FINANCIAL STATEMENTS
University of South Alabama
Year ended September 30, 2002
with Report of Independent Auditors
University of South Alabama
Financial Statements
Year ended September 30, 2002
Contents
Management’s Discussion and Analysis ........................................................ 1
Report of Independent Auditors ................................................................... 13
Audited Financial Statements
Statement of Net Assets................................................................................ 15
Statement of Revenues, Expenses and Changes in Net Assets .................... 16
Statement of Cash Flows .............................................................................. 17
Notes to Financial Statements....................................................................... 19
University of South Alabama
Management’s Discussion and Analysis
Year ended September 30, 2002
Introduction
The following discussion presents an overview of the financial position and financial
activities of the University of South Alabama (the University) for the year ended
September 30, 2002. This discussion was prepared by University management and
should be read in conjunction with the financial statements and notes thereto, which
follow.
Financial Highlights
The financial position of the University remains strong at September 30, 2002, with total
assets of $380,726,000, total liabilities of $171,405,000 and net assets of $209,321,000.
University net assets increased $30,081,000 in the year ended September 30, 2002 to
$209,321,000 at September 30, 2002. This increase is explained in the section entitled
“Analysis of Financial Position and Results of Operations.” An overview of each
statement is presented below along with a financial analysis of the transactions impacting
the statement. Since this is the initial fiscal year for the University’s implementation of
Governmental Accounting Standards Board Statement Nos. 34 and 35, this overview
will, for the most part, not include comparisons with prior periods. In future years,
comparisons will be provided.
Condensed financial statements for the University at and for the year ended September
30, 2002 follow (in thousands):
Condensed Statement of Net Assets
Assets
Current
Capital and other noncurrent assets
$
Liabilities
Current
Noncurrent
137,246
243,480
380,726
62,343
109,062
171,405
Net Assets
Invested in capital assets, net of debt
Restricted, nonexpendable
Restricted, expendable
Unrestricted
$
1
109,957
5,969
22,931
70,464
209,321
University of South Alabama
Management’s Discussion and Analysis (continued)
Condensed Statement 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
32,878
261,929
81,583
376,390
256,985
95,002
60,265
28,503
440,755
(64,365)
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
81,604
(1,769)
79,835
$
15,470
14,611
30,081
179,240
209,321
Condensed Statement of Cash Flows
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
Cash and cash equivalents, end of year
2
$
$
(51,101)
83,642
(26,915)
29,525
35,151
36,604
71,755
University of South Alabama
Management’s Discussion and Analysis (continued)
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 are
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.
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 Foundation, the University of South Alabama Health Services
Foundation, the South Alabama Medical Science Foundation, and the USA Research and
Technology Corporation are not included in the financial statements of the University.
Analysis of Financial Position and Results of Operations
Statement of Net Assets
The statement of net assets presents the assets, liabilities and net assets of the University
as of the fiscal year ended September 30, 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 statement of net assets, along with all of the
3
University of South Alabama
Management’s Discussion and Analysis (continued)
University’s basic financial statements, is 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.
Assets included in the statement of net assets are classified as current or noncurrent.
Current assets consist primarily of cash and cash equivalents, operating investments and
hospital patient accounts receivable. Of these amounts, cash and cash equivalents,
investments and accounts receivable comprise approximately 52%, 15% and 27%,
respectively, of current assets. Approximately 89% of noncurrent assets are capital
assets.
University cash, cash equivalents and investments increased from $95,300,000 at
September 30, 2001 to $102,550,000 at September 30, 2002. Accounts receivable,
primarily hospital, increased from $31,777,000 to $37,244,000 for the same period.
Current liabilities consist primarily of accounts payable and accrued liabilities and
increased from $59,469,000 to $62,343,000 between September 30, 2001 and 2002. 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 $110,734,000 to $103,512,000
between September 30, 2001 and 2002 as a result of the repayment of principal.
Net assets represent the residual interest in the University’s assets after liabilities are
deducted and are classified into one of four categories as shown on the following
illustration:
4
University of South Alabama
Management’s Discussion and Analysis (continued)
Net Assets
Unrestricted - 34%
Invested in capital assets,
net of related debt - 52%
Restricted, expendable - 11%
Restricted, non-expendable - 3%
Net assets invested in capital assets, net of related debt, $109,957,000, represent the
University’s capital assets less accumulated depreciation and outstanding principal
balances of debt attributable to the acquisition, construction or improvement of those
assets.
