NOTES TO THE FINANCIAL STATEMENT

 

 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 Financial Reporting Entity
The University of California (the University) is a public, state-supported institution. The California State Constitution provides that the University shall be a public trust administered by the corporation, “The Regents of the University of California,” which is vested with full powers of organization and government, subject only to such legislative control necessary to ensure the security of its funds and compliance with certain statutory and administrative requirements. The majority of the 26-member independent governing board--The Regents of the University of California (The Regents)--are appointed by the governor and approved by the state Senate. In addition, various University programs and capital outlay projects are funded through appropriations from the state's annual Budget Act. The University’s financial statements are discretely presented in the state's general purpose financial statements as a component unit. Additionally, the University’s consolidated financial statements, including 10 campuses, 5 medical centers, a statewide agricultural extension program, the University of California Retirement System and certain operational results of three major Department of Energy Laboratories are subjected to an independent annual audit. 

 The Los Angeles campus of the University of California was founded in 1919 and is financially the largest campus in the 10-campus University of California system. The financial statements included in this annual report present the combined activities of the Los Angeles campus, including the UCLA Medical Center, of the University of California. The accounts of the Los Angeles campus are subject to limited-scope procedures as a part of the annual audit of the financial statements of the entire University of California. The financial statements for the Los Angeles campus have not been individually audited.

ASUCLA’s financial data for the fiscal year ending June 30, 2001 have been included in the financial statements in order to reflect total financial activity of the UCLA campus. ASUCLA conducts activities on the UCLA campus pursuant to the Statement of Understanding of ASUCLA’s Relationships with the University, dated June 28, 1974.

The UCLA Foundation is a nonprofit, public-benefit corporation organized for the purpose of accepting and administering the full range of private contributions for the campus. The financial activities of the separately incorporated Foundation are not reflected within the Campus’ records until such time as gifts are transferred from the Foundation to the Campus.

Accounting Policies
The financial statements of the UCLA campus have been prepared in accordance with generally accepted accounting principles, as outlined in Governmental Accounting Standards Board (GASB) Statement No. 15 and the American Institute of Certified Public Accountants College and University Audit Guide, including all applicable effective statements of the GASB. 

GASB Statement No. 33, “Accounting and Financial Reporting for Nonexchange Transactions,” was adopted by the University on July 1, 2000. Statement No. 33 establishes accounting and financial reporting standards for transactions in which the Campus receives value without directly giving equal value in exchange. Gifts are recorded as revenue when received. Unconditional pledges of private gifts are recorded as revenue in the year promised and state capital appropriations received in advance of the capital expenditure are recorded as deferred revenue, or accrued revenue if not received in advance of the capital expenditure. 

Previously, unrestricted gifts and all state capital appropriations were recorded as revenue when received. Restricted gifts were reported in fund balance as “Restricted receipts in excess of restricted expenditures” when received, then recorded as revenue when expended for current operating purposes. Unconditional pledges of private gifts were not recorded, but were disclosed in the footnotes to the financial statements. 

In accordance with GASB Statement No. 33, the cumulative effect of the accrual of private gifts and all state capital appropriations was reflected as a restatement of beginning fund balances as of July 1, 2000. In addition, restatements of prior year restricted receipts were made for purposes of presenting comparative information for the year ended June 30, 2000. The effect of changes from the adoption of GASB Statement No. 33 on current and prior years is as follows (in thousands of dollars):

Revenue and Other Additions Other Transfers and (Deductions) Restatement of Beginning Fund Balances Increase in Fund
 Balance
FOR THE YEAR ENDED JUNE 30, 2000

 

Reclassification of restricted gifts and related income
$  6,080 $  (6,080) $  - $  -
TOTAL $  6,080 $  (6,080) $  - $  -
 

FOR THE YEAR ENDED JUNE 30, 2001

 

Cumulative effect of:
   Pledges of private gifts and accrual of      state capital $  - $   $  54,727 $  54,727
Current year effect of:
Pledges of private gifts and accrual of state capital - - - -
. Reclassification of restricted gifts and related income
4,339 (4,339) - -
TOTAL $  4,339 $  (4,339) 54,727 54,727

The $54,727,000 restatement to beginning fund balances increased current funds unrestricted by $6,080,000 and plant funds unexpended by $48,647,000. 

