University of Southern California Fınancial Report 2021, Study notes of Calculus

Download University of Southern California Fınancial Report 2021 and more Study notes Calculus in PDF only on Docsity! LOthonsiaaen 2 O 97 Southern California Financial Report University of Southern California Fınancial Report 2021 University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 3 Message from the President 2021 was a year of transition for the world, the country, and our university. After 17 months of remote instruction, USC successfully pivoted back to in-person learning and campus life. The safety protocols we put in place, which spanned testing, vaccination, face coverings, and contact tracing, enabled us to avoid large outbreaks among our students in classrooms and residence halls and among the thousands living near our campuses. Our Trojan community came together and rallied around the shared responsibility necessary to keep each other safe. I have no doubt that our successful return could not have happened without this collective effort. This report provides insights into the university’s financial health and, in particular, our ability to not only weather the storms of this pandemic but to flourish during one of the most uncertain periods American higher education has ever faced. The numbers also show that we continue to center the university’s mission around students, with an expanding financial aid pool that allowed us to enroll even more low and middle-income Trojans. The university, in partnership with its faculty and staff, continued to make investments in its curriculum and in innovative forms of course delivery that were needed to meet the challenges brought on by the pandemic. Here, again, the dedication of our faculty, staff, and students proved invaluable in keeping our university community focused on its academic mission. We are also incredibly grateful for everything our health care enterprise has achieved, driven in large part by the resilience and dedication of our health care workers, who met and exceeded the needs of our patients while operating in some of the most difficult conditions imaginable. We have made considerable progress towards our long-term priorities and will continue to focus on them as we move forward. Access and affordability remain at the heart of the university’s mission, as does building a community where everyone feels they are a valued member of the Trojan Family. At the same time, we will continue making investments in sustainability, not only because it is the right thing to do for our planet and our community, but because it will ensure the university’s long-term viability in an evolving world. Finally, we will continue to focus on the institution’s financial health by employing a prudent and strategic approach to the university’s resources and endowment. I’ve been so impressed by the strength and resilience of our entire community over this past year. Although the pandemic is still with us, we have proven that by working together, the barriers it presents are not insurmountable. For more than 140 years, USC has championed the development of human beings and society as a whole through the cultivation and enrichment of the human mind and spirit. This ideal guides us more than ever. Carol L. Folt President University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 5 Message from the Senior Vice President for Finance and Chief Financial Officer The Year in Review While the global pandemic remains an ongoing concern, the University of Southern California has unceasingly managed each new challenge thanks in no small part to the tenacity and strength of our faculty, sta, students and community. By remaining exible and providing strong nancial stewardship over the university’s expenditures, we successfully maintained an overall operating revenue equal to scal year 20 of $5.4 billion despite scal year 21’s closed campus operations. Further, the university also had an increase in the health care services revenue of $231 million, a solid 11.3 percent increase compared to the previous year, as well as an increase of $13.9 million, a 5.3 percent increase, in the allocation of endowment spending over last year’s activity. Overall, the university’s scal year 20-21 nancial results provide us with a reassuring foundation during an otherwise uncertain time. Access and Affordability Access and aordability remain two of the university’s top priorities as our Trojan community becomes even more diverse and inclusive than ever before. Œat said, the university proudly maintains one of the most generous nancial aid pools in the United States. To support the needs of our students and their families throughout this period of economic uncertainty, the university remained strong and continued to honor its long-time commitment to need-based funding. In scal year 21 alone, the university awarded over $30 million in additional nancial aid to students; thereby, expanding the nancial aid pool to over $671 million. Œese changes allow the university to further its mission to provide access to more students who come from low- and middle-income households in and out of state. Students and Faculty Due to the ongoing nature of COVID-19, helping our talented students meet their full potential continues to be our highest priority. In May 2021, the university began transitioning back to in-person activities, hosting 14 commencement ceremonies in seven days in order to ensure adherence to physical distancing and other safety protocols for our 15,000 graduates and their families. Following this week-long celebration, the university began preparing for a full in-person return for the 2021-2022 academic year. Considerable investments were made in indoor ventilation and air ltration to ensure our buildings and facilities were fully prepared for the return of students, faculty and sta. Œe university also fortied its perimeter access points to prepare for full campus density. Additionally, the university also seeks to ensure that its graduates are cognizant of the intractable social challenges the real-world poses. In doing so, our graduates will be prepared to face these social challenges with a sense of optimism, creativity and purpose that will inspire and better society. Health Care Enterprise We remain beyond proud of the work and bravery that our frontline workers continue to display during the ongoing, global pandemic. During scal year 21, Keck Medical Center of USC, which includes Keck Hospital of USC and USC Norris Cancer Center, was recognized by the U.S. News and World Report 2020-2021 as among the top hospitals in the country in 12 specialties, one of the top 3 hospitals in the Metro Los Angeles Area and one of the top 5 hospitals in all of California. Our health care enterprise plays a central role in the life of the university. Despite the overall strain COVID-19 has imposed on the health care enterprise, health care service revenues grew by 11.3 percent to $2.3 billion in scal year 2021. Œanks to the hard work and determination of our entire health care team, the health care enterprise has met and exceeded the needs of the community and strives to remain the trusted leader in quality, personalized, compassionate and innovative health care it has always been. Research Research which is of the highest quality by university faculty and students is fundamental to the university’s mission. USC researchers continue to conduct research that benet all segments of society courtesy of its broadly diverse and inclusive research community. 8 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Revenue As shown in the chart below, the university derives its revenue from eight main sources: student tuition and fees, health care services, contracts and grants, contributions, auxiliary enterprises, sales, services and other, and allocation of endowment spending. Student Tuition and Fees Student tuition and fees decreased 2.5 percent from $1,621 million in 2020 to $1,581 million in 2021. Student tuition totaled $2,252 million in 2021, a decrease of 0.3 percent from $2,259 million in 2020. In accor- dance with generally accepted accounting principles, student tuition and fees are presented net of nancial aid, which totaled $671 million and $638 million for 2021 and 2020, respectively. Student tuition and fees represented 30 percent of the university’s operating revenues in 2021 and 2020. During the 2021 academic year, 49,500 students were enrolled at the university; 21,000 were undergraduate students and 28,500 were pursuing graduate studies. USC Operating Revenue as of June 30, 2021 Fiscal Year Results 2021 Health Care Services Contracts and Grants Student Tuition and Fees Allocation of Endowment Spending Auxiliary Enterprises Sales, Services and Other Contributions 42% 13% 30%4% 5% 1% 5% University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 9 The total annual cost of attendance for 2020-2021 undergraduate students enrolled at USC was $79,063, which represents a 2.1 percent increase from the 2019-2020 annual undergraduate total cost of attendance of $77,459. The university maintains a policy of offering USC admission to qualified applicants without regard to family financial circumstances. This “need- blind” admission policy is supported with a commitment to meet in full the demonstrated financial need of all students throughout their undergraduate years. Approximately 21 percent of the 2021 and 2020 entering first-year class received a merit-based scholarship from USC, and approximately two-thirds received some form of financial assistance. USC Financial Aid Student Tuition and Fees Student Financial Aid $2,100 M $1,400 M $700 M Health Care Services Revenue Health care services revenue totaled $2,263 million in fiscal year 2021, an increase of 11.4 percent from $2,032 million in 2020. Health care services revenue represents the largest revenue stream for the university at 42 percent of total operating revenue. The largest portion of this revenue