable Instruction 116,024 99,041 Research 37,334 32,944 Public service 56,241 45,205 Academic support 36,021 31,550 Scholarships 109,297 91,010 Other 7,038 5,284 Expendable Research 174,619 152,083 Public service 62,073 20,869 Academic support 53,837 52,130 Institutional support 50,133 38,979 Loans 35,987 35,976 Debt service 1,146 2,504 Capital additions 158,685 52,054 Other 15,725 4,134 Unrestricted 694,775 '580,272 Total net assets $2,536,159 $2,073,023 20 The accompanying notes are an integral part of these financial statements

THE UNIVERSITY OF UTAH I Statement of Revenues, Expenses, and Changes in Net Assets (in thouAandA of dollari,)

For the Years Ended June 30

[For Comparison Only]

2007 2006 OPERATING REVENUES AND EXPENSES Revenues Tuition and fees, Net (Note 1) $ 152,820 $ 142,432 Patient services (Notes I & 13) 883,032 821,704 Federal grants and contracts 204,633 207,097 State and local grants and contracts 22,612 19,558 Nongovernmental grants and contracts 71,741 74,089 Sales and services, Net (Note 1) 420,813 382,902 Auxiliary enterprises (Note 1) 73,751 70,433 Other operating revenues 67,136 72,116 Total operating revenues 1,896,538 1,790,331 Expenses Compensation and benefits 1,133,059 1,043,826 Component units 250,279 227,340 Supplies 242,070 228,806 Purchased services 116,729 103,443 Depreciation and amortization 104,982 97,475 Utilities 51,131 52,238 Cost of goods sold 31,427 29,165 Repairs and maintenance 24,103 21,004 Scholarships and fellowships 23,766 21,624 Other operating expenses 114,840 107,746 Total operating expenses 2,092,386 1,932,667 Operating loss (195,848) (142,336)

NONOPERATING REVENUES (EXPENSES)

State appropriations -" 269,700 249,608 Gifts - 82,094 26,248 Investment income - 128,871 66,620 Interest (18,229) (14,801)

Other nonoperating expenses (12,651) (18,798)

Total nonoperating revenues 449,785 308,877 Gain before capital and permanent endowment additions 253,937 166,541 Capital appropriations 58,397 9,014 Capital grants and gifts 133,617 20,788 Additions to permanent endowments 17,185 13,975 Total capital and permanent endowment additions 209,199 43,777 Increase in net assets 463,136 210,318 NET ASSETS Net assets - beginning of year 2,073,023 1,862,705 Net assets - end of year $2,536,159 $2,073,023 21 The accompanying notes are an integral part of these financial statements

THE UNIVERSITY OF UTAH I Statement of Cash Flows (in thou.AandA of dollarA)

For the Years Ended June 30

[For Comparison Only]

2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from tuition and fees $ 153,169 $ 142,705 Receipts from patient services 865,626 815,311 Receipts from contracts and grants 301,936 291,799 Receipts from auxiliary and educational services 493,479 452,831 Collection of loans to students 6,368 8,649 Payments to suppliers (814,824) (769,381)

Payments for personal services (1,118,223) (1,034,341)

Payments for scholarships and fellowships (23,766) (21,623)

Loans issued to students (7,812) (5,880)

Other 50,603 85,219 Net cash used by operating activities (93,444) (34,711)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 269,700 249,608 Gifts Endowment 16,278 14,407 Nonendowment 60,318 27,307 Other (12,284) (18,732)

Net cash provided by noncapital financing activities 334,012 272,590 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt 159,260 171,048 Capital appropriations 9,546 9,014 Gifts 20,144 21,820 Purchase of capital assets (142,393) (125,315)

Principal paid on capital debt (72,239) (112,690)

Interest paid on capital debt (18,084) (14,640)

Net cash used by capital and related financing activities (43,766) (50,763)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 872,892 113,391 Receipt of interest and dividends on investments 60,272 40,551 Purchase of investments (1,026,740) (363,143)

Net cash used by investing activities (93,576) (209,201)

Net increase (decrease) in cash 103.226 (22,085)

Cash - beginning of year 583,953 606,038 Cash - ending of year S 687,179 $ 583,953 22 The accompanying notes are an integral part of these financial statements

THE UNIVERSITY OF UTAH I Statement of Cash Flows (in thouiandA of dollarA)

For the Years Ended! June 30

[For Comparison Only]

2007 2006 RECONCILIATION OF NET OPERATING LOSS TO CASH USED BY OPERATING ACTIVITIES Operating loss $(195,848) $ (142,336)

Adjustments to reconcile operating loss to cash used by operating activities Depreciation expense 104,982 97,475 Change in assets and liabilities Receivables, net (28,363) (15,290)

Inventory (2,369) (2,414)

Donated property held for sale 29 Other assets (2,887) 1,102 Accounts payable 21,012 1,673 Accrued payroll 11,629 6,052 Compensated absences & early retirement benefits 3,207 3,434 Deferred revenue 2,868 (75)

Deposits & other liabilities (7,675) 15,639 Net cash used by operating activities $ (93,444) $ (34,711)

NONCASH INVESTING, CAPITAL, AND FINANCING AC.TIVITIES Capital leases $ 14,847 $ 15,172 Donated property and equipment 8,299 12,786 Completed construction projects transferred from State of lUtah (DFCM) 48,851 Annuity and life income 163 162 Increase in fair value of investments 65,146 27,250 Total noncash investing, capital, and financing activities $ 137,306 $ 55,370 23 The accompanying notes are an integral part of these financial statements

moa(VA ac Phsamcdog MamaompmaA 1.

SUMMARY

OF SIGNIFICANT ARUP contracts with the Department of ACCOUNTING POLICIES Pathology of the University of Utah School of Medicine to provide pathology consulting A. Reporting Entity services. The fiscal year end for ARUP is June

30. Other independent auditors audited ARUP The financial statements report the financial and their report, dated September 6, 2007, has activity of the University of Utah (University),

been issued under separate cover.

including the University of Utah Hospitals and Clinics (UUHC). The University is a component All Governmental Accounting Standards Board unit of the State of Utah (State). In addition, (GASB) pronouncements and all applicable University administrators hold a majority of seats Financial Accounting Standards Board (FASB) on the boards of trustees of two other related pronouncements are applied by the University, entities representing component units of the UURF and ARUP in the accounting and reporting University. of their operations. However, in accordance with GASB Statement No. 2o, Accounting and Financial Component units are entities that are legally separate from the University, but are financially Reporting for Proprietary Fund- and Other accountable to the University, or whose Governmental Entitie6 That U6e ProprietaryFund relationships with the University are such that Accounting, the University has elected not to exclusion would cause the University's financial apply FASB pronouncements issued after statements to be misleading or incomplete. The November 30, 1989.

relationship of the University with its component B. Ba6i, of Accounting units requires the financial activity of the component units to be blended with that of the All statements have been prepared using the University. Copies of the financial report of each economic resources measurement focus and the component unit can be obtained from the accrual basis of accounting. Operating activities University. The component units of the University include all revenues and expenses, derived on an are the University of Utah Research Foundation exchange basis, used to support the instructional, (UURF) and Associated Regional and University research and public service efforts, and other Pathologists, Inc. (ARUP). University priorities. Significant recurring sources of the University's revenues are

. UURF is a not-for-profit corporation governed considered nonoperating as defined by GASB by a board of directors, with the exception of Statement No. 34, Ba.ic Financial Statements -

one, who are affiliated with the University. The and Management'A DizcuA.ion and AnalyAiL - for operations of UURF include the leasing and State and Local GovernmentA, and required by administration of Research Park (a research GASB Statement No. 35, Ba.6ic Financial park located on land owned by the University),

StatementA - and Management'6 DizcuAAion and the leasing of certain buildings, and the AnalyAi - for Public Collegez and UniverAitieA.

commercial development of patents and When both restricted and unrestricted resources products developed by University personnel.

are available, such resources are spent and The fiscal year end for UURF is June 30. UURF is tracked at the discretion of the department within audited by other independent auditors and their the guidelines of donor restrictions.

report, dated September 14, 2007, has been issued under separate cover. In accordance with GASB Statement No. 33, Accounting and Financial Reporting for

. ARUP is a for-profit corporation that provides Nonexchange TranAactionA, the University clinical laboratory services to medical centers, recognizes gifts, grants, appropriations, and the hospitals, clinics and other clinical laboratories estimated net realizable value of pledges as throughout the United States, including UUHC. revenue as soon as all eligibility requirements 25

imposed by the provider have been met. E. Inventorie,6 Patient revenue of UUHC and the School of Bookstore inventories are valued using the retail Medicine medical practice plan is reported net of inventory method. All other inventories are stated third-party adjustments. at the lower of cost or market using the first-in, first-out method or on a basis which approximates C. InveAtment.6 cost determined on the first-in, first-out method.

Investments are recorded at fair value in F. Research and Development Co.ts accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Research and development costs of ARUP are Inve.Atment. and for External Investment PooLA. expensed as incurred. These costs for the year Accordingly, the change in fair value of ended June 30, 2007, were approximately investments is recognized as an increase or $7,681,ooo.

decrease to investment assets and investment revenue. The University distributes earnings G. Compensated Ab6ence- &. Early from pooled investments based on the average Retirement Benefits daily investment of each participating account or Employees' vacation leave is accrued at a rate of for endowments, distributed according to the eight hours each month for the first five years and University's spending policy. increases to a rate of 16.67 hours7.75463e-4 days <br />0.0186 hours <br />1.107804e-4 weeks <br />2.54935e-5 months <br /> each month after A portion of the University's endowment portfolio fifteen years of service. There is no requirement is invested in "alternative investments". These to use vacation leave, but a maximum of thirty investments, unlike more traditional days plus one-year accrual may be carried forward investments, generally do not have readily at the beginning of each calendar year.

obtainable market values and typically take the Employees are reimbursed for unused vacation form of limited partnerships. See Note 19 for leave upon termination and vacation leave is more information regarding these investments expended when used or reimbursed. The liability and the University's outstanding commitments for vacation leave at June 30, 2007, was under the terms of the partnership agreements. approximately $37,255,000.

The University values these investments based on Employees earn sick leave at a rate of eight hours audited financial statements, generally as of each month, with an accumulation limit of 1,040 December 31, progressed to the University's hours. The University does not reimburse financial statement date by taking into account employees for unused sick leave. Each year, investment transactions subsequent to the eligible employees may convert up to four days of audited statements. unused sick leave to vacation leave based on their D. Allowances use of sick leave during the year. Sick leave is expended when used.

In accordance with GASB Statement No. 34, certain expenses are netted against revenues as In addition, the University may provide early allowances. The following schedule presents retirement benefits, if approved by the revenue allowances for the years ended June 30, Administration and by the Board of Trustees, for 2007 and 2006:

certain employees who have attained the age of 6o with at least fifteen years of service and who have Revenue 2007 2006 been approved for the University's early Tuition and fees $18,101,747 $16,682,607 retirement program. Currently, 103 employees Patient services 40,797,926 41,800,569 participate in the early retirement program. The Sales and services 3,530 32,597 University pays each early retiree an annual Auxiliary enterprises 750,806 851,665 amount equal to the lesser of 20% of the retiree's final salary or their estimated social security 26

benefit, as well as health care and life insurance requirements dictate the use of separate premiums, which is approximately 50% of their accounts. The cash balances and cash float from early retirement salary, until the employee outstanding checks are invested principally in reaches full social security retirement age. In short-term investments that conform to the accordance with GASB Statement No. 47, provisions of the Utah Code. It is the practice of Accounting for Termination Benefiti, the amount the University that the investments ordinarily be recognized on the financial statements was held to maturity at which time the par value of the calculated at the discounted present value of the investments will be realized.

projected future costs. The discount rate used was based on the average rate earned by the University The Utah State Treasurer's Office operates the on cash management investments for the fiscal Utah Public Treasurer's Investment Fund (PTIF) year. The funding for these early retirement which is managed in accordance with the State benefits is provided on a pay-as-you-go basis. For Money Management Act. The State Money the year ended June 30, 2007, these expenditures Management Council provides regulatory were approximately $1,725,000. oversight for the PTIF. The PTIF is available for investment of funds administered by any Utah H. Construction public treasurer.

The Utah State Division of Facilities Construction At June 30, 2007, cash and cash equivalents and and Management (DFCM) administers most of the short-term investments consisted of:

construction of facilities for state institutions, maintains records, and furnishes cost Cash and Cash Equivalents information for recording plant assets on the Cash $ (4,354,439) books of the University. Interest expense incurred Money market funds 1,056,865 for construction of capital facilities is considered Time certificates of deposit 31,424,370 immaterial and is, not capitalized. Construction Commercial Paper 21,159,496 projects administered by DFCM that were started Obligations of the U.S.

prior to fiscal year 20o2 and were not completed Government and its agencies 269,251,887 were recorded as Construction in Progress in Utah Public Treasurer's prior fiscal years. Construction projects Investment Fund 368,640,701 beginning in fiscal year 2oo2 and after are Total (fair value) $687,178,880 recorded on the books of the University when the facility is available for occupancy.

Short-term Investments I. Di~clo~ureA Time certificates of deposit $ 1,724,342 Obligations of the U.S.

Certain financial information for fiscal year Government and its agencies 377,934,415 ended June 30, 2oo6 is included for comparison Corporate notes 7,539,316 only and is not complete. Complete information is Total (fair value) $387,198,073 available in the separately issued financial statements for that year.

2. CASH, CASH EQUIVALENTS, 3. INVESTMENTS AND SHORT-TERM INVESTMENTS Funds available for investment are pooled to maximize return and minimize administrative Cash and cash equivalents consists of cash and cost, except for funds that are authorized by the short-term investments with an original maturity University administration to be separately of three months or less. Cash, depending on invested or which are separately invested to meet source of receipts, is pooled, except for cash and legal or donor requirements. Investments cash equivalents held by ARUP and when legal received as gifts are recorded at market or 27

appraised value on the date of receipt. If no was approximately $133,557,0oo. The net market or appraised value is available, appreciation is a component of restricted investments received as gifts are recorded at a expendable net assets.

nominal value. Other investments are also At June 30, 2007, the investment portfolio recorded at fair value.

composition was as follows:

UURF receives, in exchange for patent rights, Obligations of the U.S.

common stock of newly organized companies Government and its agencies $100,653,300 acquiring these patents. Inasmuch as the stock is Corporate bonds 5,000 ordinarily not actively traded, the fair value is Mutual funds 431,345,842 generally not ascertainable and any realization Common and preferred stocks 16,146,707 from the future sale of the stock is often Total (fair value) $548,150,849 uncertain. Therefore, such stock is recorded by UURF at a nominal value. Those stocks that are publicly traded are recorded at their fair value on

4. DEPOSITS AND INVESTMENTS June 30, 2007.

The State of Utah Money Management Council University personnel manage certain portfolios, (Council) has the responsibility to advise the State while other portfolios are managed by banks, Treasurer about investment policies, promote investment advisors or through trust agreements. measures and rules that will assist in strengthening the banking and credit structure of According to the Uniform Management of the State, and review the rules adopted under the Institutional Funds Act (UMIFA), Section 13-29 of authority of the State of Utah Money Management the Utah Code (applicable through April 30, 2007), Act (Act) that relate to the deposit and investment the institution may appropriate for expenditure of public funds.

for the purposes for which an endowment is established, as much of the net appreciation, Except for endowment funds, the University realized and unrealized, of the fair value of the follows the requirements of the Act (Utah Code, assets of an endowment over the historic dollar Section 51, Chapter 7) in handling its depository value as is prudent under the facts and and investment transactions. The Act requires the circumstances prevailing at the time of the action depositing of University funds in a qualified or decision. According to the Uniform Prudent depository. The Act defines a qualified depository as any financial institution whose deposits are Management of Institutional Funds Act insured by an agency of the federal government (UPMIFA), Section 51-8 of the Utah Code and which has been certified by the State (applicable after April 30, 2007), the institution Commissioner of Financial Institutions as may appropriate for expenditure or accumulate so meeting the requirements of the Act and adhering much of an endowment fund as the University to the rules of the Council.

determines to be prudent for uses, benefits, purposes, and duration for which the endowment For endowment funds, the University follows the was established. requirements of the UMIFA/UPMIFA, State Board of Regents' Rule 541, Management and Reporting The endowment income spending policy at June of In-stitutional Inve.Atment-A (Rule 541), and the 30, 2007, is 4% of the twelve quarter moving University's investment policy and endowment average of the market value of the endowment guidelines.

pool. The spending policy is reviewed periodically Deposits and any necessary changes are made.