The significant accounting policies followed by UCLA are summarized below.

 Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting. The Statement of Current Funds Revenues, Expenditures and Other Changes is a statement of the financial activities of the current funds group for the reporting period. It does not purport to present the results of operations or the net income or loss for the period as would a statement of income. This statement recognizes an important difference in format when compared to the current funds component of the Statement of Changes in Funds Balances. Restricted revenues, except restricted gifts, are reported on the Statement of Current Funds Revenues, Expenditures and Other Changes as revenues only to the extent they are utilized to fund current restricted expenditures. These amounts are reported in the Statement of Changes in Funds Balances when received. The excess of restricted receipts over revenues utilized, except for restricted gifts, is reported in “Other Transfers and Additions” within the Statement of Current Funds Revenues, Expenditures and Other Changes. 

In order to ensure the observance of limitations and restrictions placed on the use of the resources available to the UCLA campus, the accounts are maintained in accordance with the principles of fund accounting. Resources for various purposes are classified for accounting and reporting purposes into funds according to the activities or objectives specified. Separate accounts are maintained for each fund; however, in the accompanying financial statements, funds with similar characteristics are combined into fund groups for reporting purposes.

 Within each fund group, fund balances restricted by outside sources are indicated and distinguished from unrestricted funds that have been internally designated. Externally restricted funds may be utilized only in accordance with the purposes established by the source of such funds, in contrast to unrestricted funds, which may be used in achieving any purpose of the UCLA campus.

To the extent that current funds resources are used to finance plant assets, the amounts so provided are accounted for as 1) expenditures in the case of equipment, library books and collections and minor improvements, 2) mandatory transfers in the case of required provisions of debt agreements, and 3) non-mandatory transfers in all other cases.

Investment income is recorded in the fund owning the assets, except for income derived from investments of endowment and similar funds managed through the University of California Office of the President and renewals and replacements, which is recorded in the fund to which it is restricted or, if unrestricted, as revenue in current unrestricted funds.

Fund Classification

Current funds are used primarily to account for transactions directly related to the three missions of the University of California--instruction, research and public service. Academic support, medical centers, institutional support and operation and maintenance of plant are supporting programs. Programs providing support for students are student services, student financial aid and auxiliary enterprises. Current funds are primarily used for current operations; however, some amounts are transferred to other fund groups as necessary and may be expended in future years. Current funds are divided into two groups: unrestricted and restricted.

Current unrestricted funds account for all resources available for current operations that have not been restricted as to use by outside entities. Current operations include the Campus’ educational and general purpose expenditures, medical centers and self-sustaining auxiliary enterprises. The UCLA campus accounts for the majority of state appropriations and certain other revenues, such as student fees and medical center income, in the unrestricted funds group.

Current restricted funds account for resources made available to the Campus for operating purposes that have been restricted by outside entities. These resources generally are in the form of grants and contracts received in support of research, educational and public service activities. Current restricted funds are reported as revenues and expenditures when expended for current operating purposes, except for restricted gifts. Restricted receipts, except for restricted gifts, in excess of restricted expenditures are recognized as a fund balance addition to current restricted funds.

Loan funds account for resources designated for loans primarily to students, but also to faculty (home mortgage loans). Student loan funds are provided from federal student loan programs and from University fund sources. 

Plant funds, consisting of four subgroups, account for the resources invested in and available for the UCLA campus land, buildings, equipment, libraries and collections and debt retirement.

Unexpended plant funds account for resources received directly by the Campus from various sources to finance the acquisition, construction and renovation of capital assets.

Retirement of indebtedness funds are generally set aside for debt service from the current operations of facilities constructed with external borrowing pursuant to the terms of bond indentures and other contractual agreements.

Renewals and replacements funds are those funds that provide resources for the maintenance and renovation of plant fund assets, as distinguished from additions and improvements to plant assets.

Investment in plant funds includes all long-lived assets in the service of the UCLA campus, including construction in progress and associated liabilities.