Restricted nonexpendable net assets, $5,969,000, consist primarily of the University’s
permanent endowment funds. The corpus of these funds may not be expended and must
remain with the University in perpetuity. Only the earnings from these funds may be
expended. Restricted expendable net assets, $22,931,000, are subject to externally
imposed restrictions governing their use. The funds are restricted primarily for debt
service, capital projects, student loans and scholarship purposes.
Although unrestricted net assets are not subject to externally imposed stipulations,
substantially all of the University’s unrestricted net assets have been designated for
various academic and research programs and initiatives as well as capital projects.
5
University of South Alabama
Management’s Discussion and Analysis (continued)
Unrestricted net assets consist of the following designations:
Designations of Unrestricted Net Assets
Undesignated - 22%
Capital purposes - 70%
Other - 8%
Statement of Revenues, Expenses and Changes in Net Assets
Changes in total University net assets as presented on the statement of net assets are
based on the activity presented in the statement of revenues, expenses and changes in net
assets. The purpose of the statement is to present the revenues received by the
University, both operating and nonoperating, and the expenses paid by the University,
operating and nonoperating, and any other revenues, expenses, gains and losses received
or spent by the University.
Generally, operating revenues 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 are revenues received for which goods and services are not provided. GASB
Statement No. 34 requires that state appropriations be classified as nonoperating.
Approximately 70% of the operating revenues of the University are hospital patient care
revenues. The remainder consists primarily of tuition and fees, grants and contracts and
auxiliary enterprise revenues.
6
University of South Alabama
Management’s Discussion and Analysis (continued)
The following illustration presents the major sources of University revenues (both
operating and nonoperating) for the year ended September 30, 2002:
Other - 6%
Sources of Revenues
Auxiliary enterprises- 3%
Hospital patient services
revenues - 55%
Grants and contracts - 12%
Tuition and fees - 7%
State appropriations - 17%
7
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 operating expenses.
The following illustration presents the major University operating expenses, including the
hospitals, using natural classification for the year ended September 30, 2002:
Operating Expenses by Natural Classification
Utilities - 2%
Salaries and benefits - 58%
Supplies and other
services - 21%
Depreciation - 4%
Hospital bad debts - 14%
Scholarships - 1%
8
University of South Alabama
Management’s Discussion and Analysis (continued)
Functional expense classification presents University expenses in the operational
categories they benefit. The following illustration presents the major uses of University
revenues (both operating and nonoperating) on a functional basis for the year ended
September 30, 2002:
Expenses by Function
Auxiliaries - 3%
Instruction - 17%
Research - 3%
Hospital - 58%
Public service - 6%
Academic support - 3%
Student services - 3%
Scholarships - 1%
Institutional support - 3%
Operation and maintenance of plant - 3%
9
University of South Alabama
Management’s Discussion and Analysis (continued)
Excluding the Hospitals, the expenses by function are as follows:
Expenses by Function (excluding hospitals)
Scholarships - 1%
Operation and maintenance
of plant 7%
Institutional support 7%
Instruction 40%
Student services 9%
Auxiliary enterprises 7%
Academic support 7%
Research 8%
Public service 14%
For the year ended September 30, 2002, the University reported an operating loss of
approximately $64,365,000. After adding nonoperating revenue and expenses, primarily
state appropriations, the total increase in net assets for the period is approximately
$30,081,000. During the year, the University made internal transfers of approximately
$2,600,000 in excess of actual depreciation expense to its plant funds for renewals and
replacements (funded depreciation) and $7,040,000 to retire outstanding long-term debt
principal. These amounts are internal transfers and do not impact the statement of
revenues, expenses and changes in net assets.
Statement of Cash Flows
The statement of cash flows presents information related to cash flows of the University.
The statement presents 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.
Increases in cash and cash equivalents from noncapital financing activities were due
primarily to the receipt of state appropriations and increases in cash and cash equivalents
from investing activities resulted from a net sale of investments. Those increases 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
10
University of South Alabama
Management’s Discussion and Analysis (continued)
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 combined with a
decrease in deferred revenue.
Capital Assets and Debt Administration
Significant capital asset additions during the year ended September 30, 2002 included a
Linear Accelerator and PET/CT Scanner for $2,871,000 and $2,126,000, respectively,
acquired for use in conjunction with the USA Cancer Research Institute. Also added
during the year was real estate contiguous with USA Knollwood Hospital valued at
$3,933,000, gifted from the USA Foundation. Several construction and renovation
projects at the University and Hospitals were ongoing – the most significant of which was
the construction of the USA Knollwood Hospital Pavilion and a major addition to the
University Library.
