USA’s 40th anniversary year marked the graduation of the University’s 50,000th graduate and the recognition of its first graduate. Above left:
President Moulton presents USA’s 50,000th graduate, Huntsville native Jon Fecteau, with a master of business administration degree. Right:
The University’s first graduate, Rev. James Allison Sr., was honored with a copy of USA’s charter. The Mobile native was awarded the
University’s first diploma during the 1967 spring commencement ceremony, earning a bachelor of science degree in English.
USA CELEBRATES 40TH ANNIVERSARY,
ENJOYS RECORD GROWTH
On May 9, 1963, the Alabama State Legislature signed into law a resolution creating the University of South Alabama and
establishing the only major public institution of higher learning on the upper Gulf Coast. In the four ensuing decades, USA has
made an indelible mark on the education, health, economy and quality of life for the Gulf Coast region and beyond.
The University of South Alabama during its 40th anniversary year continued to indicate excellent vital signs—record enrollment
of high-quality students, increasing research and outreach, solid institutional financial stability, and increased appreciation and
support from University constituents. As the University enters its fifth decade of service, it is poised to make an even greater
difference.
“As we all look back over this important anniversary year, we can truly be
proud that the University of South Alabama has continued to
‘Make a Difference’ in the lives of all of our citizens.”
—V. Gordon Moulton, University of South Alabama President,
Spring 2003 General Faculty Meeting
Enrollment Sets Record
The University this fall set an all-time enrollment record, maintaining its
status as one of the fastest growing universities in Alabama.
•
Fall semester enrollment at USA was 13,286, up 6.2 percent from one year
ago. This represents a growth of 776 students.
•
USA enrolled a record number of graduate students for the third straight
year. Graduate school enrollment is 2,670 students, up 13.7 percent from
last year’s record.
•
USA continued to become an increasingly diverse campus with 16.3 percent
of its student body being African-American, compared to 12.6 percent five
years ago.
•
The University continues to attract high achieving students, with the average
ACT score of entering freshmen in the 73rd percentile nationally.
Academic and Campus Life Progress
USA made extensive progress in its effort to build academic quality and improve the learning environment on campus. The
University this year:
The $9.4 million library expansion project has enriched learning and research
opportunities for faculty, staff and students.
•
Completed a $9.4 million library expansion and
renovation project, adding 53,000 square feet to
the existing building.
•
Created formal faculty development programs,
including the Program for the Enhancement of
Teaching and Learning (PETAL).
•
Completed a new $2.3 million Intramural Field
Complex. The 13-acre complex has a 3,000square-foot field house, a paved pathway for
jogging and walking, and five multi-purpose
playing fields.
•
Moved forward with plans to renovate the Student
Center to accommodate creation of a single,
convenient location for student service offices.
•
Awarded a record 2,800 academic scholarships—four times the level of five years ago.
•
Recruited 77 new full-time faculty.
•
Filled key academic leadership and support positions, including deans of Arts and Sciences, Allied Health Professions and
Engineering.
•
Successfully completed a 10-year review by the Southern Association of Colleges and Schools.
•
Announced new academic programs, including Doctor of Audiology, Doctor of Physical Therapy, Master of Science in
Environmental Toxicology, Master of Science in Nursing for Students Holding Baccalaureate Degrees in Another Field, Bachelor
of Science in Radiography: Radiation Therapy, Bachelor of Social Work, and a Concentration in International Political Economy.
•
Built on its Long-Range Planning Initiatives involving the University and its many external constituencies.
•
Implemented the new Student Information System to simplify and streamline student services.
•
Appointed a Committee on Diversity to help increase the number of minority faculty and staff members.
•
Embarked on a plan to increase minority business participation in supplying goods and services to the University.
•
Furthered plans to implement the Campus Transit System.
A ribbon-cutting ceremony marked the dedication of the new $2.3 million USA Intramural Field
Complex. From left are: Dr. Dale Adams, vice president for student affairs; President Gordon Moulton;
Clay Hammac, Student Government Association president; and Dr. Philip Theodore, director
of campus recreation.
Medical Milestones
USA this year continued to serve the community’s health care needs, providing care for more than a quarter million patients
and making several key leadership appointments, among other accomplishments.
•
Plans for the USA Cancer Research Institute progressed with the recruitment of key senior scientists, creation of a facility
construction plan, securing of equipment including the linear accelerator and PET/CT, and creation of a $65 million budget
and funding plan for the Institute’s first five years of operation.
•
Dr. Velma Scantlebury, the nation’s first African-American female kidney transplant surgeon, was named director of the USA
Gulf Coast Regional Transplant Center, and nationally prominent lung surgeon Dr. Joseph LoCicero III was named chair of the
department of surgery in the College of Medicine.
•
A marketing and business plan has been created and staff assembled to identify new streams of business to help ensure future
economic success of USA’s hospitals and physician practice. USA has secured group contract business through this system,
including a preferred provider arrangement with Mobile County government employees.
•
USA’s Health System has been reorganized to locate its physicians closer to the hospitals housing their respective specialties,
improving efficiency and patient satisfaction. USA purchased the former Alabama Orthopaedic building to enable physician
relocation to the Knollwood Hospital campus.
•
USA’s Center for Women’s Health was created by the USA Health System, providing women comprehensive health care
across the life span. The Center became the exclusive provider of the region’s first fourth-dimension ultrasound, providing the
clearest images available of an unborn child as it moves inside the womb.
The USA Technology and Research Park will strengthen the Mobile area
economy through academic-corporate partnerships.
Increasing Research
USA’s research mission this year also saw a significant boost, continuing a trend of increasing external funding and nearing
completion of a new research park.
•
The USA Technology and Research Park earned the University the Innovator of the Year award from the Mobile Area Chamber
of Commerce and the Gulf Coast Technology Council. The park will provide hands-on applied research opportunities for
faculty and students, and an economic boost for the community.
•
Research contracts and grants at USA this year introduced more than $40 million into Mobile’s economy, representing highend job growth and scientific advances. The University has more than doubled its research funding over the past five years.
•
Direct federal appropriations at USA in fiscal year 2003 reached $13.5 million, supporting such areas as medicine, the
environment, protection of the coastline, diabetic foot care, birth defects prevention, archaeology, energy research, and youth
violence prevention.
Building Private Support
Strategic plans for fundraising and increasing alumni involvement at the University continue to improve private support.
•
Private fundraising campaigns began for a new archaeology building and a $2.5 million renovation of Stanky Field.
•
The first official USA Annual Fund and Direct Mail Campaign was initiated.
•
The Faculty/Staff Annual Fund was revamped and raised a record $124,791 from an unprecedented 1,103 employees.
•
Many new major gifts and commitments were secured, some of which include:
¾ Margarette Griffin - $1 million for children’s cancer research.
¾ Gaston and Sarah Evelyn Cooke Estate - $631,900 for a chair in neuroscience.
¾ Larry Striplin - $200,000 to renovate a portion of Jaguar Gym.
¾ Log-a-Load for Kids - $150,000 to purchase a new neonatal intensive care ambulance.
¾ AmSouth Bank - $100,000 toward an endowed chair in banking and finance.
Celebrating 40 Years of Success
In the face of one of the toughest economic times in state history, USA continued to thrive during its 40th anniversary year,
reporting record growth and completing key facilities that will improve the quality of life both for those on campus and in the
community. In its short history, the University has established itself as a leader in education, economic development, health care
and community service.
“The University of South Alabama has made a miraculous contribution to this region since its humble beginnings four decades
ago,” Moulton said. “This year, we not only celebrate our past, but our hopes and aspirations for the future.”
Financial Statements
University of South Alabama
Years ended September 30, 2003 and 2002
with Report of Independent Auditors
University of South Alabama
Financial Statements
Years ended September 30, 2003 and 2002
Contents
Management’s Discussion and Analysis ........................................................... 1
Report of Independent Auditors ........................................................................ 7
Audited Financial Statements
Statements of Net Assets ................................................................................... 9
Statements of Revenues, Expenses and Changes in Net Assets ...................... 10
Statements of Cash Flows ............................................................................... 11
Notes to Financial Statements ......................................................................... 13
University of South Alabama
Management’s Discussion and Analysis
Years ended September 30, 2003 and 2002
INTRODUCTION
CONDENSED FINANCIAL INFORMATION
The following discussion presents an overview of the financial
position and financial activities of the University of South
Alabama (the “University”), including the University of South
Alabama Hospitals (the “Hospital”), at September 30, 2003
and 2002 and for the years then ended. This discussion was
prepared by University management and should be read in
conjunction with the financial statements and notes thereto,
which follow.
Condensed financial statements for the University at and for
the years ended September 30, 2003 and 2002 follow (in
thousands):
CONDENSED STATEMENTS OF NET ASSETS
2003____
ASSETS
Current
Noncurrent, primarily capital
FINANCIAL HIGHLIGHTS
$
LIABILITIES
Current
Noncurrent
The financial position of the University remains strong at
September 30, 2003, with total assets of $391,929,000, total
liabilities of $173,737,000 and net assets of $218,192,000.