Endowment and similar funds are administered centrally by the Office of the President. These funds consist of endowments, funds functioning as endowment, and annuity and life income funds. Endowments require that the principal be invested in perpetuity, with the income used in accordance with the terms specified by the donor. Funds functioning as endowment are primarily gifts and related gains that the University treats as endowments, except that any portion of these funds may be expended at the University’s discretion. Annuity and life income funds are held in trust by the University with the annuity or income paid periodically to designated beneficiaries; principal of these funds vests with the University and payments cease upon the death of the beneficiaries. 

Monies are invested by the Treasurer of The Regents and the income transferred to individual campuses annually. A substantial portion of the net assets of the Endowment and Similar Funds participates in a general endowment pool. Each individual fund subscribes to or disposes of units on the basis of the market value per unit at the end of the calendar month within which the transaction takes place. Investments include equities, high-yield equities, bonds and real estate.

Agency funds are funds invested with the Campus as custodian for organizations that are not financially accountable to the UCLA campus. Consequently, the operating activity associated with these funds is not reported in the Statement of Changes in Funds Balances. As allowed by accounting standards, these funds are combined with the current funds group for reporting purposes.

Other Accounting Policies  

Cash. The University considers all balances in demand deposit accounts to be cash. 

Equity in the treasurer’s investments. All fund groups participate in a temporary investment pool that is administered by the Office of the President. Income earned on investments is distributed based on average investments in the pool. This pool invests primarily in U.S. Treasury securities, commercial paper, and short-term corporate notes with cost approximating market value. These temporary investments are considered cash equivalents for the purposes of the statement of cash flows.

Pledges.  Unconditional pledges of private gifts to the Campus in the future are recorded as pledges receivable and revenue in the year promised at the present value of expected cash flows. Conditional pledges, including pledges of endowments to be received in future periods, and intentions to pledge, are recognized as receivables and revenues when the specified conditions are met or when the promise is made.

Inventories. Inventories are valued at cost, typically determined under the weighted average method, which is not in excess of net realizable value.

Investment in plant. Consistent with generally accepted accounting principles, as defined above for public colleges and universities, land, buildings, equipment and libraries and collections are stated at cost at the date of acquisition, or fair value at the date of donation in the case of gifts. Additions, replacements, major repairs and renovations are recorded as additions. Depreciation on plant assets is not recorded. Interest on borrowings to finance facilities is capitalized during construction, net of any investment income earned during the temporary investment of project related borrowings.

Student tuition and fees. Substantially all of the student tuition and fees provide for current operations of the UCLA campus and are recorded in the current unrestricted fund. A portion of the student fees is required to fund debt service for student union and recreational centers and is recorded in the plant funds. Waivers of student tuition and fees are recorded as student financial aid.

 State appropriations. The state of California appropriates funds to the University of California on an annual basis. The Campus’ allocated share of  state appropriations are recognized as revenue in the current unrestricted or restricted funds when the related expenditures are made to support general operations or specific purposes, respectively. State appropriations for capital projects are recorded in unexpended plant funds as the related expenditures are incurred.

Grant and contract income. UCLA  receives grant and contract income from governmental and private sources. The Campus recognizes revenue associated with the direct costs of sponsored programs in the current funds as the related expenditures are incurred. Recovery of facilities and administrative costs of Federally sponsored programs is at cost reimbursement rates negotiated with the University’s cognizant agency, the Department of Health and Human Services. In 2001, the facilities and administrative cost recovery totaled $104.3 million; $85.9 million from Federally sponsored programs and $18.4 million from other sponsors. Of the total indirect costs recovered during the fiscal year, $100.9 million were remitted as non-mandatory transfers to the University of California Office of the President for redistribution to campuses in future years. 

Medical center sales and services.  Medical center sales and service revenue is reported at the estimated net realizable amounts from patients, third-party payors including Medicare and Medi-Cal, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined.

Compensated absences. UCLA employees accrue annual leave at rates based upon length of service and job classification and compensatory time based upon job classification and hours worked. Compensated absences accrued and included in accrued liabilities as of June 30, 2001 were $94.1 million for annual leave and $6.8 million for compensatory time.

Endowment spending. Under provisions of California law, The Regents has adopted the Uniform Management of Institutional Funds Act (UMIFA). Investment income as well as a portion of realized and unrealized gains from investments managed by the University of California Office of the President may be expended for the operational requirements of University programs.