Cuwtodial Credit Ri.k: Custodial credit risk for The amount of net appreciation on investments of deposits is the risk that, in the event of a bank donor-restricted endowments available for failure, the University's deposits may not be authorization for expenditure at June 30, 2007, returned.

28

At June 30, 2007, the carrying amounts of the Comptroller of the Currency (e.g., mutual funds);

University's deposits and bank balances were professionally managed pooled or commingled

$48,26o,679 and $37,832,378, respectively. The investment funds created under 501(f) of the bank balances of the University were insured for Internal Revenue Code which satisfy the

$2oo,ooo, by the Federal Deposit Insurance conditions for exemption from registration under Corporation. The bank balances in excess of Section 3(c) of the Investment Company Act of

$200,000 were uninsured and uncollateralized, 1940; any investment made in accordance with leaving $37,632,378 exposed to custodial credit the donor's directions in a written instrument; risk. The University's policy for reducing this risk and any alternative investment funds that derive of loss is to deposit all such balances in qualified returns primarily from high yield and distressed depositories, as defined and required by the Act. debt (hedged or non-hedged), private capital (including venture capital, private equity, both Investments domestic and international), natural resources, The Act defines the types of securities authorized and private real estate assets or absolute return as appropriate investments for the University's and long/short hedge funds.

non-endowment funds and the conditions for The PTIF is not registered with the SEC as an making investment transactions. Investment investment company. The PTIF is authorized and transactions may be conducted only through regulated by the Act, Section 51-7, Utah Code qualified depositories, certified dealers, or Annotated, 1953, as amended. The Act established directly with issuers of the investment securities. -the Council which oversees the activities of the These statutes authorize the University to invest State Treasurer and the PTIF and details the types in negotiable or nonnegotiable deposits of of authorized investments. Deposits in the PTIF qualified depositories and permitted negotiable are not insured or otherwise guaranteed by the agreements; commercial paper that is classified State, and participants share proportionally in any realized gains or losses on investments.

as "first tier" by two nationally recognized statistical rating organizations, one of which The PTIF operates and reports to participants on must be Moody's Investors Service or Standard & an amortized cost basis. The income, including Poor's; bankers' acceptances; obligations of the gains and losses, net of administration fees, of the United States Treasury including bills, notes, and PTIF are allocated based upon the participant's bonds; bonds, notes, and other evidence of average daily balance. The fair value of the PTIF indebtedness of political subdivisions of the investment pool is approximately equal to the State; fixed rate corporate obligations and value of the pool shares.

variable rate securities rated "A" or higher, or the equivalent of "A" or higher, by two nationally The University's participation in mutual funds recognized statistical rating organizations; may indirectly expose it to risks associated with shares or certificates in a money market mutual using or holding derivatives. However, specific fund as defined in the Act; and the Utah State information about any such transactions is not Public Treasurer's Investment Fund (PTIF). available to the University.

The UMIFA/UPMIFA, Rule 541, and the Interest Rate Ri-k: Interest rate risk is the risk University's endowment guidelines allow the that changes in interest rates will adversely affect University to invest endowment funds (including the fair value of an investment. The University's gifts, devises, or bequests of property of any kind policy for managing its exposure to fair value loss from any source) in any of the above investments arising from increasing interest rates is to comply or any of the following subject to satisfying with the Act or the UMIFA/UPMIFA and Rule 541, certain criteria: professionally managed pooled or as applicable. For non-endowment funds, Section commingled investment funds registered with the 51-7-11 of the Act requires that the remaining term Securities and Exchange Commission or the to maturity of investments may not exceed the 29

Figure 1.

Investment Maturities (in years)

Fair Less More Investment Type Value than 1 1-5 6- 10 than 10 Money market mutual funds $ 747,514 $ 747,514 Time cerificates of deposit 1,724,342 1,724,342 Commercial Paper 21,159,496 21,159,496 Utah Public Treasurer's Investment Fund 368,640,701 368,640,701 U.S. Treasuries 386,326,501 285,673,201 $100,653,300 U.S. Agencies 361,513,101 361,513,101 Corporate notes and bonds 7,544,316 7,539,316 $5,000 Mutual bond funds 124,124,370 4,703,751 $119,420,619 Totals $1,271,780,341 $1,046,997,671 $105,357,051 $119,420,619 $5,000 period of availability of the funds to be invested. other counterparty to an investment will not The Act further limits the remaining term to fulfill its obligations. The University's policy for maturity on all investments in commercial paper, reducing its exposure to credit risk is to comply bankers' acceptances, fixed rate negotiable with the Act, the UMIFA/UPMIFA, and Rule 541, as deposits and fixed rate corporate obligations to previously discussed.

270-365 days or less. In addition, variable rate negotiable deposits and variable rate securities At June 30, 2007, the University had investments may not have a remaining term to final maturity with quality ratings as shown in Figure2.

exceeding two years. For endowment funds, Rule Cu.modial Credit Ri~k: Custodial credit risk for 541 is more general, requiring only that investments is the risk that, in the event of a investments be made as a prudent investor would, failure of the counterparty, the University will not by considering the purposes, terms, distribution be able to recover the value of its investments that requirements, and other circumstances of the are in the possession of an outside party. The endowments and by exercising reasonable care, University's policy for reducing its exposure to skill, and caution. custodial credit risk is to comply with applicable As of June 30, 2007, the University had provisions of the Act. As required by the Act, all investments with maturities as shown in Figure i. applicable securities purchased were delivered versus payment and held in safekeeping by a Credit Risk: Credit risk is the risk that an issuer or bank. Also, as required, the ownership of book-Figure 2.

Quality Rating Fair Investment Type Value AAA/A-l A Unrated No Risk Money market mutual funds $747,514 $ 364,574 $ 382,940 Time certificates of deposit 1,724,342 1,724,342 Commercial paper 21,159,496 21,159,496 Utah Public Treasurer's Investment Fund 368,640,701 368,640,701 U.S. Treasuries 386,326,501 $386,326,501 U.S. Agencies 361,513,101 361,513,101 Corporate notes and bonds 7,544,316 $7,539,316 5,000 Mutal bond funds 124,124,370 124,124,370 Totals $1,271,780,341 $384,761,513 $7,539,316 $493,153,011 $386,326,501 30

entry-only securities, such as U.S. Treasury or income on investments, and other receivables.

Agency securities, by the University's custodial Loans receivable predominantly consist of bank was reflected in the book-entry records of student loans.

the issuer and the University's ownership was represented by a receipt, confirmation, or Allowances for doubtful accounts are established statement issued by the custodial bank. by charges to operations to cover anticipated losses from accounts receivable generated by At June 30, 2007, the University's custodial bank sales and services and student loans. Such was both the custodian and the investment accounts are charged to the allowance when counterparty for $707,977,202 of U.S. Treasury collection appears doubtful and the accounts are and Agency securities purchased by the *referred to collection agencies. Any subsequent University and $29,873,400 of U.S. Treasury recoveries are credited to the allowance accounts.

securities were held by the custodial bank's trust Allowances are not established for pledges or in department but not in the University's name. those instances where receivables consist of amounts due from governmental units or where Concentration of Credit RiAk:Concentration of receivables are not material in amount.

credit risk is the risk of loss attributed to the magnitude of a government's investment in a The following schedule presents receivables at single issuer. The University's policy for reducing June 30, 2007, including approximately this risk of loss is to comply with the Rules of the $26,455,0oo and $43,o68,ooo of noncurrent Council or the UMIFA/UPMIFA and Rule 541, as loans and pledges receivable, respectively:

applicable. Rule 17 of the Council limits non-endowment fund investments in a single issuer of Accounts $273,042,994 commercial paper and corporate obligations to 5- Contracts and grants 33,851,669 Lo% depending upon the total dollar amount held Notes 99,962 in the portfolio. For endowment funds, Rule 541 Loans 32,355,184 requires that a minimum of 25% of the equity Pledges 46,949,939 portfolio must be invested in companies with an Interest 9,409,831 average market capitalization of at least $io 395,709,579 billion; also a minimum of 25% of the overall Less allowances for endowment portfolio should be invested in doubtful accounts (52,802,266) investment grade fixed income securities as Receivables, net $342,907,313 defined by Moody's Investors Service or Standard

& Poor's. The overall endowment portfolio cannot 6. DEFERRED CHARGES AND consist of more than 75% equity investments. OTHER ASSETS Rule 541 also limits investments to no more than 3% in any one sector fund that is concentrated The costs associated with issuing long-term within one sector of the U.S. market and no more bonds payable are deferred and amortized over than 5% in equity or fixed income funds of the life of the related bonds using the straight-line developing markets. It also limits investments in method, which approximates the effective alternative investment funds, as allowed by Rule interest method. In addition, goodwill associated 541 and the University's endowment policy, to with the purchase of certain health clinics is between o% and 3o% based on the size of the amortized using the straight-line method.

University's endowment fund.

7. CAPITAL ASSETS

5. RECEIVABLES Buildings; infrastructure and improvements, Accounts, pledges, and interest receivable include which includes roads, curbs and gutters, streets hospital patient accounts, medical services plan and sidewalks, and lighting systems; land; accounts, trade accounts, pledges, interest equipment; and library materials are valued at 31

cost at the date of acquisition or at fair market construction in progress are not depreciated.

value at the date of donation in the case of gifts.

Buildings, infrastructure and improvements, and At June 30, 2007, the University had outstanding additions to existing assets are capitalized when commitments for the construction and acquisition cost equals or exceeds $5o,ooo. remodeling of University buildings of Equipment is capitalized when acquisition costs approximately $29,448,000.

exceed $5,ooo for the University or $5oo for Capital assets at June 30, 2007, are shown in UUHC. All costs incurred in the acquisition of Figure3.

library materials are capitalized. All campus land acquired through grants from the U.S. 8. PENSION PLANS AND Government has been valued at $3,000 per acre.

RETIREMENT BENEFITS Other land acquisitions have been valued at original cost or fair market value at the date of As required by State law, eligible nonexempt donation in the case of gifts. Buildings, employees (as defined by the U.S. Fair Labor improvements, land, and equipment of Standards Act) of the University are covered by component units have been valued at cost at the either the Utah State and School Contributory or date of acquisition. Noncontributory or the Public Safety Noncontributory Retirement Systems and eligible Capital assets of the University and its component exempt employees (as defined by the U.S. Fair units are depreciated on a straight-line basis over Labor Standards Act) are covered by the Teachers their estimated useful lives. The estimated useful Insurance and Annuity Association-College lives of University assets extends to forty years on Retirement Equities Fund (TIAA-CREF). Eligible buildings, fifteen years on infrastructure and employees of ARUP are covered by a separate improvements, twenty years on library books, and defined contribution pension plan and a profit from five to fifteen years on equipment. The sharing plan.

estimated useful lives of component unit assets extend to fifty years on buildings and The University contributes to the Utah State and improvements and from three to eight years on School Contributory and Noncontributory and the equipment. Land, art and special collections, and Public Safety Noncontributory Retirement Figure 3. Beginning Ending Balance Additions Retirements Balance Buildings $1,136,454,473 $175,276,953 $ 816,150 $1,310,915,276 Infrastructure & improvements 138,235,956 17,796,048 156,032,004 Land 17,267,135 17,267,135 Equipment 506,254,693 67,791,827 24,949,378 549,097,142 Library materials 146,637,831 3,174,745 1,089,148 148,723,428 Art and special collections 39,428,566 4,123,122 33,653 43,518,035 Construction in progress 138,977,107 157,796,897 204,746,030 92,027,974 Total cost 2,123,255,761 425,959,592 231,634,359 2,317,580,994 Less accumulated depreciation Buildings 478,923,560 47,207,240 921,774 525,209,026 Infrastructure & improvements 77,349,550 8,021,945 85,371,495 Equipment 345,294,335 45,582,675 21,148,963 369,728,047 Library materials 83,897,590 4,942,329 88,839,919 Total accumulated depreciation 985,465,035 105,754,189 22,070,737 1,069,148,487 Capital assets, net $1,137,790,726 $320,205,403 $209,563,622 $1,248,432,507 32

System (Systems) that are multi-employer, cost Benefits provided to retired employees are based sharing, defined benefit pension plans. The on the value of the individual contracts and the Systems provide refunds, retirement benefits, estimated life expectancy of the employee at annual cost of living adjustments, and death retirement. Contributions by the University to the benefits to plan members and beneficiaries in employee's contract become vested at the time the accordance with retirement statutes. contribution is made. Employees are eligible to participate from the date of employment and are The Systems are established and governed by the not required to contribute to the fund. For the respective sections of Chapter 49 of the Utah Code year ended June 30, 2007, the University's Annotated, 1953, as amended. The Utah State contribution to this defined contribution pension Retirement Office Act provides for the plan was 14.20% of the employees' annual administration of the Utah Retirement Systems salaries. Additional contributions are made by and Plans under the direction of the Utah State the University based on employee contracts. The Retirement Board (Board) whose members are University has no further liability once appointed by the Governor. The Systems issue a contributions are made. Certain UUHC employees publicly available financial report that includes hired prior to January 1, 2001, were fully vested as financial statements and required supplementary of that date. Employees hired subsequent to information for the Systems. A copy of the report January 1, 2o00, are eligible to participate in the may be obtained by writing to the Utah plan one year after hire date and vest after six Retirement Systems.

years. The University's contribution for these health clinic employees was 3.00% of the Plan members in the State and School Contributory Retirement System are required to employees' annual salaries.

contribute 6.oo% of their annual covered salaries, The ARUP defined contribution pension and all of which is paid by the University, and the profit sharing plans provide retirement benefits University is required to contribute 9.73% of their for all employees who have attained certain annual salaries. In the State and School tenure-based and hours-worked thresholds.

Noncontributory Retirement System and the Employees are fully vested in both plans after five Public Safety Noncontributory Retirement years of service. For the year ended June 30, 2007, System, the University is required to contribute ARUP contributed 5.00% of the employees' annual 14.22% (with an additional 1.5o% to a 401(k) salary salaries (less forfeitures) to the pension plan.

deferral program) and 26.75%, respectively, of Contributions to the profit sharing plan are at the plan members' annual salaries. The contribution discretion of ARUP.

requirements of the Systems are authorized by statute and specified by the Board and the For the years ended June 30, 2007, 2o06, and contribution rates are actuarially determined. 2005, the University's contributions to the Systems were equal to the required amounts, as TIAA-CREF provides individual retirement fund shown in Figure 4.

contracts with each participating employee.

Figure 4.

2007 2006 2005 State and School Contributory Retirement System $ 1,581,565 $ 1,489,378 $ 1,563,900 State and School Noncontributory Retirement System 24,259,347 22,257,303 22,375,155 Public Safety Noncontributory Retirement System 328,163 289,291 295,083 TIAA-CREF 70,903,307 65,126,133 60,472,570 Pension plan 3,498,662 3,140,908 2,743,021 Profit sharing plan 6,050,982 4,723,787 3,353,435 Total contributions $106,622,026 $97,026,800 $90,803,164 33

9. DEFERRED REVENUE auto/physical damage, as well as hospital and physicians malpractice liability self-insurance Deferred revenue consists of summer school funds. The malpractice liability self-insurance tuition and student fees, advance payments on funds are held in trust with an independent grants and contracts, and results of normal financial institution in compliance with Medicare operations of auxiliary enterprises and service reimbursement regulations. Based on an analysis units. prepared by an independent actuary, the administration believes that the balance in the lo.FUNDS HELD IN TRUST BY trust funds as of June 30, 2007, is adequate to OTHERS cover any claims incurred through that date. The University and UUHC have a "claims made" Funds held in trust by others are neither in the umbrella malpractice insurance policy in an possession of nor under the management of the amount considered adequate by its respective University. These funds, which are not recorded administrations for catastrophic malpractice on the University's financial records and which liabilities in excess of the trusts' fund balances.

arose from contributions, are held and administered by external fiscal agents, selected The estimated self-insurance claims liability is by the donors, who distribute net income earned based on the requirements of GASB Statement No.

by such funds to the University, where it is io, Accounting and FinancialReporting for RiAk recorded when received. The fair value of funds Financing and Related Insurance LI.Aue., as held in trust at June 30, 2007, was $98,596,688. amended by GASB Statement No. 30, RiLk Financing Omnibus, which requires that a In addition, certain funds held in trust by others liability for claims be reported if information are comprised of stock, which is reported at a prior to the issuance of the financial statements value of $7,75o,673 as of June 30, 2007, based on a indicates that it is probable that a liability has predetermined formula. The fair value of this been incurred at the date of the financial stock as of June 30, 2007 cannot be determined statements and the amount of the loss can be because the stock is not actively traded.

reasonably estimated.