University net assets increased $8,871,000 during the year
ended September 30, 2003 compared to an increase of
$30,081,000 in the year ended September 30, 2002.
NET ASSETS
Invested in capital
assets, net of related debt
Restricted, nonexpendable
Restricted, expendable
Unrestricted
While the increase in net assets during the year ended
September 30, 2003 was less than the 2002 increase, the
difference results primarily from two distinct changes between
2002 and 2003. During the year ended September 30, 2002,
there were several significant components of revenue that
were not present in 2003. These included allocations from
the sale of Alabama Public School and College Authority
bond issues by the State of Alabama, federal capital grants
for the purchase of equipment for the USA Cancer Institute,
and gifts, primarily real estate located on the USA Knollwood
Hospital Campus, from the USA Foundation. Reported
revenue from these items was approximately $10,500,000
more in 2002 than 2003. In addition to these capital items,
the increase in Hospital net assets was approximately
$8,000,000 less in 2003 than 2002. These fluctuations are
further explained in the section entitled “Analysis of Financial
Position and Results of Operations.”
$
2002____
112,990 $
278,939
391,929
137,246
243,480
380,726
71,158
102,579
173,737
62,343
109,062
171,405
120,583
10,029
25,722
61,858
218,192
109,957
5,969
22,931
70,464
209,321
$
CONDENSED STATEMENTS OF REVENUES,
EXPENSES AND CHANGES IN NET ASSETS
OPERATING REVENUES
Tuition and fees
Hospital revenues
Other
$
OPERATING EXPENSES
Salaries and benefits
Supplies and other services
Hospital bad debts
Other
Operating loss
NONOPERATING REVENUES (EXPENSES)
State appropriations
Other, net
Net nonoperating revenues
Income before other revenues,
expenses, gains or losses
Other revenues
Increase in net assets
Beginning net assets, adjusted
Ending net assets
$
An overview of each statement is presented herein along with
a financial analysis of the transactions impacting the
statement. Where appropriate, comparative financial
information is presented to assist in the understanding of this
analysis.
1
32,592 $
272,258
87,885
392,735
30,287
261,929
84,174
376,390
276,808
103,714
63,560
30,465
474,547
(81,812)
256,985
95,002
60,265
28,503
440,755
(64,365)
83,846
(828)
83,018
81,604
(1,769)
79,835
1,206
7,665
8,871
209,321
218,192
$
15,470
14,611
30,081
179,240
209,321
University of South Alabama
Management’s Discussion and Analysis (continued)
CONDENSED STATEMENTS OF CASH FLOWS
2003____
CASH AND CASH EQUIVALENTS
PROVIDED BY (USED IN):
Operating activities
Noncapital financing activities
Capital and related financing
activities
Investing activities
Net change in cash and
cash equivalents
CASH AND CASH EQUIVALENTS:
Beginning of year
End of year
$
$
Foundation, the University of South Alabama Health Services
Foundation (Health Services), the South Alabama Medical
Science Foundation, and the USA Research and Technology
Corporation are not included in the financial statements of
the University.
2002____
(56,365) $
88,494
(51,101)
83,642
(35,848)
(16,349)
(26,915)
29,525
(20,068)
35,151
ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
36,604
71,755
STATEMENTS OF NET ASSETS
71,755
51,687
$
The statements of net assets present the assets, liabilities and
net assets of the University as of the fiscal years ended
September 30, 2003 and 2002. The net assets are displayed
in three parts, invested in capital assets net of related debt,
restricted and unrestricted. Restricted net assets may either
be expendable or nonexpendable and are those assets that are
restricted by law or by an external donor. Unrestricted net
assets, while they are generally designated for specific
purposes, are available for use by the University to meet
current expenses for any purposes. The statements of net
assets, along with all of the University’s basic financial
statements, are prepared under the accrual basis of accounting,
whereby revenues are recognized when the service is provided
and expenses are recognized when others provide the service
to the University, regardless of when cash is exchanged.
USING THE FINANCIAL STATEMENTS
The University’s financial statements were prepared in
accordance with standards issued by the Governmental
Accounting Standards Board (GASB). In June 1999, the
GASB issued Statement No. 34, Basic Financial Statements
– and Management’s Discussion and Analysis – for State and
Local Governments. This was followed in November 1999
by GASB Statement No. 35, Basic Financial Statements –
and Management’s Discussion and Analysis – for Public
Colleges and Universities – an amendment of GASB Statement
No. 34; in June 2001 by GASB Statement No. 37, Basic
Financial Statements – and Management’s Discussion and
Analysis – for State and Local Governments: Omnibus – an
Amendment of GASB Statements No. 21 and No. 34; and,
also in June 2001 by GASB Statement No. 38, Certain
Financial Statement Note Disclosures. These statements were
effective for the year ended September 30, 2002. The financial
statement presentation required by GASB Statements No. 34
and 35 provides a comprehensive, entity-wide perspective of
the University’s assets, liabilities, net assets, revenues,
expenses, changes in net assets and cash flows. A significant
change required by GASB Statements No. 34 and 35 is that
depreciation is now presented as a part of expense and the
acquisition of capital assets is not. Previously, the University’s
financial statements focused on the accountability of
individual fund groups rather than on the University as a
whole.
Assets included in the statements of net assets are classified
as current or noncurrent. Current assets consist primarily of
cash and cash equivalents, investments and hospital patient
accounts receivable. Of these amounts, cash and cash
equivalents, investments and accounts receivable comprise
approximately 45%, 11% and 37%, respectively, of current
assets at September 30, 2003. Noncurrent assets at September
30, 2003, consist primarily of capital assets.
University cash, cash equivalents and investments declined
slightly from $102,550,000 at September 30, 2002 to
$101,442,000 at September 30, 2003. Accounts receivable,
primarily hospital, increased from $37,244,000 to
$41,357,000 for the same period primarily due to the inclusion
of certain clinical services previously billed by Health
Services.
The financial statements report information about the
University as a whole and include the financial results of all
University divisions including the University of South
Alabama Hospitals. The assets, liabilities, net assets and
results of operations for the University of South Alabama
Current liabilities consist primarily of accounts payable and
accrued liabilities and increased from $62,343,000 to
$71,158,000 between September 30, 2002 and 2003
primarily due to an increase in payroll and related
2
University of South Alabama
Management’s Discussion and Analysis (continued)
liabilities. Also included in this category is the current
portion of the University’s long-term debt. Noncurrent
liabilities consist primarily of bonded indebtedness, notes
payable and capital lease obligations. Long-term debt
decreased from $103,512,000 to $95,853,000 between
September 30, 2002 and 2003 as a result of the repayment of
principal. During 2003, the University refunded certain notes
payable in the amount of approximately $6,900,000. This
transaction reduced the University’s long-term debt service
requirements by approximately $375,000.
Unrestricted net assets, $61,858,000, represent those net
assets not subject to externally imposed stipulations and are
available for use at the discretion of the Board of Trustees for
any purpose. Although unrestricted net assets are not subject
to restrictions, the majority are designated for various
academic and research programs and initiatives, as well as
capital projects.
STATEMENTS OF REVENUES, EXPENSES AND
CHANGES IN NET ASSETS
Changes in total University net assets as reported in the
statements of net assets are based on the activity presented in
the statements of revenues, expenses and changes in net assets.
The purpose of these statements is to present the change in
net assets resulting from revenues received by the University,
both operating and nonoperating, and the expenses paid by
the University, both operating and nonoperating, and any other
revenues, expenses, gains and losses received or incurred by
the University.
Net assets represent the residual interest in the University’s
assets after liabilities are deducted. Net assets are classified
into one of four categories as shown on the following
illustration:
Generally, operating revenues have the characteristics of
exchange transactions and are received for providing goods
and services to the various customers and constituencies of
the University. Operating expenses are those expenses paid
to acquire or produce the goods and services provided in return
for the operating revenues, and to carry out the mission of the
University.
Nonoperating revenues have the characteristics of
nonexchange transactions and are revenues generally received
for which goods and services are not provided, such as gifts
and contributions. Additionally, GASB Statement No. 34
specifically requires that state appropriations be classified as
nonoperating.
Net assets invested in capital assets, net of related debt,
$120,583,000, represent the University’s capital assets less
accumulated depreciation and outstanding principal balances
of the debt attributable to the acquisition, construction or
improvement of those assets.
In 2003 and 2002, approximately 69% and 70%, respectively,
of operating revenues of the University were hospital patient
care revenues. The remainder consists primarily of tuition
and fees, grants and contracts and auxiliary enterprise
revenues. Substantially all of the net nonoperating revenues
result from state appropriations.
Restricted nonexpendable net assets, $10,029,000, consist
primarily of the University’s permanent endowment funds.
