university of southern - comptrolleru n i v er s ityo fs o ut her nca li f o r n a financial report2...

Universityof SouthernCalifornia

f i nancial report 2 0 0 6

U N I V ER S IT Y O F S O U T HER N CA LI F O R N A Financial Report 2 0 0 6 1

HI G H LI G H T S of the UN I V ER S I T Y

June 30 June 302006 2005

FI N A N C I A L (in thousands)Total revenues $2,257,234 $2,123,486Total cash gifts and equipment gifts $379,471 $291,327Capital expenditures $283,869 $198,629Total assets at year end $5,533,079 $4,933,257Total debt at year end $406,771 $400,872Increase in net assets $461,496 $510,202Market value of endowment $3,065,935 $2,746,051Executed contracts, grants, subcontracts and cooperative agreements $794,363 $804,055Property, plant and equipment, net $1,293,549 $1,067,933Net Asset Balances:

Unrestricted $3,147,924 $2,801,140Temporarily restricted $208,009 $186,499Permanently restricted $1,177,482 $1,084,280

ST U D EN T S

Enrollment (head count, autumn):Undergraduate students 16,897 16,474Graduate and professional students 15,939 15,686

Degrees conferred:Bachelor degrees 4,269 4,139Advanced 5,274 5,253Certificates 188 191

Annual tuition rate $31,458 $29,988

FAC U LT Y A N D STA F F

Faculty 4,510 4,390Staff 7,855 7,834

1 Highlights of the University

2 Report of Independent Auditors

3 Consolidated Balance Sheet

4 Consolidated Statement of Activities

6 Consolidated Statement of Expenses

8 Consolidated Statement of Cash Flows

9 Notes to Consolidated Financial Statements

18 2006-2007 Budget

26 Board of Trustees

27 Officers, Executives and Academic Deans

28 Role and Mission of the University

For information and additional copies of this report please contact:

University of Southern California, University Park,UGB 205, Los Angeles, CA 90089-8003http://www.usc.edu/about/ataglance/telephone: (213) 821-1900 email: [email protected]

Produced by the Office of the University Comptroller and published by the Division of Student Affairs,Office of University Publications, 2006

U N I V ER S IT Y O F S O U T HER N CA LI F O R N A Financial Report 2 0 0 6 3U N I V ER S IT Y O F S O U T HER N CA LI F O R N AFinancial Report 2 0 0 62

CO N S O LI DAT ED BA LA N C E SH EE T

in thousands

REP O RT of IN D EP EN D EN T AU D ITO R S

The Board of Trusteesof the University of Southern California

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements ofactivities, expenses, and cash flows, which appear on pages 3 through 17 of this financial report, present fairly, in all material respects, the consolidated financial position of the University of Southern California andits subsidiaries (the “university”) at June 30, 2006, and the changes in their consolidated net assets, expenses,and cash flows for the year then ended in conformity with accounting principles generally accepted in theUnited States of America. These financial statements are the responsibility of the university’s management;our responsibility is to express an opinion on these financial statements based on our audit. The prior yearsummarized comparative information has been derived from the university’s 2005 financial statements; andin our report dated September 9, 2005, we expressed an unqualified opinion on those financial statements.We conducted our audit of these statements in accordance with auditing standards generally accepted in theUnited States of America, which require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, the university changed its method ofaccounting for conditional asset retirement obligations in accordance with Financial Accounting StandardsBoard Interpretation No. 47.

Los Angeles, CaliforniaSeptember 8, 2006

June 30 June 302006 2005

AS S E T S A B

Cash and cash equivalents $ 4 3 6 , 8 7 0 $ 4 4 8 , 2 7 1Accounts receivable, [see Note 3] 6 2 , 1 6 4 5 7 , 0 2 9Notes receivable, net of allowance for doubtful accounts, $11,889 (2006), $11,907 (2005) 9 7 , 0 8 2 9 7 , 2 2 6Pledges receivable, [see Note 9] 1 7 0 , 2 1 5 1 5 1 , 0 8 2Investments, [see Note 4] 3 , 4 0 4 , 6 7 9 3 , 0 4 2 , 2 0 9Inventories, prepaid expenses and other assets 6 8 , 5 2 0 6 9 , 5 0 7Property, plant and equipment, net, [see Note 5] 1 , 2 9 3 , 5 4 9 1 , 0 6 7 , 9 3 3TO TAL ASSET S $ 5 , 5 3 3 , 0 7 9 $ 4 , 9 3 3 , 2 5 7