11m RISK MANAGEMENT Changes in the University's estimated self-insurance claims liability for the years ended June The University maintains insurance coverage for 3o are shown in Figure5.

commercial general liability, automobile, errors and omissions, and property (building and The University has recorded the investments of equipment) through policies administered by the the malpractice liability trust funds at June 30, Utah State Risk Management Fund. Employees of 2007, and the estimated liability for self-the University and authorized volunteers are insurance claims at that date in the Statement of covered by workers' compensation and employees' Net Assets. The income on fund investments, the liability through the Workers' Compensation expenses related to the administration of the self-Fund of Utah. insurance and malpractice liability trust funds, and the estimated provision for the claims In addition, the University maintains self-liability for the year then ended are recorded in insurance funds for health care, dental, and Figure 5.

2007 2006 Estimated claims liability - beginning of year $ 54,505,514 $ 52,869,024 Current year claims and changes in estimates 153,046,890 129,783,800 Claim payments, including related legal and administrative expenses (141,395,068) (128,147,310)

Estimated claims liability - end of year $ 66,157,336 $ 54,505,514 34

the Statement of Revenues, Expenses, and classification system that is based on clinical, Changes in Net Assets. diagnostic, and other factors. Outpatient services rendered to Medicaid program beneficiaries and

12. INCOME TAXES certain outpatient services and defined capital costs related to Medicare beneficiaries are paid on The University, as a political subdivision of the a cost reimbursement basis. Medicare State, has a dual status for federal income tax reimbursements are based on a tentative rate with purposes. The University is both an Internal final settlement determined after submission of Revenue Code (IRC) Section 115 organization and annual cost reports by UUHC and audits thereof an IRC Section 501(c)(3) charitable organization.

by the Medicare fiscal intermediary.

This status exempts the University from paying federal income tax on revenue generated by The estimated final settlements for open years are activities which are directly related to the based on preliminary cost findings after giving University's mission. This exemption does not consideration to interim payments that have been apply to unrelated business activities. On these received on behalf of patients covered under these activities, the University is required to report and programs.

pay federal and state income tax.

B. Charity Care UURF is not subject to income taxes under Section 501(c)(3) of the Internal Revenue Code. UUHC maintains records to identify and monitor the level of charity care it provides. Based on ARUP is also not subject to income taxes based on established rates, the charges foregone as a result a private letter ruling from the Internal Revenue of charity care during the year ended June 30, Service stating that certain income providing an 2007, were approximately $21,471,000.

essential governmental function is exempt from federal income taxes under Internal Revenue Code :t4. LEASES Section 115.

A. Revenue

13. HOSPITAL REVENUE UURF receives lease revenues from A. Net Patient Service Revenue noncancellable sublease agreements with tenants of the Research Park and from tenants occupying UUHC reports net patient service revenue at the six buildings owned by UURF. The lease revenue estimated net realizable amounts from patients, to be received from these noncancellable leases third-party payors, and others for services for each of the subsequent five years is rendered, including estimated retroactive $6,500,000, and for eighteen years thereafter, adjustments under reimbursement agreements comparable annual amounts. Most lease revenue with third-party payors. Retroactive adjustments is subject to escalation based on changes in the are accrued on an estimated basis in the period Consumer Price Index (CPI). Since such the related services are rendered and adjusted in escalations are dependent upon future changes in future periods as final settlements are the CPI, these escalations, if any, are not reflected determined. Charity care is excluded from net in the minimum noncancellable lease revenues patient service revenue. listed above.

UUHC has third-party payor agreements with B. Commitment.A Medicare and Medicaid that provide for payments to UUHC at amounts different from established The University leases buildings and office and rates. Inpatient acute care services rendered to computer equipment. Capital leases are valued at Medicare and Medicaid program beneficiaries are the present value of future minimum lease paid at prospectively determined rates per payments. Assets associated with the capital discharge. These rates vary according to a patient leases are recorded as buildings and equipment 35

together with the related long-term obligations. east of the University campus and adjacent to the Assets currently financed as capital leases University Hospital. The Huntsman sublease is an amount to $25,795,ooo and $75,378,215 for annually renewable lease with a final expiration buildings and equipment, respectively. date of May 2013. Annual payments began May Accumulated depreciation for these buildings and 1997 and range from a low of approximately equipment amounts to $2,404,688 and $468,478 to a high of approximately $1,648,090.

$37,601,181, respectively. Operating leases and At the end of the lease, title to the Huntsman related assets are not recorded in the Statement of Cancer Institute building will be transferred to Net Assets. Payments are recorded as expenses the University.

when incurred and amount to approximately

$25,343,000 for the University and $4,873,000 for Future minimum lease commitements for component units for the year ended June 30, 2007. operating and capital leases as of June 30, 2007 Total operating lease commitments for the are shown in Figure 6.

University include approximately $7,275,000 of

15. BONDS PAYABLE AND OTHER commitments to component units.

LONG-TERM LIABILITIES Included in the above component unit lease expenses are leases by ARUP for its principal The long-term debt of the University consists of bonds payable, certificates of participation, laboratory and office buildings, under long-term capital lease obligations, compensated absences, agreements, from a partnership in which one of and other minor obligations.

its directors is a principal. The agreements have initial terms of fifteen years with two five-year The State Board of Regents issues revenue bonds renewal options and include rent increases of two to provide funds for the construction and to three percent annually in the sixth and eleventh renovation of major capital facilities and the years from the commencement of the lease. Total acquisition of capital equipment for the lease payments for the year ended June 30, 2007 University. In addition, revenue bonds have been were $4,732,419. issued to refund other revenue bonds and capitalized leases.

The University entered into a Huntsman Cancer Institute capital sublease agreement in the The revenue bonds are special limited obligations amount of $16,875,00o dated November 1996 with of the University. The obligation for repayment is the State, acting through DFCM for the lease of solely that of the University and payable from the net revenues of auxiliary enterprises and UUHC, the Huntsman Cancer Institute building, located Figure 6.

Fiscal Year Operating Capital 2008 $ 31,406,132 $14,007,068 2009 29,972,526 17,182,169 2010 25,192,446 9,235,835 2011 22,715,115 6,964,962 2012 20,334,125 4,884,691 2013-2017 82,361,442 7,650,830 2018-2022 76,886,100 2,883,041 2023 - 2027 7,585,740 720,985 2028 - 2030 415,519 Total future minimum lease payments $296,869,145 63,529,581 Amount representing interest (8,251,986)

Present value of future minimum lease payments $55,277,595 36

student building fees, land grant income, and recovered indirect costs. Neither the full faith and credit nor the taxing power of the State or any other political subdivision of the State is pledged to the payment of the bonds, the distributions or other costs associated with the bonds.

In 1985, the State Board of Regents authorized the University to issue Variable Rate Demand Industrial Development Bonds (University Inn Project - 1985 Series) for the Salt Lake City Marriott - University Park Hotel, separate from the University. The bonds are payable from the revenues of the hotel and the University has no responsibility or commitment for repayment of the bonds. The outstanding balance of the bonds at June 30, 2007, is $6,035,000.

The Series 1997A Auxiliary and Campus Facilities Revenue Bonds currently bear interest at a weekly Series 2oo6B bonds cannot be remarketed to new rate in accordance with the bond provisions.

holders, the tender agent is required to draw on an When a weekly rate is in effect, the Series 199 7A irrevocable standby bond purchase agreement to Bonds are subject to purchase on the demand of pay the purchase price of the bonds delivered to it.

the holder at a price equal to principal plus The standby bond purchase agreement is with accrued interest on seven days notice and delivery DEPFA Bank and is valid through October 25, to the University's tender agent. The University's 2013. No funds have been drawn against the remarketing agent is authorized to use its best standby bond purchase agreement. The interest efforts to sell the repurchased bonds at a price requirement for the Series 2oo6B Bonds is equal to loo percent of the principal amount by calculated using an annualized interest rate of adjusting the interest rate. If any Series 199 7A 3.90%, which is the rate in effect at June 30, 2007.

Bonds cannot be remarketed to new holders, the tender agent is required to draw on an irrevocable On April 28, 2oo6, the University entered into a standby bond purchase agreement to pay the loan agreement with the federal government for purchase price of the bonds delivered to it. The the benefit of the Huntsman Cancer Institute standby bond purchase agreement is with (HCI) and Huntsman Cancer Hospital (HCH).

JPMorgan Chase Bank and is valid through July Pursuant to the Health Care Infrastructure 30, 2o0o. No funds have been drawn against the Improvement Program, the University qualified standby bond purchase agreement. The interest for a loan in the amount of $ioo,ooo,ooo. The requirement for the Series 199 7 A Bonds is loan is administered by the Centers for Medicare calculated using an annualized interest rate of and Medicaid Services (a division of the United 3.73%, which is the rate in effect at June 30, 2007. States Department of Health and Human Services) pursuant to Section 1897, Title XVIII of The Hospital Revenue Bonds Series 2oo6B the Social Security Act. The proposed rules currently bear interest at a daily rate in include a Loan Forgiveness Program whereby the accordance with the bond provisions. When a full amount of the loan may be forgiven based daily rate is in effect, the Series 2oo6B Bonds are upon certain criteria. The University has received subject to purchase on the demand of the holder at notice from the Federal Government that the a price equal to principal plus accrued interest.

criteria were met. Consequently, during fiscal The University's remarketing agent is authorized year 2007, the loan was forgiven and the proceeds to use its best efforts to sell the repurchased recorded as federal capital grant revenue in the bonds at a price equal to loo percent of the Statement of Revenues, Expenses, and Changes in principal amount plus accrued interest. If any Net Assets.

37

The following schedule lists the outstanding bonds payable and certificates of participation of the University at June 30, 2007:

Date Maturity Interest Original Current Balance Issue Issued Date Rate Issue Liability 6/30/2007 Auxiliary and Campus Facilities Series 1987A - Refunding 3/1/87 2014 3.750%- $ 11,140,000 $ 440,000 $ 1,490,000 6.750%

Series 1997A - Revenue 7/30/97 2027 Variable 52,590,000 1,125,000 12,000,000 Series 1998A - Revenue & Refunding 7/1/98 2016 4.100%- 120,240,000 2,546,828 56,234,102 5.250%

Series 1999A - Revenue 5/1/99 2014 4.000%- 5,975,000 422,383 3,404,618 4.800%

Series 2001 - Revenue 7/18/01 2021 3.500%- 2,755,000 113,762 2,205,935 5.125%

Series 2005A - Refunding 8/2/05 2021 3.000%- 42,955,000 (18,280) 42,942,820 5.000%

Hospital Series 1998A - Revenue 6/1/98 2013 5.250%- 25,020,000 3,224,755 6,457,349 5.375%

Series 2005A - Revenue & Refunding 7/14/05 2018 4.500%- 30,480,000 (889,581) 31,436,853 5.000%

Series 2006A - Revenue & Refunding 10/26/06 2032 4.000%- 77,145,000 102,594 82,227,692 5.250%

Series 2006B - Revenue 10/26/06 2032 Variable 20,240,000 20,240,000 Research Facilities Series 2000A - Revenue & Refunding 7/13/00 2020 5.000%- 17,585,000 706,701 2,245,519 5.750%

Series 2004A - Revenue 6/30/04 2019 3.000%- 9,685,000 542,181 8,108,083 4.700%

Series 2005A - Revenue 2/15/05 2025 3.000%- 5,515,000 209,689 5,270,586 5.000%

Series 2005B - Refunding 6/07/05 2020 3.000%- 2.0,130,000 1,417,972 18,159,991 5.000%

Series 2007A - Revenue 6/28/07 2022 4.600%- 10,000,000 580,000 10,000,000 4.740%

Certificates of Participation Series 2007 4/3/07 2027 4.000%- 42,450,000 1,088,084 42,677,861 5.500%

Tntn 1 511.612.088 .345.101.409 UURF has purchased three buildings with two mortgages that are guaranteed by the University. The remaining amounts of the mortgages are $6,019,311 at 8.87% interest and $2,952,8o0 at 7.15% interest. The mortgages will be paid off on April i, 2o2o and September 1, 2021, respectively. In addition, UURF agreed to bear 42.04% of the cost to renovate the building at 417 Wakara Way for the Health Science Center. The remaining balance of debt related to those costs is $3,394,73o at interest rates ranging from 3.00% to 4.70%.

The following schedule summarizes the changes in long-term liabilities for the year ended June 30, 2007:

Beginning Ending Current Balance Additions Reductions Balance Portion Bonds payable $210,866,759 $116,569,818 $ 25,013,029 $302,423,548 $ 10,524,004 Certificates of participation 42,690,156 12,295 42,677,861 1,088,084 Capital leases payable 86,683,835 14,846,799 46,253,039 55,277,595 11,894,279 Notes & contracts payable 114,765,359 1,824,227 101,039,811 15,549,775 1,340,706 Total long-term debt 412,315,953 175,931,000 172,318,174 415,928,779 24,847,073 Compensated absences 38,425,406 29,125,955 25,919,170 41,632,191 4,509,589 Deposits & other liabilities 104,374,027 87,710,325 95,385,066 96,699,286 87,299,073 Total long-term liabilities $555,115,386 $292,767,280. $293,622,410 $554,260,256 $116,655,735 38

Maturities of principal and interest requirements 17. FUNCTIONAL CLASSIFICATION for long-term debt payable are as follows: OF EXPENSES Payments The following schedule presents operating Fiscal Year Principal Interest expenses by functional classification for the year 2008 $ 24,847,073 $ 19,608,618 ended June 30, 2007:

2009 29,141,118 18,591,458 2010 22,362,518 17,361,028 Amount 2011 22,150,579 16,373,484 Function (in thousands) 2012 18,838,617 15,404,676 Instruction $ 264,901 2013-2017 81,418,197 65,087,428 Research 217,805 2018-2022 74,529,819 45,519,347 Public service 381,863 2023 -2027 70,882,695 26,537,831 Academic support 71,286 2028 - 2032 71,757,427 9,696,025 Student services 18,743 Total $415,928,043 $234,179,895 Institutional support 43,983 Operation & maintenance of plant 49,934 Student aid 33,945 i6. RETIREMENT OF DEBT Other 391,705 Hospital 618,221 In prior years, the University defeased certain Total $2,092,386 revenue bonds by placing the proceeds of new bonds and various bond reserves in irrevocable trusts to provide for all future debt service

18. PLEDGED BOND REVENUE payments on the old bonds.

The University issues revenue bonds to provide In addition, the University issued on October 26, funds for the construction and renovation of 2oo6, Hospital Revenue and Refunding Bonds major capital facilities and the acquisition of Series 2oo6A in the amount of $77,145,000 of capital equipment for the University. Investors in which $11,350,000 was used to advance refund the these bonds rely solely on the net revenue pledged remaining Hospital Revenue Bonds Series 2001.

by the following activities for the retirement of This refunding resulted in a reduction of the outstanding bonds payable.

University's aggregate debt service payments of approximately $918,ooo over the next sixteen Auxiliary Enterpri.e. - is comprised of years and a present value economic gain of specific auxiliary enterprises, namely:

approximately $595,00o. Accordingly, the trust University Bookstore, Residential Living, account assets and the liability for the defeased University Student Apartments, Commuter bonds are not included in the University's Services, Jon M. Huntsman Center, Rice-financial statements. The total principal amount Eccles Stadium, and Union Building. These of defeased bonds held in irrevocable trusts at auxiliaries provide on-campus services for June 30, 2007, is $115,805,000. the benefit of students, faculty and staff. In addition to the net revenues of these auxiliaries, student building fees, state land grant income and a subsidy from the federal department of Housing and Urban Development are pledged to the retirement of all Auxiliary Campus and Facility bonds.

University of Utah Ho-pitalA & Clinic- - is comprised of the University Hospitals, the University Neuropsychiatric Institute, and 39

other clinics that provide health and During fiscal year 2007, the Utah State Auditor psychiatric services to the community. issued an audit finding to the Centers for Medicare and Medicaid Services (CMS) indicating that the Reimbursed Overhead - is the revenue Utah State Department of Health (the Department) generated by charging approved facilities and had made payments for graduate medical administration rates to grants and contracts. education to teaching hospitals in excess of the maximum allowable amounts as described in the The Figure 7 presents the net revenue pledged to State Plan. This finding has been rebutted by the the applicable bond system and the principal and interest paid for the year ended June 30, 2007. Department and an appeal has been filed with the Appeals Board of the United States Department of Health and Human Services. As UUHC has been the largest recipient of the graduate medical

19. COMMITMENTS AND education funds, there is a potential that should CONTINGENCIES CMS prevail in the dispute, the Department may look to UUHC to assist in funding any financial Under the terms of various limited partnership remedies imposed by the Appeals Board. As of June agreements approved by the Board of Trustees or 30, 2007, the Department has indicated they will by University officers, the University is obligated not look to UUHC to cover this liability and has to make periodic payments for advance reserved an amount adequate to cover any commitments to venture capital and private equity potential liability.

investments. As of June 30, 2007, the University had committed, but not paid, a total of $15,497,554 in funding for these alternative investments.

