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Quarterly Document Transcript

  • 1. QUARTERLY FINANCIAL REPORT Quarterly Financial Statements and Financial Plan Quarter ending September 30, 2007 Michelle Aguilar Assoc Dir of Financial Accounting (518)434-7025 michelle.aguilar@rfsuny.org
  • 2. Contents Introduction..................................................................................1 Executive Summary.....................................................................1 Balance Sheet Review..................................................................3 Statement of Activities Review................................................12 Statement of Cash Flow Review.............................................15 Financial Plan Review...............................................................17
  • 3. Introduction As stated in its charter, the Finance Committee is charged with working with Research Foundation (RF) management to provide advice and input to the RF’s board of directors regarding fiscal management for the corporation, its subsidiaries and affiliated corporations. The duties of this committee include: • Identifying, assessing and managing financial risks and uncertainties • Continuously improving financial systems • Complying with legal and regulatory requirements • Ensuring the overall financial health of the corporation Key to the committee’s ability to fulfill these duties is a strong understanding of the RF’s quarterly financial activity, and the Treasurer’s Report was created to provide the data needed to effectively and efficiently monitor the corporation’s financial health. This report includes an analysis of the corporation’s balance sheet, statement of activities and statement of cash flows. This report is compiled on an accrual basis. The quarterly review of the Financial Plan compares the board-approved operating budget to a projected budget and actual quarter-end results. The RF’s operating budget explains how the RF will earn and allocate revenue during its fiscal year that runs from July 1 through June 30. The Financial Plan is compiled on a cash basis. Executive Summary The financial statements provide the amount and nature of the organization’s assets, liabilities and net assets. They present the effect transactions and events have on the amount of net assets, and the amount and kind of inflows and outflows of economic resources. The financial statements provide a basis for assessing the liquidity and financial flexibility of the organization. • Accounts Receivable for sponsored program activity has increased $6 million in comparison to fiscal year end. Included in the accounts receivable balances are “At-risk” deficit awards, those awards that have not received an official award document, which have decreased 41 percent compared to fiscal year end. • Investments totaled $302.6 million at the end of September 2007, a decrease of 2.3 percent for the fiscal year. (See Investment chart on page 6) The year-to-date rates of return by pool are: Annual 3 months Target Operational pool 1.90% 6.00% Retiree health pool 1.00% 8.25% Endowment pool 0.90% 8.25% Liquid pool 1.20% n/a Planned giving pool 2.00% 8.00%
  • 4. • Corporate debt decreased $0.5 million compared to FYE 2007. All OASIS debt was paid off in fiscal year 2007 and no new capital leases were added during the first quarter (see Corporate Debt chart on page 10). The RF also has building-related debt for 35 State Street. The RF took advantage of an interest rate swap in fiscal year 2006 to eliminate interest rate exposure and for the current fiscal year the swap netted cost savings of $2,509. • Net assets of the RF represent funds that primarily consist of campus unexpended balances, accrual liabilities, corporate reserves and investment reserves as outlined in the RF’s board- approved Financial Plan. Net assets have increased $6.3 million or 12.1 percent from FYE 2007 due to the following: current year investment income and inventions and license income less payments due to inventors and the first quarter estimate for FAS 106 expense. 1st quarter September 30 FYE 2007 Designated for development activity at the campuses as outlined in the RF's board approved Financial Plan $ 172,934 $ 162,848 Invested in fixed assets, net of related debt 11,858 11,705 Corporate reserve 4,460 4,263 Investment reserve 22,898 22,898 Liabilities unfunded (154,071) (149,923) Total unrestricted net assets $ 58,079 $ 51,791 -4-
  • 5. Balance Sheet Review Balance Sheet: As of September 30 ASSETS 1st quarter FYE September 30th 2007 Current Assets Cash and cash equivalents $ 1,226,166 $ 647,707 Accounts receivable, net 155,956,035 149,966,645 Advances to others 1,760,774 582,105 Short-term investments 105,860,686 108,012,414 Short-term investments - designated for post-retirement benefit obligation 5,314,000 5,314,000 Total current assets 270,117,661 264,522,871 Noncurrent Assets Long-term investments 114,808,466 124,439,126 Long-term investments – designated for post-retirement benefit obligation 77,450,228 74,723,719 Due from broker for securities sold 2,897,234 2,981,321 Fixed assets, net 20,242,372 20,637,193 Other assets 2,528,653 2,528,653 Total noncurrent assets 217,926,953 225,310,012 Total assets $ 488,044,614 $ 489,832,883 LIABILITIES Current Liabilities Accounts payable and accrued expenses $ 54,161,528 $ 60,167,825 Accrued compensation 8,982,920 15,085,530 Accrued vacation 22,861,802 22,563,534 Deferred revenue 107,086,852 108,660,121 Current portion of post-retirement benefit obligation 5,314,000 5,314,000 Current portion of long-term debt 1,358,016 1,527,280 Line of credit 16,523,786 14,613,865 Total current liabilities 216,288,904 227,932,155 Noncurrent Liabilities Deposits held for others 3,781,159 3,755,609 Post-retirement benefit obligation, net of current portion 196,811,509 190,835,000 Due to broker for securities purchased 3,696,475 5,753,552 Long-term debt, net of current portion 7,026,525 7,404,332 Other liabilities 2,361,109 2,361,109 Total noncurrent liabilities 213,676,777 210,109,602 Total liabilities 429,965,681 438,041,757 NET ASSETS Unrestricted 58,078,933 51,791,126 Total liabilities and net assets $ 488,044,614 489,832,883 -5-