While earnings from these funds may be expended, the corpus
may not be expended for any reason and must remain intact
with the University in perpetuity.
The following illustration presents the major sources of
University revenues (both operating and nonoperating) for
the years ended September 30, 2003 and 2002:
Restricted expendable net assets, $25,722,000, are subject to
externally imposed restrictions governing their use. The funds
are restricted primarily for debt service, capital projects,
student loans and scholarship purposes.
3
University of South Alabama
Management’s Discussion and Analysis (continued)
University expenses are presented using natural expense
classifications. Salaries and benefits represent 58% of the
University’s total operating expenses for both fiscal years.
While the University reports its expenses on a natural expense
classification basis, functional classifications represent
expenses categorized based on the function of the University.
Such University functions include instruction, research,
public service, academic support, student services,
institutional support, scholarships, and operation and
maintenance of plant. Expenses related to auxiliary enterprise
activities and the hospitals are presented separately.
The following illustration presents operating expense
categories, including the hospitals, using natural classification
for the 2003 and 2002 fiscal years:
The following illustration presents the major uses of
University revenues (both operating and nonoperating) on a
functional basis for the years ended September 30, 2003 and
2002:
4
University of South Alabama
Management’s Discussion and Analysis (continued)
For the years ended September 30, 2003 and 2002, the
University reported an operating loss of approximately
$81,812,000 and $64,365,000, respectively. After adding
nonoperating revenue and expenses, primarily state
appropriations which are required to be reported as nonoperating by GASB Statement Nos. 34 and 35, the total
increase in net assets is approximately $8,871,000 and
$30,081,000 for the years ended September 30, 2003 and
2002, respectively.
As documented in the Financial Highlights section of this
analysis, the decline in the “Increase in Net Assets” category
of the University’s operations is due to numerous factors.
There was approximately $10,500,000 in non-operating
revenue, described earlier, that occurred in fiscal 2002 and
not in 2003. These declines were, however, offset somewhat
by an increase in gifts to the permanent endowment of the
University of approximately $3,500,000 in fiscal 2003.
Additionally, hospital financial operating results decreased
by approximately $8,000,000 in fiscal 2003. In the academic
divisions of the University, enrollment has continued to
increase, student tuition and fees have increased, and state
appropriations continue to be relatively unchanged.
Operational expenses, primarily salaries and wages, increased
during the year ended September 30, 2003.
Excluding the Hospitals, the expenses by function for the years
ended September 30, 2003 and 2002 are as follows:
STATEMENTS OF CASH FLOWS
The statements of cash flows present information related to
cash flows of the University. The statements present cash flows
by category: operating activities, noncapital financing
activities, capital and related financing activities and investing
activities. The net cash provided to, or used by the University,
is presented by category.
5
University of South Alabama
Management’s Discussion and Analysis (continued)
Increases in cash and cash equivalents from noncapital
financing activities were due primarily to the receipt of state
appropriations and decreases in cash and cash equivalents
from investing activities resulted from a net purchase of
investments. Those items were offset by decreases in cash
and cash equivalents from capital and related financing
activities and cash used in operating activities. Cash and cash
equivalents decreased from capital and related debt activity
due primarily to purchases of capital assets and payment of
principal and interest on debt. The decrease in cash and cash
equivalents from operating activities is consistent with the
University’s operating loss.
ECONOMIC OUTLOOK
While enrollment and tuition have both increased in recent
years, state appropriations have been relatively flat. While
appropriations were not prorated in 2003, and no proration
is expected for 2004, the political and economic environment
of the State of Alabama indicates that state appropriations
will not grow and could decline for the year ending September
30, 2005.
In September 2003, the State of Alabama Legislature passed
legislation requiring that, beginning in October 2003, state
universities fund the health insurance premiums of their
participating retirees. The University will be assessed a
monthly premium by the Public Education Employees Health
Insurance Plan, the administrator for the program. The
anticipated total cost to the University for the year ending
September 30, 2004 is approximately $2,700,000.
CAPITAL ASSETS AND
DEBT ADMINISTRATION
Total capital asset additions for the University were
approximately $25,900,000 during the year ended September
30, 2003. Significant capital asset additions included a major
addition to the University Library. This project was reported
as construction in progress at September 30, 2002 and was
put into service in 2003. Several other construction and
renovation projects at the University are ongoing – the most
significant of which are the construction of the initial building
located in the USA Technology and Research Park and a new
intramural field facility. There are no significant commitments
for capital expenditures at September 30, 2003.
State appropriations (actual and adjusted for inflation) for
the last ten years are illustrated below:
Two notes payable to the Alabama Higher Education
Equipment Loan Authority, with interest rates of 4.37% and
3.85%, in the amount of $6,896,000 were refinanced during
the year with a limited obligation note with Compass Bank,
with an interest rate of 2.743%. This transaction will result
in future debt service savings to the University of
approximately $375,000 over the remaining life of the note.
Other long-term debt in the amount of approximately
$8,370,000 was retired during the year ended September 30,
2003.
University administration is not aware of any other currently
known facts, decisions or conditions that are expected to have
a significant effect on the University’s financial position or
results of operations during fiscal year 2004 beyond those
unknown variables having a global effect on virtually all types
of business operations. While the University’s overall financial
position is strong, various factors influence the University’s
ultimate financial success.
During the year ended September 30, 2003, the University’s
bond credit rating was upgraded by Moody’s Investors
Services to A3.
6
Report of Independent Auditors
The Board of Trustees
University of South Alabama
We have audited the accompanying statements of net assets of the University of South Alabama (the University)
as of September 30, 2003 and 2002 and the related statements of revenues, expenses and changes in net assets
and cash flows for the years then ended. These financial statements are the responsibility of the University’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the University of South Alabama at September 30, 2003 and 2002, and the results of its operations
and its cash flows for the years then ended in conformity with accounting principles generally accepted in the
United States.
As disclosed in Note 1 to the financial statements, during the year ended September 30, 2002, the University
adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34, Basic
Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments;
GASB Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for
Public Colleges and Universities – an amendment of GASB Statement No. 34; GASB Statement No. 37, Basic
Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments:
Omnibus – an amendment of GASB Statements No. 21 and No. 34; and, GASB Statement No. 38, Certain
Financial Statement Note Disclosures.
A Member Practice of Ernst & Young Global
7
The Management’s Discussion and Analysis on pages 1-6 is not a required part of the basic financial statements
but is supplementary information required by the Governmental Accounting Standards Board. We have applied
certain limited procedures, which consisted primarily of inquiries of management regarding the methods of
measurement and presentation of the supplemental information. However, we did not audit the information
and express no opinion on it.
November 7, 2003
8
University of South Alabama
Statements of Net Assets
September 30
2003
2002
(in thousands)
Assets
Current assets:
Cash and cash equivalents
Investments, at fair value
Accounts receivable (less allowances for contractual
adjustments of $12,114 and $9,958 and doubtful
accounts of $41,121 and $38,573 at September 30, 2003
and 2002, respectively)
Notes receivable, net
Prepaid expenses, inventories and other
Total current assets
$
Noncurrent assets:
Restricted cash and cash equivalents
Investments, at fair value
Notes receivable, net
Deposits with trustees
Other noncurrent assets
Capital assets (net of accumulated depreciation of $225,733
and $221,546 at September 30, 2003 and 2002, respectively)
Total noncurrent assets
Total assets
Liabilities
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Deposits
Current portion of long-term debt
Total current liabilities
Noncurrent liabilities:
Long-term debt
Other long-term liabilities
Total noncurrent liabilities
Total liabilities
Net assets
Invested in capital assets, net of related debt
Restricted, nonexpendable:
Scholarships
Other
Restricted, expendable
Unrestricted
Total net assets
$
See accompanying notes.
9
50,610
11,931
$
71,015
20,018
41,357
597
8,495
112,990
37,244
656
8,313
137,246
1,077
37,824
4,541
10,331
733
740
10,777
4,751
9,938
885
224,433
278,939
391,929
216,389
243,480
380,726
46,247
15,180
775
8,956
71,158
39,534
13,046
1,299
8,464
62,343
95,853
6,726
102,579
173,737
103,512
5,550
109,062
171,405
120,583
109,957
3,712
6,317
25,722
61,858
218,192
652
5,317
22,931
70,464
209,321
$
University of South Alabama
Statements of Revenues, Expenses and Changes in Net Assets
Year ended September 30
2003
2002
(in thousands)
Revenues
Operating revenues:
Tuition and fees (net of scholarship allowances of $12,137
and $10,510 in 2003 and 2002, respectively) – See note 7
Net hospital patient services and other – See note 7
Federal grants and contracts
State grants and contracts
Private grants and contracts
Auxiliary enterprises (net of scholarship allowances of
$339 and $202 in 2003 and 2002, respectively) – See note 7
Other operating revenues
Total operating revenues
$
Expenses
Operating expenses:
Salaries and benefits
Supplies and other services
Scholarships and fellowships
Utilities
Depreciation
Provision for hospital bad debts
Total operating expenses
Operating loss
Nonoperating revenues (expenses):
State appropriations
Investment income and gains on investments
Interest on indebtedness
Other nonoperating revenues
Other nonoperating expenses
Net nonoperating revenues
Income before other revenues, expenses, gains or losses
Capital appropriations
Capital gifts and grants
Additions to permanent endowment
Increase in net assets
Net assets
Beginning of year
Cumulative effect of change in accounting principle –
adoption of depreciation for capital assets – See note 1
End of year
$
See accompanying notes.