No new debt was incurred during the year.
$7,040,000 was retired during the period.
Debt in the amount of approximately
Economic Outlook
While enrollment and tuition have both increased in recent years, state appropriations
have been relatively flat. Additionally, state appropriations were prorated in fiscal year
2001, which was the first year since the 1992 fiscal year that state appropriations were
prorated. While appropriations were not prorated in fiscal year 2002, the political
environment of the State of Alabama is such that proration is a possibility during the year
ending September 30, 2003.
11
University of South Alabama
Management’s Discussion and Analysis (continued)
State appropriations (actual and adjusted for inflation) for the last ten years are illustrated
below:
State Appropriations - Ten Year History
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$0
1993
1994
1995
1996
1997
Actual
1998
1999
2000
2001
2002
Inflation ajusted
University administration is not aware of any currently known facts, decisions or
conditions that are expected to have a significant effect on the University’s financial
position or results of operation during fiscal year 2003 beyond those unknown variations
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.
12
Report of Independent Auditors
The Board of Trustees
University of South Alabama
We have audited the accompanying statement of net assets of the University of South
Alabama (the University) as of September 30, 2002 and the related statements of
revenues, expenses and changes in net assets and cash flows for the year then ended.
These financial statements are the responsibility of the University’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit
provides 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,
2002, and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
As disclosed in Note 1 to the financial statements, during the current fiscal year 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.
13
The Management’s Discussion and Analysis on pages 1-12 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 8, 2002
15
University of South Alabama
Statement of Net Assets
September 30, 2002
(In thousands)
Assets
Current assets:
Cash and cash equivalents
Investments at fair value
Accounts receivable (less allowances for contractual
adjustments of $9,958 and doubtful accounts of $38,573)
Notes receivable, net
Prepaid expenses, inventories and other
Total current assets
$
37,244
656
8,313
137,246
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 $221,546)
Total noncurrent assets
Total assets
740
10,777
4,751
9,938
885
216,389
243,480
380,726
Liabilities
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Deposits
Current portion of long-term debt
Total current liabilities
39,534
13,046
1,299
8,464
62,343
Noncurrent liabilities:
Long-term debt
Other long-term liabilities
Total noncurrent liabilities
Total liabilities
103,512
5,550
109,062
171,405
Net assets
Invested in capital assets, net of related debt
Restricted, nonexpendable:
Scholarships
Other
Restricted, expendable
Unrestricted
Total net assets
109,957
$$
See accompanying notes.
0209-0349168
71,015
20,018
16
652
5,317
22,931
70,464
209,321
University of South Alabama
Statement of Revenues, Expenses and Changes in Net Assets
Year ended September 30, 2002
(In thousands)
Revenues
Operating revenues:
Tuition and fees (net of scholarship allowances
of $10,510) – 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 $202) – See note 7
Other operating revenues
Total operating revenues
$
32,878
261,929
31,530
2,656
25,183
14,189
8,025
376,390
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
256,985
95,002
3,583
8,756
16,164
60,265
440,755
(64,365)
Nonoperating revenues (expenses):
State appropriations
Investment income and gains (losses) on investments
Interest on indebtedness
Other nonoperating revenues
Other nonoperating expenses
Net nonoperating revenues
Income before other revenues, expenses, gains or losses
81,604
1,650
(5,433)
2,120
(106)
79,835
15,470
Capital appropriations
Capital gifts and grants
Additions to permanent endowment
Increase in net assets
3,497
10,796
318
30,081
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.
0209-0349168
17
388,399
$
(209,159)
209,321
University of South Alabama
Statement of Cash Flows
Year ended September 30, 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
$
33,048
196,012
60,072
13,252
(101,348)
(256,941)
(3,583)
(787)
1,016
8,158
(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
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
Principal paid on capital debt
Interest paid on capital debt
Net cash used in capital and related financing activities
3,497
6,769
(26,152)
323
(7,040)
(4,312)
(26,915)
0209-0349168
18
University of South Alabama
Statement of Cash Flows (continued)
Year ended September 30, 2002
(In thousands)
Cash flows from investing activities
Interest on investments
Purchase of investments
Sale of investments
Net cash provided by investing activities
$
Net change in cash and cash equivalents
Cash and cash equivalents:
Beginning of period
End of period
35,151
Reconciliation of net operating revenues (expenses) to
net cash used in operating activities
Operating loss
Adjustments to reconcile net 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
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.