  • 6. Balance Sheet The balance sheet, also known as the statement of financial position, provides information about the RF’s liquidity, financial flexibility and financing needs. Three ratios that will help us measure how we are doing in these areas are: current ratio (see below, Current Assets below), primary reserve ratio (see page 11, Net Assets) and debt burden ratio (see page 9, Long Term Debt). Current Assets An asset has economic value to its owner and includes real property, such as land or buildings, and personal property, such as cash and investments. The RF’s current assets, assets that can be converted to cash in less than one year, include cash and cash equivalents, net accounts receivables, advances to others and short-term investments. An indication that an organization has the ability to meet its short-term obligations can be measured by using the Current Ratio. The Current Ratio equals current assets divided by current liabilities and is measured at 1.25:1 and 1.16:1, respectively, for quarter end September 2007 and FYE 2007. National Association of College and University Business Officers (NACUBO) standards hold that this should be about a 2:1 ratio. While the RF may not be meeting NACUBO standards, operational pool investments are classified as both short-term and long-term investments and the long-term can be liquidated at any time to meet operational needs. Cash and Cash Equivalents The RF’s cash consists of bank account balances, money market funds and the line of credit. The RF’s cash and cash equivalents were $1.2 million as of September 30, 2007 compared to $0.6 million at fiscal year end. The fluctuations in daily bank activity and outstanding check balances cause this amount to increase or decrease. Accounts Receivable, Net This represents deficit amounts where the RF paid bills for sponsored programs activities before receiving money from sponsors, and reflects the amount due to the RF from sponsors. The accounts receivable balance also includes the fringe benefit pool balance, which is a deficit balance once accruals are accounted for. In comparison to fiscal year end, sponsored programs accounts receivable increased $6 million or 4 percent. This increase is mainly due to an increase in campus deficit balances ($25 million), a decrease in accruals of $9 million and a decrease of $10 million in operational activity. Advances to Others This represents net agency activity. “Agency” designates those university-related organizations, such as campus-based foundations or campus-based clinical practice plans, that use RF-provided human resources/payroll and purchasing/payables administration services. Each year the RF subtracts its working capital uses (or deficits) from its working capital (or surpluses). When this balance is negative, it’s reported as Advances to Others. When this balance is positive, it’s considered Deposits Held for Others and is reported under the Current Liabilities category. At September 30, this balance was $1.8 million compared to $0.6 million at FYE 2007. -6-
  • 7. Short-term Investments The RF has two types of short-term investments: liquid and operational. A liquid money market fund is used as an investment tool for the major nanoelectronics program at the University at Albany. As of September 2007, short-term investments were $105.9 million. At quarter end, a reclassification is made to ensure that the short-term investment balance is equal to the deferred revenue balance less cash and cash equivalents. Short-term Investments Designated for Post-retirement Benefit Obligation This investment represents assets that are restricted by the board to pay post-retirement medical benefits for current and future retirees. (see page 6, Long-term Investments Designated for Post-retirement Benefit Obligation, for more information). Non-current Assets The RF’s non-current assets are assets that generally will not be converted to cash for a period of one year or more. Assets include long-term investments, long-term investments designated for post- retirement benefit obligation, net fixed assets and other assets. Long-term Investments Operational Pool: Funds in this pool consist of cash advances from sponsors, agency funds that are received because the RF provides human resources and accounts payable administration services to the State University of New York (SUNY) and SUNY-related organizations; and campus reserve funds designated for campus development activities. Endowment Pool: This pool is composed of gifts from donors who stipulate that the principal be maintained inviolate and in perpetuity as a condition of the gift. These are restricted funds. Planned Giving Pool: The Charitable Gift Annuity Pool consists of irrevocable charitable gifts from donors who receive lifetime annuity payments. Long-term Investments Designated