stream, $2,093 million, is derived from medical services provided by the combined operations of Keck Hospital of USC, USC Norris Cancer Hospital and USC Verdugo Hills Hospital. Keck Medical Center of USC which includes Keck Hospital of USC and USC Norris Cancer Hospital was ranked in 12 specialties by the U.S. News and World Report 2021-22 Best Hospitals. According to Moody’s, “USC’s healthcare operations are critical to USC’s mission and strategic goals and currently accretive to credit quality.” The hospitals are among the nation’s leading medical centers, providing medical and health care services to inpatients and outpatients through- out Southern California. Keck Medical Center of USC includes the 401-licensed-bed Keck Hospital of USC, the 60-licensed-bed USC Norris Cancer Hospital and the 158-licensed-bed USC Verdugo Hills Hospital. It also includes more than 40 outpatient facilities, some at affiliated hospitals, in Los Angeles, Orange, Kern, Tulare and Ventura counties. The medical faculty physician group, USC Care Medical Group, practices at these facilities and at Children’s Hospital Los Angeles and Los Angeles County + USC Medical Center. As noted in the graph below, the USC health care enterprise has experienced steady revenue growth for the last five years, with noted increases in fiscal years 2021 and 2020. Despite the moratorium in January, ambulatory visits (including telehealth and diagnostics) continued to increase. USC Health Care Services Revenue Total Operating Revenue Health Care Services Revenue $6,000 M $4,000 M $2,000 M Contract and Grants Revenue USC is one of a small number of premier research institutions on which the nation depends for a steady stream of new knowledge, innovations and discovery. Total annual research expenditures (including indirect cost recoveries) of the university decreased 3.4 percent from $699 million in 2020 to $675 million in 2021. The contracts and grants graphic below displays current sponsored awards and executed grants for contracts for future periods as presented in footnote 15 of the 2021 audited financial state- ments. Total contracts and grants have been steadily increasing since 2017, with a notable 2021 increase in executed grants and contracts for future periods due in part to consistent growth in the number of sponsored research proposals awarded to USC researchers. $1,389M 2017 2021202020192018 $511M $1,487M $556M $1,575M $603M $1,621M $638M $1,581M $671M 2017 2021202020192018 $4,544M $1,552M $4,937M $1,726M $5,226M $1,890M $5,441M $2,032M $5,353M $2,263M Fiscal Year 2021 Results 1 0 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California In December 2020, additional HEERF funding was authorized by Congress and the university has been allocated from this round of funding additional funds of approximately $9.6 million for student aid and approximately $20.3 million for institutional purposes. Under the most recent federal stimulus enacted in March 2021, the university has been allocated approximately $26.9 million of additional HEERF funds for student aid and approximately $26.9 million for institutional purposes. The university has recognized grant revenue as a result of the federal funding in the amount of $85.9 million and $9.6 million for the years ended June 30, 2021 and 2020, respectively. The unrecognized funds awarded of $7.6 million are contingent upon the university meeting the applicable requirements established by the terms and conditions of the awards. Contribution Revenue Contributions to the university provide necessary funding for current academic priorities, investment in the university’s physical infrastructure, student support and provide permanent resources in the form of endowment to support future generations of Trojans. In aggregate, contributions included in the university’s consolidated financial statements totaled $524 million in 2021, an increase of 17.2 percent compared to 2020 contribution revenue of $447 million. USC Contribution Revenue $600 M $400 M $200 M Certain gifts commonly reported in fundraising results are not recognized as contributions in the university’s consolidated financial statements. Examples of gifts that are not included are “in-kind” gifts of certain property (works of art) and certain portions of pledges whose full conditions have not yet been met (new buildings or improvements to existing buildings). In addition to the reimbursement of direct costs charged to sponsored awards, sponsoring agencies reimburse the university for a portion of its facilities and administrative costs (referred to as indirect costs), which include costs related to research laboratory space, facilities and utilities, as well as administrative and support costs incurred for sponsored activities. These reimbursements for facility and administrative costs amounted to $169 million in 2021 and $176 million in 2020, a decrease of 4 percent. Recovery of facility and administrative costs associated with federally sponsored awards is recorded at rates negotiated with the university’s cognizant agency, the Department of Health and Human Services. USC Contract and Grant Awards Executed Grants for Contracts for Future Periods Current Sponsored Awards $3,000 M $2,000 M $1,000 M Executed contracts, grants, subcontracts and cooperative agreements for future sponsored research activity which are not reflected in the consolidated financial statements as of June 30, 2021 is $2,574 million an increase of 3.3 percent from 2020 of $2,491 million. On March 27, 2020, the Federal Government passed the CARES Act (Coronavirus Aid, Relief, and Economic Stimulus Act). The CARES Act also established the Higher Education Emergency Relief Fund Act (“HEERF”) to provide grant funds to higher education institutions to be used to provide financial assistance to students and for institutional purposes related to the pandemic. In fiscal year 2020, the university was awarded approximately $19.7 million in HEERF funds which have been fully distributed for student assistance in fiscal years 2020 and 2021. $1,192M $764M 2018 $1,414M $780M 2019 $1,325M $1,166M 2020 $1,377M $1,197M 2021 $801M $756M 2017 $610M $572M $447M $447M $524M 2017 2021202020192018 Fiscal Year 2021 Results University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 1 3 Refer to the graphic below for capital spending by year, dating back to scal year 2017. USC Capital Spending by Fiscal Year Purchase of Property, Plant and Equipment $800 M $600 M $400 M $200 M Endowment Œe endowment provides an important source of support for the academic programs of the university. To balance current and future needs, USC employs investment and spending policies designed to preserve endowment asset values while providing a substantial ow of income. As of June 30, 2021, net assets in the endowment totaled approximately $8,126 million, an increase of approximately $2.2 billion or 37 percent from the June 30, 2020, endowment balance of $5,914 million. Investment Performance For the scal year ending June 30, 2021, the endowment returned 43.2 percent. Œe venture capital programs had the largest outperformance of any investment program. During the last 10 years, the endowment earned 9.9 percent on an annualized basis, which compares favorably to a benchmark of 70 percent global stocks and 30 percent global bonds, which generated an 8.1 percent annualized return. Endowment Spending Œe endowment spending policy, which allocates endowment earnings to operations, balances the competing objectives of providing a stable ow of income and protecting the real value of the endowment over time. Œe spending policy manages the trade-o between these two objectives by using a long-term target spending rate combined with a smoothing rule, which adjusts spending in any given year grad- ually in response to changes in endowment market value. Œe spending rule determines the endowment income and realized gains to be 2021 $319M 2020 $428M 2019 $448M 2018 $421M 2017 $691M distributed for current spending with the provision that any amounts remaining after the distribution be transferred and reinvested in the endowment pool as funds functioning as endowment. For the 2021 scal year, the Board of Trustees approved the current distribution of 103 percent of the prior year’s payout, within a minimum of 4 percent and a maximum of 6 percent of the average market value for the previous 12 calendar quarters. Under the provisions of the spending rule, $31.24 was distributed to each time-weighted unit for a total spending rule allocation of $276.2 million. Investment income amounting to $3.55 per time-weighted unit was earned, totaling $31.4 million, and $244.8 million was appropriated for current operations from cumulative gains of pooled investments. Endowment pool earnings allocated for spending in scal year 2021 represent 3.62 percent of the market value of the endowment pools as of June 30, 2021. USC Endowment Pool Market Value per Share $900 $600 $300 Asset Allocation Œe endowment has a long-term investment horizon and employs investment strategies that provide varying degrees of liquidity. Œe USC asset allocation graph (next page) displays the endowment’s asset allocation and the respective policy weights as of June 30, 2021. USC’s investments in global equity, venture capital and private equity are considered growth assets and are instrumental in driving the endowment’s long-term returns. Investments in global xed income are included to provide diversication and liquidity, whereas absolute return is intended to dampen volatility during turbulent markets. Natural resources and real estate provide exposure to long-term growth opportunities while maintaining some ination sensitivity. Cash is used to meet operational needs. 