10
32,592
272,258
35,446
2,731
26,024
$
30,287
261,929
31,530
2,656
25,183
13,951
9,733
392,735
14,189
10,616
376,390
276,808
103,714
3,895
9,138
17,432
63,560
474,547
(81,812)
256,985
95,002
3,583
8,756
16,164
60,265
440,755
(64,365)
83,846
2,679
(5,100)
1,875
(282)
83,018
1,206
81,604
1,650
(5,433)
2,120
(106)
79,835
15,470
264
3,529
3,872
8,871
3,497
10,796
318
30,081
209,321
388,399
–
218,192
$
(209,159)
209,321
University of South Alabama
Statements of Cash Flows
Year ended September 30
2003
2002
(in thousands)
Cash flows from operating activities
Tuition and fees
Hospital patient service revenues
Grants and contracts
Auxiliary enterprises
Payments to suppliers and vendors
Payments to employees
Payments for scholarships and fellowships
New loans issued to students
Student loan repayments
Other operating revenues
Net cash used in operating activities
$
34,975
207,895
64,449
14,288
(108,412)
(275,331)
(3,895)
(1,092)
1,240
9,518
(56,365)
$
30,457
196,012
60,072
13,252
(101,348)
(256,941)
(3,583)
(787)
1,016
10,749
(51,101)
Cash flows from noncapital financing activities
State appropriations
Endowment gifts
Agency funds received
Agency funds disbursed
Stafford and PLUS loans received
Stafford and PLUS loans disbursed
Other nonoperating revenues
Other nonoperating expenses
Net cash provided by noncapital financing activities
83,781
3,872
495
(742)
47,986
(48,187)
1,570
(281)
88,494
81,610
318
699
(644)
41,170
(41,202)
1,797
(106)
83,642
Cash flows from capital and related financing activities
Capital appropriations
Capital gifts and grants
Purchases of capital assets
Proceeds from sale or lease of capital assets
Proceeds from issuance of capital debt
Principal paid on capital debt
Interest paid on capital debt
Deposits with Trustees
Net cash used in capital and related financing activities
264
1,851
(25,705)
305
6,896
(15,360)
(3,950)
(149)
(35,848)
3,497
6,769
(26,152)
323
–
(7,040)
(4,312)
–
(26,915)
11
University of South Alabama
Statements of Cash Flows (continued)
Year ended September 30
2003
2002
(in thousands)
Cash flows from investing activities
Interest on investments
Purchase of investments
Sale of investments
Net cash (used) provided by investing activities
$
Net change in cash and cash equivalents
Cash and cash equivalents:
Beginning of period
End of period
1,704
(39,206)
21,153
(16,349)
$
(20,068)
Reconciliation of operating loss to
net cash used in operating activities
Operating loss
Adjustments to reconcile operating loss to net cash used in
operating activities:
Depreciation expense
Changes in assets and liabilities, net:
Student receivables
Hospital receivables
Grants and contracts receivables
Student loan program receivables
Other receivables
Prepaid expenses, inventories and other
Accounts payable and accrued liabilities
Accrued salaries and wages
Deferred revenue
Net cash used in operating activities
Noncash investing, noncapital financing, and capital and
related financing transactions
(Increase) decrease in fair value of investments recognized as
a component of interest income
Additional maturity on bonds payable recorded as
interest expense
Gift of capital assets reducing proceeds from capital
gifts and grants
See accompanying notes.
12
35,151
$
71,755
51,687
$
36,604
71,755
$
(81,812)
$
(64,365)
17,432
16,164
$
(308)
(829)
420
148
(2,284)
(438)
7,592
1,572
2,142
(56,365)
$
(384)
(5,591)
501
229
(279)
(365)
2,343
727
(81)
(51,101)
$
(907)
$
411
$
1,145
(4,027)
$
Pledges of capital gifts
1,625
(154,558)
182,458
29,525
1,203
$
(593)
$
$
(1,085)
$
–
University of South Alabama
Notes to Financial Statements
September 30, 2003 and 2002
The financial statement presentation required by GASB
Statement Nos. 34, 35, 37 and 38 provides a comprehensive,
entity-wide perspective of the University’s assets, liabilities,
net assets, revenues, expenses, changes in net assets and cash
flows and replaces the fund group perspective previously
required.
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
REPORTING ENTITY AND BASIS OF PRESENTATION
The accompanying financial statements present the financial
position and activity of the University of South Alabama (the
University). The financial statements of the University do not
include the assets, liabilities and results of operations of the
University of South Alabama Foundation, the University of
South Alabama Health Services Foundation, the South
Alabama Medical Science Foundation or the USA Research
and Technology Corporation. The University is not financially
accountable for these organizations; therefore, they do not
constitute component units under the provisions of
Governmental Accounting Standards Board (GASB)
Statement No. 14, The Financial Reporting Entity. The
primary purpose of these organizations is to operate for the
benefit of the University.
Significant accounting changes made in order to comply
with the new requirements include the adoption of
depreciation of capital assets, reporting tuition and fee
revenue net of certain scholarship allowances and reporting
revenue from auxiliary enterprises net of scholarships and
allowances.
MEASUREMENT FOCUS AND
BASIS OF ACCOUNTING
For financial reporting purposes, the University is considered
a special purpose governmental agency engaged only in
business type activities, as defined by GASB Statement
No. 34. Accordingly, the University’s financial statements have
been presented using the economic resources measurement
focus and the accrual basis of accounting. Under the accrual
basis, revenues are recognized when earned, and expenses
are recorded when an obligation has been incurred. All
significant transactions related to internal service activities
such as publications, telecommunications and institutional
computing have been eliminated where appropriate.
The University is a component unit of the State of Alabama
and is included in the financial statements of the State of
Alabama.
The financial statements include the Statements of Net Assets,
the Statements of Revenues, Expenses and Changes in Net
Assets and the Statements of Cash Flows. A more complete
description of the financial statements can be found in
Management’s Discussion and Analysis.
The University has the option to apply all Financial
Accounting Standards Board (FASB) pronouncements issued
after November 30, 1989, unless FASB pronouncements
conflict with GASB pronouncements. The University has
elected to not apply FASB pronouncements issued after the
applicable date.
Certain amounts in the 2002 financial statements have been
reclassified to conform to the 2003 presentation.
FINANCIAL STATEMENT PRESENTATION
In June 1999, the GASB issued Statement No. 34, Basic
Financial Statements – and Management’s Discussion and
Analysis – for State and Local Governments. This was
followed in November 1999 by GASB Statement No. 35,
Basic Financial Statements – and Management’s
Discussion and Analysis – for Public Colleges and
Universities – an amendment of GASB Statement No. 34;
in June 2001 by GASB Statement No. 37, Basic Financial
Statements – and Management’s Discussion and Analysis –
for State and Local Governments: Omnibus – an
Amendment of GASB Statements No. 21 and No. 34; and,
also in June 2001 by GASB Statement No. 38, Certain
Financial Statement Note Disclosures. These statements
were effective for the year ended September 30, 2002.
ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenditures during the reporting period. Actual results
could differ from those estimates.
13
University of South Alabama
Notes to Financial Statements (continued)
CAPITAL ASSETS
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
All capital expenditures of $5,000 or more and having a useful
life of two or more years are capitalized at cost at the date of
acquisition. Depreciation is recorded using the straight-line
method over the estimated useful lives of the assets, generally
40 to 50 years for buildings and infrastructure, 10 to 20 years
for fixed equipment, 8 to 20 years for land improvements, 10
years for library materials and 4 to 15 years for other
equipment. Renovations to buildings and other assets that
significantly increase the value or extend the useful life of
the asset and are over $100,000 are capitalized. Routine
repairs and maintenance are charged to operating expense in
the year in which the expense is incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as petty cash, demand
accounts and any short-term investments that take on the
character of cash. These investments generally have maturities
of less than three months and include repurchase agreements
and money market accounts.
INVESTMENT IN POOLED FUNDS
Investments are maintained and administered in a common
pool and are stated at market value. Investments received by
gift are recorded at fair market value at the date of receipt.
DEFERRED REVENUES
Student tuition, fees and dormitory rentals are deferred and
recognized over the applicable portion of each school term.
ACCOUNTS RECEIVABLE
Accounts receivable are primarily from patient care services.