Figure 7. Bond Systems Auxiliary & Research Campus Facilities Hospital Facilities Revenue Operating revenue $64,150,996 $707,728,912 $ 60,120,135 Nonoperating revenue 5,290,638 7,012,340 Total revenue 69,441,634 714,741,252 60,120,135 Expenses Operating expenses 51,751,062 654,366,342 45,902,397 Nonoperating expenses 97,381 Total expenses 51,751,062 654,463,723 45,902,397 Net pledged revenue $17,690,572 $ 60,277,529 $ 14,217,738 Principal paid and interest expense $9,533,550 $8,452,352 $4,553,627 40

THE UNIVERSITY OF UTAH I Governing BoardA and OfficerA UTAH STATE BOARD OF REGENTS UNIVERSITY ADMINISTRATION' Jed H. Pitcher Michael K. Young Chair President Bonnie Jean Beesley A. Lorris Betz Vice Chair Senior Vice PreAidentfor Health ScienceA David W. Pershing Jerry C. Atkin Senior Vice PreAidentfor Academic AffairA Janet A. Cannon lack W. Brittain Rosanita Cespedes Vice Presidentfor Tech Venture Development Amy Engh Arnold B. Combe Katharine B. Garff Vice Pre.AidentforAdmini trative ServiceA Patti Harrington Fred C. Esplin Greg W. Haws Vice PreAidentfor InAtitutionalAdvancement Meghan Holbrook Raymond F. Gesteland James S. Jardine Vice Pre,6identfor ReAearch David J.Jordan Loretta F. Harper Nolan E. Karras Vice PreAidentforHuman Re,6ource.A Anthony W. Morgan Stephen H. Hess Josh M. Reid Chief Information Officer John K. Morris Sara V. Sinclair Marion 0. Snow Vice President/GeneralCounwel John H. Zenger Barbara H. Snyder Vice PreAidentfor Student AffairA Richard E. Kendell Kim Wirthlin CommiA-Aioner of HigherEducation Vice Preaidentfor Government Relationw BOARD OF TRUSTEES FINANCIAL AND BUSINESS SERVICES.

Randy L. Dryer Jeffrey J. West Chair A-Aociate Vice Pre-Aidentfor Financialand BuAine.&- Service.6 H. Roger Boyer Theresa L. Ashman Vice Chair Controller/DirectorFinancialManagement Barbara K. Nielsen Timothy B. Anderson Aj"ociate Directorfor Compliance Accounting C. Hope Eccles and Reporting Clark Ivory Stephen P. Allen 1.Spencer Kinard Manager,GeneralAccounting Scott S. Parker Spencer Pearson Lorena Riffo-Jenson James Wall Spencer F. Eccles Trea.Aurer Laura Snow Secretary 41

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THE F UNIVERSITY OF UTAH

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Content.A Message from the President 3 Independent State Auditor's Report 4 -5 Management's Discussion and Analysis 6 - 17 Financial Statements 19 - 23 Statement of Net Assets 20 Statement of Revenues, Expenses, and Changes in Net Assets 21 Statement of Cash Flows 22- 23 Notes to Financial Statements 24- 40 Governing Boards and Officers 41

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MeAAage from the PreAident I am pleased to present this financial report for the University's 2oo6 fiscal year. The University remains in good financial condition thanks to the vision, effort, and generosity of literally thousands of dedicated people. I keenly appreciate this extraordinary community of students, faculty, administrators, staff, alumni, and friends.

Although I could fill volumes with the accomplishments and promising initiatives of this extraordinary University, let me highlight just a few:

The University continues its strong record as an "economic engine" that powers growth in Utah. This year 2o new University-based companies were created-distinguishing the University as among the best in commercializing research from a wide number of disciplines.

The USTAR initiative is actively recruiting world-class research teams to Utah. These teams will develop products and services that can be commercialized in new businesses and industries, thereby creating high-paying jobs and increasing Utah's tax revenue.

• University Health Care continues as a major force in Utah's economic prosperity and quality of life.

Financially, this year was the best ever for University Hospitals &Clinics. And, for the 13 th straight year, University Hospital has been ranked among "best in the nation" by U.S. Newi* & World Report.

The University continues to provide outstanding public service for the benefit of Utah's citizens.

For example, the Museum of Natural History reached more than 350,000 people last year through traveling exhibits, classroom, and field programs. This included visits to over 300 public schools. Through a variety of outreach programs, the Museum of Fine Arts served over 23,500 children through high school age. University Neighborhood Partners distributed educational materials to over 1,2oo children and families and assisted 61 high school-age youth with neighborhood-based academic advising assistance in English and Spanish. Through its BookA ArtA Program, Marriott Library provided training and instruction to over 16,5oo public school K-12 teachers and students.

While there is much to be proud of, there remains much to be accomplished. We are taking steps to ensure students benefit from more international opportunity while enjoying greater research and learning possibilities on campus. We are developing strategies that facilitate recruitment and successful retention of students of color, and shaping programs that entice outstanding students in all disciplines. We are working to recruit well-qualified students from junior colleges and are delighted that enrollment for freshmen and graduate admissions remains high.

The University of Utah was established through the vision and work of pioneer settlers of Salt Lake City. Upon arriving in the Salt Lake Valley by wagon, their leader Brigham Young's first words were "This is the right place.

Drive on." Despite the toil and hardship of getting here, there was much work ahead and little time for rest. His words are as apt today as then-both for the State of Utah and its flagship University. Utah is the right place to confront the challenges facing society. There is no better time to move forward. Like our predecessors, we "drive on."

3

S 0 , &STATE OF UTAH

.. .. DEPUTY STATE AUDITOR:

Office of the State Auditor Joe Christensen, CPA UTAH STATE CAPITOL COMPLEX EAST OFFICE BUILDING, SUITE E3 10 FINANCIAL AUDIT DIRECTORS:

\ - P.O. BOX 142310 H. Dean Eborn, CPA SALT LAKE CITY, UTAH 84114-2310 Deborah A. Empey, CPA (801) 538-1025 Stan Godfrey, CPA FAX (801) 538-1383 Jon T. Johnson, CPA Auston G. Johnson, CPA UTAH STATE AUDITOR Independent State Auditor's Report To the Board of Trustees, Audit Committee, and Michael K. Young, President University of Utah We have audited the accompanying basic financial statements of the University of Utah (hereinafter referred to as the "University"), a component unit of the State of Utah, as of and for the year ended June 30, 2006, as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the University of Utah Hospitals and Clinics or the University's component units, which represent approximately 22%

($604,820,000) of total assets and 43% ($926,600,000) of total revenues of the University. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Utah Hospitals and Clinics and the component units, is based on the reports of the other auditors. The prior year partial comparative information has been derived from the University's 2005 financial statements and, in our report dated September 30, 2005, we expressed an unqualified opinion, based on our audit and the reports of other auditors, on the basic financial statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Th Lose standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the component units were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2006, and the changes in financial position and cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

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In accordance with Government Auditing Standards, we have also issued our report dated September 29, 2006 on our consideration of the University's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit The accompanying management discussion and analysis, as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Auston G. Johnso , CPA Utah State Auditor September 29, 2006 5

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INTRODUCTION health care system has a tradition of excellence in teaching, advancement of medical science and The following discussion and analysis provides an patient care, consistently ranking among the best overview of the financial position and activities of health care systems in the western United States.

the University of Utah (University) for the year ended June 30, 2oo6, with selected comparative The University consistently ranks as one of the information for the year ended June 30,2005. This nation's top universities by various measures of discussion has been prepared by management and quality, both in general academic terms and in should be read in conjunction with the financial terms of strength of offerings in specific statements and the notes thereto, which follow academic disciplines and professional subjects.

this section. Excellence in research is another crucial element in the University's high ranking among The University is a comprehensive public educational institutions. Research is central to institution of higher learning with approximately the University's mission and permeates its 29,000 students, 2,300 faculty members and more schools and colleges.

than 20,000 supporting staff. The University offers a diverse range of degree programs from In addition to the academic schools, colleges, and baccalaureate to post-doctoral levels, through a departments, the University operates the framework of 15 schools, colleges and divisions, University of Utah Research Foundation (UURF), a and contributes to the state and nation through separately incorporated entity that specializes in related research and public service programs. The applied research, the transfer of patented University also maintains a prestigious health technology to business entities, leasing and care complex through its University of Utah administration of Research Park (a research park Hospitals and Clinics (UUHC). The UUHC consists located on land owned by the University), and the of three hospitals and numerous specialty clinics. leasing of certain buildings. Also, a wholly-owned, The UUHC is an integral part of the University's separately incorporated enterprise, the health care system that also includes the Associated Regional and University Pathologists, University's School of Medicine and the Colleges of Inc. (ARUP) provides pathology services to Health, Nursing, and Pharmacy. The University's regional and national customers.

7

FINANCIAL HIGHLIGHTS Revenues, Expenses, and Changes in Net Assets; and the Statement of Cash Flows.

The University's financial position remained strong at June 30, 2oo6, with assets of $2.8 Revenues and expenses are categorized as billion and total liabilities of $.7 billion. Net operating or nonoperating and other net asset assets, which represent the residual interest in additions as capital contributions or additions the University's assets after liabilities are to permanent endowments. Significant deducted, increased by $210.3 million to $2.1 recurring sources of the University's revenues, billion at June 30, 20o6. including state appropriations, gifts and investment income, are considered Changes in net assets represent the total nonoperating, as defined by GASB Statement activity of the University, which results from all No. 34, BaAic Financial Statements - and revenues, expenses, gains and losses, and are Management's DiAcu.Aion and Analy.iA - for summarized for the years ended June 30, 2oo6 State and Local Governmentn. Nonoperating and 2005 in Figure1. revenues totaled $342.5 million and $319.7 million for the years ended June 30, 2oo6 and Fiscal year 2oo6 revenues before change in fair 2005, respectively. Nonoperating expenses, value of investments increased 8.7%, or $172.9 which include interest expense, totaled $33.6 million, while expenses increased 7.6%, or million and $26.2 million for the years ended

$139.6 million. This resulted in a net gain June 30, 2oo6 and 2005, respectively.

before changes in fair value of investments of

$183.1 million for fiscal year 2oo6, as compared Also, as required by GASB Statement No. 34, to $149.8 million for fiscal year 2005. scholarships and fellowships applied to student accounts are shown as a reduction of student The University invests its endowment funds to tuition and fee revenues, while stipends and maximize total return over the long term, other payments made directly to students are within an appropriate level of risk. The success presented as scholarship and fellowship of this long-term investment strategy is expenses. For the years ended June 30, 2006 and evidenced by returns averaging 7.8% during the 2oo5, scholarship and fellowship expenses past ten years.

totaled $21.6 million and $21.3 million, respectively. In addition, scholarships and fellowships in the amount of $17.4 million and USING THE FINANCIAL

$13.6 million for the years ended June 30, 2oo6 STATEMENTS and 2005, respectively, are reported as a reduction of tuition and fees and auxiliary The University's financial report is prepared in enterprises revenue.

accordance with Governmental Accounting Standards Board (GASB) principles and Other appropriate revenue items have also been includes three financial statements: the reduced by bad debt expense incurred during Statement of Net Assets; the Statement of each fiscal year.

Figure 1. 2006 2005 (in thousands)

Total revenues before change in fair value of investment $2,149,334 $1,976,472 Total expenses 1,966,266 1,826,662 Increase in net assets before change in fair value of investments 183,068 149,810 Increase in fair value of investments 27,250 28,429 Increase in net assets $ 210,318 $ 178,239 8

STATEMENT OF NET ASSETS The Statement of Net Assets presents the financial position of the University at the end of the fiscal year and includes all assets and liabilities of the University. The difference between total assets and total liabilities is net assets and is one indicator of the current financial condition of the University, while the change in net assets is an indicator of whether the overall financial condition has improved or worsened during the year. Assets and liabilities are generally measured using current values W 1-7791M except for capital assets, which are stated at historical cost less an allowance for depreciation.

A summarized comparison of the University's Current assets represent approximately 7.2 assets, liabilities and net assets at June 30, 2oo6 months of total operating expenses (excluding and 2005 is shown in Figure2. depreciation). Current cash and investments for capital and student loan activities totaled $ioo.6 A review of the University's Statement of Net million at June 30,2006 and $130.8 million at June Assets at June 30, 2oo6 and 2005, shows that the 30, 2oo5. Receivables increased from $213.9 University continues to build upon its strong million at June 30, 2005 to $233.2 million at June financial foundation. This strong financial 30,2006.

position reflects the prudent utilization of its financial resources, including careful cost Current liabilities consist primarily of trade controls, management of its endowment funds, accounts, accrued compensation, deposits, and utilization of debt and adherence to its long other liabilities, which totaled $270.2 million at range capital plan for the maintenance and June 30, 2o06, as compared to $243.2 million at replacement of the physical plant. June 30, 2005. Current liabilities also include deferred revenue, and the current portion of Current assets consist primarily of cash, operating bonds payable. Total current liabilities increased investments, trade receivables and inventories. $27.0 million during fiscal year 2o06.

Figure 2.

2006 2005 (in thousands)

Current assets $1,094,249 $ 822,181 Noncurrent assets.

Endowment and other investments 474,858 473,133 Receivables 51,985 57,628 Capital assets, net 1,137,791 1,094,780 Other 18,620 18,981 Total assets 2,777,503 2,466,703 Current liabilities 270,175 243,182 Noncurrent liabilities 434,305 360,816 Total liabilities 704,480 603,998 Net assets $2,073,023 $1,862,705 9

ENDOWMENT AND SIMILAR INVESTMENTS The University's endowment funds consist of true endowments, term endowments, and quasi-endowments. True endowments (also known as permanent endowments) are those funds received from donors with the stipulation that the principal remain inviolate and be invested in perpetuity to produce income that is to be expended for the purposes specified by the donor. Term endowment funds are similar to true endowments, except that, upon the passage of a stated period of time or the occurrence of a particular event, all or part of the donation may be expended. Quasi-endowments consist of institutional funds that have been allocated by the University for long-term investment purposes, although such funds are not subject to donor restrictions requiring the University to preserve the principal in perpetuity. Programs supported by endowment funds include scholarships, fellowships, professorships, research efforts and other important programs and activities.

The University of Utah endowment pool returned 9.6% for the year ended June 30, 2006 compared to io.6% for the year ended June 30, 2005. These results reflect the heavy weighting of equities in the asset allocation of Endowment funds invested in the University's the pool and compare favorably to broad endowment pool are invested on a unit basis indexes such as the S&P 5oo and Lehman similar to mutual funds where each new dollar Brothers Aggregate Bond (8.6% gain and o.8% buys a number of shares in the pool. The pool is loss, respectively, for fiscal year 2o06). The net subject to a spending policy, which determines a gain on the endowment pool for the year ended distribution rate of return that will be used to June 30, 20o6 totaled $24.6 million compared allocate funds to University departments from the to a gain of $26.3 million for the year ended growth portion of the endowment pool. The June 30, 2005. purpose of the spending policy is to establish a Endowment funds are invested to maximize distribution rate that over time will generate long-term results. During fiscal year 2oo6, the returns adequate to continue support for future expenses in perpetuity assuming moderate levels University implemented new investment of inflation. During the year ended June 30, 2006, guidelines and asset allocation for the the spending policy was 4.0% of the twelve quarter University's Endowment Pool. The new asset moving average of unit market values. Endowment allocation provides for broad diversification of pool income used in operations was $12.o million assets with the long-term goal of maximizing in fiscal year 2006. The amount allocated to returns within acceptable risk levels for operations exceeded dividends and interest earned investment of endowment funds.

on pool investments by $5.6 million.

10

CAPITAL AND DEBT ACTIVITIES One of the critical factors in continuing the quality of the University's academic and research programs is the development and renewal of its capital assets. The University continues to implement its long-range plan to modernize its complement of older teaching and research facilities, balanced with new construction.

Capital additions totaled $165.2 million in fiscal year 2oo6, as compared to $246.8 million in fiscal year 2005. Capital additions primarily comprise replacement, renovation, and new construction of academic, research, and health care facilities, as well as significant investments in equipment.. Capital asset additions are funded by capital appropriations, bond proceeds, gifts which were designated for capital purposes, and unrestricted net assets.