2017 2021202020192018 $647.7 $676.5 $676.8 $662.7 $904.2 Fiscal Year 2021 Results 1 4 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California USC Endowment Pool Actual Market Value and Policy Allocation % as of June 30, 2021 $3,500 M $3,000 M $2,500 M $2,000 M $1,500 M $1,000 M $500 M Global Equity 45.5% 44% Global Fixed Income 5.2% 11% Absolute Return 9.4% 12% Venture Capital 18.4% 10% Private Equity 8.4% 9% Natural Resources 5.6% 6% Real Estate 4.4% 6% Cash 3.2% 2% USC’s global equity program includes investments in U.S., non-U.S. developed and emerging market equities. Œe program performed well during this past scal year. Œe U.S. equity market returns contributed signicantly to these results. Œe program has returned 10.3 percent annualized over 10 years. Œe endowment’s global xed income program remains focused on corporate, high-yield and emerging market bonds. Œe program contributed positively to the endowment’s scal year return. For the last 10 years, xed income has generated a 4.8 percent return annually. USC’s absolute return program is expected to generate uncorrelated excess returns. Œe program has succeeded in generating a positive 4.3 percent annual return over 10 years while providing diversication to other investment programs. Œe venture capital program includes illiquid investments in newly formed companies, primarily in the technology sector. Venture capital contributed signicantly to the endowment scal year return. Venture capital remains the endowment’s best performing asset class, generating 26.8 percent annually over ten years. Œe private equity program consists of illiquid buyout and distressed debt investments. Œese types of investments generally have seven- to 10-year investment horizons. Œe program’s ten-year return is 14.9 percent annually. USC’s natural resources program includes investments in energy, power and timber. Energy price volatility has contributed to the program’s mixed short-term results. In the ten years ending June 30, 2021, the program returned 1.0 percent annualized. Œe real estate program focuses more on capital appreciation strategies rather than income-generating properties. Consistent with the other private market investments, long-term results are more indicative of the program’s success. Real estate generated a 11.7 percent annualized return over ten years. Endowment Summary Œe endowment exists to support the academic mission of the university for current and future generations of Trojans. Because the endowment is expected to operate in perpetuity, the investment decisions will be long-term oriented. USC continues to focus on return generation and diversication. Œese principles continue to guide USC’s investment strategy, because an equity orientation makes sense for investors with long-term horizons. Œe endowment’s equity orientation and well-diversied portfolio should position the endowment for long-term investment success. Endowment Market Value Endowment Policy Fiscal Year 2021 Results 1 8 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Consolidated Balance Sheets in thousands Assets June 30, 2021 June 30, 2020 Cash and cash equivalents $1,075,383 $1,816,338 Accounts receivable, net 576,233 482,155 Notes receivable, net 46,949 55,642 Pledges receivable, net 377,926 439,888 Investments 9,486,609 6,816,264 Inventories, prepaid expenses and other assets 421,282 355,247 Right-of-use assets - operating leases 230,117 Property, plant and equipment, net 4,498,491 4,529,893 Total Assets 16,712,990 14,495,427 Liabilities Accounts payable $256,613 $245,925 Accrued liabilities 1,798,636 1,567,833 Refundable advances 39,135 22,786 Deposits and deferred revenue 227,519 301,165 Revolving line of credit 500,000 Actuarial liability for annuities payable 99,712 92,834 Federal student loan funds 45,410 53,067 Asset retirement obligations 145,883 139,227 Operating lease obligations 239,100 Finance lease obligations 82,609 77,545 Bonds and notes payable 2,441,248 2,042,413 Other liabilities 19,468 18,330 Total Liabilities 5,395,333 5,061,125 Net Assets Without donor restrictions 4,600,715 4,360,865 With donor restrictions 6,716,942 5,073,437 Total Net Assets 11,317,657 9,434,302 Total Liabilities and Net Assets $16,712,990 $14,495,427 †e accompanying notes are an integral part of these statements. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 1 9 Year Ended June 30, 2021 Year Ended June 30, 2020 Operating Without Donor Restrictions With Donor Restrictions Total Net Assets Total Net Assets Revenues: Student tuition and fees $1,580,621 $1,580,621 $1,620,730 Health care services 2,262,870 2,262,870 2,032,338 Contracts and grants 675,011 675,011 699,346 Auxiliary enterprises 50,794 50,794 249,787 Sales and services 143,206 143,206 170,922 Contributions 278,554 278,554 284,573 Other 85,872 85,872 120,766 Allocation of endowment spending 275,902 275,902 262,065 Total Revenues 5,352,830 5,352,830 5,440,527 Net assets released from restrictions 159,435 ($159,435 Total Revenues and Reclassifications 5,512,265 (159,435 5,352,830 5,440,527 Expenses: Salaries and benefits 3,240,562 3,240,562 3,312,828 Operating expenses 1,867,776 1,867,776 1,748,051 Depreciation 306,782 306,782 296,943 Interest on indebtedness 84,128 84,128 64,892 Total Expenses before Insurance recoveries and Settlement 5,499,248 5,499,248 5,422,714 before Insurance Recoveries and Settlement 13,017 (159,435 (146,418 17,813 Insurance recoveries (refer to Note 14) 10,000 10,000 108,500 before Settlement 23,017 (159,435 (136,418 126,313 Settlement (refer to Note 14) (450,000 (450,000 (100,000 (Decrease) Increase in Net Assets from Operating Activities (426,983 (159,435 (586,418 26,313 Non-operating Allocation of endowment spending to operations (102,246 (173,656 (275,902 (262,065 Changes in funding status of defined benefit plan 18,471 18,471 (4,636 Other components of net periodic benefits costs (1,246 (1,246 (2,223 Investment and endowment income 40,174 2,134 42,308 56,912 Net appreciation in fair value of investments 706,887 1,746,207 2,453,094 277,363 Contributions 4,793 240,598 245,391 162,343 Present value adjustment to annuities payable (12,343 (12,343 8,490 Loss on bond refunding (16,357 Increase in Net Assets from Non-operating Activities 666,833 1,802,940 2,469,773 219,827 Total increase in Net Assets 239,850 1,643,505 1,883,355 246,140 Beginning Net Assets 4,360,865 5,073,437 9,434,302 9,188,162 Ending Net Assets $4,600,715 $6,716,942 $11,317,657 $9,434,302 †e accompanying notes are an integral part of these statements. Consolidated Statements of Activities in thousands 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 22 23 24 25 26 27 28 29 30 31 32 33 ) ) Increase (decrease) in Net Assets from Operating Activities Increase (decrease) in Net Assets from Operating Activities 18 19 20 21 ) ) ) ) )) ) ) ) ) ) ) ) ) ) ) ) ) ) )) 2 0 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Consolidated Statements of Activities in thousands Operating Without Donor Restrictions With Donor Restrictions Total Net Assets Revenues: Student tuition and fees $1,620,730 $1,620,730 Health care services 2,032,338 2,032,338 Contracts and grants 699,346 699,346 Auxiliary enterprises 249,787 249,787 Sales and services 170,922 170,922 Contributions 284,573 284,573 Other 120,766 120,766 Allocation of endowment spending 262,065 262,065 Total Revenues 5,440,527 5,440,527 Net assets released from restrictions 95,207 ($95,207 Total Revenues and Reclassifications 5,535,734 (95,207 5,440,527 Expenses: Salaries and benefits 3,312,828 3,312,828 Operating expenses 1,748,051 1,748,051 Depreciation 296,943 296,943 Interest on indebtedness 64,892 64,892 Total Expenses before Insurance recoveries and Settlement 5,422,714 5,422,714 before Insurance Recoveries and Settlement 113,020 (95,207 17,813 Insurance recoveries (refer to Note 14) 108,500 108,500 Increase (decrease) in Net Assets from Operating Activities before Settlement 221,520 (95,207 126,313 Settlement (refer to note 14) (100,000 (100,000 Increase (decrease) in Net Assets from Operating Activities 121,520 (95,207 26,313 Year Ended June 30, 2020 12 13 14 15 16 17 18 19 20 21 1 2 3 4 5 6 7 8 9 10 11 Non-operating Allocation of endowment spending to operations (103,414 (158,651 (262,065 Changes in funding status of defined benefit plan (4,636 (4,636 Other components of net periodic benefit cost (2,223 (2,223 Investment and endowment income 56,455 457 56,912 Net appreciation in fair value of investments 25,306 252,057 277,363 Contributions 5,211 157,132 162,343 Present value adjustment to annuities payable 8,490 8,490 Loss on bond refunding (16,357 (16,357 (Decrease) increase in Net Assets from Non-operating Activities (39,658 259,485 219,827 Total increase in Net Assets 81,862 164,278 246,140 Beginning Net Assets 4,279,003 4,909,159 9,188,162 Ending Net Assets $4,360,865 $5,073,437 $9,434,302 †e accompanying notes are an integral part of these statements. 