for Post-retirement Benefit Obligation As health care costs continue to grow, the RF is committed to funding the liability for retiree health insurance. During FY 2005 the RF board of directors approved a funding policy whereby money from current grants (calculated by applying a fringe benefit rate to salaries and wages) will be collected and placed into the retiree health reserve fund over time. During FY 2007, $7.7 million was transferred from the regular fringe pool surplus to the retiree health insurance pool. It is anticipated that an additional $7.7 million will be funded in fiscal year 2008. The sum of the RF’s total investments was $302.6 million at the end of September 2007, a decrease of 2.3 percent for the fiscal year. Due to/Due from broker represents investment trade activity that has not been settled by the end of the period. These net amounts are included in the Investment Portfolio chart below. The fiscal year-to-date rates of return by pool are: operational pool, 1.9 percent; retiree health insurance pool, 1.0 percent; endowment pool, 0.9 percent; liquid pool, 1.2 percent; and planned giving pool, 2.0 percent. The “Other” grouping on the chart below consists of the RF’s Investment in Equity Partnership of $1.8 million and the market value of equities received in lieu of royalties of $0.6 million. -7-
  • 8. Investment Portfolio by Pool (In Thousands) $981 Planned Giving $1,104 $- Short Term $- $2,774 Endowment $2,677 $2,480 Other $2,480 $6,577 Liquid $4,859 $80,038 Retiree Health Ins $80,844 $216,867 Operational $210,670 $309,717 Total $302,634 - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 September 2007 FYE 2007 Fixed Assets, Net The RF’s office furniture, equipment, information system and the corporate office building are reported by subtracting each item’s accumulated depreciation from its actual cost. This is known as capitalization. Generally, title to equipment purchased using sponsored funds is retained by the sponsor until it is determined who will actually keep the item. This means that purchases of equipment charged to a grant or contract are not capitalized. The RF’s recorded net fixed assets decreased from $20.6 million at FYE 2007 to $20.2 million at September 30, due to depreciation levels in excess of fixed asset purchases. Other Assets Other assets are comprised of the interest rate swap valuation and funds maintained as part of a deferred compensation plan set up in accordance with section 457(b) of the Internal Revenue Code. The RF entered into an interest rate swap (swapping a variable rate to a fixed rate of interest) to eliminate the interest rate exposure on the debt for the corporate office building located at 35 State Street. These amounts are only adjusted at year end and will remain the same from quarter to quarter. -8-
  • 9. Current Liabilities A liability is a financial obligation, or the cash outlay that must be made at a specific time, to satisfy the contractual terms of such an obligation. The RF’s current liabilities, liabilities that must be paid within one year, include accounts payable, accrued expenses, compensation and vacation, deferred revenue, the current portion of the post-retirement benefit obligation and long-term debt, and the RF’s line of credit. Accounts Payable and Accrued Expenses These are amounts the RF owes for vendor payments, abandoned property and interest payable. It also includes the IBNR (incurred but not recorded) accrual for benefit costs such as workers’ compensation, health care, prescription drugs, dental and vision. Accounts payable and accrued expenses were $54.2 million as of September 30, a 10 percent decrease from FYE 2007, which is mainly due to a decrease in the IBNR and accounts payable accruals, and an increase in the interest payable to sponsors. Interest payable to sponsors includes $4.9 million earned on separately invested funds related to nanotechnology activity at the University at Albany. Accrued Compensation This represents amounts for payroll due to employees at the end of a financial period and accrued sick leave. Accrued Vacation This represents amounts for employee accumulated vacation pay. The year end accrual is based on actual data received from campuses and is estimated for each quarter end during the fiscal year. Deferred Revenue This represents surplus amounts for sponsored programs activity that occur when the RF receives money from sponsors before it has to make expenditures for those sponsors’ programs. Deferred revenue decreased $1.6 million or 1.4 percent from year end. Current Portion of Post-retirement Benefit Obligation This liability represents the actuarially-determined amount incurred to pay current retiree medical benefits. Current Portion of Long-term Debt Current portion of long-term debt is the current portion of amounts borrowed to finance the corporate office building, the RF information system and some capital leases. The balance as of September 30 was $1.4 million compared to $1.5 million as of FYE 2007. Line of Credit The RF has two lines of credit. First, $35 million is allocated to use on an overnight basis to supplement the corporation’s daily cash flow needs. This minimizes the impact that routine fluctuations in daily cash flow have on the RF’s investment program by allowing investment managers to maintain a steady portfolio level and enhances long-term earnings. Second, $45 million is available to support campus sponsored programs debt. -9-