Construction in progress at June 30, 2oo6, totaled

$139.0 million that includes projects in numerous buildings across the campus. Significant projects include: medical laboratories; additional ophthalmologic facilities; a health education facility; engineering office and classroom facilities; and renovation of the Marriott Library.

The University takes seriously its role of financial stewardship and works hard to manage Since endowment funds are invested for long- its financial resources effectively, including the term results rather than short-term annual prudent use of debt to finance capital projects.

returns, it is important to reflect on the longer The debt rating of the University is an important investment horizon. Over the past ten years, indicator of success in this area. The underlying the University's endowment pool has earned bond ratings from Standard and Poor's and an average total return of 7.8%, paid out an Moody's Investors Service for the Auxiliary and average of 4.2%, and reinvested the balance Campus Facilities Bonds are AA/Aa2, the representing an average of 3.6%. The Hospital Revenue Bonds are AA/Aa2, and the reinvested funds enabled higher balances, Research Facilities Revenue Bonds are AA-/Aa3, thus yielding greater returns to keep pace with respectively. These ratings are considered high inflation of program expenses. Endowments investment grade quality and position the provide crucial support for the University's University, if deemed necessary, to obtain future quality academic programs and accessibility debt financing at low interest rates and reduced to these programs for all students. issuance costs.

Gifts to the endowment funds at the University Bonds payable totaled $210.9 million and $238.1 totaled $19.3 million and $14.6 million for the million at June 30, 2006 and 2005, respectively.

fiscal years 2oo6 and 2oo5, respectively. One new Auxiliary and Campus Facility Revenue Refunding Bond series and one new Hospital 11

Revenue Refunding Bonds series were issued in NET ASSETS fiscal year 2006, which partially advance refunded one previously issued Auxiliary and Net assets represent the residual interest in the Campus Facility Revenue Bond series and two University's assets after liabilities are deducted.

other previously issued Hospital Revenue Bond series. The original purpose of all bond debt is to Inveted in capital auetA, net of related debt represents the University's capital assets net of provide funds for the construction and renovation of major capital facilities and the acquisition of accumulated depreciation and outstanding capital equipment for the University. principal balances of debt attributable to the acquisition, construction or improvement of An institution's ratio of unrestricted operating those assets.

revenues to bonds, notes and contract debt is a valuable indicator of its ability to finance its Restricted nonexpendable net oAAetA are the University's permanent endowment funds.

outstanding debt. At June 30, 2oo6, the University has 3.6 times the unrestricted operating revenue Restricted expendable net a2"etA are subject to necessary to meet its debt requirements. externally imposed restrictions governing their use. This category of net assets includes $87.5 million of quasi-endowments.

Although unrestrictednet aAAet.A are not subject to externally imposed stipulations, substantially all of the University's unrestricted net assets have been designated for various academic and research programs and initiatives, as well as capital projects.

12

STATEMENT OF REVENUES, other grants and contracts, state appropriations, EXPENSES, AND CHANGES IN and investment income. The University has in the past and will continue to aggressively seek NET ASSETS funding from all possible sources consistent with The Statement of Revenues, Expenses, and its mission, to supplement student tuition, and to Changes in Net Assets presents the University's manage prudently the financial resources realized results of operations. A summarized comparison from these efforts to fund its operating activities.

of the University's revenues, expenses, and Significant recurring sources of the University's changes in net assets for the years ended June 30, revenues are considered nonoperating, as defined 2006 and 2oo5 is shown in Figure3.

by GASB Statement No. 34. Graph i (Operating One of the University's greatest strengths is the Revenues) and Graph 2 (Nonoperating Revenues) diverse streams of revenues which supplement its are illustrations of revenues by source, which student tuition and fees, including voluntary were used to fund the University's operations for private support from individuals, foundations, the year ended June 30, 2oo6 (amounts are and corporations, along with government and presented in thousands of dollars).

Figure 3.

2006 2005 (in thousands)

Operating revenues Tuition and fees $ 142,432 $ 132,189 Patient services 821,704 746,425 Grants and contracts 300,744 294,588 Sales and services 382,902 324,503 Auxiliary enterprises 70,433 75,802 Other 72,116 66,838 Total operating revenues 1,790,331 1,640,345 Operating expenses 1,932,667 1,800,464 Operating loss (142,336) (160,119)

Nonoperating revenues (expenses)

State appropriations 249,608 238,756 Gifts 26,248 26,787 Investment income 66,620 54,179 Interest expense (14,801) (16,172)

Other (18,798) (10,026)

Net nonoperating revenues 308,877 293,524 Capital appropriations 9,014 8,953 Capital and endowment grants and gifts 34,763 35,881 Total capital and endowment revenues 43,777 44,834 Increase in net assets 210,318 178,239 Net assets - beginning of year 1,862,705 1,684,466 Net assets - end of year $2,073,023 $1,862,705 13

Graph 1.

OPERATING REVENUES The University continues to face significant financial pressure, particularly in the areas of compensation and benefits, which represent 53.1%

of total expenses, as well as in the areas of technology and utility costs. To manage this financial pressure, the University continues to seek diversified sources of revenue and to implement cost containment measures.

Tuition and state appropriations are the primary sources of funding for the University's academic programs. Student tuition and fees, net of allowances for scholarships and fellowships, increased $1o.2 million, or 7.7% to $1424 million in fiscal year 2006.

State appropriations increased 4.5% or $1o.9 million to

$249.6 million in fiscal year 2006.

While tuition and state appropriations fund a M Tuition and Fees $142,432 significant percentage of the University's

_. Patient Services $821,704 academic and administrative costs, private M Governmental Grants & Contracts $226,655 support has been, and will continue to be, essential to the University's academic success. Private I Nongovernmental Grants & Contracts $74,089 support remained stable with gift revenues for Sales and Services $382,902 operations slightly decreasing by 2.0%, or $o.5 Auxiliary Enterprises $70,433 million, to $26.2 million in fiscal year 2oo6.

/ Other $72,116 Revenues for grants and contracts increased 2.1%,

or $6.2 million, to $300.7 million in fiscal year 2oo6, primarily related to research programs. The Graph 2. increase in grant and contract revenues was NONOPERATING REVENUES generated by a broad base of schools, colleges, and research units across the University. The University receives revenues for grants and contracts from government and private sources, which provide for the recovery of direct costs and facilities and administrative (indirect) costs.

Patient care revenues increased io.i% or $75.3 million to $821.7 million in fiscal year 2oo6. The majority of these revenues relate to patient care services, which are generated within UUHC under contractual arrangements with governmental payers and private insurers. Increased revenues primarily resulted from a growth in patient volume, demand for specialty services provided by outpatient clinics and moderate price increases for patient services.

• State Appropriations $249,608

.I Gifts $26,248 Net investment income for the years ended June 30, 2006 and 2005, consisted of the following Investment Income $66,620 components:

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2006 2005 A comparative summary of the University's (in thousands) expenses for the years ended June 30, 2006 and Interest and dividends, net $39,370 $25,750 2005 follows:

Net increase in fair value of investments 27,250 28,429 2006 2005 Net investment income $66,620 $54,179 (in thousands)

Operating Compensation Net investment income totaled $66.6 million in and benefits $1,043,826 $ 980,676 fiscal year 2oo6, as compared to $54.2 million in Component units 227,340 203,419 fiscal year 2005, which is an increase of $12.4 Supplies 228,806 201,988 million. Moreover, as discussed previously, the Purchased services 103,443 94,419 University's endowment investment policies are Depreciation and designed to maximize long-term total return while amortization 97,475 96,142 its income distribution policies are designed to Utilities 52,238 44,905 preserve the value of the endowment portfolio and Cost of goods sold 29,165 29,411 to generate a predictable stream of spendable Repairs and income. The income distribution from the maintenance 21,004 10,809 University's endowment portfolio for the support Scholarships of operating activities, in accordance with the and fellowships 21,624 21,338 University's spending policy, totaled $12.0 million Other 107,746 117,357 in fiscal year 2oo6, as compared to $11.6 million in Total operating 1,932,667 1,800,464 fiscal year 2005. In addition, in fiscal year 2o06,

$1.3 million was returned to endowment principal. Nonoperating Interest and other 33,599 26,198 Capital appropriations received from the State in Total expenses $1,966,266 $1,826,662 fiscal year 20o6, which totaled $9.0 million, funded a portion of building renovation projects. Other revenues include capital grants and gifts and Graph3 is a graphic illustration of total expenses, additions to permanent endowments totaling $34.8 in thousands of dollars, by natural classification.

million for the fiscal year ending June 30, 2006.

Graph 3.

EXPENSES A Compensation and Benefits $1,043,826 Scholarship & Fellowships Interest Repairs & Maintenance I Component Units $227,340 Cost of Goods Sold " b J Supplies $228,806 Utilities I Purchased Services $103,443 Depreciation & Amortization Purchased Services R Depreciation and Amortization $97,475 I Utilities $52,238 I_ Cost of Goods Sold $29,165 0 Repairs and Maintenance $21,004 E Scholarships and Fellowships $21,624

• Interest $14,801

'M Other $126,544 15 I

The University is committed to recruiting and STATEMENT OF CASH FLOWS retaining an outstanding faculty and staff and the compensation package is one way to The Statement of Cash Flows provides successfully compete with peer institutions and additional information about the University's nonacademic employers. The resources financial results, by reporting the major sources expended for compensation and benefits and uses of cash.

increased 6.4%, or $63.2 million, to $1,043.8 The University's cash and cash equivalents million in fiscal year 2oo6. Of this increase, decreased $22.1 million due primarily to the compensation increased 7.1%, or $53.6 million, purchase of investments, debt service and as a result of annual increases and the hiring of operating activities. This negative flow of funds additional employees. The related employee was offset by funds provided by noncapital benefits increased 4.3% or $9.6 million.

financing activities, predominantly state Other operating expenses decreased 8.2%, or $9.6 appropriations. The University's significant million, to $107.7 million in fiscal year 20o6. sources of cash provided by noncapital financing activities, as defined by GASB In addition to their natural classification, it is Statement No. 9, include state appropriations also informative to review operating expenses and private gifts used to fund operating by function. A comparative summary of the activities.

University's operating expenses by functional classification for the years ended June 30, 2006 CURRENT FACTORS HAVING and 2005 follows: PROBABLE FUTURE FINANCIAL 2006 - 2005 SIGNIFICANCE (in thousands)

A primary factor contributing to the University's Instruction $ 248,885 $ 232,232 sound financial footing is the performance of its Research 215,018 211,529 healthcare operations, UUHC and ARUP - with Public service 354,797 314,762 fiscal year 20o6 distinguishing itself as the best Academic support 66,299 66,488 year ever for both organizations. These Student services 18,246 16,890 operations will probably continue to comprise a Institutional support 35,780 50,656 growing proportion of total University revenues.

Operations and maintenance of plant 48,335 43,027 Academic colleges and related services Student aid 32,071 32,035 operating on the main campus are, for the most Other 361,568 314,734 part, financially healthy - but are reliant on state Hospital 551,668 518,111 appropriations and federal research funds. The Total operating economy of the State of Utah continues to expenses $1,932,667 $1,800,464 expand and this bodes well for higher education support. Management anticipates modest increases in general State support for Instruction, research, and public service expenses compensation in the 3-5% range. It is also hoped increased 7.9%, or $6o.2 million, to $818.7 million that the State may address some long-standing in fiscal year 2oo6. Academic and institutional needs for deferred maintenance and utility cost support expenses decreased 12.9%, or $15.1 funding - at least on a one-time basis.

million, to $1o2.1 million in fiscal year 2oo6.

Federal research awards for 2oo6, while significant, reflect little growth over the prior year.

Competition for these funds is intense, and the federal government research budget has been stagnant in recent years. This not only has an effect 16

on direct research revenues, but on the indirect Huntsman Cancer Institute (HCI) and the cost recovery the University receives to reimburse Huntsman Cancer Hospital (HCH) applied for overhead costs associated with research activities. and received significant funding from the On a related note, the University has submitted a Centers for Medicare and Medicaid Services (a new facilities and administration rate study - division of the Department of Health and based on fiscal year 2005 data, to the federal Human Services), in the form of a forgivable government as part of the process to renegotiate loan. Although it is not certain, HCI and HCH the indirect cost reimbursement rate for research. intend to satisfy the forgiveness provisions of This negotiation will likely take place in 2007, and this loan. If they are successful, loan proceeds we believe the current on-campus rate of 49.5% can will be used to retire certain debt issued to be maintained or increased. finance HCI and HCH, which will significantly reduce the University's debt service payments.

On the positive side, the University is gearing up for a major capital campaign, which is In summary, despite various challenges, the projected to add significantly to our endowment University remains on solid financial footing base. We are also looking forward to increased and maintains a strong set of financial income from long-term investments as the performance indicators. These factors economy continues to rebound and investment contribute to the high levels of confidence and returns increase somewhat from the relatively support that the University enjoys from modest gains of recent years. In addition, students, donors, legislators, taxpayers, during fiscal year 2006 the University's sponsors, and creditors.

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• L <F,' 4 THE UNIVERSITY OF UTAH I Statement o- t s (in thou AariJdofdollurA) 7, ~~As ofJune 30,""

F'

[For C(mpaIisonOnly] 0 N ,I ,

. r. .. . 2006 2005'F ASSETIS Current 'Assets ,. ,  :'

Cash and cash equivalents.(Notes 2 & 4) $ 558,042 $ 491,679)

. Slrtterm investments (Notes 2 & 4) 264,883 80,061

'Receivables, net(Note 5) ,2080.

23,** 213,948' Inventory (Note 1) I , -16,1005', 27,591 Other asset's (Note 6) , 28,411 8,902' 'F

F'F

-Total urrIent assets 21M04.24 ,Y,

[" 2t j NoncurirentAssets

.'Restfitedcash aiid cash equivalents (NQtes 2'& 4) 114,359

- Restricted 'shor-termtyin estvnents-(Notes?& 4)F" F 'F865 ,710 investments h(N otes e 4. te (o 2& 4 158,628 1' 1.75,966 Restrictedminvestments (Notes 3 & 4), 289,454' 182,098 F

'Restricte'd.reeivables* net (Note'S) '51,985 57,628 D.oiinted proiperty heldfoir sale', ' -,!:.:2,732£:'

2.i: 2,782

.Other assets (Note:6) ,'i5,888 16,199~

\: " ..... '},"Capitalassets', }iet'(Nte )"ij 5":..*,[ , : 113,71791 1' F' 'F 1,094,780F

'1~q683;25;4' Total noncurrent assets ,

-.Total a'sets" 2777,7503, ~2,466,'703 B' LIABILITIES ' '.-

'F FF'FB. 'F

.Current Liabilities' ~ F'F B 'F ' ' F'FF~ 4 F' F Accounts payable..' "6349 61,820 IF" ,

"Accrued payroll'. 62,129 'F' F' < F Compensated 'absences & early retirement benefit's (Note 3,990 Deferred revenue (Note 9), 23 742 B2 3 ,816 '

° DeDeposits & other liabilities (Notes 11,& 15) 77,390 F 'F Bonds, notesand contracts payable (Notes 14,-15, & 16) 21,232. F" F'~

'F 'F Total current liabilities ~270,175 1 243,1 X82'F'7 FF ~F Noncurrent Liabilities - F' " 'F

Comperisated absences & earlyiretirement benefits (Note 1)' 34',202 31 002' Deposits & other liabilities (Notes'11 & 1,5) 'o <9;0'19,; 11,345 Bonds, notes and con'tracts p5ayable (Notes ý14, 15;& 16). "F 391,084" 318,469 Total nohcurrent liabilities' '2' ' 360,816 Total liabilities -, . ' 704.480 603,998 NET ASSETS

-Invested in capital assetsý, net' ,of "relat*d debt 828,988 760,338 Restricted for  : ' . ' ' F' Nonexpendable ' ' ' , .' ' 'F "

Instruction ' ' ' 99,04'1 , 92,889,9 Research 32,944 30,057 F F ' F, V

-Public service.' 45,205' 39.771 Academic support 29,580 Scholarships; F 91,010. 78711

'Other 5,284%F 4,033 Expendable

'Instruction 5,768

'Research '123,239 Public service F '20,869 25,971

ýAcademic suppt , 52130 41,651 Institutional support2 F, 38,979 29,528 Scholarships., 5 765 35 :976_ ,

Loans 37.048 Debt service 2,504, 14.474'4 Capital additions *2*60';0554 F 49,228 B4,134 Other 6,193.