22 23 24 25 26 27 28 29 30 31 32 33 Increase (decrease) in Net Assets from Operating Activities )) ) ) ) ) ) ) )) ) ) ) ) ) ) ) University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 2 3 Notes to Consolidated Financial Statements A nancial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is signi cant to the fair value measurement. †e university applies the authoritative guidance contained in FASB ASC 820-10, Fair Value Measurements and Disclosures, for estimating the fair value of investments in investment funds that have calculated Net Asset Value (NAV) per share in accordance with FASB ASC 946-10, Financial Services-Investment Companies (formerly the American Institute of Certi ed Public Accountants Audit and Accounting Guide, Investment Companies). According to this guidance, in circumstances in which NAV per share of an investment is not determinative of fair value, a reporting entity is permitted to estimate the fair value of an investment in an investment fund using the NAV per share of the investment (or its equivalent) without further adjustment, if the NAV per share of the investment is determined in accordance with FASB ASC 946-10 as of the reporting entity’s measurement date. Accordingly, the university uses the NAV as reported by the money managers as a practical expedient to determine the fair value of investments in investment funds which (a) do not have a readily determinable fair value and (b) either have the attributes of an investment fund or prepare their nancial statements consistent with the measurement principles of an investment fund. At June 30, 2021 and 2020, the fair value of all such investments in investment funds has been determined by using NAV as a practical expedient, adjusted for capital calls, distributions, and signi cant known valuation changes, if any, of its related portfolio. Inventories are valued at the lower of cost ( rst in, rst out) or net realizable value. Property, plant and equipment, including collections of works of art and historical treasures, are stated at cost or fair value at the date of contribution, plus the estimated value of any associated legal retirement obligations, less accumulated depreciation, computed on a straight-line basis over the estimated useful or component lives of the assets (equipment and library books useful lives ranging from 4 to 10 years and buildings component lives ranging from 5 to 50 years). Equipment is removed from the records at the time of disposal. †e university follows the policy of recording contributions of long-lived assets directly in net assets without donor restrictions, when the asset is placed in service. †e university determines if an arrangement is a lease or contains a lease at inception of a contract. A contract is determined to be or contain a lease if the contract conveys the right to control the use of identi ed property, plant, or equipment (an identi ed asset) in exchange for consideration. †e university determines these assets are leased because the university has the right to obtain substantially all of the economic bene t from and the right to direct the use of the identi ed asset. †e university determines lease classi cation as operating or nance at the lease commencement date. Operating leases as a lessee are included in right-of-use assets-operating leases and operating lease obligations in the consolidated balance sheets. Finance leases as a lessee are included in property, plant, and equipment and nance lease obligations in the consolidated balance sheets. Right-of- use assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. At lease inception, the lease liability is measured at the present value of the lease payments over the lease term. For operating leases, the right-of-use asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. For the initial and subsequent measurement of all lease liabilities, the discount rate is based on the rate implied within the lease or is based on the university’s incremental borrowing rate using a period comparable with the lease term. †e lease term will include options to extend or to terminate the lease that the university is reasonably certain to exercise. Operating lease expense is recognized on a straight-line basis over the lease term. Interest expense is recognized as a component of the lease payment for nance leases. †e university’s lease agreements do not contain any material residual value guarantees or restrictive covenants. Rental income arising from operating leases as a lessor is included in operating revenue within ‘Other’ revenues in the consolidated statement of activities. †e university’s split interest agreements with donors consist primarily of gift annuities, unitrusts, pooled income funds and life estates. For irrevocable agreements where the university is the trustee, assets contributed are included in the university’s investments and stated at fair value. Contribution revenue is recognized at the date each trust is established after recording liabilities for the actuarially determined present value of the estimated future payments to be made to the bene ciaries. †e actuarial liability is discounted at an appropriate risk-adjusted rate at the inception of each agreement and the applicable actuarial mortality tables. Discount rates on split interest agreements range from 2.2% to 7.5%. †e liabilities are adjusted during the terms of the trusts for changes in the fair value of the assets, accretion of discounts and other changes in the estimates of future bene ts. †e valuation follows generally accepted actuarial methods and is based on the requirements of FASB ASC 958. †e 2012 Individual Annuity Mortality Basic Table (without margin) for Males and Females with Projection Scale G2 for Males and Females were used in the valuations. For split interest agreements related to the state of Washington, the university holds a Certi cate of Exemption issued by the state of Washington’s OŽce of Insurance Commissioner to issue charitable gift annuities. †e university has been in compliance with Revised Code of Washington 48.38.010(6) throughout the time period covered by the consolidated nancial statements. †e University self-insures at varying levels for unemployment, disability, workers’ compensation, property losses, certain healthcare plans, cyber liability, medical malpractice professional liability, and certain ancillary and personal lines of coverage; and obtains coverage through a captive insurance company for general liability, auto liability, directors and oŽcers liability, employment practices liability, educator legal liability, duciary liability, sexual molestation liability, neurodegenerative injury liability, and certain litigation defense responsibilities. Insurance is purchased to cover liabilities above self-insurance limits. Where appropriate, estimates of retained exposures are reserved and accrued. †e university has recorded conditional asset retirement obligations associated with the legally required removal and disposal of certain hazardous materials, primarily asbestos, present in its facilities. When an asset retirement obligation is identi ed, the university records the fair value of the obligation as a liability. †e fair value of the obligation is also capitalized as property, plant and equipment and then amortized over the estimated remaining useful life of the associated asset. †e fair value of the conditional asset retirement obligations is estimated using a probability weighted, discounted cash  ow model. †e present value of future estimated cash  ows is calculated using the credit adjusted interest Note 1. (continued) 2 4 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements Undergraduate Graduate Total Institutional scholarships $358,183 $189,885 $548,068 Endowed scholarships 35,442 18,789 54,231 External financial aid 23,316 12,360 35,676 Total $416,941 $221,034 $637,975 Financial aid for the year ended June 30, 2021, which is included in student tuition and fees on the consolidated statement of activities, consists of the following (in thousands): Financial aid for the year ended June 30, 2020, which is included in student tuition and fees on the consolidated statement of activities, consists of the following (in thousands): Undergraduate Graduate Total Institutional scholarships $368,084 $191,073 $559,157 Endowed scholarships 37,831 19,638 57,469 External financial aid 36,121 18,751 54,872 Total $442,036 $229,462 $671,498 Note 1. (continued) rate applicable to the university in order to determine the fair value of the conditional asset retirement obligations. For the years ended June 30, 2021 and 2020, the university recognized accretion expense related to conditional asset retirement obligations of approximately $7,194,000 and $6,889,000, respectively. For the years ended June 30, 2021 and 2020, the university settled asset retirement obligations of approximately $744,000 and $903,000, respectively. As of June 30, 2021, and 2020, included in the consolidated balance sheets are asset retirement obligations of $145,883,000 and $139,227,000, respectively. Room and board revenues are included as part of auxiliary enterprises, however the revenue recognition process mirrors that for tuition and fees. Each of these items is supported by separate contracts entered into between the university and the individual student. Tuition and fees and room and board revenues are recognized as operating revenue in the period in which the university satis es its performance obligations to its students. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting in ASC 606. †e university’s performance obligations are to provide education to the student and, in certain instances, other performance obligations such as room and board. †e value that is recognized for each performance obligation is set forth in publicly available university price lists, which the university believes approximates the stand alone selling price, and is codi ed in the individual contracts with each student. Individual contracts for tuition and fees and room and board display the transaction price on a standalone basis for each service to be provided to each speci c student. Additionally, the contract will contain the price adjustment in the form of nancial aid grants that are being awarded to the student. †e timing(s) of billings, cash collections and revenue recognition results in accounts receivable and deposits and deferred revenue on the consolidated statements of nancial position. Receivables are recognized only to the †e university recognizes tuition and fees revenue on a straight-line basis over each academic session based on gross price, net of explicit price concessions such as scholarships, discounts and waivers (“Financial aid”), as displayed in the consolidated statements of activities in “Student tuition and fees”. Given the timing of each year’s academic sessions, nearly all performance obligations are satis ed by the university within the scal year. Tuition and fees revenue is derived from degree programs and executive and continuing education programs. Financial aid is awarded to students based on need and merit. Financial aid does not include payments made to students for services rendered to the university. extent that the university has an unconditional right to consideration to which it is entitled in