Tax exemption. UCLA is qualified as a tax-exempt organization under the provisions of Section 501(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes on related income.

Use of estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

Memorandum totals. The financial statements include certain prior year summarized comparative information. This information does not include sufficient detail to constitute a complete presentation in conformity with generally accepted accounting principles. Accordingly, this information should be read in conjunction with UCLA’s financial statements for the year ended June 30, 2000 from which the summarized financial information was derived. Certain reclassifications have been made to the 2000 summarized financial information in order to conform to the 2001 presentation.

New Accounting Pronouncements. The GASB has issued Statement No. 35, “Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities,” Statement No.37, “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments: Omnibus” and Statement No. 38, “Certain Financial Statement Note Disclosures.”  These Statements will be effective for the fiscal year beginning July 1, 2001.

Statement No. 35 establishes a fundamentally new financial reporting model for all public colleges and universities and will require the recording of depreciation of property and equipment. Financial reporting requirements will include Management’s Discussion and Analysis; Basic Financial Statements consisting of a Statement of Net Assets, a Statement of Revenues, Expenses and Changes in Net Assets and a Statement of Cash Flows; and Notes to the Financial Statements. 

Statement No. 37 clarifies guidance to be used in preparing Management’s Discussion and Analysis. Statement No. 38 modifies, adds and deletes various note disclosure requirements.

 The Campus is continuing to evaluate the effect the GASB Statement No. 35  will have on its financial statements. Statements No. 37 and No. 38 will have no effect on the University’s fund balances.

note 1  Cash
UCLA minimizes its cash position by sweeping available cash balances into University investment accounts daily. At June 30, 2001 the carrying amount of the UCLA’s equity in Treasurer’s investment, transferred to the Treasurer’s Office as part of the University’s investment, was $628.6 million compared to bank balances of $21.5 million. Deposits in transit are the primary difference. The FDIC insured the bank balances for the entire University at $400 thousand.

note 2  Accounts Receivable
Current fund accounts receivable by resources, as of June 30, 2001, are as follows (in thousands of dollars):

State of California

$

16,772

Federal government

17,050

Local government

3,908

Private grants, contract and agreements

14,511

Gift pledges

5,077

Educational activities and other

163,362

Health care

185,099

Auxiliary and service enterprises

5,665

Subtotal

411,444

Less allowance for uncollectible accounts

(132,455)

Total

$

278,9892

note 3  Notes Receivable
Loan fund notes receivable by resources, as of June 30, 2001, are as follows (in thousands of dollars):

Student loans:

     Educational fees

$

47

     Regents

8,727

     Federal government

57,778

Subtotal

 

66,552

Less allowance for uncollectible accounts

 

(2,010)

Subtotal 

 

64,542

Faculty and staff loans

 

16,740

Total

$

81,282

 Of a total of $66,552,000 of student loan notes outstanding at June 30, 2001, $64,816,000 are in billing status with a private billing service under contract with the University. The remaining $1,736,000 represents loans to students still in school and loans in process of being transferred for billing. The faculty and staff loans are subject to campus collection.

 note 4  Investment in Plant
The capital asset activity for the year ended June 30, 2001 is as follows (in thousands of dollars):

 

2000

Additions

Disposals

2001

Land

$

66,112

$

-

$

(525)

$

65,587

Buildings

2,160,001

 

96,142

(2,225)

2,253,91

Gen. Improvements

107,119

 

2,039

(50)

 109,108

Equipment

  680,880 

 

135,817

(77,523)

739,174

Construction in progress 

  260,560 

 

54,622

 

-

315,182

Libraries and collections

437,954 

 

23,036

 

(6,776)

 454,214

Capital assets

$

3,712,626

$

311,656

$

(87,099)

$

3,937,183

 Total interest expense during the year ended June 30, 2001 was $52.72 million. Interest expense of $4.6 million associated with financing projects during the construction phase was capitalized during the year ended June 30, 2001. The remaining $48.1 million is reported as interest expense in the retirement of indebtedness fund.

 note 5 Long-Term Indebtedness
The Campus may finance the construction, renovation and acquisition of certain facilities and equipment through the issuance of debt obligations, including revenue bonds, certificates of participation, mortgages and other borrowings and capital lease obligations.