0209-0349168
1,625
(154,558)
182,458
29,525
19
$
36,604
71,755
$
(64,365)
16,164
$
(384)
(5,591)
501
229
(279)
(365)
2,343
727
(81)
(51,101)
$
411
$
1,145
$
(4,027)
University of South Alabama
Notes to Financial Statements
September 30, 2002
1. 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 University of South Alabama
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.
The University is a component unit of the State of Alabama and is included in the general
purpose financial statements of the State of Alabama.
The financial statements include the Statement of Net Assets, the Statement of Revenues,
Expenses and Changes in Net Assets and the Statement of Cash Flows. A more complete
description of the financial statements can be found in Management’s Discussion and
Analysis.
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 are effective for the year ended September 30, 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.
0209-0349168
20
University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Financial Statement Presentation (continued)
The University has elected not to restate its 2001 financial statements to conform with the
new financial statement presentation, therefore comparative financial statements are not
presented. 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 cost of goods sold and 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 has the option to apply all Financial Accounting Standards Board (FASB)
pronouncements issued after November 30, 1989, unless FASB pronouncements conflicts
with GASB pronouncements. The University has elected to not apply FASB
pronouncements issued after the applicable date.
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.
0209-0349168
21
University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
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.
Accounts Receivable
Accounts receivable are primarily from patient care services. Accounts receivable also
include amounts due from the federal government, state and local governments, or private
sources in connection with reimbursement of allowable expenditures made pursuant to
the University’s grants and contracts. Accounts receivable are recorded net of estimated
uncollectible amounts.
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
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.
0209-0349168
22
University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Capital Assets
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 was
incurred.
Deferred Revenues
Student tuition, fees and dormitory rentals are deferred and recognized over the
applicable portion of each school term.
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.
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.
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.
0209-0349168
23
University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Classification of Net Assets (continued)
Unrestricted net assets represent resources derived from student tuition and fees, state
appropriations, hospital 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.
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.
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 statement 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.
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
0209-0349168
24
University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Donor Restricted Endowments (continued)
invested 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.
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.
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.
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.
0209-0349168
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University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
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.
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 and for grants without either of the above requirements, the revenue is
recognized as it is received.
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable amounts from thirdparty 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.
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
0209-0349168
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University of South Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Third-Party Reimbursement (continued)
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 by utilizing the reimbursement principles established by Blue Cross. Medicare
and Blue Cross reimbursements are subject to audit and retroactive adjustment.
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.
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.
3. Cash
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 September 30, 2002, the net
public deposits subject to collateral requirements for all institutions participating in the
pool totaled approximately $4,722,663,000. Given the nature of the State of Alabama
requirement, deposits held in QPD institutions are not subject to categorization by risk.
0209-0349168
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University of South Alabama
Notes to Financial Statements (continued)
4. Investments
Investments at market consisted of the following at September 30, 2002 (in thousands):
U. S. agency notes
Pooled bond funds
Pooled equity funds
Other
Total
$
$
21,272
4,783
3,481
1,259
30,795
At September 30, 2002, $424,000 in net realized and unrealized losses on investments of
donor-restricted endowments has been recognized. The amounts are included in
restricted expendable net assets on the accompanying statement of net assets.
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 repurchase agreements, U. S. Treasury and agency obligations, and pooled bond
and equity funds. All investments owned by the University at September 30, 2002, and
shown in the preceding schedule, are in the first category.