exchange for goods and services transferred to the student. Receipts received in advance of goods and services performed are recorded as deposits and deferred revenue. Sponsored research agreements are primarily considered non-exchange transactions which are recognized in contracts and grants revenue on the consolidated statements of activities as the associated barriers are overcome, which generally is as allowable expenditures under such agreements are incurred. Non-exchange agreements are considered conditional if the terms of the agreement include both a right of return/release of assets received/promised and a barrier. Any funding received in advance of expenditure is recorded as a refundable advance. For sponsored research agreements considered to be exchange transactions, revenues are recognized as performance obligations are satis ed which in most cases mirrors the timing of when related costs are incurred. For the years ended June 30, 2021 and 2020, the university recognized approximately $136,000,000 and $140,000,000 of private contracts and grants revenue in contributions on the consolidated statements of activities. Net assets include contributions to the university and its various schools and departments. †e university has determined that any donor-imposed restrictions of contributions for current or developing programs and University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 2 5 Notes to Consolidated Financial Statements activities are generally met within the operating cycle of the university and therefore, the university’s policy is to record these net assets as without donor restrictions. Internally designated net assets are those which have been appropriated by the Board of Trustees or designated by management, and re ected in net assets without donor restrictions. †e university receives federal reimbursement for a portion of the costs of its facilities and equipment used in organized sponsored research. †e federal OŽce of Management and Budget establishes principles for determining such reimbursable costs and requires conformity of the lives and methods used for federal cost reimbursement accounting and nancial reporting purposes. †e university’s policies and procedures are in conformity with these principles. Unconditional contributions from donors, including contributions receivable (unconditional promises to give), are recorded as revenues in the year received. Noncash contributions are recorded at fair value using quoted market prices, market prices for similar assets, independent appraisals or appraisals performed by university management. Contributions receivable are reported at their discounted value using credit-adjusted borrowing rates and an allowance for amounts estimated to be uncollectible is provided. Donor-restricted contributions, which are received and either spent or deemed spent within the same year, are reported as revenue without donor restrictions. †e presence of both a performance barrier and a right of return make a contribution conditional. Conditional promises to give are not recognized until speci ed obligations or barriers, such as milestones or performance targets, are met. Contributions of long-lived assets with no donor-imposed time restrictions are reported as revenue without donor restrictions in the year received. Contributions restricted to the acquisition or construction of long-lived assets or subject to other time or purpose restrictions are reported as revenue with donor restrictions. †e donor-restricted net assets resulting from these contributions are released to net assets without donor restrictions when the donor-imposed restrictions are ful lled or the assets are placed in service. Contributions received for endowment investment are held in perpetuity and recorded as revenue with donor restrictions. Health care services revenues include the net patient service revenues associated with Keck Hospital of USC, USC Norris Cancer Hospital, USC Verdugo Hills Hospital and USC Care Medical Group, Inc (“Health System”). Healthcare services revenue is reported at the amount that re ects the consideration to which the organization expects to be entitled in exchange for providing patient care. †ese amounts are due from patients, third-party payors, government programs and others and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews and investigations. Generally, the university bills patients and third-party payors several days after the services are performed or the patient is discharged. Revenue is recognized as performance obligations are satis ed. Health care services revenues also include the revenues associated with the professional services agreement with the County of Los Angeles. †e majority of the Health System services are rendered to patients with commercial or managed care insurance, or under the federal Medicare and California State Medi-Cal programs. Reimbursement from these various payors is based on a combination of prospectively determined rates per discharge, per diem payments, discounted charges and reimbursed costs. Amounts received under the Medicare program are subject to Note 1. (continued) retroactive settlements based on review and nal determination by program intermediaries or their agents. †e gross charges may be reduced by explicit price concessions, which include contractual adjustments based on agreements with third party payers or implicit price concessions provided to uninsured patients. Provisions for contractual adjustments and retroactive settlements related to these payors are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as additional information becomes known or as nal settlements are determined. Net patient service revenue is recorded over time during the period these performance obligations are satis ed and at the determined transaction price, which represents the estimated net realizable amounts due from patients, third-party payers and others for health care services rendered. Estimated net realizable amounts represent amounts due, net of implicit and explicit price concessions. Implicit price concessions are based on management’s assessment of expected net collections considering economic conditions, historical experience, trends in health care coverage and other collection indicators. Revenue for performance obligations satis ed over time is recognized based on actual charges incurred in relation to total expected charges. †e university believes this method provides a faithful depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Generally, performance obligations satis ed over time relate to patients in our hospitals receiving inpatient acute care or patients receiving care in our outpatient centers. †e university measures the performance obligation from admission into the hospital or commencement of an outpatient service, to the point when it is no longer required to provide services to that patient, which is generally at the time of discharge or completion of the outpatient services. Sales and services revenue includes revenues from university pharmacies and student clinics. †e university recognizes revenue as it provides pharmaceutical products and consultative services to the community (students, faculty, staŒ, retired employees, alumni, broader Los Angeles market). †e transaction price is the amount the university expects to be entitled to in exchange for the products provided (either published rates available on the university pharmacy websites or agreed upon rates from third party payers). Retail pharmacy sales revenue is recognized at a point in time when the pharmaceutical is provided to the patient, and consultative services revenue, although the patient bene ts over time from the university, is also recognized at a point in time as the services are provided to the patient on the same day. †is is due to consultative services being outpatient in nature, and thus, all services are provided on the same day. Auxiliary enterprise revenue includes multiple revenue streams which are included in the consolidated statements of activities, and reported as net assets without donor restrictions. †ese multiple revenue streams include point of sale transactions from hospitality, food, beverage, bookstore transactions, transportation and revenue generated from athletics. Revenue generated from hospitality, food, beverage, and bookstore goods is recognized at a point in time, and the value that is recognized for each performance obligation is explicitly listed at each location, which the university believes approximates the stand-alone transaction price. Transportation revenue is recognized at a point in time and satis ed within the scal year. †e transaction price for revenue related to athletics is publicly available on the university ticket oŽce website. †e performance obligation related to football season tickets is completely satis ed within 2 8 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements Note 4. Notes and Loans Receivable: †e university is required to disclose the nature of credit risk inherent in the portfolio of nancing receivables, its analysis and assessment in arriving at the allowance for credit losses (doubtful accounts) and the changes and reasons for those changes in the allowance for credit losses. Long-term nancing receivables as of June 30, 2021, consist of the following (in thousands): Financing Receivables, Gross Allowance for Doubtful Accounts Net Perkins loans $24,656 $24,656 University student loans 5,591 ($1,659 3,932 Other student loans 18,361 18,361 Total student loans 48,608 (1,659 46,949 Faculty and other loans 24,521 24,521 Total $73,129 ($1,659 $71,470 Long-term nancing receivables as of June 30, 2020, consist of the following (in thousands): Financing Receivables, Gross Allowance for Doubtful Accounts Net Perkins loans $31,170 $31,170 University student loans 6,724 ($1,937 4,787 Other student loans 19,685 19,685 Total student loans 57,579 (1,937 55,642 Faculty and other loans 25,095 25,095 Total $82,674 ($1,937 $80,737 June 30, 2021 June 30, 2020 Note 3. Accounts Receivable: Accounts receivable are summarized as follows at June 30 (in thousands): 2021 2020 U.S. Government $32,997 $39,516 Student and other, net of allowance for doubtful accounts of $29,757 (2021), $20,457 (2020) 166,555 197,709 Patient care 376,681 244,930 Total $576,233 $482,155 ) ) ) ) ) ) University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 2 9 Notes to Consolidated Financial Statements Note 4. (continued) Management regularly assesses the adequacy of the allowance for credit losses by performing ongoing evaluations of the student loan portfolio, including such factors as the diŒering economic risks associated with each loan category, the nancial condition of speci c borrowers, the economic environment in which the borrowers operate, the level of delinquent loans, the value of any collateral and where applicable, the existence of any guarantees or indemni cations. †e university’s Perkins loans represent the amounts due from current and former students under the Federal Perkins Loan Program. Loans disbursed under the Federal Perkins Loan Program are able to be assigned to the federal government in certain non-repayment situations. In these situations, the federal portion of the loan balance is guaranteed. Included in other student loans are loans related to the Federal Health Professional Student Loan Program and Loans for Disadvantaged Students. Factors also considered by management when performing its assessment of the adequacy of the allowance, in addition to general economic conditions and the other factors described above include, but are not limited to a detailed review of the aging of the student loan receivable detail and a review of the default rate by loan category in comparison to prior years. †e level of the allowance is adjusted based on the results of management’s analysis. It is the university’s policy to write oŒ a loan only when it is deemed to be uncollectible. †e following table illustrates the aging analysis of receivables as of June 30, 2021 (in thousands): 1-60 Days Past Due 61-90 Days Past Due > 91 Days Past Due Current Total Financing Receivables Perkins loans $889 $164 $4,898 $18,705 $24,656 University student loans 234 7 2,836 2,514 5,591 Other student loans 126 209 18,026 18,361 Total student loans 1,249 171 7,943 39,245 48,608 Faculty and other loans 24,521 24,521 Total $1,249 $171 $7,943 $63,766 $73,129 †e following table illustrates the aging analysis of receivables as of June 30, 2020 (in thousands): 1-60 Days Past Due 61-90 Days Past Due > 91 Days Past Due Current Total Financing Receivables Perkins loans $1,022 $248 $5,391 $24,509 $31,170 University student loans 153 24 3,285 3,262 6,724 Other student loans 35 216 19,434 19,685 Total student loans 1,210 272 8,892 47,205 57,579 Faculty and other loans 25,095 25,095 Total $1,210 $272 $8,892 $72,300 $82,674 Considering the other factors already discussed herein, management considers the allowance for credit losses to be prudent and reasonable. Furthermore, the university’s allowance is general in nature and is available to absorb losses from any loan category. Management believes that the allowance for credit losses at June 30, 2021 and 2020, is adequate to absorb credit losses inherent in the portfolio as of these dates. As part of the program to attract and retain exemplary faculty and senior staŒ, the university provides home mortgage nancing assistance. Notes receivable that are included within accounts receivable on the consolidated balance sheet amounting to $24,521,000 and $25,095,000 were outstanding as of June 30, 2021 and 2020, respectively, and are collateralized by deeds of trust. No allowance for doubtful accounts has been recorded against these loans based on their collateralization and prior collection history. At June 30, 2021, and 2020 there were no amounts past due under the faculty and staŒ loan program. Determination of the fair value of notes receivable, which are primarily federally sponsored student loans with U.S. government-mandated interest rates and repayment terms, and subject to signi cant restrictions as to their transfer or disposition, could not be made without incurring excessive costs. 3 0 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements Note 5. Pledges Receivable: Unconditional promises are included in the consolidated nancial statements as pledges receivable and revenue in the appropriate net asset category. Pledges are recorded after discounting using rates ranging from 1% to 6% in order to derive the present value of the future cash  ows. Unconditional promises are expected to be realized in the following periods as of June 30 (in thousands): 2021 2020 Less than one year $113,886 $103,525 One to five years 249,385 302,876 More than five years 109,360 143,381 Less: discount (47,640 (58,895 Less: allowance (47,065 (50,999 Total $377,926 $439,888 Pledges receivable at June 30 have the following restrictions (in thousands): 2021 2020 Endowment for departmental programs and activities $179,006 $191,060 Endowment for scholarship 22,694 26,477 Building construction 72,792 98,917 Departmental programs and activities 103,434 123,434 Total $377,926 $439,888 At June 30, 2021 and 2020, conditional pledges not re ected in the consolidated nancial statements, which consist primarily of promises to give with barriers to entitlement, were $23,830,000 and $272,607,000, respectively. When conditional promises to give become unconditional, they are recorded as revenues. ) ) ) ) University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 3 3 Notes to Consolidated Financial Statements Note 6. (continued) †e following table lists investments by major category, measured using the NAV practical expedient, for the year ending June 30, 2021 (in thousands): Category of Investment Investment Strategy Fair Value Determined Using NAV Unfunded Commitments Remaining Life Redemption Terms Redemption Restrictions and Terms Distressed Obligation Partnerships U.S. and Non-U.S. Distressed Debt Securities $5,848 $6,261 Approximately 1 Year Redemptions are not permitted during the life of the fund. Not Applicable Hedge Funds U.S. and Non-U.S. Investments in Relative Value, Event-Driven, Long/Short and Directional Strategies 1,729,034 68,216 98.6% of NAV has an open ended life and 1.4% of NAV will be liquidated on an undetermined basis. Ranges between quarterly redemption with up to 185 days notice, semiannual redemption with up to 90 days notice, annual redemption with up to 90 days notice, biannual redemption with 90 days notice; lock ups can be up to 5 years. 14% of NAV is locked up for 3 months, 22% of NAV is locked up for 6 months, 9% of NAV is locked up for 9 months, 18% of NAV is locked-up for 1 year, 23% of NAV is locked for 2 years, 10% of NAV is locked-up for 3 years and 4% is locked up for more than 3 years. Natural Resources Partnerships U.S. and Non-U.S. Investments in Upstream, Midstream and Downstream Natural Resources Investments 444,863 157,630 Approximately 3 Years Redemptions are not permitted during the life of the fund. Not Applicable Private Capital Partnerships U.S. and Non-U.S. Private Equity and Venture Capital Investments 2,110,983 501,764 Approximately 4 Years Redemptions are not permitted during the life of the fund. Not Applicable Private Real Estate Partnerships U.S. and Non-U.S. Real Estate 352,741 339,435 Approximately 5 Years Redemptions are not permitted during the life of the fund. Not Applicable Equity Funds U.S. and Non-U.S. Equity Securities 472,157 Not Applicable Open Ended Minimum Monthly None Other Funds U.S. and Non-U.S. Investments in Securities Other than Equity and Fixed Income 117 Not Applicable Open Ended Monthly None Total $5,115,743 $1,073,306 At June 30, 2021 3 4 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Note 6. (continued) †e following table lists investments by major category, measured using the NAV practical expedient, for the year ending June 30, 2020 (in thousands): Notes to Consolidated Financial Statements Category of Investment Investment Strategy Fair Value Determined Using NAV Unfunded Commitments Remaining Life Redemption Terms Redemption Restrictions and Terms Distressed Obligation Partnerships U.S. and Non-U.S. Distressed Debt Securities $6,192 $12,903 Approximately 1 Year Redemptions are not permitted during the life of the fund. Not Applicable Hedge Funds U.S. and Non-U.S. Investments in Relative Value, Event-Driven, Long/Short and Directional Strategies 1,202,078 78,368 98.3% of NAV has an open-ended life and 1.7% of NAV will be liquidated on an undetermined basis. Ranges between bimonthly redemption with 120 days notice, quarterly redemption with up to 185 days notice, semiannual redemption with up to 90 days notice, annual redemption with up to 90 days notice, biannual redemption with 90 days notice and 5 year lockup with 90 days notice. 