The activity with respect to long-term obligations for the year ended June 30, 2001 is as follows (in thousands of dollars): 

 

2000

New Long-Term Obligations

Principal Reductions

2001

Revenue bonds

$

118,120

$

-

$

4,550

$

113,570

Certificates of participation

183,185

 

-

4,450

178,735

Mortgages and other borrowings

5,338

 

1,945

2,832

4,451

Capital Leases

7,370

 

2,535

 

3,822

6,083

Long-term obligations

$

314,013

$

4,480

$

15,654

$

302,839

 Long-term obligations at June 30, 2001 by fund group, with comparative totals for 2000, are as follows:

Plant Fund Group
(dollars in thousands)
Interest Rates Maturity Years Outstanding 2001 Outstanding 2000
Hospital Revenue Bonds:
Hospital Revenue Bonds Series 1994 4.7-5.5% 2001-2020 $  113,570 $  118,120
Los Angeles Central Chiller/Cogeneration Certificates of Participation 4.6-10.0%

2001-2021

178,735

183,185

Mortgages and other borrowings 4.3-7.0%

2001-2011

4,451

5,338

Capital leases 4.75-11.5%

2001-2006

6,083

7,370

Total $  302,839

$  314,013

 Revenue bonds and certificates of participation have financed various auxiliary, administrative, academic and research facilities of the University. They have annual principal and semiannual interest payments, serial and term maturities, contain sinking fund requirements and may have optional redemption provisions.

Revenue Bonds.  Hospital revenue bonds are collateralized by a pledge of the net revenues generated by the UCLA Medical Center. 

Certificates of Participation.  Certificates of participation have been issued to finance the Los Angeles Central Chiller/Cogeneration facility. The certificates are collateralized by buildings and equipment. 

Mortgages and Other Borrowings.  Mortgages and other borrowings consist of contractual obligations resulting from the acquisition of land or buildings and the construction and renovation of certain facilities. The mortgages are collateralized by real property. Included in mortgages and other borrowings are various uncollateralized financing agreements with commercial banks totaling approximately $4.347 million.

Capital LeasesCapital leases entered into with other lessors, primarily for equipment, totaled $6.083 million.

 Future Debt Service. Future debt service payments for each of the five fiscal years subsequent to June 30, 2001 and thereafter are as follows (in thousands of dollars):

 

 

note 6  Commitments and Contingencies

Contractual Commitments

UCLA leases land, buildings and equipment under agreements recorded as operating leases. Operating lease expenditures for the year ended June 30, 2001 were $20.127 million. The terms of operating leases extend through the year ending June 30, 2022.

Future minimum payments on operating leases with an initial or remaining noncancelable term in excess of one year are as follows (in thousands of dollars):

Year ending June 30 Minimum Annual 
Lease Payments

2002

$      17,041

2003

15,289

2004

13,395

2005

11,716

2006

9,531

Beyond

21,494

 Total principal

$      88,466

Contingencies
Substantial amounts are received and expended by the University under Federal and State grants and are subject to audit by cognizant government agencies. The University is also contingently liable in connection with claims and contracts, including those currently in litigation, arising in the normal course of its activities. The University maintains self-insurance reserves for certain of these claims, including medical-malpractice claims, workers'-compensation claims and various risks. Such risks are subject to various per-claim and aggregate limits, with excess liability coverage provided by an independent insurer.

 University management and General Counsel are of the opinion that liabilities arising from such audits or claims will not have a material effect on the University's financial statements.

 note 7  The Retirement Plan
The University of California Retirement System included a defined benefit plan (the Retirement Plan), in which eligible employees are required to participate, and a defined contribution plan (which includes the Defined Contribution Plan-Pretax Account and the Defined Contribution Plan-After Tax Account); and the Tax-Deferred 403(b) plan. The Board of Regents is the trustee for all UCRS funds and PERS-Voluntary Early Retirement Incentive Program (PERS-VERIP) plan funds. Accordingly, these funds are separately identified in the University's Annual Financial Report.

 


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