0209-0349168
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University of South Alabama
Notes to Financial Statements (continued)
5. Capital Assets
Changes in capital assets for the year ended September 30, 2002 are as follows (in
thousands):
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
Buildings, fixed
equipment and
infrastructure
Other equipment
Library materials
Other capital assets, net
Capital assets, net
0209-0349168
$
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
$
29
Transfers
$
7
(8,398)
(8,391)
$
1,147
8,324
(1,080)
–
23,358
6,189
29,547
11,014
(385)
(3,463)
276,757
91,428
29,189
408,388
7
$
$
(7)
(3,855)
–
$
–
–
–
–
8,391
(114)
114
–
–
8,391
–
Ending
Balance
Reductions
528
3,242
–
3,777
(78)
(78)
(6,834)
(137,273)
(56,277)
(21,162)
(221,546)
186,842
$ 216,389
University of South Alabama
Notes to Financial Statements (continued)
6. Non-current Liabilities
Changes in non-current liabilities for the year ended September 30, 2002 are as follows
(in thousands):
Beginning
Balance
Long-term debt
Notes payable
Bonds payable
Capital lease obligations
Total long-term debt
Other long-term liabilities
Compensated absences
Total non-current liabilities
$
$
10,373
101,976
5,522
117,871
7,582
125,453
Additions
$
$
–
1,145
–
1,145
11,073
12,218
Reductions
$
$
Ending
Balance
(1,381) $
(3,862)
(1,797)
(7,040)
8,992
99,259
3,725
111,976
(8,172)
(15,212) $
10,483
122,459
Less
Amounts
Due Within
One Year
Noncurrent
Liabilities
$
$
$
1,443
5,125
1,896
8,464
4,933
13,397
Notes and bonds payable and capital lease obligations are further disclosed below in
Notes 7 and 8, respectively.
0209-0349168
30
7,549
94,134
1,829
103,512
5,550
$ 109,062
University of South Alabama
Notes to Financial Statements (continued)
7. Notes and Bonds Payable
Notes Payable
Notes payable consisted of the following at September 30, 2002 (in thousands):
Alabama Higher Education Equipment
Loan Authority, Series 1998-1, 3.85%,
payable through October 2008
$
Alabama Higher Education Equipment
Loan Authority, Series 1998-2, 4.37%,
payable through October 2008
5,396
2,599
IBM Credit Corporation, 6.00%, payable
through June 2005
$
997
8,992
Alabama Higher Education Equipment Loan Authority Notes, Series 1998-1 and 1998-2
are secured by a subordinate pledge of tuition revenues. Certain computer equipment is
pledged as security for the IBM Credit Corporation note.
Bonds Payable
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 statement of net assets. The
principal outstanding on all defeased issues was $10,765,000 at September 30, 2002.
0209-0349168
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University of South Alabama
Notes to Financial Statements (continued)
7. Notes and Bonds Payable (continued)
Bonds Payable (continued)
Bonds payable consisted of the following at September 30, 2002 (in thousands):
Hospital and Auxiliary Revenue Refunding
Bonds, Series 1993, 2.8% to 4.55%,
payable through May 2010
$
24,350
University Tuition Revenue Refunding
Bonds, Series 1996, 3.8% to 4.9%,
payable through November 2015
31,115
University Tuition Revenue Refunding
Bonds, Series 1996B, 3.8% to 4.6%,
payable through November 2002
805
University Tuition Revenue Bonds,
Series 1999 Current Interest, 3.7%
to 4.35%, payable through
November 2010
20,320
University Tuition Revenue Bonds,
Series 1999 Capital Appreciation,
4.7% to 5.25%, payable November
2011 through November 2018
23,614
100,204
Less unamortized bond discount
$
(945)
99,259
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 mature beginning November 15, 2002, and Capital Appreciation Bonds mature
beginning
November
15,
2011;
Series
1999
Bonds
are
not
0209-0349168
32
University of South Alabama
Notes to Financial Statements (continued)
7. Notes and Bonds Payable (continued)
Bonds Payable (continued)
redeemable prior to maturity. During the year ended September 30, 2002, the maturity
value of the Capital Appreciation Bonds increased by $1,145,000 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.
Debt Service on Long-Term Obligations
Total debt service by fiscal year is as follows (in thousands):
Debt Service on Bonds
Additional
Principal
Interest
Maturity
2003
2004
2005
2006
2007
2008 – 2012
2013 – 2017
2018 – 2019
Subtotal
Less:
Additional
maturity
Unamortized
bond discount
Total
0209-0349168
$
5,125
5,450
5,965
6,655
7,265
39,045
37,285
15,090
$ 121,880
$ 4,687
4,515
4,327
4,112
3,870
14,871
7,334
476
$ 44,192
$
(1,203)
(1,265)
(1,329)
(1,397)
(1,469)
(8,371)
(6,166)
(476)
$ (21,676)
(21,676)
$
(945)
99,259
33
Debt Service on Notes
Principal
$
$
1,443
1,509
1,479
1,239
1,289
2,033
–
–
8,992
Interest
$
$
361
295
227
171
121
82
–
–
1,257
Total
$ 10,413
10,504
10,669
10,780
11,076
47,660
38,453
15,090
$ 154,645
University of South Alabama
Notes to Financial Statements (continued)
7. Notes and Bonds Payable (continued)
Debt Service on Long-Term Obligations (continued)
Fair value of notes payable and bonds payable is higher than the carrying value at
September 30, 2002 due to decreases in interest rates below the more favorable interest
rates on the University’s debt. The principal amount of debt service on bonds includes
$21,676,000 additional maturity value on Series 1999 Capital Appreciation Bonds (noninterest bearing) maturing 2011 through 2019. 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.