  • 10. As of September 30, the RF’s line of credit liability in support of daily cash flow needs was $16.5 million on an accrual basis. In July 2006, the RF advanced SUNY System Administration – Provost $8 million to cover temporary sponsored program deficits of which $2 million was paid back in October 2006. The remaining $10.5 million is the reclass of outstanding checks. Non-current Liabilities The RF’s non-current liabilities, liabilities that won’t be paid for a period of one year or more, include deposits held for others, the long-term portion of the post-retirement benefit obligation, long-term debt and other long-term liabilities. Deposits Held for Others In contrast to current liabilities, this category represents money that was invested in the Endowment Pool because a condition of the gift was that the principal be maintained inviolate and in perpetuity. Also included are planned gifts of $1.1 million that were donated to campus foundations. Long-term Portion of Post-retirement Benefit Obligation This liability represents the actuarially-determined amount incurred to pay future retiree medical benefits pursuant to Financial Accounting Standards (FAS). In addition, the board authorized management to change the contribution level for retirees to mitigate the future cost of this benefit. This change is still pending. Post-retirement Benefit Obligation 250.0 196.1 200.0 150.0 132.0 117.0 116.8 105.9 100.0 91.6 80.0 60.8 50.9 50.0 0.0 FY 2005 FY 2006 FY 2007 Assets Funding Liability Balance Sheet Liability Long-term Debt -10-
  • 11. This liability comprises amounts borrowed to finance the corporate office building located at 35 State Street in Albany, the RF information system, and capital leases from Xerox and Sun for equipment used to support the Oracle applications. The Corporate Debt chart below depicts the total short- and long-term debt. Regarding the 35 State Street building debt, the RF took advantage of an interest rate swap in fiscal year 2006 to eliminate interest rate exposure that occurred as a result of rising variable interest rates. In FY 2006, the RF entered into a new four-year lease with SUN Microsystems for an equipment upgrade to support the Oracle Upgrade. The debt burden ratio displays the RF’s dependence on debt as a source of financing its mission and the relative cost of debt to overall expenses. It compares the current level of debt service with the corporation’s operating expenses. The RF’s annualized debt burden ratio for FYE 2008 is 4.85% compared to 5.13% for FYE 2007. A declining trend in ratios, means that additional resources can be used for general operating purposes and that debt service has sufficient coverage. Investment bankers have identified an upper threshold for this ratio at 7 percent, meaning that debt service should not be greater than 7 percent of operating costs. Corporate Debt (In Thousands) 10,000 7,500 6,380 6,255 6,125 5,990 5,845 5,000 3,350 2,736 2,708 4,205 2,500 2,540 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Building - Related Capital Leases Other Long-term Liabilities Other long-term liabilities comprise funds maintained as part of a Deferred Compensation Plan set up in accordance with section 457(b) of the Internal Revenue Code. This amount is only adjusted at year end and will remain the same from quarter to quarter. Net Assets The net assets of the RF represent funds that primarily consist of campus unexpended balances, corporate reserves and investment reserves as outlined in the RF’s board-approved Financial Plan. Net assets have increased $6.3 million or 12.1 percent from FYE 2007 due to the following: current -11-
  • 12. year investment income and inventions and license income less payments due to inventors and the first quarter estimate for FAS 106 expense. 1st quarter September 30 FYE 2007 Designated for development activity at the campuses as outlined in the RF's board approved Financial Plan $ 172,934 $ 162,848 Invested in fixed assets, net of related debt 11,858 11,705 Corporate reserve 4,460 4,263 Investment reserve 22,898 22,898 Liabilities unfunded (154,071) (149,923) Total unrestricted net assets $ 58,079 $ 51,791 The Primary Reserve Ratio measures the financial strength of the organization by comparing net assets that an institution can quickly access and spend to satisfy its obligations. It also describes the organization’s ability to support its current operations from all available expendable resources without relying on additional net assets. A positive ratio and an increasing ratio over time denotes strength. The RF’s Primary Reserve Ratio on an annualized basis for FY 2008 is .36 and .30 for FYE 2007. This means the RF could operate for three months without additional net assets. -12-
  • 13. Statement of Activities Review Statement of Activities: Period ending September 30 The amount of money earned and spent by the RF is stated on the corporation’s statement of activities. The RF monitors and controls this activity through the RF’s annual board approved Financial Plan that ensures that allocations equal revenue for each fiscal year. Campuses can use unspent revenues from prior years to cover expenditures that exceed the current year’s revenue allocation. 