Accounts receivable also include amounts due from students,
the federal government, state and local governments, or
private sources in connection with reimbursement of
allowable expenditures made pursuant to the University’s
grants and contracts. Accounts receivable are recorded net
of estimated uncollectible amounts.
CLASSIFICATION OF NET ASSETS
The University’s net assets are classified as follows:
Invested in capital assets, net of related debt represents the
University’s total investment in capital assets, net of
outstanding debt obligations related to those capital assets.
To the extent debt has been incurred but not yet expended for
capital assets, such amounts are not included as a component
of invested in capital assets, net of related debt.
INVENTORIES
The University’s inventories primarily consist of bookstore
and hospital inventories. Bookstore inventories are valued at
cost, on a moving average basis. Hospital inventories are
stated at the lower of average cost or market, on a first-in,
first-out basis.
FUNDS ON DEPOSIT WITH TRUSTEES
Restricted, nonexpendable net assets consist of endowment
and similar type funds which donors or other outside sources
have stipulated, as a condition of the gift instrument, that the
principal is to be maintained inviolate and in perpetuity, and
invested for the purpose of producing present and future
income, which may either be expended or added to principal.
Funds on deposit with trustees are held and invested by the
trustees pursuant to University bond trust indentures. The
use of principal and earnings thereon is restricted by the terms
of the indentures or agreements.
Restricted, expendable net assets include resources that the
University is legally or contractually obligated to spend in
accordance with restrictions imposed by external third parties.
Unrestricted net assets represent resources derived from
student tuition and fees, state appropriations, hospital
14
University of South Alabama
Notes to Financial Statements (continued)
net asset moving average value (inclusive of net realized
and unrealized gains and losses), as measured at September
30, is available annually for spending. The University’s
policy is to retain the endowment net interest and dividend
income and net realized and unrealized appreciation with
the endowment after distributions allowed by the spending
policy have been made.
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
CLASSIFICATION OF NET ASSETS (CONTINUED)
revenues, sales and services of educational activities and
auxiliary enterprises. Auxiliary enterprises are substantially
self-supporting activities that provide services for students,
faculty and staff. While unrestricted net assets may be
designated for specific purposes by action of management
or the Board of Trustees, they are available for use, at the
discretion of the governing board, to meet current expenses
for any purpose. Substantially all unrestricted net assets are
designated for academic and research programs and
initiatives, and capital programs.
CLASSIFICATION OF REVENUES
The University has classified its revenues as either operating
or nonoperating revenues.
Operating revenues include activities that have the
characteristics of exchange transactions such as student
tuition and fees, net of scholarship discounts and allowances;
sales and services of auxiliary enterprises, net of scholarship
allowances; most federal, state and local grants and contracts;
and, hospital patient service revenues, net of allowances for
contractual adjustments and doubtful accounts.
When an expense is incurred that can be paid using either
restricted or unrestricted resources, the University addresses
each situation on a case-by-case basis prior to determining
the resources to be used to satisfy the obligation.
Nonoperating revenues include activities that have the
characteristics of nonexchange transactions, such as gifts
and contributions, and other revenue sources that are defined
as nonoperating revenues by GASB Statement No. 9,
Reporting Cash Flows of Proprietary and Nonexpendable
Trust Funds and Governmental Entities That Use Proprietary
Fund Accounting, and GASB Statement No. 34, such as state
appropriations, investment income and gifts. Gifts to the
endowment fund are classified as other nonoperating
revenues.
SCHOLARSHIP ALLOWANCES AND
STUDENT FINANCIAL AID
Student tuition and fees, and certain other revenues from
students, are reported net of scholarship discounts and
allowances in the statements of revenues, expenses and
changes in net assets. Scholarship discounts and allowances
are the difference between the stated charge for goods and
services provided by the University and the amount that is
paid by students and/or third parties making payments on
the students’ behalf. Certain governmental grants, such as
Pell grants and other federal, state or nongovernmental
programs are recorded as either operating or nonoperating
revenues in the University’s financial statements. To the
extent that revenues from such programs are used to satisfy
tuition and fees and certain other student charges, the
University has recorded a scholarship discount and
allowance.
GIFTS AND PLEDGES
Pledges of financial support from organizations and
individuals representing an unconditional promise to give
are recognized in the financial statements once all eligibility
requirements, including time requirements, have been met.
In the absence of such promise, revenue is recognized when
the gift is received. Endowment pledges generally do not
meet eligibility requirements, as defined by GASB Statement
No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and are not recorded as assets until
the related gift has been received.
DONOR RESTRICTED ENDOWMENTS
The University is subject to the “Uniform Management of
Institutional Funds Act” of the Code of Alabama. This law
allows the University, unless otherwise restricted by the
donor, to spend net appreciation, realized and unrealized,
on the endowment. The University’s endowment spending
policy provides that five percent of the three-year invested
15
University of South Alabama
Notes to Financial Statements (continued)
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
by utilizing the reimbursement principles established by Blue
Cross. Medicare and Blue Cross reimbursements are subject
to audit and retroactive adjustment.
GIFTS AND PLEDGES (CONTINUED)
Unconditional promises that are expected to be collected in
future years are recorded at the present value of the estimated
future cash flows.
Although there is a possibility that recorded amounts may
change materially, management believes that adequate
recognition has been made in the financial statements for net
amounts received or receivable under these programs.
GRANTS AND CONTRACTS
The University has been awarded grants and contracts for
which the funds have not been received or expenditures made
for the purpose specified in the award. These awards have
not been reflected in the financial statements, but represent
commitments of sponsors to provide funds for specific
research or training projects. For grants that have allowable
cost provisions, the revenue will be recognized as the related
expenditures are made. For grants with work completion
requirements, the revenue is recognized as the work is
completed. For grants without either of the above
requirements, the revenue is recognized as it is received.
NOTE 2: INCOME TAXES
The University is classified as both a governmental entity
under the laws of the State of Alabama and as a tax-exempt
entity under Section 501(a) of the Internal Revenue Code as
an organization described in Section 501(c)(3). Accordingly,
no provision for income taxes has been made in the
accompanying financial statements.
NOTE 3: CASH
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net
realizable amounts from third-party payers and others for
healthcare services rendered, including estimated retroactive
adjustments under reimbursement agreements with third-party
payers. 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.
Pursuant to the Security for Alabama Funds Enhancement
Act, funds on deposit may be placed in an institution
designated as a qualified public depository (QPD) by the
State of Alabama. QPD institutions pledge securities to a
statewide collateral pool administered by the State
Treasurer’s office. Such financial institutions contribute to
this collateral pool in amounts proportionate to the total
amount of public fund deposits at their respective
institutions. The securities are held at the Federal Reserve
Bank and are designated for the State of Alabama. Additional
collateral was not required for University funds on deposit
with QPD institutions. At June 30, 2003, the last date
reported by the State, the net public deposits subject to
collateral requirements for all institutions participating in
the pool totaled approximately $5,451,042,000. Historically,
this amount has not fluctuated significantly from period to
period. Given the nature of the State of Alabama requirement,
deposits held in QPD institutions are not subject to
categorization by risk.
THIRD-PARTY REIMBURSEMENT
The University of South Alabama Hospitals (the Hospitals)
participate in various programs, both governmental and
commercial (Medicare, Medicaid and Blue Cross), which
provide reimbursement at rates lower than established billing
rates. The difference between these contracted rates and
established billing rates are accounted for as a reduction of
patient service revenue. The amount of reimbursement has
been estimated for services rendered to Medicare patients
during the year by applying cost reimbursement principles
established by the United States Department of Health and
Human Services. Medicaid reimbursement is based on a per
diem and fee schedule set by the Alabama Medicaid Agency.
Blue Cross of Alabama reimbursement has been estimated
16
University of South Alabama
Notes to Financial Statements (continued)
endowments was recognized and is included in restricted
expendable net assets on the accompanying 2003 statement
of net assets.
NOTE 4: INVESTMENTS
Investments, at fair value consisted of the following at
September 30 (in thousands):
TABLE 4
U. S. agency notes
Pooled equity funds
Pooled bond funds
Certificates of deposit
Other
Total
2003
$
$
There are three categories or levels of credit risk associated
with investments, for which the related descriptions are: (1)
insured or registered, or securities held by the University or
its agent in the University’s name; (2) uninsured and
unregistered, with securities held by a party other than the
University or its agent, but in the University’s name; and (3)
uninsured and unregistered, with securities held by a
counterparty, or by its trust department or agent, but not in
the University’s name. Investments in the first category
include U. S. Treasury and agency obligations, and pooled
bond and equity funds. All investments owned by the
University at September 30, 2003, and shown in the
preceding schedule, are in the first category.