Unrestricted 'F , 580,272 488A161 Total net assetL5 S$1,8621705

~$2Q,0713-'02 F F' F , , , , F ~, F F F 'F'F' "F' F"~'F'F ,~ <'F'F' FrF"FF',~

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THE" UNIVERSITY OF UTAH I Statement of Reven6ues, Expenss'd, aid*Changes inw NetAssets (in thou.andh of dollarA)

For the Years Ended June 309ý'

[For Comparison Only]

2006 2005 OPERATING REVENUES AND EXPENSES Revenues Tuition and fees (Note 1) $ 142,432 . 132,189 Patient services (Notes 1 & 13) 821,704 746,425 Federal grants and contracts 207,097 207,079 State and local grants and contracts 19,558 16,870, Nongovernmental grants and contracts 74,089 70,639 Sales and services (Note 1) 382,902 324,503 Auxiliary enterprises (Note 1) 70,433 75,802 Other operating revenues. 72,116 66,838.

Total operating revenues 1,790,331 1,640,345 Expenses Compensation and benefits 1,043,826 980,676' Component units 227,340 203,419 Supplies 228,806 201,988 Purchased services -1103,443 94,419 Depreciation and amortization 97,475 96,14'2 '

Utilities 52,238 44,905 Cost of goods sold 29,165 29,411 Repairs and maintenanc& 21,004 10,809.

Scholarships and fellowships 21,624 21,338 Other operating expenses 107,746 117,357 Total operating expenses 1,932,667 1,800,464f

'Operating loss -"(142,336) *(160,119)

NONOPERATING REVENUES (EXPENSES)

State appropriations 249,608 238,756.

Gifts 26,248 26,787 Investment income 66,620 54,179 Interest (14,801) (16,172)

Other nonoperating expenses (48,798) (10,026)

Total nonoperating revenues 308,877 293,524 Gain before capital and permanent endowment additions 166,541 133,405 Capital appropriations 9,014 8,953 Capital grants and gifts 20,788 24,491 Additions to permanent endowments 13,975 11,390 Total capital and permanent endowment additions 43,777 44,834 Increase in net assets 210,318 178,239 NET ASSETS,,-

Net assets - beginning of year 1,862,705 1,684,466 Net assets - end of year $2,073,023 $1,862,705 21 The accompanying notes are an integral part of these financiýal.statements

THE UNIVERSITY OF"'UTAH I Statement of Cash Flows (in thouwandA of dollarA)

For the Years Ended June 30 1'

[For Comparison Only) 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from tuition and fees $ 142,705 $ 132,850 Receipts from patient services 815,311 719,817 Receipts from contracts and grants 291,799 295,380 Receipts from auxiliary and educational services 452,831 401,263 Collection of loans to students 8,649 7,868 Payments to suppliers (769,381) (721,667).

Payments for personal services (1,034,341) (974,425)

Payments for scholarships/fellowships (21,623) (21,338)

Loans issued to students (5,880) (9,692)

Other Net cash used by operating activities 85,219 (34,711) 73,638 (96,306)

I

ý CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 249,608 238,756 Gifts Endowment, 14,407 11,506 Nonendowment 27,307 29,401 Other (18,732) (9,870)

Net cash provided by noncapital financing activities 272,590 .269,793 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt 171,048 26,888 Capital appropriations . . 9,014 *.. 8,952 Gifts 21,820 19,787 Purchase of capital assets (125,315) (131,079)

Principal paid on capital debt (112,690) (53,490)

Interest paid on capital debt . (14,640) (16,165),

Net cash used by capital and related financing activities (50,763) (145,107)

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 113,391 :180,594 Receipt of interest on investments 40,551 24,646 Purchase of investments (363,143) (82,091)

Net cash provided (used) by investing activities (209,201) 123,149 Net increase (decrease) in cash (22,085) 151,529 Cash - beginning of year 606,038 454,509 Cash - ending of year $ 583,953 $ 606,038 22 The accompanying notesa-e 'an interal part of these financial statements

THE UNIVERSITY OF UTAH I Statement of Cash Flows (in thou~AandA of dollarA),

For the Years Ended June 30

[For Comparison Only]

.2006" 2005 RECONCILIATION OF NET OPERATING LOSS TO CASH USED BY OPERATING ACTIVITIES Operating loss .(142,336) $(160,119)

Adjustments to reconcile operating loss to cash used by operating activities Depreciation expense 97,475 96,142 Change in assets and liabilities Receivables, net (15,290), r ,(24,072).

Inventory (2,414), (2,156)

Donated property held for sale 29 Other assets 1,102 . . 434 Accounts payable 1,673 (17,636)

Accrued payroll 6,052 3,618 Compensated absences & early retirement benefits . 3,434 2,632 Deferred revenue (75) (5,575)

NDeposits & other liabilities 15,639 10,426, Net cash used by operating activities $ (34,711)' $ (96,306)

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Capital leases $ 15,172 $ 30,370 Donated property and equipment 12,786, 8,582 Annuity and life income 162 163 Increase in fair value of investments 27,250 28,429 Total noncash investing, capital, and financing activities $ 55,370, S, 67,544ý 23 The accompanying notes are an integral part of these financial statements

Hafts aop~oo~a

~ affm

1.

SUMMARY

OF SIGNIFICANT Utah School of Medicine to provide pathology ACCOUNTING POLICIES consulting services. The fiscal year end for ARUP is June 30. Other independent auditors A. Reporting Entity audited ARUP and their report, dated September i, 2oo6, has been issued under The financial statements report the financial separate cover.

activity of the University of Utah (University),

including the University of Utah Hospitals and All Governmental Accounting Standards Board Clinics (UUHC). The University is a component (GASB) pronouncements and all applicable unit of the State of Utah. In addition, University Financial Accounting Standards Board (FASB) administrators hold a majority of seats on the pronouncements are applied by the University, boards of trustees of two other related entities UURF and ARUP in the accounting and reporting representing component units of the University. of their operations. However, in accordance with GASB Statement No. 2o, Accounting and Component units are entities that are legally Financial Reporting for ProprietaryFundA and separate from the University, but are financially Other Governmental EntitieA That Uze accountable to the University, or whose ProprietaryFund Accounting, the University has relationships with the University are such that elected not to apply FASB pronouncements exclusion would cause the University's financial issued after November 30, 1989.

statements to be misleading or incomplete. The relationship of the University with its component B. BaAiA of Accounting units requires the financial activity of the All statements have been prepared using the component units to be blended with that of the economic resources measurement focus and the University. Copies of the financial report of each accrual basis of accounting. Operating activities component unit can be obtained from the include all revenues and expenses, derived on an University. The component units of the University are the University of Utah Research exchange basis, used to support the instructional, Foundation (UURF) and Associated Regional and research and public service efforts, and other University priorities. Significant recurring University Pathologists, Inc. (ARUP).

sources of the University's revenues are

- UURF is a not-for-profit corporation governed considered nonoperating as defined by GASB by a board of directors who are affiliated with Statement No. 34, Bazic FinancialStatementA -

the University with the exception of two. The and Management': Dizcuwion and AnalyAiA -for operations of UURF include the leasing and the State and Local GovernmentA, and required by administration of Research Park (a research GASB Statement No. 35, Bazic Financial park located on land owned by the University), Statementm - and Management'6 Di.ctizion and the leasing of certain buildings, and the AnalyziA - for Public CollegeA and Univer.itieA.

commercial development of patents and When both restricted and unrestricted resources products developed by University personnel. are available, such resources are spent and The fiscal year end for UURF is June 30. UURF tracked at the discretion of the department within is audited by other independent auditors and the guidelines of donor restrictions.

their report, dated September 6, 2oo6, has been Investments are recorded at fair value in issued under separate cover.

accordance with GASB Statement No. 31,

- ARUP is a for-profit corporation that provides Accounting and FinancialReporting for Certain clinical laboratory services to medical centers, InveutmentA andfor ExternalInvestment PoolA.

hospitals, clinics and other clinical Accordingly, the change in fair value of laboratories throughout the United States, investments is recognized as an increase or including UUHC. ARUP contracts with the decrease to investment assets and investment Department of Pathology of the University of revenue. The University distributes earnings 25

from pooled investments based on the average after fifteen years of service. There is no daily investment of each participating account requirement to use vacation leaye, but a or for endowments, distributed according to the maximum of thirty days plus one-year accrual University's spending policy. may be carried forward at the beginning of each calendar year. Employees are reimbursed for In accordance with GASB Statement No. 33, unused vacation leave upon termination and Accounting and Financial Reporting for vacation leave is expended when used or Nonexchange Tran.actionA, the University reimbursed. The liability for vacation leave at recognizes gifts, grants, appropriations, and the June 30, 2oo6, was approximately $34,203,000.

estimated net realizable value of pledges as revenue as soon as all eligibility requirements Employees earn sick leave at a rate of eight imposed by the provider have been met. hours each month, with an accumulation limit of 1,04o hours. The University does not reimburse Patient revenue of UUHC and the School of employees for unused sick leave. Each year, Medicine medical practice plan are reported net eligible employees may convert up to four days of of third-party adjustments. unused sick leave to vacation leave based on In accordance with GASB Statement No. 34, their use of sick leave during the year. Sick leave certain expenses are netted against revenues as is expended when used.

allowances. The following schedule presents In addition, the University may provide early revenue allowances for the years ended June 30, retirement benefits, if approved by the 2006 and 2oo5: Administration and by the Board of Trustees, for Revenue 2006 2005 certain employees who have attained the age of Tuition and fees $16,682,607 $13,025,482 6o with at least fifteen years of service and who Patient services 41,800,569 34,695,589 have been approved for the University's early Sales and services 32,597 14,667 retirement program. Currently, 99 employees Auxiliary enterprises 851,665 911,203 participate in the early retirement program. The University pays each early retiree an annual C. InventorieA amount equal to the lesser of 20% of the retiree's final salary or their estimated social security Bookstore inventories are valued using the benefit, as well as health care and life insurance retail inventory method. All other inventories premiums, which is approximately 5o% of their are stated at the lower of cost or market using early retirement salary, until the employee the first-in, first-out method or on a basis which reaches full social security retirement age. The approximates cost determined on the first-in, amount recognized on the financial statements first-out method. was calculated at the discounted present value of the projected future costs. The discount rate D. ReAearch and Development Co.t. used was based on the average rate earned by the Research and development costs of ARUP are University on cash management investments for expensed as incurred. These costs for the year the fiscal year. The funding for these early retirement benefits is provided on a pay-as-you-ended June 30, 2006, were approximately go basis. For the year ended June 30, 2006, these

$6,920,000.

expenditures were approximately $1,567,000.

E. Compen~ated AbAenceA & Early F. Construction Retirement BenefitA The Utah State Division of Facilities Employees' vacation leave is accrued at a rate of Construction and Management (DFCM) eight hours each month for the first five years administers most of the construction of and increases to a rate of 16.67 hours7.75463e-4 days <br />0.0186 hours <br />1.107804e-4 weeks <br />2.54935e-5 months <br /> each month

-facilities for state institutions, maintains 26

records, and furnishes cost information for Cash and Cash Equivalents recording plant assets on the books of the Cash $ (14,351,099)

University. Interest expense incurred for Money market funds 5,880,227 construction of capital facilities is considered Time certificates of deposit 64,410,699 immaterial and is not capitalized. Construction Obligations of the U.S.

projects administered by DFCM that were Government and its agencies 120,358,005 started prior to fiscal year 2002 and are not Utah Public Treasurer's completed are recorded as Construction in Investment Fund 407,655,480 Progress. Construction projects beginning in Total (fair value) $583,953,312 fiscal year 2002 and after will not be recorded on the books of the University until the facility is available for occupancy. Short-term Investments Time certificates of deposit $ 6,000,000 G. Di.clo-sure-A Obligations of the U.S.

Certain financial information for fiscal year Government and its agencies 259,747,974 ended June 30, 2005 is included for comparison Total (fair value) $265,747,974 only and is not complete. Complete information is available in the separately issued financial statements for that year. 3. INVESTMENTS Funds available for investment are pooled to maximize return and minimize administrative

2. CASH, CASH EQUIVALENTS, cost, except for funds that are authorized by the AND SHORT-TERM INVESTMENTS University administration to be separately invested or which are separately invested to Cash and cash equivalents consists of cash and meet legal or donor requirements. Investments short-term investments with an original maturity received as gifts are recorded at market or of three months or less. Cash, depending on appraised value on the date of receipt. If no source of receipts, is pooled, except for cash and market or. appraised value is available, cash equivalents held by ARUP and when legal investments received as gifts are recorded at a requirements dictate the use of separate nominal value. Other investments are also accounts. The cash balances and cash float from recorded at fair value.

outstanding checks are invested principally in short-term investments that conform to the UURF receives, in exchange for patent rights, provisions of the Utah Code. It is the practice of common stock of newly organized companies the University that the investments ordinarily be acquiring these patents. Inasmuch as the stock held to maturity at which time the par value of the is ordinarily not actively traded, the fair value is investments will be realized. ordinarily not ascertainable and any realization from the sale of the stock is often uncertain.

The Utah State Treasurer's Office operates the Utah Therefore, such stock is recorded by UURF at a Public Treasurer's Investment Fund (PTIF) which is nominal value. Those stocks that are publicly invested in accordance with the State Money traded are recorded at their fair value on June Management Act. The State Money Management 30, 2006.

Council provides regulatory oversight for the PTIF.

The PTIF is available for investment of funds University personnel manage certain administered by any Utah public treasurer. portfolios, while other portfolios are managed by banks, investment advisors or through trust At June 30, 2006, cash and cash equivalents and agreements.

short-term investments consisted of:

27

According to the Uniform Management of investment transactions. The Act requires the Institutional Funds Act, Section 13-29 of the depositing of University funds in a qualified Utah Code, the governing board may depository. The Act defines a qualified appropriate for expenditure for the purposes for depository as any financial institution whose which an endowment is established, as much of deposits are insured by an agency of the federal the net appreciation, realized and unrealized, of government and which has been certified by the the fair value of the assets of an endowment State Commissioner of Financial Institutions as over the historic dollar value as is prudent meeting the requirements of the Act and under the facts and circumstances prevailing at adhering to the rules of the Utah Money the time of the action or decision. Management Council.

The endowment income spending policy at June As of July 1, 2005 for endowment funds, the 30, 20o6, is 4% of the twelve quarter moving University follows the requirements of the average of the market value of the endowment Uniform Management of Institutional Funds Act pool. The spending policy is reviewed periodically (UMIFA) and State Board of Regents Rule 541, and any necessary changes are made. Management and Reporting of Institutional Investments (Rule 541).

The amount of net appreciation on investments of donor-restricted endowments available for Deposits authorization for expenditure at June 30, 2oo6, was approximately $81,437,0oo. The net Cu.todial Credit RiLk: Custodial credit risk for appreciation is a component of restricted deposits is the risk that, in the event of a bank expendable net assets. failure, the University's deposits may not be returned to it.

At June 30, 2oo6, the investment portfolio composition was'as follows: At June 30, 2006, the carrying amounts of the University's deposits and bank balances were Obligations of the U.S. $59,936,316 and $82,253,232, respectively. The Government and its agencies $ 58,999,170 bank balances of the University were insured for Mutual funds 375,217,260 $200,000, by the Federal Deposit Insurance Common and preferred stocks 13,865,487 Corporation. The bank balances in excess of Total (fair value) $ 448,081,917 $200,000 were uninsured and uncollateralized, leaving $82,053,232 exposed to custodial credit risk. The University's policy for reducing this risk of loss is to deposit all such balances in qualified

4. DEPOSITS AND INVESTMENTS depositories, as defined and required by the Act.

The State of Utah Money Management Council Investments has the responsibility to advise the State Treasurer about investment policies, promote The State of Utah Money Management Act defines measures and rules that will assist in the types of securities authorized as appropriate strengthening the banking and credit structure investments for the University's non-endowment of the state, and review the rules adopted under funds and the conditions for making investment the authority of the State of Utah Money transactions. Investment transactions may be Management Act that relate to the deposit and conducted only through qualified depositories, investment of public funds. certified dealers, or directly with issuers of the investment securities.

Except for endowment funds, the University follows the requirements of the Utah Money These statutes authorize the University to Management Act (Utah Code, Section 51, invest in negotiable or nonnegotiable deposits Chapter 7) in handling its depository and of qualified depositories and permitted 28

negotiable agreements; commercial paper that activities of the State Treasurer and the PTIF is classified as "first tier" by two nationally and details the types of authorized recognized statistical rating organizations, one investments. Deposits in the PTIF are not of which must be Moody's Investors Service or insured or otherwise guaranteed by the State of Standard & Poor's; bankers' acceptances; Utah, and participants share proportionally in obligations of the United States Treasury any realized gains or losses on investments.

including bills, notes, and bonds; bonds, notes, and other evidence of indebtedness of political The PTIF operates and reports to participants subdivisions of the State; fixed rate corporate on an amortized cost basis. The income, gains, obligations and variable rate securities rated and losses - net of administration fees, of the "A" or higher, or the equivalent of "A" or higher, PTIF are allocated based upon the participant's by two nationally recognized statistical rating average daily balance. The fair value of the organizations; shares or certificates in a money PTIF investment pool is approximately equal to market mutual fund as defined in the State the value of the pool shares.