LI A B I LI TI ES

Accounts payable $ 7 3 , 0 8 8 $ 6 0 , 3 2 8Accrued liabilities 8 6 , 4 8 3 7 7 , 8 0 7Refundable advances 2 4 , 1 0 5 1 9 , 6 5 6Current portion of long-term debt 3 , 2 1 6 2 , 9 1 0Deposits and deferred revenue 9 0 , 8 2 3 6 5 , 7 5 7Post-retirement health benefit obligation, [see Note 14] 1 , 1 0 9 2 , 3 1 4Actuarial liability for annuities payable 1 6 6 , 9 5 0 1 6 4 , 9 5 1Federal student loan funds 6 2 , 7 7 9 6 2 , 5 6 6Asset retirement obligations, [see Note 17] 7 8 , 5 0 0Long-term debt, [see Note 6] 4 0 3 , 5 5 5 3 9 7 , 9 6 2Other 9 , 0 5 6 7 , 0 8 7TO TAL LI A B I LITI ES 9 9 9 , 6 6 4 8 6 1 , 3 3 8

N E T AS S ET S

Unrestricted 3 , 1 4 7 , 9 2 4 2 , 8 0 1 , 1 4 0Temporarily restricted 2 0 8 , 0 0 9 1 8 6 , 4 9 9Permanently restricted 1 , 1 7 7 , 4 8 2 1 , 0 8 4 , 2 8 0TO TAL NET ASSE T S 4 , 5 3 3 , 4 1 5 4 , 0 7 1 , 9 1 9

TO TAL LI A B I LITI ES AND NET ASS ET S $ 5 , 5 3 3 , 0 7 9 $ 4 , 9 3 3 , 2 5 7

The accompanying notes are an integral part of this statement.

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U n re s tricted Net AssetsSp o n s o re d

R e s e a rch and U n ex p e n d e d To t a l Te m p o ra ri ly Pe rm a n e n t lyE d u ca ti o n Health Care D e p a rtm e n t a l Plant and Debt I nve s t e d Lo n g - t e rm Stu d e n t U n re s tri c t e d R e s tri c t e d R e s tri c t e d To t a l To t a l

and Genera l Se rv i c e s A c ti v i ti e s Se rvice Fu n d s in Pl a n t I nve s tm e n t Lo a n Net Assets Net Assets Net Assets Net Assets Net Assets

REV EN U ES A B C D E F G H I J K L

Student tuition and fees $ 8 8 6 , 9 4 5 $ 8 8 6 , 9 4 5 $ 8 8 6 , 9 4 5 $ 8 3 4 , 7 5 5Less financial aid ( 2 5 9 , 9 3 0 ) ( 2 5 9 , 9 3 0 ) ( 2 5 9 , 9 3 0 ) ( 2 4 7 , 9 5 5 )