2002
30,884
10,339
4,202
4,056
274
49,755
$
$
21,272
3,481
4,783
1,017
242
30,795
At September 30, 2003, $159,000 in net realized and
unrealized gains on investments of donor-restricted
NOTE 5: CAPITAL ASSETS
Changes in capital assets for the year ended September 30, 2003 are as follows (in thousands):
TABLE 5A
Capital assets not being depreciated:
Land
Construction-in-progress
Other capital assets:
Land improvement
Buildings, fixed equipment and
infrastructure
Other equipment
Library materials
Less accumulated depreciation for:
Land improvements
Buildings, fixed equipment and
infrastructure
Other equipment
Library materials
Other capital assets, net
Capital assets, net
Beginning
Balance
$
23,358
6,189
29,547
Additions
$
585
16,574
17,159
11,014
12
276,757
91,428
29,189
408,388
1,080
5,533
2,122
8,747
Transfers
$
–
(8,979)
(8,979)
–
(137,273)
(56,277)
(21,162)
(221,546)
186,842
$ 216,389
(7,261)
(8,057)
(1,524)
(17,432)
(8,685)
8,474
–
–
–
–
8,979
–
17
$
(94)
–
(94)
–
9,080
(113)
–
8,979
(590)
$
$
12
(6,834)
Ending
Balance
Reductions
(4,111)
(9,470)
–
(13,581)
–
$
4,025
9,220
–
13,245
(336)
(430)
$
23,849
13,784
37,633
11,038
282,806
87,378
31,311
412,533
(7,424)
(140,509)
(55,114)
(22,686)
(225,733)
186,800
$ 224,433
University of South Alabama
Notes to Financial Statements (continued)
NOTE 5: CAPITAL ASSETS (CONTINUED)
Changes in capital assets for the year ended September 30, 2002 are as follows (in thousands):
TABLE 5B
Beginning
Balance
Capital assets not being depreciated:
Land
Construction-in-progress
$
Other capital assets:
Land improvements
Buildings, fixed equipment and
infrastructure
Other equipment
Library materials
Less accumulated depreciation for:
Land improvements
Building, fixed equipment and
infrastructure
Other equipment
Library materials
Other capital assets, net
Capital assets, net
21,751
6,203
27,954
Additions
$
1,600
8,384
9,984
9,390
484
265,746
80,573
26,961
382,670
3,072
15,398
2,228
21,182
(6,352)
(489)
(130,767)
(52,292)
(19,748)
(209,159)
173,511
$ 201,465
(6,920)
(7,341)
(1,414)
(16,164)
5,018
15,002
$
Transfers
$
7
(8,398)
(8,391)
Reductions
$
–
–
–
1,147
8,324
(1,080)
–
8,391
$
$
23,358
6,189
29,547
(7)
11,014
(385)
(3,463)
–
(3,855)
276,757
91,428
29,189
408,388
–
(114)
114
–
–
8,391
–
Ending
Balance
7
528
3,242
–
3,777
(78)
(78)
$
(6,834)
(137,273)
(56,277)
(21,162)
(221,546)
186,842
$ 216,389
NOTE 6: NONCURRENT LIABILITIES
Changes in noncurrent liabilities for the year ended September 30, 2003 are as follows (in thousands):
TABLE 6A
Long-term debt
Notes payable
Bonds payable
Capital lease obligations
Total long-term debt
Other long-term liabilities
Compensated absences
Total noncurrent liabilities
Beginning
Balance
$
$
8,992
99,259
3,725
111,976
10,483
122,459
Additions
$
$
6,896
1,203
–
8,099
10,905
19,004
Ending
Balance
Reductions
$
(8,339)
(5,031)
(1,896)
(15,266)
(9,082)
$ (24,348)
18
$
$
7,549
95,431
1,829
104,809
12,306
117,115
Less Amounts
Due Within
One Year
$
$
1,677
5,450
1,829
8,956
5,580
14,536
Noncurrent
Liabilities
$
$
5,872
89,981
–
95,853
6,726
102,579
University of South Alabama
Notes to Financial Statements (continued)
NOTE 6: NONCURRENT LIABILITIES (CONTINUED)
Changes in noncurrent liabilities for the year ended September 30, 2002 are as follows (in thousands):
TABLE 6B
Long-term debt
Notes payable
Bonds payable
Capital lease obligations
Total long-term debt
Other long-term liabilities
Compensated absences
Total noncurrent liabilities
Beginning
Balance
$
10,373
101,976
5,522
117,871
7,582
125,453
$
Additions
$
–
1,145
–
1,145
11,073
12,218
$
Ending
Balance
Reductions
$
(1,381)
(3,862)
(1,797)
(7,040)
(8,172)
$ (15,212)
$
$
8,992
99,259
3,725
111,976
10,483
122,459
Less Amounts
Due Within
One Year
$
$
1,443
5,125
1,896
8,464
4,933
13,397
Noncurrent
Liabilities
$
$
7,549
94,134
1,829
103,512
5,550
109,062
Notes and bonds payable and capital lease obligations are further disclosed below in Notes 7 and 8, respectively.
NOTE 7: NOTES AND BONDS PAYABLE
The AHEEL (Alabama Higher Education Equipment Loan
Authority) Notes, Series 1998-1 and 1998-2, refunded during
the year ended September 30, 2003, were secured by a
subordinate pledge of tuition revenues. Certain computer
equipment is pledged as security for the IBM Credit
Corporation note. The Compass Bank limited obligation note
is unsecured.
NOTES PAYABLE
Notes payable consisted of the following at September 30
(in thousands):
TABLE 7A
AHEEL Series 1998-1,
3.85% payable through
October 2008
2003
2002
BONDS PAYABLE
–
$ 5,396
AHEEL, Series 1998-2,
4.37% payable through
October 2008
–
2,599
Compass Bank limited
obligation note, 2.743%
payable through
September 2008
6,896
–
653
$ 7,549
997
$ 8,992
IBM Credit Corporation,
6.00% payable through
June 2005
$
The University defeased certain indebtedness during 1978
and 1984 by depositing funds in escrow trust accounts
sufficient to provide for the subsequent payment of principal
and interest on the defeased indebtedness. Neither the assets
of the escrow trust accounts nor the defeased indebtedness is
included in the accompanying statements of net assets. The
principal outstanding on all defeased issues was $9,040,000
and $10,765,000 at September 30, 2003 and 2002,
respectively.
19
University of South Alabama
Notes to Financial Statements (continued)
Substantially all student tuition and fee revenues secure
University Tuition Revenue Refunding Bonds. Series 1996
Bonds began maturing November 15, 2000, and are
redeemable beginning May 2006, at varying premiums. Series
1999 Current Interest Bonds began maturing November 15,
2002, and Capital Appreciation Bonds mature beginning
November 15, 2011; Series 1999 Bonds are not redeemable
prior to maturity.
NOTE 7: NOTES AND BONDS PAYABLE
(CONTINUED)
BONDS PAYABLE (CONTINUED)
Bonds payable consisted of the following at September 30
(in thousands):
TABLE 7B
Hospital and Auxiliary
Revenue Refunding
Bonds, Series 1993,
2.8% to 4.55% payable
through May 2010
2003
$
University Tuition
Revenue Refunding
Bonds, Series 1996,
payable through
November 2015
2002
21,790
$
During the years ended September 30, 2003 and 2002, the
maturity value of the Capital Appreciation Bonds increased
by $1,203,000 and $1,145,000, respectively, over the original
principal amount of $19,810,000, reflecting accretion of
interest. Hospital and Auxiliary Revenue Refunding Bonds
Series 1993 are redeemable beginning May 2004 at varying
premiums, and are secured by a lien on and a pledge of certain
Hospital revenues and University auxiliary revenues.
24,350
DEBT SERVICE ON LONG-TERM OBLIGATIONS
Total debt service by fiscal year is presented in Table 7C on
the following page.
30,335
University Tuition
Revenue Refunding
Bonds, Series 1996 B,
3.8% to 4.6%, payable
through November 2002
–
University Tuition
Revenue Bonds, Series
1999 Current Interest,
3.7% to 4.35%, payable
through November 2010
31,115
The principal amount of debt service due on bonds at
September 30, 2003 and 2002 includes $20,473,000 and
$21,676,000, respectively, representing the additional maturity
value on Series 1999 Capital Appreciation Bonds. These bonds
mature in years 2011 through 2019 and are non-interest
bearing. Although this additional maturity is presented as
principal on the debt service schedule above, it is also
recognized as interest expense on an annual basis in the
University’s financial statements as it accretes.
805
The fair value of notes payable and bonds payable at
September 30, 2003 approximates carrying value.