1st quarter September 30 FYE 2007 REVENUES Grants awarded for research and other sponsored activities $ 196,566,661 $ 790,877,032 Investment income 4,193,082 32,527,221 Inventions and licenses income 9,826,776 11,108,624 Other income 3,599,753 23,779,196 Total revenues 214,186,272 858,292,073 EXPENSES Sponsored programs and other activities 162,182,978 666,572,487 Administration and support 45,715,488 174,230,888 Total expenses 207,898,466 840,803,375 Net increase (decrease) in net assets before 6,287,806 17,488,698 cumulative effect of change in accounting principle Cumulative effect of change in accounting principle - (51,290,000 Net increase (decrease) in net assets 6,287,806 (33,801,302 Net assets at beginning of year 51,791,126 85,592,428 Net assets at end of year $ 58,078,932 $ 51,791,126 Revenues Grants and gifts awarded for sponsored research activities totaled $196.6 million for the first quarter and represents 92 percent of the RF’s total revenue. Grants Awarded for Research and Other Sponsored Activities This is comprised of direct revenue awarded for sponsored activities, and facilities and administrative (F&A) cost recoveries for sponsored activities. Revenues are indicating a slight increase for the fiscal year due to industry and other sponsors. Investment Income The RF invests the cash it receives from sponsors, agencies and its own operating reserves in its operational pool to earn income. The money is invested according to the RF’s investment policy and guidelines. -13-
  • 14. Investment income was $4.2 million as of September 2007 and the operating pool rate of return for the first quarter was 1.9 percent. Inventions and Licenses Income Inventions that result from sponsored research belong to the RF, which is responsible for protecting the intellectual property and commercializing these technologies as part of its technology transfer service. The RF’s inventions and licenses income for the first quarter was $9.8. This includes $8 million for a new royalty license at Stony Brook University. Other Income Other income includes non-program gift income, non-sponsored income, agency fee income and third party recharges. 1st quarter Revenues: September 30 FYE 2007 Federal grants and contracts $ 139,677,116 $ 507,836,783 State grants and contracts 22,598,936 139,023,333 Local grants and contracts 2,831,638 12,352,061 Private grants and contracts 31,458,971 131,664,855 Investment income 1,607,800 9,803,414 Net realized and unrealized gains 2,585,282 22,723,807 Gifts 3,828 184,892 Capital gifts and grants - 130,000 Inventions and licenses income 9,826,776 11,108,624 Other income 3,595,925 23,464,304 Total Revenues $ 214,186,272 $ 858,292,073 Expenses Total expenses for the RF for the first quarter of FY 2008 were $207.9 million. Expenditures are segregated into two areas: • Sponsored programs: expenses for externally-funded research • Corporate: administration and support expenses for campus and central office operations. Sponsored Programs Sponsored programs revenue is driven by sponsored programs expenditures. Direct expenditures through the first quarter were $162.2 million. The RF’s total direct expenditures include the categories of salaries, fringe benefits, equipment, subawards and other. -14-
  • 15. Administration and Support The RF’s campus and central office locations incur costs to have the infrastructure and staff in place to administer sponsored programs and other services. The RF uses the money it receives from F&A cost recovery, investments and agency fees to pay for these expenditures. The RF’s expenditures through the first quarter totaled $45.7 million 1st Quarter Expenses by Function: September 30 FYE 2007 Instruction $ 31,241,427 $ 121,420,686 Research 90,826,631 410,941,272 Public Service 32,583,283 119,851,967 Academic support 2,992,519 11,153,866 Student services 540,990 1,867,456 Operations & maintenance 7,155,613 18,688,064 Institutional support 40,575,450 146,117,497 Scholarships & Fellowships 670,341 4,194,083 Auxiliary enterprises 4,379 688,996 Hospitals - 733 Depreciation and amortization expense 1,002,153 4,304,629 Interest expense on capital related debt 113,595 379,462 Loss on disposal of plant assets 192,085 1,194,664 Other operating expenses - - Total Expenses $ 207,898,466 $ 840,803,375 -15-
  • 16. Statement of Cash Flow Review Statement of Cash Flow: 1st quarter, September 30 1st quarter September 30 FYE 2007 Cash flows from operating activities Federal grants and contracts $ 131,789,063 $ 497,430,258 State and local grants and contracts 17,131,706 114,700,479 Private gifts and grants 32,422,827 119,732,748 Other receipts 48,509,720 164,879,453 Salaries and wages payments (110,296,856) (363,868,262) Employee benefits payments (34,549,354) (112,122,948) Payments to suppliers/vendors (90,042,497) (424,760,533) Operating interest, dividends and investment gains 1,607,800 8,332,762 Equity investment partnership income 1,470,652 Interest payments on capital debt/notes (113,595) (379,462) Other payments (5,972,936) (16,194,053) Net cash (used in) provided by operating activities (9,514,122) (10,778,906) Cash flows from financing activities Principal payments on long-term debt (547,071) (2,123,249) Proceeds from line of credit 18,146,708 124,926,544 Payments on line of credit (16,236,787) (125,312,679) Net cash (used in) provided by financing activities 1,362,850 (2,509,384) Cash flows from investing activities Proceeds from sales of investments 190,400,328 478,413,143 Purchases of investments (99,871,180) (467,799,916) Equity investment partnership distribution - 1,045,869 Cash paid for purchases of fixed assets (799,417) (3,528,429) Net cash provided by (used in) investing activities 8,729,731 8,130,667 Net (decrease) increase in cash and cash equivalents 578,459 (5,157,623) Cash and cash equivalents, beginning of year 647,707 5,805,330 Cash and cash equivalents, end