8. Capital Lease Obligations
On July 21, 1997, the University signed a seven-year Lease Purchase Agreement as a
method of financing the purchase of designated radiology equipment and a clinical
information system for the Hospitals. Assets totaling $11,915,500 have been obtained
through the Lease Purchase Agreement as of September 30, 2002. The University may
terminate the lease through the exercise of purchase options on a semi-annual basis.
Future minimum capital lease payments at September 30, 2002 are as follows (in
thousands):
Year ending September 30:
2003
2004
Total
Less amount representing interest
Net minimum lease payments
$
$
2,050
1,879
3,929
(204)
3,725
9. Employee Benefits
Retirement and Pension Plans
Employees of the University are covered by two pension plans: a cost sharing multipleemployer defined benefit pension plan administered by the Teachers’ Retirement System
of the State of Alabama (TRS), and a defined contribution pension plan.
0209-0349168
34
University of South Alabama
Notes to Financial Statements (continued)
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 fulltime, 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 Retirement Systems of Alabama, P. O. Box 302150, Montgomery, Alabama
36130-2150, or by calling (334) 832-4140.
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
employer-matching 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 2002, the University made total contributions
of $11,385,000 to TRS on behalf of participants, which represents 5.96% of each
participant’s gross earnings. Total contributions were $11,893,000 and $11,467,000 in
2001 and 2000, respectively. The University’s payroll for all employees was
approximately $212,559,000 in 2002. Total payroll for University employees
participating in the Teachers’ Retirement System of Alabama was approximately
$191,030,000 in 2002.
The defined contribution pension plan covers certain academic and administrative
employees, and participation by eligible employees is optional. Under this plan,
administered by Teachers Insurance and Annuity Association – College Retirement
Equities Fund (TIAA-CREF), contributions by eligible employees are matched equally
0209-0349168
35
University of South Alabama
Notes to Financial Statements (continued)
9. Employee Benefits (continued)
Retirement and Pension Plans (continued)
by the University up to a maximum of 3% of current annual pay. The University and the
employees each contributed $687,000 for 410 employees in 2002.
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 statement of net assets includes accruals for
vacation pay of approximately $10,483,000 at September 30, 2002. No accrual is
recognized for sick leave benefits since no terminal cash benefit is available to employees
for accumulated sick leave.
10. Risk Management
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 University for such services were
approximately $1,153,000 in fiscal year 2002. 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.
0209-0349168
36
University of South Alabama
Notes to Financial Statements (continued)
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 year ended, June 30,
2002, its fiscal year-end, is presented below.
University of South Alabama Health Services Foundation
The University of South Alabama Health Services Foundation (USAHSF) is a not-forprofit corporation that exists to provide a group medical practice for physicians who are
regular faculty members of the University and to further medical education and research
at the University. Condensed financial information for the USAHSF at, and for the year
ended, September 30, 2002, is presented below.
The USAHSF reimburses the University for certain administrative and other support
services. Total amounts received and accrued for such services were approximately
$17,260,000 for the year ended September 30, 2002, and are reflected as private grants
and contracts in the accompanying statement of revenues, expenses and changes in net
assets.
0209-0349168
37
University of South Alabama
Notes to Financial Statements (continued)
11. Related Parties (continued)
Condensed Financial Information
The following condensed financial information 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 year
ended, June 30, 2002 and for the USAHSF is presented at, and for the year ended,
September 30, 2002.