University Tuition
Revenue Bonds, Series
1999 Capital Appreciation,
4.7% to 5.25%, payable
November 2011 through
November 2018
Less unamortized
discount
$
19,340
20,320
24,817
96,282
23,614
100,204
(851)
95,431 $
(945)
99,259
20
University of South Alabama
Notes to Financial Statements (continued)
NOTE 7: NOTES AND BONDS PAYABLE (CONTINUED)
DEBT SERVICE ON LONG-TERM OBLIGATIONS (CONTINUED)
Total debt service by fiscal year is as follows (in thousands):
Debt Service on Bonds
TABLE 7C
2004
2005
2006
2007
2008
2009 – 2013
2014 – 2018
2019
Subtotal
Principal
$
5,450
5,965
6,655
7,265
7,805
38,320
37,750
7,545
116,755
Interest
$
$
4,515
4,328
4,112
3,870
3,602
13,351
5,679
97
39,554
Debt Service on Notes
Additional
Maturity
$
(1,265)
(1,329)
(1,397)
(1,469)
(1,544)
(8,408)
(5,012)
(49)
$ (20,473)
Principal
$
$
1,677
1,629
1,378
1,416
1,449
–
–
–
7,549
Interest
$
$
194
144
99
61
21
–
–
–
519
Total
$
$
10,571
10,737
10,847
11,143
11,333
43,263
38,417
7,593
143,904
Less:
Additional maturity
(20,473)
Unamortized bond
discount
(851)
Total
$
95,431
NOTE 8: CAPITAL LEASE OBLIGATIONS
TABLE 8
Year ending September 30, 2004
Less amount representing
interest
Net minimum lease payments
On July 21, 1997, the University signed a seven-year Lease
Purchase Agreement as a method of financing the purchase
of certain designated radiology equipment, a clinical
information system, and other patient care-related equipment
for the USA Hospitals. Assets totaling $11,915,500 have
been obtained through proceeds from the Lease Purchase
Agreement as of September 30, 2003. The University may,
at its discretion, terminate the lease through the exercise of
purchase options on a semi-annual basis.
$ 1,879
(50)
$ 1,829
NOTE 9: EMPLOYEE BENEFITS
RETIREMENT AND PENSION PLANS
Employees of the University are covered by two pension plans:
a cost sharing multiple-employer defined benefit pension plan
administered by the Teachers’ Retirement System of the State
of Alabama (TRS), and a defined contribution pension plan.
Future minimum capital lease payments at September 30,
2003 are as follows (in thousands):
21
University of South Alabama
Notes to Financial Statements (continued)
by Teachers Insurance and Annuity Association – College
Retirement Equities Fund (TIAA-CREF), contributions by
eligible employees are matched equally by the University up
to a maximum of 3% of current annual pay. The University
and the employees each contributed $738,000 and $687,000
for 413 and 410 employees in 2003 and 2002, respectively.
NOTE 9: EMPLOYEE BENEFITS (CONTINUED)
RETIREMENT AND PENSION PLANS (CONTINUED)
Permanent employees of the University participate in TRS, a
public retirement system created by an act of the State
Legislature, with benefit provisions established by the Code
of Alabama. Responsibility for general administration and
operation of the TRS is vested in the Board of Control
(currently 14 members). Benefits fully vest after 10 years of
full-time, permanent employment. Vested employees may
retire with full benefits at age 60 or after 25 years of service.
Participating retirees may elect the maximum benefit, or may
choose among four other monthly benefit options. Under the
maximum benefit, participants are allowed 2.0125% of their
average final salary (average of three highest years of annual
compensation during the last ten years of service) for each
year of service. The TRS issues a publicly available financial
report that includes financial statements and required
supplementary information. That report may be obtained by
writing to the Retirement Systems of Alabama, P. O. Box
302150, Montgomery, Alabama 36130-2150, or by calling
(334) 832-4140.
COMPENSATED ABSENCES
Regular University employees accumulate vacation and sick
leave, subject to maximum limitations, at varying rates
depending upon their employee classification and length of
service. Upon termination of employment, employees are
paid all unused accrued vacation at their regular rate of pay
up to a maximum of two times their annual vacation
accumulation rate. The accompanying statements of net assets
include accruals for vacation pay of approximately
$12,307,000 and $10,483,000 at September 30, 2003 and
2002, respectively. No accrual is recognized for sick leave
benefits since no terminal cash benefit is available to
employees for accumulated sick leave.
NOTE 10: RISK MANAGEMENT
All employees covered by this retirement plan must contribute
5% of their eligible earnings to TRS. An actuary employed
by the TRS Board of Control establishes the employermatching amount annually. The pension benefit obligation is
a standardized disclosure measure of the present value of
pension benefits, adjusted for the effects of projected salary
increases and step-rate benefits, estimated to be payable in
the future as a result of employee service to date. During
2003 and 2002, the University made total contributions of
$10,467,000 and $11,385,000, respectively, to TRS on behalf
of participants, which represents 5.02% and 5.96%,
respectively, of each participant’s gross earnings.The
University’s payroll for all employees was approximately
$230,898,000 and $212,559,000 in 2003 and 2002,
respectively. Total payroll for University employees
participating in the Teachers’ Retirement System of Alabama
was approximately $208,511,000 and $191,030,000 in 2003
and 2002, respectively.
The University and an affiliate participate in professional and
general liability trust funds that are administered by an
independent trustee. These trust funds are irrevocable and use
contributions by the University and its affiliate, together with
earnings thereon, to pay liabilities arising from the
performance of its employees. Contributions to the trusts are
recorded as expenditures upon payment and are determined
by independent actuaries. If the trust funds are ever
terminated, appropriate provision for payment of related
claims will be made and any remaining balance will be
distributed to the University and its affiliate in proportion to
contributions made. It is the opinion of University
administration that plan assets are sufficient to meet future
plan obligations.
The University participates in a self-insured health plan,
administered by an affiliated entity through December 31,
2001 and, subsequent to December 31, 2001, by an
unaffiliated entity. Administrative fees paid by the
The defined contribution pension plan covers certain
academic and administrative employees, and participation by
eligible employees is optional. Under this plan, administered
22
University of South Alabama
Notes to Financial Statements (continued)
NOTE 10: RISK MANAGEMENT (CONTINUED)
UNIVERSITY OF SOUTH ALABAMA HEALTH
SERVICES FOUNDATION
University for such services were approximately $1,047,000
and $1,153,000 in fiscal years 2003 and 2002, respectively.
Contributions by the University and its employees, together
with earnings thereon, are used to pay liabilities arising from
health care claims. It is the opinion of University
administration that plan assets are sufficient to meet future
plan obligations.
The University of South Alabama Health Services Foundation
(USAHSF) is a not-for-profit corporation that exists to provide
a group medical practice for physicians who are faculty
members of the University and to further medical education
and research at the University. Condensed 2003 and 2002
financial information for the USAHSF is presented in Table
11A, below.
The USAHSF reimburses the University for certain
administrative and other support services. Total amounts
received and accrued for such services were approximately
$18,638,000 and $17,260,000 for the years ended
September 30, 2003 and 2002, respectively, and are reflected
as private grants and contracts in the accompanying statements
of revenues, expenses and changes in net assets.
NOTE 11: RELATED PARTIES
UNIVERSITY OF SOUTH ALABAMA FOUNDATION
The University of South Alabama Foundation (the USA
Foundation) is a not-for-profit foundation that was organized
for the purpose of promoting education, scientific research
and charitable purposes, and to assist in developing and
advancing the University in furthering, improving and
expanding its properties, services, facilities and activities. The
Board of Directors of the USA Foundation is not appointed
or controlled by the University. Other auditors have audited
the financial statements of the USA Foundation. Condensed
financial information for the Foundation at, and for the years
ended, June 30, 2003 and 2002, its fiscal year-end, is presented
in Table 11A, below.
TABLE 11A
Assets
The condensed financial information presented in Tables 11A,
11B and 11C is based upon the individual entities’ statements
prepared in accordance with accounting principles generally
accepted in the United States. The information for the USA
Foundation is presented at, and for the years ended, June 30,
2003 and 2002; and information for the USAHSF is presented
at, and for the years ended, September 30, 2003 and 2002.
CONDENSED STATEMENTS OF FINANCIAL POSITION
2003
2002
USA
USA
Foundation
USAHSF
Foundation
USAHSF
(In thousands)
$ 270,281
$
10,578
$ 286,056
$
12,208
Liabilities
Net assets (deficit):
Unrestricted
Temporarily restricted
Permanently restricted
Liabilities and net assets
CONDENSED FINANCIAL INFORMATION
$
29,281
10,661
36,562
11,579
40,483
36,850
163,667
241,000
270,281
(83)
–
–
(83)
10,578
39,927
45,130
164,437
249,494
286,056
629
–
–
629
12,208
$
23
$
$
University of South Alabama
Notes to Financial Statements (continued)
NOTE 11: RELATED PARTIES (CONTINUED)
CONDENSED FINANCIAL INFORMATION (CONTINUED)
TABLE 11B
USA
Foundation
Revenues
Health care revenues
Other
$
Expenses:
Health care plan costs
University contributions
Management, general and other
Discontinued operations
Revenues over (under) expenses
$
CONDENSED STATEMENTS OF ACTIVITIES
2003
2002
USA
USAHSF
Foundation
(In thousands)
–
14,925
14,925
$
–
5,654
15,143
2,622
23,419
(8,494)
TABLE 11C
USA
Foundation
45,504
7,805
53,309
–
–
54,021
–
54,021
(712)
$
$
$
20,623
5,575
26,198
23,222
9,913
21,498
–
54,633
(28,435)
CONDENSED STATEMENTS OF CASH FLOWS
2003
2002
USA
USAHSF
Foundation
(In thousands)
USAHSF
$
$
49,207
6,584
55,791
–
–
55,717
–
55,717
74
USAHSF
Net cash provided
by (used in):
Operating activities
Investing activities
Financing activities
$
(7,475)
6,227
(4,590)
$
63
1,100
(811)
$
2,224
(550)
(10,500)
$
(677)
(3,703)
(733)
Net change in cash
$
(5,838)
$
352
$
(8,826)
$
(5,113)
amounts received for such services were approximately
$1,240,000 and $1,285,000 in 2003 and 2002, respectively,
and are reflected as private grants and contracts in the
accompanying statements of revenues, expenses and changes
in net assets.