0.1% of NAV is locked- up for 1 month, 15.1% of NAV is locked-up for 3 months, 14.0% of NAV is locked-up 6 months, 13.1% on NAV is locked-up for 9 months, 16.9% of NAV is locked-up for 1 year and 40.8% of NAV is locked-up for more than 1 year. Natural Resources Partnerships U.S. and Non-U.S. Investments in Upstream, Midstream and Downstream Natural Resources Investments 342,149 155,189 Approximately 3 Years Redemptions are not permitted during the life of the fund. Not Applicable Private Capital Partnerships U.S. and Non-U.S. Private Equity and Venture Capital Investments 1,044,633 301,203 Approximately 3 Years Redemptions are not permitted during the life of the fund. Not Applicable Private Real Estate Partnerships U.S. and Non-U.S. Real Estate 260,079 249,168 Approximately 5 Years Redemptions are not permitted during the life of the fund. Not Applicable Equity Funds U.S. and Non-U.S. Equity Securities 86,319 Not Applicable Open Ended Minimum monthly None Other Funds U.S. and Non-U.S. Investments in Securities Other than Equity and Fixed Income 117 Not Applicable Open Ended Monthly None Total $2,941,567 $796,831 At June 30, 2020 University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 3 5 Notes to Consolidated Financial Statements Note 7. Endowment: Endowment net assets are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity and only the income and realized gains be utilized for current and future needs. Long-term investment net assets (board-designated endowment funds) have been established from restricted contributions whose restrictions have been met and unrestricted contributions which have been designated by the Board of Trustees or management for similar purposes as endowment as determined on an annual basis. †e university also has a bene cial interest in the net income earned from assets which are held and managed by other trustees. Donor-restricted and board-designated endowment funds are summarized as follows for the year ended June 30, 2021 (in thousands): Board-Designated Endowment Funds Donor-Restricted Endowment Total Pooled $1,957,653 $5,737,019 $7,694,672 Non-pooled 103,026 328,524 431,550 Total $2,060,679 $6,065,543 $8,126,222 Donor-restricted and board-designated endowment funds are summarized as follows for the year ended June 30, 2020 (in thousands): Board-Designated Endowment Funds Donor-Restricted Endowment Total Pooled $1,413,415 $4,091,783 $5,505,198 Non-pooled 92,218 316,942 409,160 Total $1,505,633 $4,408,725 $5,914,358 Pooled investments represent donor-restricted and board-designated endowment funds which have been commingled in a unitized pool (unit value basis) for purposes of investment. At June 30, 2021 and 2020, the pool is comprised of cash and cash equivalents (1.82%) and (2.33%), equities (55.60%) and (56.42%), xed income securities (5.86%) and (12.58%), alternative investments (32.31%) and (24.16%) and real estate and other investments (4.41%) and (4.51%), respectively. Access to or liquidation from the pool is on the basis of the market value per unit on the preceding monthly valuation date. †e unit value at June 30, 2021 and 2020, was $904.15 and $662.69, respectively. †e Board of Trustees has interpreted the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) as requiring the preservation of the original contribution as of the contribution date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the university classi es as donor-restricted funds (a) the original value of contributions donated to the endowment, (b) the original value of subsequent contributions to the endowment and (c) accumulations to the endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. In accordance with UPMIFA, the university considers various factors in making a determination to appropriate or accumulate endowment funds including: duration and preservation of the fund, economic conditions, eŒects of in ation or de ation, expected return on the funds and other economic resources of the university. 3 8 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements †e components of lease expense for the year ended June 30, are as follows (in thousands): 2021 Lease Expense Finance lease expense Amortization of right-of-use assets $1,776 Interest on lease liabilities 3,414 Operating lease expense 51,416 Short-term lease expense 633 Variable lease expense (408 Total $56,830 Note 9. Leases: †e university is committed to minimum annual lease payments under several long-term non-cancellable operating and nance leases for equipment, buildings and oŽce space expiring at various dates through 2111. †e university has entered into the following lease arrangements: Finance Leases †ese leases mainly consist of various equipment leases and a lease with the Los Angeles Memorial Coliseum Commission (LAMCC) to assume the operations of the Los Angeles Memorial Coliseum and Los Angeles Memorial Sports Arena. †e lease agreement with the LAMCC expires in 2033, or in 2054, if all options are exercised, at which time a second lease agreement with the California Science Center (CSC), an institution of the state of California, commences. †e lease with the CSC expires in 2111 and the university has assumed that all options will be exercised. Under the terms of both lease agreements for the Coliseum, the university is required to make certain capital improvements. Operating Leases †e university has various equipment, vehicle and real estate leases for oŽce space and housing that expire in various years through 2061. †ese leases generally contain renewal options for periods ranging from 2 years to 10 years and require the university to pay all executory costs (property taxes, maintenance, and insurance). †e university is not reasonably certain the renewal options will be exercised and has not included them in the terms. Space leases contain customary escalation clauses, which are included in annual aggregate minimum rentals. Total operating lease expense for the years ending June 30, 2021 and 2020 was $51,416,000 and $48,688,000, respectively. Short-Term Leases †e university has certain leases that are for a period of 12 months or less or contain renewals for periods of 12 months or less. †e university does not include short-term leases within the balance sheet since it has elected the practical expedient to exclude these leases from right-of-use assets - operating leases and operating lease obligations. Total short-term lease expense included in operating expenses for the year ending June 30, 2021 was $633,000. Operating Leases - Lessor †e university has various leases in which it is the lessor. †e university leases to others portions of certain buildings owned for retail, oŽce, and medical oŽce purposes. Leases are generally ten-year terms or less and are classi ed as operating leases. †ese leasing arrangements are not material to the consolidated nancial statements. ) University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 3 9 Note 9. (continued) †e components of lease expense for the year ended June 30, are as follows (in thousands): 2021 Other Information Cash paid for amounts included in the measurement of lease liabilities Finance - Financing cash flows $664 Finance - Operating cash flows $1,595 Operating - Operating cash flows $49,647 Right-of-use assets obtained in the exchange for lease liabilities Finance leases $3,909 Operating leases $54,713 Weighted-average remaining lease term Finance leases 86.4 years Operating leases 7.6 years Weighted-average discount rate Finance leases 4.4% Operating leases 1.4% Future aggregate minimum lease payments as of June 30, 2021 under nance and operating leases are as follows (in thousands): Future minimum lease payments: Finance Operating 2022 $2,621 $51,319 2023 2,667 41,917 2024 2,527 34,462 2025 2,549 29,054 2026 2,213 24,233 Thereafter 660,677 75,370 673,254 256,355 Less: amounts representing interest (590,646 (17,255 Present value of net minimum lease payments $82,609 $239,100 Future minimum rental payments: Capital Operating 2021 $1,685 $52,358 2022 1,730 51,691 2023 1,775 43,780 2024 1,823 38,507 2025 1,872 35,400 Thereafter 662,599 186,606 671,484 408,342 Less: amounts representing interest (593,939 Total $77,545 $408,342 Future minimum lease payments at June 30, 2020, prior to the university’s adoption of Topic 842, are as follows: †e university entered into a lease agreement for a 101,000 square feet medical oŽce building. †e lease is a 34-year term with ve, ve-year options to extend, with the estimated lease commencement date of October 2023. †e university has the right of rst oŒer years six through 17 and the right to purchase the building at fair market value years 18 through 20. †e university is obligated to extend an interim loan not to exceed $21,000,000 to the lessor and provide a completion guaranty if required in connection with a $101,000,000 construction loan to be arranged by the university for the lessor. On July 23, 2021, the university extended a loan of $15,000,000 to the lessor at ve percent per annum. †e university has a commitment to pay minimum lease payments of $327,470,000 through the initial 34-year term. ) ) ) 4 0 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements Note 10. Bonds Payable and Line of credit: Bonds payable and line of credit outstanding as of June 30 (in thousands): Interest % Maturity 2021 2020 University of Southern California Bonds: Series 2011 Taxable 5.25 2112 $300,000 $300,000 Discount (2,424 (2,451 Series 2016 Taxable 3.03 2040 722,580 722,580 Discount (2,919 (3,078 Series 2017 Taxable 3.84 2048 402,320 402,320 Discount (1,565 (1,623 Series 2020A Taxable 3.23 2121 320,000 320,000 Discount (2,772 (2,823 Series 2020B Taxable 2.81 2051 308,835 308,835 Discount (1,302 (1,347 Series 2021A Taxable 2.95 2052 400,000 Discount (1,505 Line of Credit Revolving Line of Credit Variable 2021 500,000 2,441,248 2,542,413 Less: current portion of long-term debt 500,000 Total $2,441,248 $2,042,413 Principal payment requirements relating to bonds and notes payable, after giving eŒect to refunding, for the next ve scal years are approximately: 2022 $0; 2023 $0; 2024 $0; 2025 $0; 2026 $0, thereafter $2,453,735,000. Interest payments for scal year 2021 and 2020 were $74,880,000 and $67,520,000, respectively. On February 4, 2020, the university issued $320,000,000 of Series 2020A taxable bonds. On February 12, 2020, the university issued $308,835,000 of Series 2020B taxable bonds. $223,659,000 of the proceeds of the Series 2020B Bonds were irrevocably deposited into separate refunding escrow accounts in amounts that are suŽcient to pay interest and principal for the CEFA Series 2009C, Series 2012A, Series 2015A and California Infrastructure Revenue Bonds Series 2010 (Soto) outstanding bonds. †e related proceeds and repayment of the defeased bonds are considered non-cash nancing activities and are not re ected in the consolidated statements of cash ow. †e remaining proceeds of these Bonds will be used by the university for its general corporate purposes, including, but not limited to, the acquisition, construction, renovation, improvement, rehabilitation