Money Management Act; and the Utah State The University's participation in mutual funds Public Treasurer's Investment Fund. may indirectly expose it to risks associated with The UMIFA and Rule 541 allow the University to using, holding, or writing derivatives. However, invest endowment funds (including gifts, specific information about any such devises, or bequests of property of any kind transactions is not available to the University.

from any source) in any of the above Interet Rate Riik: Interest rate risk is the risk investments or any of the following subject to that changes in interest rates will adversely satisfying certain criteria: professionally affect the fair value of an investment. The managed pooled or commingled investment University's policy for managing its exposure to funds registered with the Securities and fair value loss arising from increasing interest Exchange Commission or the Comptroller of rates is to comply with the State Money the Currency (e.g., mutual funds); Management Act or the UMIFA and Rule 541, as professionally managed pooled or commingled applicable. For non-endowment funds, Section investment funds created under 5o1(f) of the 51-7-n of the Act requires that the remaining Internal Revenue Code which satisfy the term to maturity of investments may not exceed conditions for exemption from registration the period of availability of the funds to be under Section 3(c) of the Investment Company invested. The Act further limits the remaining Act of 1940; any investment made in accordance term to maturity on all investments in with the donor's directions in a written commercial paper, bankers' acceptances, fixed instrument; and any alternative investment rate negotiable deposits and fixed rate corporate funds that derive returns primarily from high obligations to 270-365 days or less. In addition, yield and distressed debt (hedged or non- variable rate negotiable deposits and variable hedged), private capital (including venture rate securities may not have a remaining term to capital, private equity, both domestic and final maturity exceeding 2 years. For endowment international), natural resources, and private funds, Rule 541 is more general, requiring only real estate assets or absolute return and that investments be made as a prudent investor long/short hedge funds. would, by considering the purposes, terms, The PTIF is not registered with the SEC as an distribution requirements, and other investment company. The PTIF is authorized circumstances of the endowments and by and regulated by the State Money Management exercising reasonable care, skill, and caution.

Act, Section 51-7, Utah Code Annotated, 1953, as As of June 30, 2006, the University had debt amended. The Act established the State Money securities and maturities as shown in Figure i.

Management Council which oversees the 29

Figure 1.

Investment Maturities (in years)

Fair Less Investment Type Value than 1 1-5 6- 10 Money market mutual funds $ 1,736,610 $ 1,736,610 Utah Public Treasurer's Investment Fund 407,655,480 407,655,480 U.S. Treasuries 273,930,144 210,010,974 $63,919,170 U.S. Agencies 165,175,005 165,175,005 Mutual bond funds 97,871,591 4,690,248 $93,181,343 Totals $946,368,830 $784,578,069 $68,609,418 $93,181,343 Credit RiLk: Credit risk is the risk that an issuer University's custodial bank was reflected in the or other counterparty to an investment will not book-entry records of the issuer and the fulfill its obligations. The University's policy for University's ownership was represented by a reducing its exposure to credit risk is to comply receipt, confirmation, or statement issued by the with the State Money Management Act, the custodial bank.

UMIFA, and Rule 541, as previously discussed.

At June 30, 2006, the University's custodial bank At June 30, 2oo6, the University had debt was both the custodian and the investment securities and quality ratings as shown in counterparty for $409,392,900 of U.S. Treasury Figure2. and Agency securities purchased by the University and $4,967,749 of U.S. Treasury Cu.Atodial Credit RiAk: Custodial credit risk for securities were held by the custodial bank's trust investments is the risk that, in the event of a department but not in the University's name.

failure of the counterparty, the University will not be able to recover the value of its investments Concentration of Credit RiAk: Concentration of that are in the possession of an outside party. The credit risk is the risk of loss attributed to the University's policy for reducing its exposure to magnitude of a government's investment in a custodial credit risk is to comply with applicable single issuer. The University's policy for provisions of the State Money Management Act. reducing this risk of loss is to comply with the As required by the Act, all applicable securities Rules of the State Money Management Council purchased were delivered versus payment and or the UMIFA and Rule 541, as applicable. Rule 17 held in safekeeping by a bank. Also, as required, of the State Money Management Council limits the ownership of book-entry-only securities, such non-endowment fund investments in a single as U.S. Treasury or Agency securities, by the issuer of commercial paper and corporate Figure 2.

Fair Quality Rating Investment Type Value AAA Unrated No Risk Money market mutual funds $ 1,736,610 309,418 $ 1,427,192 Utah Public Treasurer's Investment Fund 407,655,480 407,655,480 U.S. Treasuries 273,930,144 $273,930,144 U.S. Agencies 165,175,005 165,175,005 Mutual bond funds 97,871,591 97,871,591 Totals $946,368,830 $165,484,423 $506,954,263 $273,930,144 30

obligations to 5-1o% depending upon the total Accounts $234,400,831 dollar amount held in the portfolio. For Contracts and grants 35,681,493 endowment funds, Rule 541 requires that a Notes 1,755,611 minimum of 25% of the equity portfolio must be Loans 30,914,052 invested in companies with an average market Pledges 27,381,230 capitalization of at least $1o billion; also a Interest 2,780,277 minimum of 25% of the overall endowment 332,913,494 portfolio should be invested in investment grade Less allowances for bad debt (47,720,500) fixed income securities as defined by Moody's Receivables, net $285,192,994 Investors Service or Standard & Poor's. The overall endowment portfolio cannot consist of more than 75% equity investments. Rule 541 also 6. DEFERRED CHARGES AND limits investments to no more than 3% in any OTHER ASSETS one sector fund that is concentrated within one sector of the U.S. market and no more than 5% in The costs associated with issuing long-term equity or fixed income funds of developing bonds payable are deferred and amortized over markets. It also limits investments in the life of the related bonds using the straight-line alternative investment funds, as allowed by Rule method, which approximates the effective 541, to between o% and 3o% based on the size of interest method. In addition, goodwill associated the University's endowment fund. with the purchase of certain health clinics is amortized using the straight-line method.

5. RECEIVABLES 7- CAPITAL ASSETS Accounts, pledges, and interest receivable include hospital patient accounts, medical Buildings, infrastructure and improvements, services plan accounts, trade accounts, pledges, which includes roads, curbs and gutters, streets interest income on investments, and other and sidewalks, and lighting systems; land; receivables. Loans receivable predominantly equipment; and library materials are valued at consist of student loans. cost at the date of acquisition or at fair market value at the date of donation in the case of gifts.

Allowances for doubtful accounts are Buildings, infrastructure and improvements, established by charges to operations to cover and additions to existing assets are capitalized anticipated losses from accounts receivable when acquisition cost equals or exceeds generated by sales and services and student $5o,ooo. Equipment is capitalized when loans. Such accounts are charged to the acquisition costs exceed $5,ooo for the allowance when collection appears doubtful University or $5oo for UUHC. All costs incurred and the accounts are referred to collection in the acquisition of library materials are agencies. Any subsequent recoveries are capitalized. The University acquires some of its credited to the allowance accounts. Allowances equipment from inventories of government are not established for pledges or in those excess property for which the University pays a instances where receivables consist of amounts minimal processing charge. Such property is due from governmental units or where valued at the original cost paid by the receivables are not material in amount. governmental entity. All campus land acquired through grants from the U.S. Government has The following schedule presents receivables at June been valued at $3,000 per acre. Other land 30, 20o6, including approximately $1,595,ooo, acquisitions have been valued at original cost

$25,289,o0o and $25,102,000 of noncurrent notes, or fair market value at the date of donation in loans and pledges receivable, respectively:

the case of gifts. Buildings, improvements, 31

land, and equipment of component units have 8. PENSION PLANS AND been valued at cost at the date of acquisition. RETIREMENT BENEFITS Capital assets of the University and its As required by state law, eligible nonexempt component units are depreciated on a straight-employees (as defined by the U.S. Fair Labor line basis over their estimated useful lives. The Standards Act) of the University are covered by estimated useful lives of University assets either the Utah State and School Contributory extends to forty years on buildings, fifteen or Noncontributory or the Public Safety years on infrastructure and improvements, Noncontributory Retirement Systems and twenty years on library books, and from five to eligible exempt employees (as defined by the fifteen years on equipment. The estimated U.S. Fair Labor Standards Act) are covered by useful lives of component unit assets extend to the Teachers Insurance and Annuity fifty years on buildings and improvements and Association-College Retirement Equities Fund from three to eight years on equipment. Land, (TIAA-CREF). Eligible employees of ARUP are art and special collections, and construction in covered by a separate defined contribution progress are not depreciated.

pension plan and a profit sharing plan.

At June 30, 2oo6, the University had The University contributes to the Utah State and outstanding commitments for the construction School Contributory and Noncontributory and and remodeling of University buildings of the Public Safety Noncontributory Retirement approximately $28,o81,ooo.

System (Systems) that are multi-employer, cost Capital assets at June 30, 2oo6, are shown in sharing, defined benefit pension plans. The Figure3. Systems provide refunds, retirement benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries in accordance with retirement statutes.

Figure 3. Beginning Ending Balance Additions Retirements Balance Buildings $1,121,663,881 $ 23,893,590 $ 9,102,998 $1,136,454,473 Infrastructure & improvements 131,765,144 6,470,812 138,235,956 Land 17,267,135 17,267,135 Equipment 485,517,133 53,452,669 32,715,109 506,254,693 Library materials 144,049,652 5,152,037 2,563,858 146,637,831 Art and special collections 36,019,567 4,569,527 1,160,528 39,428,566 Construction in progress 86,659,444 71,666,908 19,349,245 138,977,107 Total cost 2,022,941,956 165,205,543 64,891,738 2,123,255,761 Less accumulated depreciation Buildings 443,155,863 42,088,642 6,320,945 478,923,560 Infrastructure & improvements 70,043,152 7,306,398 77,349,550 Equipment 334,486,585 44,230,528 33,422,778 345,294,335 Library materials 80,476,617 3,420,973 83,897,590 Total accumulated depreciation 928,162,217 97,046,541 39,743,723 985,465,035 Capital assets, net $1,094,779,739 $ 68,159,002 $25,148,015 $1,137,790,726 32

The Systems are established and governed by employment and are not required to contribute to the respective sections of Chapter 49 of the the fund. For the year ended June 30, 2006, the Utah Code Annotated, 1953, as amended. The University's contribution to this defined Utah State Retirement Office Act provides for contribution pension plan was 14.20% of the the administration of the Utah Retirement employees' annual salaries. Additional Systems and Plans under the direction of the contributions are made by the University based Utah State Retirement Board (Board) whose on employee contracts. The University has no members are appointed by the Governor. The further liability once contributions are made.

Systems issue a publicly available financial Certain UUHC employees hired prior to January i, report that includes financial statements and 2001, were fully vested as of that date. Employees required supplementary information for the hired subsequent to January 1, 2OO0, are eligible Systems. A copy of the report may be obtained to participate in the plan one year after hire date by writing to the Utah Retirement Systems. and vest after six years. The University's contribution for these health clinic employees Plan members in the State and School was 3.00% of the employees' annual salaries.

Contributory Retirement System are required to contribute 6.oo% of their annual covered The ARUP defined contribution pension and salaries, all of which is paid by the University, profit sharing plans provide retirement benefits and the University is required to contribute for all employees who have attained certain 8.89% of their annual salaries. In the State and tenure-based and hours-worked thresholds.

School Noncontributory Retirement System and Employees are fully vested in both plans after the Public Safety Noncontributory Retirement five years of service. For the year ended June 30, System, the University is required to contribute 2006, ARUP contributed 5.00% of the 14.88% (including 1.5o% to a 4 01(k) salary employees' annual salaries (less forfeitures) to deferral program) and 23.46%, respectively, of the pension plan. Contributions to the profit plan members' annual salaries. The contribution sharing plan are at the discretion of ARUP.

requirements of the Systems are authorized by For the years ended June 30, 2006, 2005, and statute and specified by the Board and the contribution rates are actuarially determined. 2004, the University's contributions to the Systems were equal to the required amounts, as TIAA-CREF provides individual retirement fund shown in Figure 4.

contracts with each participating employee.

Benefits provided to retired employees are based on the value of the individual contracts and the estimated life expectancy of the employee at 9. DEFERRED REVENUE retirement. Contributions by the University to Deferred revenue consists of summer school tuition the employee's contract become vested at the and student fees, advance payments on grants and time the contribution is made. Employees are contracts, and results of normal operations of eligible to participate from the date of auxiliary enterprises and service units.

Figure 4.

2006 2005 2004 State and School Contributory Retirement System $ 1,489,378 $ 1,563,900 $ 1,419,412 State and School Noncontributory Retirement System 22,257,303 22,375,155 20,178,128 Public Safety Noncontributory Retirement System 289,291 295,083 279,877 TIAA-CREF 65,126,133 60,472,570 56,352,292 Pension plan 3,140,908 2,743,021 2,646,171 Profit sharing plan 4,723,787 3,353,435 3,173,865 Total contributions $97,026,800 $90,803,164 $84,049,745 33

1O. FUNDS HELD IN TRUST funds are held in trust with an independent BY OTHERS financial institution in compliance with Medicare reimbursement regulations. Based on Funds held in trust by others are neither in the an analysis prepared by an independent actuary, possession of nor under the management of the the administration believes that the balance in University. These funds, which are not recorded the trust funds as of June 30, 2oo6, is adequate on the University's financial records and which to cover any claims incurred through that date.

arose from contributions, are held and The University and UUHC have a "claims made" administered by external fiscal agents, selected umbrella malpractice insurance policy in an by the donors, who distribute net income earned amount considered adequate by its respective by such funds to the University, where it is administrations for catastrophic malpractice recorded when received. The fair value of funds liabilities in excess of the trusts' fund balances.

held in trust at June 30, 2oo6, was $85,413,161.

The estimated self-insurance claims liability is In addition, certain funds held in trust by others based on the requirements of GASB Statement are comprised of stock, which is reported at a No. io, Accounting and FinancialReportingfor value of $7,488,576 as of June 30, 2oo6, based on Ri~k Financing and Related InAurance IAAueA, a predetermined formula. The fair value of this which requires that a liability for claims be stock as of June 30, 2oo6 cannot be determined reported if information prior to the issuance of because the stock is not actively traded. the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.

ii. RISK MANAGEMENT Changes in the University's estimated self-The University maintains insurance coverage insurance claims liability for the years ended for commercial general liability, automobile, June 3o are shown in Figure 5.

errors and omissions, and property (building and equipment) through policies administered The University has recorded the investments of by the Utah State Risk Management Fund. the malpractice liability trust funds at June 30, Employees of the University and authorized 2oo6, and the estimated liability for self-volunteers are covered by workers' insurance claims at that date in the Statement compensation and employees' liability through of Net Assets. The income on fund investments, the Workers' Compensation Fund of Utah. the expenses related to the administration of the self-insurance and malpractice liability In addition, the University maintains self-trust funds, and the estimated provision for the insurance funds for health care, dental, and claims liability for the year then ended are auto/physical damage, as well as hospital and recorded in the Statement of Revenues, physicians malpractice liability self-insurance Expenses, and Changes in Net Assets.

funds. The malpractice liability self-insurance Figure 5.

2006 2005 Estimated claims liability - beginning of year $ 52,869,024 $ 44,198,248 Current year claims and changes in estimates 129,783,800 124,615,602 Claim payments, including related legal and administrative expenses (128,147,310) (115,944,826)

Estimated claims liability - end of year $ 54,505,514 $ 52,869,024 34

12. INCOME TAXES diagnostic, and other factors. Outpatient services rendered to Medicaid program beneficiaries and The University, as a political subdivision of the certain outpatient services and defined capital state of Utah, has a dual status for federal income costs related to Medicare beneficiaries are paid tax purposes. The University is both an Internal based on a cost reimbursement basis. Medicare Revenue Code (IRC) Section in5 organization and reimbursements are based on a tentative rate an IRC Section 501(c)(3) charitable organization. with final settlement determined after This status exempts the University from paying submission of annual cost reports by UUHC and federal income tax on revenue generated by audits thereof by the Medicare fiscal activities which are directly related to the intermediary.

University's mission. This exemption does not apply to unrelated business activities. On these The estimated final settlements for open years activities, the University is required to report and are based on preliminary cost findings after pay federal and state income tax. giving consideration to interim payments that have been received on behalf of patients covered UURF is not subject to income taxes under under these programs.