Net student tuition and fees 6 2 7 , 0 1 5 6 2 7 , 0 1 5 6 2 7 , 0 1 5 5 8 6 , 8 0 0Endowment income 3 7 , 2 7 2 $ 3 0 , 3 6 0 6 7 , 6 3 2 $ 2 2 8 6 7 , 8 6 0 5 6 , 2 0 1Investment and other income 1 3 , 5 9 2 4 , 3 4 3 $ 1 5 , 4 6 3 ( $ 7 2 7 ) 3 2 , 6 7 1 ( $ 7 5 4 ) 2 3 5 3 2 , 1 5 2 1 9 , 5 4 1Net appreciation (depreciation) in fair value of investments 3 , 8 8 8 3 2 7 $ 2 8 7 , 1 8 3 2 9 1 , 3 9 8 1 , 0 4 7 1 1 , 3 3 8 3 0 3 , 7 8 3 3 3 8 , 8 2 7Government contracts and grants 2 6 0 , 9 2 4 2 6 0 , 9 2 4 2 6 0 , 9 2 4 2 6 6 , 4 1 1Recovery of indirect costs 1 0 5 , 3 1 0 1 0 5 , 3 1 0 1 0 5 , 3 1 0 1 0 5 , 2 6 0Gifts and pledges 4 7 , 8 4 4 1 8 0 , 0 0 7 3 7 , 1 7 2 $ 1 , 6 5 0 2 6 6 , 6 7 3 5 0 , 0 4 3 8 2 , 6 4 3 3 9 9 , 3 5 9 3 1 6 , 6 2 8Sales and service 3 0 , 6 4 9 3 0 , 6 4 9 3 0 , 6 4 9 2 9 , 5 3 5Auxiliary enterprises 1 9 1 , 7 2 8 1 9 1 , 7 2 8 1 9 1 , 7 2 8 1 8 6 , 5 5 4Professional Services Agreements $ 7 4 , 3 7 0 7 4 , 3 7 0 7 4 , 3 7 0 7 4 , 0 9 5Clinical practices 9 4 , 1 7 5 9 4 , 1 7 5 9 4 , 1 7 5 8 1 , 3 8 3Loss on the disposal/sale of plant assets ( 8 5 2 ) ( 8 5 2 ) ( 8 5 2 ) ( 2 , 4 8 5 )Other 6 5 , 2 7 8 6 , 7 2 6 7 2 , 0 0 4 7 2 , 0 0 4 6 8 , 0 8 5Present value adjustment to annuities payable ( 1 6 1 ) ( 1 , 0 8 2 ) ( 1 , 2 4 3 ) ( 3 , 3 4 9 )Net assets released from restrictions 2 7 , 0 2 9 4 4 4 1 , 3 5 2 2 8 , 8 2 5 ( 2 8 , 6 6 5 ) ( 1 6 0 )TO TAL REV EN U ES 1 , 1 1 8 , 6 8 8 1 6 8 , 5 4 5 5 1 3 , 2 7 7 5 3 , 4 0 6 7 9 8 2 8 8 , 5 3 5 ( 7 2 7 ) 2 , 1 4 2 , 5 2 2 2 1 , 5 1 0 9 3 , 2 0 2 2 , 2 5 7 , 2 3 4 2 , 1 2 3 , 4 8 6

EX P E N S ES

Educational and general activities 1 , 0 1 4 , 9 4 4 4 5 6 , 1 7 8 1 5 9 1 , 4 7 1 , 2 8 1 1 , 4 7 1 , 2 8 1 1 , 3 6 7 , 5 3 1Health care services 1 6 3 , 8 7 1 1 6 3 , 8 7 1 1 6 3 , 8 7 1 1 5 1 , 0 4 9Depreciation 8 6 , 0 9 2 8 6 , 0 9 2 8 6 , 0 9 2 7 5 , 7 8 5Interest on indebtedness 1 9 , 0 5 5 1 9 , 0 5 5 1 9 , 0 5 5 1 8 , 6 6 6Loss on refunding 4,335 4,335 4,335TO TAL EX PEN S ES 1 , 0 1 4 , 9 4 4 1 6 3 , 8 7 1 4 5 6 , 1 7 8 2 3 , 3 9 0 8 6 , 2 5 1 1 , 7 4 4 , 6 3 4 1 , 7 4 4 , 6 3 4 1 , 6 1 3 , 0 3 1