and/or equipping by the university of higher educational and healthcare facilities, and to pay all or a portion of the costs of issuance. On April 14, 2021, the university issued $400,000,000 of Series 2021A taxable bonds. †e bonds mature on October 1, 2051 and are unsecured general obligations of the university. †e university will use the proceeds of the bonds for its general corporate purposes including, but not limited to, the acquisition, construction, renovation, improvement, rehabilitation, and/or equipping by the university of higher educational and healthcare facilities and to pay the cost of issuance of the bonds. †e university has a revolving line of credit with a bank with a maturity date of November 30, 2025. †e committed size of the revolving line of credit is $500,000,000. †e line of credit accrues interest based on LIBOR and contains a fee on the unused portion. †e line of credit contains certain restrictive covenants which include a minimum credit rating of “A” and “A2” from Standard and Poor’s and Moody’s, respectively, as well as a minimum total net assets of $5,500,000,000. †e university was in compliance with these covenants during scal years ending June 30, 2021 and 2020. On March 20, 2020 the university drew down $500,000,000 on the bank line of credit for general corporate purposes, and the balance was repaid in full on April 26, 2021. ) ) ) ) ) ) ) ) ) ) ) University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 4 3 Notes to Consolidated Financial Statements Note 11. (continued) Weighted-average assumptions used to determine net periodic bene t cost for year ended June 30: 2021 2020 Discount rate 2.90% 3.65% Expected return on plan assets 5.30% 5.30% Rate of compensation increase N/A N/A 2021 2020 Discount rate 3.00% 2.90% Rate of compensation increase N/A N/A Weighted-average assumptions used to determine net year-end bene t obligations at June 30: Plan Assets: In managing the Plan assets, the university’s objective is to be a responsible duciary while minimizing nancial risk. Plan assets include a diversi ed mix of xed income securities and equity securities across a range of sectors and levels of capitalization to maximize the long−term return for a prudent level of risk. In addition to producing a reasonable return, the investment strategy seeks to minimize the volatility in the university’s expense and cash  ow. †e target allocation for pension bene t plan assets is 30% equity securities and 70% xed income securities. As described in Note 1, the university uses a hierarchy to report invested assets, including the invested assets of the Plan. Following is a description of the valuation methodologies used for assets measured at fair value. Fair Value: †e Plan’s interest in collective trusts is valued based on the net asset value information reported by the investment advisor. †e fund is valued at the normal close of trading on the New York Stock Exchange every day the exchange is open (a “Business Day”). Equity securities are valued at the oŽcial closing price of, or the last reported sales price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined to be the most representative market, which may be either a securities exchange or the over-the-counter market. Short-term investments are carried at fair value. †e methods described above may produce a fair value calculation that may not be indicative of net realizable value or re ective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of diŒerent methodologies or assumptions to determine the fair value of certain nancial instruments could result in a diŒerent fair value measurement at the reporting date. At June 30, 2021, a summary of fair value measurements by level for Plan investments measured at fair value on a recurring basis is as follows (in thousands): Level I Level II Level III NAV Total Collective Trust Funds: Short-term investment fund $78 $78 Equity securities 47,238 47,238 Fixed income securities 115,691 115,691 Total $163,007 $163,007 4 4 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements Note 11. (continued) At June 30, 2020, a summary of fair value measurements by level for investments measured at fair value on a recurring basis is as follows (in thousands): Level I Level II Level III NAV Total Collective Trust Funds: Short-term investment fund $1,320 $1,320 Equity securities 57,160 57,160 Fixed income securities 85,986 85,986 Total $144,466 0 $144,466 Allocation of Assets †e year-end asset allocation, which approximates the weighted-average allocation for the Plan assets as of June 30 and in comparison to target percentages for each asset category, is as follows: Asset Category Actual at June 30, 2021 Target at June 30, 2021 Actual at June 30, 2020 Target at June 30, 2020 Short-term investment fund 0.0 0.0 1.0 0.0 Equity securities 29.0 30.0 40.0 40.0 Fixed income securities 71.0 70.0 59.0 60.0 Total 100.0 100.0 100.0 100.0 †e portfolio is evaluated annually or when the actual allocation percentages are plus or minus 2% of the stated target allocation percentages. Changes in policy may be indicated as a result of changing market conditions or anticipated changes in the pension plan’s needs. Prohibited transactions include investment transactions prohibited by the Employee Retirement Income Security Act of 1974 and speculative investments including commodities or unregistered stock without speci c prior approval by the university’s Investment Committee. Contributions: No contribution to the plan is required to be made during the scal year ending June 30, 2021 or 2020. At this time, it is anticipated that the university will make discretionary contributions to the pension plan during the next scal year, although the total amount of such contributions has not yet been determined. Estimated Future Benefit Payments: †e following bene t payments, which re ect expected future service, as appropriate, are expected to be paid (in thousands): Fiscal Year Ending June 30 2022 $3,984 2023 4,765 2024 5,506 2025 6,210 2026 6,865 2027-2031 41,711 % % % % % % % % % % % % % % % % University of Southern California F I N A N C I A L R E P O R T 2 0 2 1 | 4 5 Notes to Consolidated Financial Statements Note 12. Net Assets: †e university’s net assets as of June 30, 2021, includes the following (in thousands): Nature of Specific Net Assets Without Donor Restrictions With Donor Restrictions Total Net Assets Undesignated $828,540 $828,540 Donor-restricted $80,058 80,058 Pledges 377,926 377,926 Unexpended endowment income 355,275 355,275 Annuity and living trusts 193,415 193,415 Donor-restricted endowment funds 6,065,543 6,065,543 Board-designated endowment funds 2,060,679 2,060,679 Debt service funds 126,407 126,407 Invested in plant 1,229,814 1,229,814 Total $4,600,715 $6,716,942 $11,317,657 Year Ended June 30, 2021 †e university’s net assets as of June 30, 2020, includes the following (in thousands): Nature of Specific Net Assets Without Donor Restrictions With Donor Restrictions Total Net Assets Undesignated $1,120,119 $1,120,119 Donor-restricted $59,291 59,291 Pledges 439,888 439,888 Unexpended endowment income 327,914 327,914 Annuity and living trusts 165,533 165,533 Donor-restricted endowment funds 4,408,725 4,408,725 Board-designated endowment funds 1,505,633 1,505,633 Debt service funds 128,646 128,646 Invested in plant 1,278,553 1,278,553 Total $4,360,865 $5,073,437 $9,434,302 Year Ended June 30, 2020 4 8 | F I N A N C I A L R E P O R T 2 0 2 1 University of Southern California Notes to Consolidated Financial Statements 2021 2020 Current sponsored awards $1,197,127 $1,165,773 Executed grants and contracts for future periods 1,376,406 1,325,318 Total $2,573,533 $2,491,091 Note 16. Related Parties: Members of the Board of Trustees and senior management may, from time to time, be associated, either directly or indirectly, with companies doing business with the university. For senior management, the university requires annual disclosure of signi cant nancial interest in entities doing business with the university. †ese annual disclosures cover both senior management and their immediate family members. When such relationships exist, measures are taken to appropriately manage the actual or perceived con ict in the best interests of the university. †e university has a written con ict of interest policy that requires, among other things, that no member of the Board of Trustees can participate in any decision in which he or she or an immediate family member has a material nancial interest. Each trustee is required to certify compliance with the con ict of interest policy on an annual basis and indicate whether the university does business with an entity in which a trustee has a material nancial interest. When such relationships exist, measures are taken to mitigate any actual or perceived con ict, including requiring the recusal of the con icted trustee and that such transactions be conducted at arm’s length, for good and suŽcient consideration, based on terms that are fair and reasonable to and for the bene t of the university, and in accordance with applicable con ict of interest laws. Note 17. Subsequent Events: In October 2021, the USC Health System and Methodist Hospital of Southern California (“MHSC”) signed an aŽliation agreement to expand access to care. †e AŽliation is structured as a member substitution in which the USC Health System became the sole corporate member of MHSC. In connection with the aŽliation agreement, the lease between the City of Arcadia and MHSC will be transferred to and assumed by the USC Health System and extended for a term of 99 years. †e university has performed an evaluation of subsequent events through October 21, 2021, which is the date the nancial statements were issued. Note 15. Grants and Contracts: Executed contracts, grants, subcontracts, and cooperative agreements for future sponsored research activity which are not re ected in the consolidated nancial statements at June 30 are summarized as follows (in thousands):