OTHER RELATED PARTIES
The South Alabama Medical Science Foundation (SAMSF)
is a not-for-profit corporation that exists for the purpose of
promoting education and research at the University of South
Alabama. SAMSF reimburses the University for certain
administrative and other related support services. Total
24
University of South Alabama
Notes to Financial Statements (continued)
In connection with the Hospital’s participation in the State of
Alabama Medicaid Program, the University has established
a $1,476,000 irrevocable standby letter of credit with Regions
Bank with a variable interest rate of .480 percentage points
over the London Interbank Offered Rate (LIBOR), not to
exceed 6.9 percent. The Alabama Medicaid Agency is the
beneficiary of this letter of credit. No funds were advanced
under this letter during the year ended September 30, 2003.
NOTE 11: RELATED PARTIES (CONTINUED)
OTHER RELATED PARTIES (CONTINUED)
The USA Research and Technology Corporation (the
Corporation) is a not-for-profit corporation that exists for the
purpose of furthering the educational and scientific mission
of the University by developing, attracting and retaining
technology and research industries in Alabama that will
provide professional and career opportunities to the
University’s students and faculty. The Corporation was formed
in fiscal year 2002.
LITIGATION
Various claims have been filed against the University alleging
discriminatory employment practices and other matters.
University administration and legal counsel are of the opinion
that the resolution of these matters will not have a material
effect on the financial position or the statements of revenues,
expenses and changes in net assets of the University.
NOTE 12: COMMITMENTS AND
CONTINGENCIES
In December 1999, the University and the State of Alabama
entered into an “Agreement to Dismiss Litigation.” This
agreement called for the dismissal of the University’s pending
lawsuit against tobacco manufacturers in return for the
payment of $20,000,000 from the State to the University. The
timing of the receipt of these funds is subject to availability.
The payment is to be made over a period of not more than ten
years. Pursuant to a separate agreement, 14% of all funds
received are to be paid to the attorneys who represented the
University in the litigation. At September 30, 2003,
$2,000,000 related to this settlement has been received and
recognized as state appropriations in prior years. Additionally,
$2,500,000 related to the settlement has been allocated to the
University by the Alabama Public School and College
Authority, all of which has been expended as of September
30, 2003.
GRANTS AND CONTRACTS
At September 30, 2003 and 2002, the University had been
awarded approximately $31,030,000 and $30,652,000,
respectively, in grants and contracts that had not been received
and for which expenditures had not been made for the
purposes specified. These awards, which represent
commitments of sponsors to provide funds for research or
training projects, have not been reflected in the accompanying
financial statements. Advances include amounts received from
grant and contract sponsors which have not been earned under
the terms of the agreements and, therefore, have not yet been
included in revenues in the accompanying financial
statements.
LINES OF CREDIT
The University has established a $10 million line of credit
with Regions Bank, with a variable interest rate of .480
percentage points over the London Interbank Offered Rate
(LIBOR), not to exceed 6.9 percent. No funds were advanced
to the University from this credit line during the year ended
September 30, 2003.
HOSPITALS MEDICARE/MEDICAID REVENUES
The Hospitals provide health care services primarily to
residents of the region. Revenues from the Medicare program
accounted for approximately 16% and 18% of net patient
service revenues for the years ended September 30, 2003 and
2002, respectively. Medicaid program revenues account for
approximately 38% and 41%, respectively, of net patient
service revenues for the same periods. Laws and regulations
governing the Medicare and Medicaid programs are complex
and subject to interpretation. Hospital management believes
the Hospitals are in compliance with all applicable laws and
regulations and are not aware of any pending or threatened
investigations involving allegations of potential wrongdoing.
While no such regulatory inquiries have been made,
In connection with the University’s purchasing card program,
the University has also established a $2,000,000 line of credit
with First Union National Bank, with a zero percent interest
rate. At September 30, 2003 and 2002, approximately
$808,000 and $413,000, respectively, was advanced and is
included in accounts payable in the accompanying statements
of net assets.
25
University of South Alabama
Notes to Financial Statements (continued)
NOTE 12: COMMITMENTS AND
CONTINGENCIES (CONTINUED)
NOTE 14: SIGNIFICANT NEW
ACCOUNTING PRONOUNCEMENTS
HOSPITALS MEDICARE/MEDICAID REVENUES (CONTINUED)
compliance with such laws and regulations can be subject to
future government review and interpretation as well as
significant regulatory action including fines, penalties and
exclusion from the Medicare and Medicaid programs.
In June 2002, the GASB issued Statement No. 39, Determining
Whether Certain Organizations Are Component Units – an
amendment of GASB Statement No. 14. GASB Statement No.
39 established new guidelines for identifying and reporting
organizations as component units of the University and will
be effective for the University for the year ending September
30, 2004. In March 2003, the GASB issued Statement No.
40, Deposit and Investment Risk Disclosures – an amendment
of GASB Statement No. 3. GASB Statement No. 40 changes
the required financial statement disclosures for certain
investments and will be effective for the University for the
year ending September 30, 2005. The effect of the
implementation of GASB Statements No. 39 and No. 40 on
the University is not known at this time.
OTHER POSTRETIREMENT EMPLOYEE BENEFITS
In September 2003, the State of Alabama Legislature passed
legislation that requires all colleges and universities to fund
the health care premiums of its participating retirees. In prior
years, such costs have been paid by the State. Beginning in
October 2003, the University will be assessed a monthly
premium by the Public Education Employees’ Health
Insurance Plan (“PEEHIP”) based on the number of retirees
in the system and an actuarially determined premium. The
University will expense each payment to PEEHIP as it is paid.
The anticipated expense for the year ending September 30,
2004 is approximately $2,700,000.
NOTE 13: FUNCTIONAL INFORMATION
Operating expenses by functional classification for the years
ended September 30, 2003 and 2002 are listed below (in
thousands). In preparing the financial statements, all
significant transactions and balances among accounts have
been eliminated.
TABLE 13
Instruction
Research
Public Service
Academic support
Student Services
Institutional support
Operation and
maintenance of plant
Scholarships
Hospital
Auxiliary enterprises
Depreciation
Other
2003
$
$
74,121
16,501
24,267
12,757
14,349
13,433
13,435
1,711
268,095
13,353
17,432
5,093
474,547
2002
$
$
69,885
13,782
24,358
12,029
14,509
11,995
12,804
1,670
248,565
12,485
16,164
2,509
440,755
26
UNIVERSITY OF SOUTH ALABAMA
BOARD OF TRUSTEES
SEPTEMBER 30, 2003
The Honorable Bob Riley, (President Ex-Officio)
Governor, State of Alabama
Montgomery
Dr. Ed Richardson (Ex-Officio)
Superintendent of Education
Montgomery
Mr. Jack R. Brunson
Elba
Ms. Bettye R. Maye
York
Mr. J. L. Chestnut, Jr.
Selma
Ms. Christie McKendree Miree
Monroeville
The Honorable E. Crum Foshee
Andalusia
Mr. Mayer Mitchell
Mobile
Mr. J. Cecil Gardner
Mobile
The Honorable Bryant Mixon
Ozark
The Honorable Samuel L. Jones
Mobile
The Honorable James P. Nix, (Chair, Pro Tempore)
Fairhope
The Honorable Larry P. Langford
Fairfield
Dr. Steven H. Stokes
Dothan
Mr. Donald L. Langham
Mobile
Mr. Larry D. Striplin, Jr.
Selma
The Honorable W. H. Lindsey
Butler
ADMINISTRATION
President V. Gordon Moulton
President
Dr. Dale T. Adams
Vice President for Student Affairs
Dr. Joseph F. Busta, Jr.
Vice President for Development and
Alumni Relations
Dr. Pat C. Covey
Senior Vice President for Academic Affairs
Mr. M. Wayne Davis
Vice President for Financial Affairs
Mr. Stanley K. Hammack
Associate Vice President for Hospital Affairs
Senior Hospital Administrator
Dr. Robert A. Kreisberg
Vice President for Medical Affairs
and Dean, College of Medicine