of year $ 1,226,166 $ 647,707 Reconciliation of change in net assets to net cash (used in) provided by operating activities Change in net assets $ 6,287,806 $ (33,801,302) Adjustment to reconcile change in net assets to net cash provided by operating activities Realized and unrealized gain on investments (2,585,282) (22,723,807) Unrealized loss (gain), interest rate swap - 21,852 Depreciation expense 1,002,153 4,304,629 Loss on disposal of fixed assets 192,085 1,286,764 Donated fixed assets - (37,900) Cumulative effect of change in accounting principle - 51,290,000 Change in assets and liabilities Accounts receivable and other assets (7,168,059) (24,257,077) Accrued investment income (139,023) (183,153) Accounts payable and accrued expenses (6,006,296) 9,503,174 Other accruals and other liabilities (5,804,342) 3,704,025 Deferred revenue (1,573,269) (28,375,306) Deposits held for and advances to others 25,550 591,724 Post-retirement benefit obligation 5,976,509 27,897,471 Net cash (used in) provided by operating activities $ (9,514,122) $ (10,778,906) -16-
  • 17. Statement of Cash Flow This statement provides relevant information about the corporation’s activities in generating cash through operations, its financing activities, and its expenditures for operations, debt repayment and maintaining operating capacity. The bottom line is the net increase or decrease in cash for the period. Cash Flows from Operating Activities Cash flow from operating activities adds the net cash from each type of operating activity to get the total net cash for all operating activities. Cash Flows from Financing Activities Cash flow from financing activities includes the sources and uses of cash for financing activities such as the corporate debt and line of credit. Cash Flows from Investing Activities Cash flow from investing activities includes purchasing investments (a use of cash) and selling investments (a source of cash). In the first quarter of FYE 2008, operational cash flow was a negative $9.5 million due to increases in sponsored program deficits. The operational shortfall was offset by net financing activity of $1.4 million and net investment activity of $8.7 million. -17-
  • 18. Quarterly Financial Plan Operating Budget (In Thousands) FY 2008 FY 2008 FY 2008 Actual Plan Projected As of 9/30/07 Revenues Restricted Revenue Sponsored Programs Direct 644,182 644,182 172,137 Agency Direct 139,469 139,469 38,960 Total Restricted Revenue 783,651 783,651 211,097 Unrestricted Revenue Sponsored Programs F&A Cost Recovery 127,132 128,000 35,657 Agency Service Fees 4,757 4,869 1,386 Investment Income - Operations Pool 14,760 14,760 3,809 Equity Distribution from LLCs 1,471 1,471 368 Royalties 10,373 18,343 12,635 Gifts and Other 9,530 9,530 1,903 Total Unrestricted Revenue 167,991 176,972 55,757 Allocations SUNY Campuses 136,969 142,624 44,900 Central Office 25,638 25,139 6,514 SUNY System Administration 2,460 2,460 615 Royalty Inventors' share 4,137 7,337 3,876 Corporate Reserve 3,268 3,892 973 Investment Income Reserve (4,480) (4,480) (1,120) Total Allocations 167,991 176,972 55,757 Note: Fiscal 2008 Plan numbers represent preliminary estimates made prior to fiscal year end 2007. Fiscal 2008 Projected numbers represent revised estimates based on fiscal year end 2007 actual results. Fiscal 2008 Actual numbers represent actual revenue and allocations received to date Sponsored Programs Direct -18-
  • 19. According to the 2008 Financial Plan, the RF estimated a slight decrease in sponsored program direct activity for FY 2008. Through the first quarter, sponsored program direct activity is up 3.2 percent compared to last September. Sponsored Program Direct Revenue (In Thousands) 200,000 167,459 166,782 172,137 160,855 150,000 139,144 100,000 50,000 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Agency Direct According to the 2008 Financial Plan, the RF estimated an increase in agency direct activity for FY 2008. Through the first quarter, agency direct activity is up 15.3 percent compared to last September. This increase is primarily due to a new fiscal services agreement with Kaleida Health at University at Buffalo. Agency Direct Revenue (In Thousands) 50,000 38,960 40,000 33,089 33,800 30,000 25,647 23,773 20,000 10,000 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sponsored Programs F&A Cost Recovery -19-
  • 20. According to the 2008 Financial Plan, the RF estimated a slight increase in sponsored programs F&A cost recovery for FY 2008. For the first quarter, actual F&A cost recovery was $35.7 million, a 2.7 percent increase in comparison to September 2006. Sponsored Programs F&A Cost Recovery (In Thousands) 40,000 34,733 35,657 32,924 32,418 30,000 28,688 20,000 10,000 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Agency Service Fees According to the 2008 Financial Plan, the RF estimated a slight decrease in agency service fees for FY 2008. Actual fees received for the first quarter decreased 2 percent compared to September 2006. Agency Service Fees 2,000 (In Thousands) 1,416 1,386 1,403 1,500 1,110 1,000 911 500 - Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 -20-