Section 501(c)(3) of the Internal Revenue Code.

B. Charity Care ARUP is also not subject to income taxes based on a private letter ruling from the Internal UUHC maintains records to identify and Revenue Service stating that certain income monitor the level of charity care it provides.

providing an essential governmental function is Based on established rates, the charges exempt from federal income taxes under Internal foregone as a result of charity during the year Revenue Code Section 115. ended June 30, 2oo6, were approximately

$23,805,000.

13. HOSPITAL REVENUE

14. LEASES A. Net Patient Service Revenue A. Revenue UUHC reports net patient service revenue at the estimated net realizable amounts from patients, UURF receives lease revenues from third-party payors, and others for services noncancellable sublease agreements with rendered, including estimated retroactive tenants of the Research Park and from tenants adjustments under reimbursement agreements occupying six buildings owned by UURF. The with third-party payors. Retroactive adjustments lease revenue to be received from these are accrued on an estimated basis in the period noncancellable leases for each of the subsequent the related services are rendered and adjusted in five years is $6,5oo,ooo, and for nineteen years future periods as final settlements are thereafter, comparable annual amounts. Most determined. Charity care is excluded from net lease revenue is subject to escalation based on patient service revenue. changes in the Consumer Price Index (CPI).

Since such escalations are dependent upon UUHC has third-party payor agreements with future changes in the CPI, these escalations, if Medicare and Medicaid that provide for payments any, are not reflected in the minimum to UUHC at amounts different from established noncancellable lease revenues listed above.

rates. Inpatient acute care services rendered to Medicare and Medicaid program beneficiaries are B. Commitmenti paid at prospectively determined rates per The University leases buildings and office and discharge. These rates vary according to a patient computer equipment. Capital leases are valued classification system that is based on clinical, at the present value of future minimum lease 35

payments. Assets associated with the capital amount of $16,875,ooo dated November 1996 leases are recorded as buildings and equipment with the State of Utah, acting through DFCM for together with the related long-term obligations. the lease of the Huntsman Cancer Institute Assets currently financed as capital leases building, located east of the University campus amount to $16,875,ooo and $125,401,263 for and adjacent to the University Hospital. The buildings and equipment, respectively. Huntsman sublease is an annually renewable Accumulated depreciation for these buildings lease with a final expiration date of May 2013.

and equipment amounts to $2,003,9o6 and Annual payments began May 1997 and range

$74,026,597, respectively. Capital leases of ARUP from a low of approximately $468,478 to a high are guaranteed by the University. Operating of approximately $1,648,09o. At the end of the leases and related assets are not recorded in the lease, title to the Huntsman Cancer Institute Statement of Net Assets. Payments are recorded building will be transferred to the University.

as expenses when incurred and amount to approximately $23,201,000 for the University Future minimum lease commitments for and $5,o63,000 for component units for the year operating and capital leases as of June 30, 2006 ended June 30, 2006. Total operating lease are shown in Figure 6.

commitments for the University include approximately $25,628,850 of commitments to component units. 15. BONDS PAYABLE AND OTHER Included in the above component unit lease LONG-TERM LIABILITIES expenses are leases by ARUP for its principal The long-term debt of the University consists of laboratory and office buildings, under long-term bonds payable, capital lease obligations, agreements, from a partnership in which one of compensated absences, and other minor its directors is a principal. The agreements have obligations.

initial terms of fifteen years with two five-year renewal options and include rent increases of two to three percent annually in the sixth and The State Board of Regents of the State of Utah eleventh years from the commencement of the issues revenue bonds to provide funds for the lease. Total lease payments for the year ended construction and renovation of major capital June 30, 20o6 were $4,732,419. facilities and the acquisition of capital equipment for the University. In addition, The University entered into a Huntsman Cancer revenue bonds have been issued to refund other Institute capital sublease agreement in the revenue bonds and capitalized leases.

Figure 6.

Fiscal Year Operating Capital 2007 $ 30,466,415 $ 14,990,527 2008 28,899,357 13,728,799 2009 27,062,531 26,116,097 2010 23,029,836 8,591,556 2011 21,669,670 24,032,559 2012-2016 90,444,679 11,974,941 2017-2021 53,553,542 2,883,042 2022 -2026 39,013,947 1,297,593 2027-2029 831,038 Total future minimum lease payments $314,971,015 103,615,114 Amount representing interest (16,931,279)

Present value of future minimum lease payments $ 86,683,835 36

The revenue bonds are special limited obligations of the University. The obligation for repayment is solely that of the University and payable from the net revenues of auxiliary enterprises and UUHC, student building fees, land grant income, and recovered indirect costs.

Neither the full faith and credit nor the taxing power of the State of Utah or any other political subdivision of the State is pledged to the payment of the bonds, the distributions or other costs appertaining thereto.

In 1985, the State Board of Regents authorized the University to issue Variable Rate Demand Industrial Development Bonds (University Inn Project - 1985 Series) for the Salt Lake City Marriott - University Park Hotel, separate from the University. The bonds are payable from the revenues of the hotel and the University has no On April 28, 2006, the University entered into a responsibility or commitment for repayment of loan agreement with the federal government for the bonds. The outstanding balance of the the benefit of the Huntsman Cancer Institute (HCI) bonds at June 30, 2006, is $6,425,000. and Huntsman Cancer Hospital (HCH). Pursuant to the Health Care Infrastructure Improvement The Series 19 9 7 A Auxiliary and Campus Program, the University has qualified for a loan in Facilities Revenue Bonds currently bear interest the amount of $ioo,ooo,ooo. The loan is at a weekly rate in accordance with the bond administered by the Centers for Medicare and provisions. When a weekly rate is in effect, the Medicaid Services (a division of the Department of Series 19 9 7A Bonds are subject to purchase on Health and Human Services) pursuant to Section the demand of the holder at a price equal to 1897, Title XVIII, of the Social Security Act. The principal plus accrued interest on seven days University intends to use the loan proceeds to retire notice and delivery to the University's tender certain debt issued to finance HCI and HCH. The agent. The University's remarketing agent is loan bears an interest rate of 11.875% and is not authorized to use its best efforts to sell the secured by net revenues of the University. The repurchased bonds at a price equal to loo proposed rules relating to the loan include a Loan percent of the principal amount by adjusting the Forgiveness Program whereby the full amount of interest rate. If any Series 19 9 7 A Bonds cannot the loan may be forgiven based upon criteria that be remarketed to new holders, the tender agent the University, HCI, and HCH expect to meet. The is required to draw on an irrevocable standby proposed rules relating to loan forgiveness were bond purchase agreement to pay the purchase published in the Federal Register. Commensurate price of the bonds delivered to it. The standby with these rules, HCI and HCH were required to bond purchase agreement is with J.P. Morgan notify the Centers for Medicare and Medicaid Chase Bank and is valid through July 30, 2010. Services of their intention to apply for loan The University pays a quarterly fee for the forgiveness, which they did and submitted their services provided by J.P. Morgan Chase Bank. plan and qualifications for achieving complete No funds have been drawn against the standby forgiveness of this loan. It is uncertain whether bond purchase agreement. The interest this loan will be forgiven in the next year or during requirement for the Series 19 9 7 A Bonds is the five year term of payment deferral. In the event calculated using an interest rate of 4.01%, which that the loan is not forgiven, all loan proceeds will is the rate in effect at June 30, 2oo6. be returned to the federal government.

37

The following schedule lists the outstanding bonds payable of the University at June 30, 2oo6:

Date Maturity Interest Original Current Balance Issue Issued Date Rate Issue Liability 6/30/2006 Auxiliary and Campus Facilities 3/1/87 2014 3.750% - $ 11,140,000 $ 215,000 $ 1,490,000 6.750%

Auxiliary and Campus Facilities 7/30/97 2027 Variable 52,590,000 1,060,000 13,000,000 Hospital Revenue Refunding 12/1/97 2006 4.750% - 24,615,000 3,414,825 3,414,825 5.500%

Hospital Revenue 6/1/98 2013 5.250% - 25,020,000 180,160 6,637,509 5.375%

Auxiliary and Campus Facilities Revenue and Refunding 7/1/98 2016 4.100% - 120,240,000 2,265,741 58,499,843 5.250%

Auxiliary and Campus Facilities 5/1/99 2014 4.000% - 5,975,000 407,495 3,812,112 4.800%

Research Facilities Revenue 7/13/00 2020 5.000% - 17,585,000 667,945 2,913,465 5.750%

Auxiliary and Campus Facilities 7/18/01 2021 3.500%- 2,755,000 113,822 2,319,757 5.125%

Hospital Revenue 8/7/01 2022 5.000%- 26,670,000 15,165 11,688,305 5.500%

Research Facilities Revenue 6/30/04 2019 3.000%- 9,685,000 527,088 8,635,171 4.700%

Research Facilities Revenue 2/15/05 2025 3.000%- 5,515,000 204,502 5,475,088 5.000%

Research Facilities Revenue 6/07/05 2020 3.000%- 20,130,000 1,360,722 19,520,712 5.000%

Hospital Revenue Refunding 7/14/05 2018 4.500%- 30,480,000 (895,319) 30,541,534 5.000%

Auxiliary and Campus Facilities Revenue Refunding 8/2/05 2021 3.000%- 42,955,000 (24,382) 42,918,438 5.000%

Total $9,512,764 $210,866,759 UURF has purchased three buildings with two mortgages that are guaranteed by the University. The remaining amounts of the mortgages are $6,260,776 at 8.87% interest and $3,o68,127 at 7.15% interest. The mortgages will be paid off on April 1, 202o and September 1, 2021, respectively. In addition, UURF agreed to bear 42.04% of the cost to renovate the building at 417 Wakara Way for the Health Science Center. The remaining balance of debt related to those costs is $3,615,44o at interest rates ranging from 3.00% to 4.70%.

The following schedule summarizes the changes in long-term liabilities for the year ended June 30, 2oo6:

Beginning Ending Current Balance Additions Reductions Balance Portion Bonds payable $238,100,262 $ 71,047,533 $ 98,281,036 $210,866,759 $ 9,512,764 Capital leases payable 85,291,905 15,171,471 13,779,541 86,683,835 10,864,701 Notes & contracts payable 15,165,986 100,304,142 704,769 114,765,359 854,047 Total long-term debt 338,558,153 186,523,146 112,765,346 412,315,953 21,231,512 Compensated absences 34,991,809 26,304,517 22,870,920 38,425,406 4,223,173 Deposits & other liabilities 88,734,692 93,029,469 77,390,134 104,374,027 95,354,730 Total long-term liabilities $462,284,654 $305,857,132 $213,026,400 $555,115,386 $120,809,415 38

Maturities of principal and interest requirements total principal amount of defeased bonds held for bonds, notes and contracts payable are shown in in irrevocable trusts at June 30, 2oo6, is the following schedule. Payments for the years 2011 $105,O10,OOO.

through 2o31 include payments on the Health Care Infrastructure Improvement Program loan, as described above, in the amount of $ioo,ooo,ooo

17. FUNCTIONAL CLASSIFICATION for principal and $251,112,097 for interest. These amounts are expected to be forgiven. OF EXPENSES Payments The following schedule presents operating Fiscal Year Principal Interest expenses by functional classification for the 2007 $ 21,231,512 $ 14,843,532 year ended June 30, 2oo6:

2008 20,567,990 1:3,899,314 Amount 2009 35,076,450 1:2,670,010 Function (in thousands) 2010 18,950,405 11,324,112 Instruction $ 248,885 2011 36,218,693 1:2,873,389 Research 215,018 2012-2016 69,976,770 12 4,040,083 Public service 354,797 2017 -. 2021 55,748,611 10 9,501,472 Academic support 66,299 2022 -2026 66,681,027 6:2,402,402 Student services 18,246 2027 -2031 87,864,495 2.3,138,907 Institutional support 35,780 Total $412,315,953 $38 4,693,221 Operation & maintenance of plant 48,335 Student aid 32,071 Other 361,568

16. RETIREMENT OF DEBT Hospital 551,668 Total $1,932,667 In prior years, the University defeased certain revenue bonds by placing the proceeds of new bonds and various bond reserves in irrevocable trusts to provide for all future debt service 18. PLEDGED BOND REVENUE payments on the old bonds. The University issues revenue bonds to provide In addition, the University issued on July 14, funds for the construction and renovation of 2oo5, Hospital Revenue Refunding Bonds major capital facilities and the acquisition of Series 2oo5A in the amount of $30,480,000 to capital equipment for the University. Investors partially advance refund $18,785,000 of in these bonds rely solely on the net revenue Hospital Revenue Bonds Series 1998 and pledged by the following activities for the

$15,320,000 of Hospital Revenue Bonds Series retirement of outstanding bonds payable.

2ool. Also, on August 2, 2005, the University Auxiliary EnterpriAe..A - is comprised of specific issued Auxiliary and Campus Facilities auxiliary enterprises, namely: University Revenue Refunding Bonds Series 2oo5A in the Bookstore, Residential Living, University amount of $42,955,000 to partially advance Student Apartments, Commuter Services, Jon M.

refund $56,670,000 of Auxiliary and Campus Huntsman Center, Rice-Eccles Stadium, and Facilities Revenue and Refunding Bonds Series Union Building. These auxiliaries provide on-1998. These refundings resulted in a reduction campus services for the benefit of students, of the University's aggregate debt service faculty and staff. In addition to the net revenues payments of approximately $23,455,000 over of these auxiliaries, student building fees, state the next twenty-three years and a present value land grant income and a subsidy from the economic gain of approximately $11,645,000.

federal department of Housing and Urban Accordingly, the trust account assets and the Development are pledged to the retirement of all liability for the defeased bonds are not included Auxiliary Campus and Facility bonds.

in the University's financial statements. The 39

Univerzity of Utah HoipitaLA & ClinicA - is Reimbur.Aed Overhead - is the revenue comprised of the University Hospitals, the generated by charging approved facilities and University Neuropsychiatric Institute, and administration rates to grants and contracts.

other clinics that provide health and psychiatric services to the community. The following schedule presents the net revenue pledged to the applicable bond system and the principal and interest paid for the year ended June 30, 2006.

Bond Systems Auxiliary & Research Campus Facilities Hospital Facilities Revenue Operating revenue $60,993,763 $662,408,664 $ 60,778,430 Nonoperating revenue 5,730,213 5,026,272 Total revenue 66,723,976 667,434,936 60,778,430 Expenses Operating expenses 49,451,886 583,209,847 48,121,009 Nonoperating expenses 146,515 Total expenses 49,451,886 583,356,362 48,121,009 Net pledged revenue $17,272,090 $ 84,078,574 $ 12,657,421 Principal paid and interest expense $9,308,427 $4,987,667 $4,365,712 40

THE UNIVERSITY OF UTAH 'I G ovOernin~qý`6oard&A' adii OfficersA UTAH STATE BOARD OF RiGENTS UNIVERSITY ADMINISTRATION JedH. Pitcher MichalK., Young Chair' President Bonnie Jean Beesley A. Lorris Betz Vice Chair Senior Vice PreAidentfor Health ScienceA Dayid W. Pershing Jerry C.Atkin Senibr Vice PreAidehtforAcademic Affdir%A Daryl C. Barrett Jack W. Brittain Janet A. Cannon Vice Pre.identfor Tech Venture Development Rosanita Cespedes Arnold B. Combe Katharine B. Garff Vice IPre.AidentforAdminie.trativeService.

David J.,Grant Fred C. Esplin,.

Ali Hasnain Vice PreAidentfor Univerzity Advancement Greg W. Haws Raymond F. Gesteland Meghan Holbrook Vice Presidentfor Research James S. Jardine Loretta F.'Harper Michael R. Jensen VicePre*identfor Human Re.ourceA". . "

David J.Jordan John K. Morris Nolan E. Karras Vice President/General Counael Josh Reid Barbara H. Snyder Sara V. Sinclair Vice PreAidentfor Student AffairA Marlon 0. Snow Kim Wirthlin Vice PreAldentfor Goverment RelationA-'.

Richard E. Kendell Commi.~ioner of HigherEducation BOARD OF TRUSTEES FINANCIAL AND BUSINESS SERVICES James L. Macfarlane Jeffrey J. West Chair A,.,ociate Vice Prezidentfor Financial and Bu.ineA Service" Randy L. Dryer Barbara K. Nielsen Vice Chair Directorof GovernmentalAccounting and Support Service. "

Timothy B. Anderson Stephen P. Allen H. Roger Boyer Manager, GeneralAccounting C. Hope Eccles E. J. Garn Jacob Kirkham J. Spencer Kinard Scott S. Parker Lorena Riffo-Jenson Spencer F. Eccles Treasurer Laura Snow Secretary 41

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