Condensed Statements of Financial Position
USA
Foundation
USAHSF
(In thousands)
Assets
$
286,056
$
12,208
Liabilities
$
36,562
$
11,579
$
39,927
45,130
164,437
249,494
286,056
$
629
–
–
629
12,208
Net assets:
Unrestricted
Temporarily restricted
Permanently restricted
Total liabilities and net assets
0209-0349168
38
University of South Alabama
Notes to Financial Statements (continued)
11. Related Parties (continued)
Condensed Financial Information (continued)
Condensed Statements of Activities
USA
Foundation
USAHSF
(In thousands)
Revenues:
Health care revenues
Other
$
Expenses:
Health care plan costs
Contributions to University
Management, general and other
Revenues over (under) expenses
$
20,623
5,575
26,198
23,222
9,913
21,498
54,633
(28,435)
$
$
49,207
6,584
55,791
–
–
55,717
55,717
74
Condensed Statements of Cash Flows
USA
Foundation
USAHSF
(In thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net decrease in cash
$
$
2,224
(550)
(10,500)
(8,826)
$
$
(677)
(3,703)
(733)
(5,113)
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.
SAMSF reimburses the University for certain administrative and other support services.
0209-0349168
39
University of South Alabama
Notes to Financial Statements (continued)
11. Related Parties (continued)
Other Related Parties (continued)
Total amounts received for such services were approximately $1,285,000 in 2002 and are
reflected as private grants and contracts in the accompanying statement of revenues,
expenses and changes in net assets.
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. At
September 30, 2002, the University had a receivable of $121,000 from the Corporation.
12. Commitments and Contingencies
Grants and Contracts
At September 30, 2002, the University had been awarded approximately $28,055,000 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.
State Bond Issues
The State of Alabama made allocations to the University from bond issues in prior years.
Pursuant to these allocations, approximately $264,000 is available to the University for
certain future construction costs. The allocations have not been reflected in the
accompanying financial statements.
0209-0349168
40
University of South Alabama
Notes to Financial Statements (continued)
12. Commitments and Contingencies (continued)
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 have been advanced to the University
from this credit line during fiscal 2002.
In connection with the University’s purchasing card program, the University has also
established a $750,000 line of credit with First Union National Bank, with a zero percent
interest rate. At September 30, 2002, approximately $413,000 was advanced and is
included in accounts payable in the accompanying statement of net assets.
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 statement of revenues, expenses and changes in net assets of the
University.
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, 2002,
$2,000,000 related to this settlement has been received and recognized as state
appropriations in a prior year. Additionally, $2,500,000 related to the settlement has
been allocated to the University by the Alabama Public School and College Authority
and, of this amount, $226,000 remains outstanding and is included in the total state bond
issue commitment disclosed above.
0209-0349168
41
University of South Alabama
Notes to Financial Statements (continued)
12. Commitments and Contingencies (continued)
Hospitals Medicare/Medicaid Revenues
The Hospitals provide health care services primarily to residents of the region. Revenues
from the Medicare and Medicaid programs accounted for approximately 18% and 41%,
respectively, of the Hospitals’ net patient service revenues for the year ended
September 30, 2002. Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Hospitals believe that they 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, 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.
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University of South Alabama
Notes to Financial Statements (continued)
13. Functional Information
The University’s operating expenses by functional classification were as follows (in
thousands):
Functional
Classification
Instruction
Research
Public service
Academic
support
Student
services
Institutional
support
Operation and
maintenance
of plant
Scholarships
Hospital
Auxiliary
enterprises
Depreciation
Other
Salaries
and
Benefits
$ 68,244
8,678
18,319
Supplies
and Other
Services
$
6,127
3,957
5,678
Scholarships
And
Fellowships
$
322
55
120
Utilities
$
–
2
21
Depreciation
$
–
–
–
Hospital
Bad
Debts
$
–
–
–
Internal
Transfers
$
Total
(4,808)
1,090
220
$ 69,885
13,782
24,358
12,641
4,481
2
22
–
–
(5,117)
12,029
7,369
4,497
1,273
1
–
–
1,369
14,509
13,613
3,858
129
–
–
–
(5,605)
11,995
6,480
1
118,097
2,623
–
54,862
10
1,669
–
5,691
–
2,485
–
–
–
–
–
60,265
(2,000)
–
12,856
12,804
1,670
248,565
3,447
–
96
$ 256,985
6,752
–
2,167
95,002
3
–
–
3,583
534
–
–
8,756
–
16,164
–
16,164
–
–
–
60,265
1,749
–
246
–
$
$
$
$
$
$
12,485
16,164
2,509
$ 440,755
14. Significant New Accounting Pronouncement
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. The effect of the implementation of GASB Statement No.
39 on the University is not known at this time.
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