Transfers within Unrestricted Net Assets:Mandatory transfers for external debt service ( 2 7 , 5 4 4 ) ( 1 , 1 4 5 ) 2 8 , 6 8 9Unrestricted gifts designated for long-term investment ( 1 6 , 1 0 3 ) 1 6 , 1 0 3Internal loan repayments (2 1 , 9 6 9 ) ( 2 , 0 5 5 ) ( 6 1 3 ) 2 4 , 6 3 7Accumulated gains used for spending rule 2 6 , 9 8 7 2 6 , 8 9 1 ( 5 3 , 8 7 8 )Designated support for student aid 3 6 , 3 3 3 ( 3 6 , 3 3 3 )Other miscellaneous nonmandatory transfers ( 8 0 , 6 9 9 ) ( 2 , 6 9 5 ) 2 3 , 9 7 7 6 2 , 0 2 5 ( 2 , 6 0 8 )Property, plant and equipment acquisitions ( 2 0 , 4 6 4 ) ( 1 2 3 ) 1 5 , 0 8 9 ( 1 0 3 , 7 5 8 ) 1 0 9 , 2 5 6Increase (Decrease) in Net Assets from continuing operations 2 8 5 ( 1 , 3 4 4 ) 8 6 , 1 1 0 4 1 , 6 0 9 2 3 , 8 0 3 2 4 8 , 1 5 2 ( 7 2 7 ) 3 9 7 , 8 8 8 2 1 , 5 1 0 9 3 , 2 0 2 5 1 2 , 6 0 0 5 1 0 , 4 5 5Loss from discontinued operations of Kenneth Norris Jr.

Cancer Hospital ( 2 5 3 )C u mu l a t i ve effect of change in accounting pri n c i p l e, [see Note 17] ( 6 1 , 8 9 2 ) ( 6 1 , 8 9 2 ) ( 6 1 , 8 9 2 )A f f i l i a t i on with HRA 1 0 , 7 8 8 1 0 , 7 8 8 1 0 , 7 8 8Increase (Decrease) in Net Assets 2 8 5 ( 1 , 3 4 4 ) 9 6 , 8 9 8 4 1 , 6 0 9 ( 3 8 , 0 8 9 ) 2 4 8 , 1 5 2 ( 7 2 7 ) 3 4 6 , 7 8 4 2 1 , 5 1 0 9 3 , 2 0 2 4 6 1 , 4 9 6 5 1 0 , 2 0 2Tra n s fer operating surplus to departmental net assets ( 2 8 5 ) 2 8 5Beginning Net Assets ( 2 2 , 6 5 7 ) 4 4 8 , 1 5 7 1 5 8 , 1 9 5 4 2 3 , 3 8 1 1 , 7 9 6 , 5 0 5 ( 2,441) 2 , 8 0 1 , 1 4 0 1 8 6 , 4 9 9 1 , 0 8 4 , 2 8 0 4 , 0 7 1 , 9 1 9 3 , 5 6 1 , 7 1 7EN DING NET ASSE T S ( $ 2 4 , 0 0 1 ) $ 5 4 5 , 3 4 0 $ 1 9 9 , 8 0 4 $ 3 8 5 , 2 9 2 $ 2 , 0 4 4 , 6 5 7 ( $ 3 , 1 6 8 ) $ 3 , 1 4 7 , 9 2 4 $ 2 0 8 , 0 0 9 $ 1 , 1 7 7 , 4 8 2 $ 4 , 5 3 3 , 4 1 5 $ 4 , 0 7 1 , 9 1 9

Nature of specific net assets:Internally designated ( $ 3 7 , 0 5 1 ) $ 4 6 , 0 6 8 ( $ 4 , 4 3 6 ) ( $ 7 , 8 1 2 ) ( $ 3 , 2 3 1 ) ( $ 3 , 2 3 1 ) ( $ 5 , 9 0 3 )Gift and departmental 3 7 4 , 7 6 1 $ 1 2 0 , 8 6 3 4 , 6 4 4 5 0 0 , 2 6 8 5 0 0 , 2 6 8 3 8 1 , 2 5 1Externally restricted $ 1 5 , 9 1 4 $ 3 1 , 5 9 4 4 7 , 5 0 8 3 9 , 0 4 7Pledges 1 2 5 , 8 3 9 4 4 , 3 7 6 1 7 0 , 2 1 5 1 5 1 , 0 8 2Kenneth Norris Jr. Cancer Hospital –