  • 21. Royalty Income According to the 2008 Financial Plan, the RF estimated a slight decrease in royalty income for FY 2008. Actual royalty revenue has increased significantly due to a new royalty license at Stony Brook University. Royalty Income (In Thousands) 15,000 12,635 12,000 9,000 7,180 6,654 5,459 5,530 6,000 3,000 - Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Investment Income The RF works with an investment consultant and uses trend data to project the expected return on the portfolio. The operational investment pool has a long-term targeted rate of return of 8.4 percent. The Financial Plan projected the return for FY 2008 at 7 percent which would produce annual income of approximately $14.8 million. Investment income for the year is down compared to last fiscal year but appears to be on target with financial plan estimates. Investment Income (In Thousands) 30,000 27,993 25,000 20,000 15,000 10,000 6,273 6,051 8,137 5,000 3,809 - Jun-05 Jun-06 Jun-07 Sep-06 Sep-07 -21-
  • 22. Equity Distributions, Gifts & Other Equity distributions from limited liability companies (LLCs) represent the RF’s partnership in the affiliated corporation Brookhaven Science Associates, LLC. Campuses and central office receive gifts and other unrestricted revenue that does not fit into the other major revenue categories. Examples include revenue from sales of equipment, unrestricted donations, nonsponsored income and revenue from third party recharge awards. Gifts & other income received for the first quarter was $1.9 million. Gifts and other income have a large increase due to new activity from third party recharges. Third party recharges are when outside parties utilize the services of a RF service center. Equity Distributions, Gifts & Other (In Thousands) 16,000 14,732 14,000 12,000 10,000 8,000 6,000 4,000 1,933 1,395 1,299 1,903 2,000 253 387 1,186 234 368 - Jun-05 Jun-06 Jun-07 Sep-06 Sep-07 LLCs Other Income Financial Budget The allocation methods are described in detail in the Operating Budget of the Financial Plan approved by the board in October. Once the allocations are approved, central office forecasts the corporation’s cash needs based on its projected expenditures in the fiscal year. The RF makes expenditures in three areas: • Sponsored Programs: Expenses for externally-funded research • Agency: Expenses for campus-related organizations • Corporate: Expenses for campus and central office operations -22-
  • 23. Sponsored Programs Expenditures For FY 2008, the RF projected it would have $772 million in sponsored program expenditures. At the end of the first quarter, sponsored program expenditures were $207.8 million compared to $201.5 million last year. Sponsored Program Expenditures by Type (In Thousands) 250,000 225,000 201,515 207,794 193,779 199,877 200,000 175,000 167,832 150,000 125,000 97,636 100,550 97,350 98,833 100,000 90,000 75,000 40,239 43,985 45,709 49,406 50,000 36,659 29,741 30,619 35,749 40,385 25,000 22,769 27,837 26,163 23,806 18,404 14,957 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Federal State Federal Flow Through Industry/Other Total The RF has three sources of cash to pay these expenditures: • Surplus sponsored programs balance – currently at $102 million, a decrease of 30 percent from last September mainly attributed to University at Albany activity • Federal draw down – the RF uses an automated system to request funds on a weekly basis for federal programs, $67.3 million has been drawn for the first quarter. • Working capital – when the sponsor doesn’t pay in advance and the RF can’t draw down federal funds, the RF uses working capital to fund expenditures. The total accounts receivable balance at the end of the first quarter is $124.7 million, an increase of $32.8 million or 36 percent. At-risk deficit awards, those awards that have not received an official award document, increased 5 percent. Agency Expenditures The RF’s agency activity is growing and the RF projects agency expenditures to total $144 million in FY2008. Technically, an agency should have funds in its account with the RF before the RF pays any human resources, payroll, accounts payable or purchasing expenses for its award. Agency expenditures through the first quarter are $40.3 million compared to $35.2 million last September. -23-
  • 24. Agency Expenditures by Location (In Thousands) 20,000 17,725 16,723 16,093 15,000 12,459 12,028 12,384 11,826 11,809 9,839 10,000 8,869 6,865 3,775 3,643 5,000 3,099 3,232 3,041 3,371 2,596 890 1,228 - Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Stony Brook University Upstate Medical University University at Buffalo Others Corporate Expenditures The RF’s campus and central office locations incur costs to have the infrastructure and staff in place to administer sponsored programs and provide other services. The allocations for central office and campus locations are placed in an RF-funded account. Historically, most campuses don’t spend more than they’re allocated, and even if they do exceed their allocation, most campuses have money in their RF-funded balance from prior years to cover the loss. There are currently six campuses with at-risk RF-funded awards that total $523 thousand because they spent more than their allocation and didn’t have money in their RF-funded balance to cover the losses. Corporate Expenditures $49,918 SUNY System Administration Other 1,847 5,495 Campus Royalties 6,404 Central Office SUNY Campuses Oracle Upgrade Administration 28,329 531 7,312 -24-
  • 25. Working Capital Working capital primarily consists of campus and central office unexpended balances, corporate reserves and investment income reserves. Campus unexpended balances include service and facility (S&F), RF funded, non-sponsored, suspense and gift awards (see chart on page 26). The RF’s working capital also includes any surplus payments received for the fringe benefit (FB) pool. The RF operates like a recharge center for these payments: each grant is charged a rate to recover the RF’s costs to provide these services. These payments should break even. However, there are times when the amount received by the RF is greater than what is owed and when this happens the RF puts that surplus towards its working capital. At other times the amount owed is greater than what the RF received, and the RF uses its working capital to cover the expenditures. Like any business, the RF uses working capital to pay for expenses before money is received to cover those expenditures. At any given time during the fiscal year the RF uses working capital to pay for the following expenditures: • Sponsored programs deficits • Agency deficits • Payroll suspense (payments to an employee prior to identifying the account to which the charge belongs). Central office and campuses monitor payroll suspense accounts to ensure timely reconciliations, so the working capital needs are minimal. • Income Fund Reimbursable (payments to SUNY for salaries and fringe benefits of SUNY employees who perform services on RF sponsored projects while remaining on the SUNY payroll). The agreement with SUNY allows the RF discretion on the use of these funds. The SUNY/RF 1977 agreement allows the RF to use IFR reimbursement payments to SUNY as a potential working capital tool, this allows the RF to identify the payment schedule to SUNY to support cash flow requirements. In addition, the RF can work with the campus to use their IFR payment to reimburse the RF for any potential losses. The first quarter IFR reimbursements in FY 2008 was $7.1 million, the average monthly payment was $2.4 million. The following charts show sponsored programs and agency deficits: -25-
  • 26. Sponsored Programs Accounts Receivable (Deficits) 140,000 130,815 124,288 124,720 120,312 120,000 117,293 109,758 95,708 95,166 91,864 100,000 80,000 84,811 60,000 40,000 35,107 29,122 20,000 7,053 10,554 7,427 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Excludes At Risk At Risk Total Deficits Agency Advances to Others (Deficits) 16,000 14,602 13,117 12,000 13,126 11,644 9,890 9,450 10,581 8,000 8,246 8,347 4,000 1,644 1,476 1,103 1,063 0 0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Excludes At Risk At Risk Total Deficits -26-
  • 27. The fringe benefit pool remains in a surplus due to a $2.3 million balance carried forward from the FY 2007, and fringe benefit grant charges are $2.3 million above total expenses through the first quarter. The following two charts compare major benefit costs to the grant charges and the fringe benefit pool balance. The fringe benefit rate is negotiated based on estimates; actual costs will be different. The difference is either a surplus that must be reduced in the next year’s rate or a deficit that requires an increase the next year’s rate Fringe Benefit Pool (FYTD Expenses) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Sep-04 Sep-05 Sep-06 Sep-07 Pension Health Insurances Other Total Expense FB Grant Charges -27-
  • 28. Fringe Benefit Pool Balances ( In Thousands) 6,000 4,626 4,500 3,810 3,000 2,292 1,500 0 (1,500) (1,672) (3,000) (3,675) (4,500) Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 In the event that there is not enough working capital to cover its sponsored programs expenditures, the RF incurs debt to pay its bills. Currently, the RF has a $35 million line of credit to cover sponsored programs debt and an additional $45 million line of credit that was authorized by the board of directors to provide more borrowing power and to respond to additional requests for financial assistance. If the RF incurs debt to cover campus expenditures, that campus is responsible for paying the interest on that debt. At September 30, System Administration-Provost had a $6 million balance in the project line of credit which was advanced to cover temporary sponsored program deficits. Campus Unrestricted Fund Balance The fund balance provides additional liquidity to cover cash flow needs and working capital for the RF. Historically, the corporation has not used the unspent allocations to campuses for corporate needs. The RF board, however, has the authority to designate these fund balances for purposes other than campus allocations. Unfunded liabilities are future obligations against the fund balance. 1st Quarter Campus September 30 University at Albany $ 13,137,658 Binghamton University 12,606,595 University at Buffalo 30,839,202 Stony Brook University 82,256,425 SUNY Downstate Medical Center 6,146,205 Upstate Medical University 7,004,147 SUNY Brockport 168,600 Buffalo State College 8,810,478 SUNY Cortland 307,593 SUNY Fredonia 234,085 -28-
  • 29. SUNY Geneseo 228,226 1st Quarter Campus September 30 Old Westbury 139,136 SUNY New Paltz (5,689) College at Oneonta 643,042 SUNY Oswego 2,286,844 SUNY Plattsburgh 158,557 SUNY Potsdam 316,932 Purchase College 344,092 SUNYIT 358,686 Empire State College 355,082 Alfred State College (966) SUNY Canton 115,981 SUNY Cobleskill (56,077) SUNY Delhi (11,797) Farmingdale State College (371,456) Morrisville State College 127,477 SUNY ESF 3,762,418 Maritime College 27,949 College of Optometry 522,571 Central Office 1,210,762 Sys. Admin - Provost 887,870 Sys. Admin - Chancellor 460,570 Levin Institute (77,150) Sub Total 172,934,018 Invested in fixed assets, net of related debt 11,857,831 Corporate Reserve 4,460,626 Investment Reserve 22,898,008 Liabilities unfunded (154,071,551) Unrestricted Net Cash Position $ 58,078,932 -29-