USC/Norris Cancer Center Foundation 1 3 , 0 5 0 1 3 , 0 5 0 1 3 , 0 5 0 1 3 , 1 5 1Unexpended endowment income 1 2 4 , 5 1 1 1 2 4 , 5 1 1 1 2 4 , 5 1 1 1 1 0 , 7 7 1Annuity and living trusts 6 6 , 2 1 2 8 0 , 2 7 8 1 4 6 , 4 9 0 1 3 1 , 1 0 4True endowment 4 4 1 , 0 2 1 , 2 3 4 1 , 0 2 1 , 2 7 8 9 4 9 , 5 4 6Funds functioning as endowment $ 2 , 0 4 4 , 6 5 7 2 , 0 4 4 , 6 5 7 2 , 0 4 4 , 6 5 7 1 , 7 9 6 , 5 0 5Debt service funds 7 8 , 9 4 1 7 8 , 9 4 1 7 8 , 9 4 1 7 7 , 7 0 7Invested in plant 3 8 9 , 7 2 8 3 8 9 , 7 2 8 3 8 9 , 7 2 8 4 2 7 , 6 5 8

( $ 2 4 , 0 0 1 ) $ 5 4 5 , 3 4 0 $ 1 9 9 , 8 0 4 $ 3 8 5 , 2 9 2 $ 2 , 0 4 4 , 6 5 7 ( $ 3 , 1 6 8 ) $ 3 , 1 4 7 , 9 2 4 $ 2 0 8 , 0 0 9 $ 1 , 1 7 7 , 4 8 2 $ 4 , 5 3 3 , 4 1 5 $ 4 , 0 7 1 , 9 1 9


Year Ended June 30, 2006 Year Ended June 30, 2 0 0 5

CO N S O LI DAT ED STAT EM EN T of AC T I V I TI E S

in thousands | with summarized financial information for the year ended June 30, 2005

U N I V ER S IT Y O F S O U T HER N CA LI F O R N AFinancial Report 2 0 0 66

CO N S O LI DAT ED STAT EM EN T of EX PEN S E S

in thousands | with summarized financial information for the year ended June 30, 2005

U N I V ER S IT Y O F S O U T HER N CA LI F O R N A Financial Report 2 0 0 6 7

ACA D E M I C, HE A LT H CA R E A N D STU D E NT SERV I C ES SU P P O RT SE RV I C ESInstruction,

Departmental Libraries Plant AuxiliaryResearch Sponsored and Health Care Student Operations and General Fund Raising Enterprises Year Ended Year Ended

and Activities Research Art Galleries Services Services Maintenance Administration Institutional Activities Operations June 30, 2006 June 30, 2005

A B C D E F G H I J K L

Compensation $ 4 0 8 , 4 4 1 $ 1 4 5 , 2 1 5 $ 1 3 , 2 9 9 $ 8 9 , 5 8 9 $ 2 1 , 3 3 3 $ 3 0 , 9 0 4 $ 3 2 , 2 1 5 $ 4 9 , 5 1 9 $ 1 3 , 8 3 6 $ 4 6 , 8 6 7 $ 8 5 1 , 2 1 8 $ 8 0 3 , 6 6 6Fringe benefits 9 4 , 4 4 8 3 8 , 8 4 5 3 , 9 5 4 2 7 , 2 3 1 6 , 2 3 7 9 , 7 7 5 1 0 , 2 5 8 1 6 , 8 3 6 4 , 3 2 0 1 3 , 3 2 6 2 2 5 , 2 3 0 2 1 6 , 5 5 6Materials and supplies 7 5 , 2 8 9 8 1 , 8 7 6 5 , 1 6 5 8 , 1 2 8 7 , 1 3 5 6 1 , 2 4 3 3 3 , 3 7 5 7 , 8 2 6 6 , 9 0 2 5 0 , 9 9 8 3 3 7 , 9 3 7 2 9 5 , 9 5 2Cost of goods sold 9 , 8 8 0 1 4 , 8 9 3 1 3 1 5 2 6 3 , 9 8 0 5 0 , 1 2 4 7 9 , 5 3 4 7 6 , 9 2 7Utilities 2 1 , 5 9 2 2 1 , 5 9 2 1 9 , 8 1 1Travel 1 8 , 3 8 8 7 , 0 5 2 1 7 6 3 1 1 , 1 1 4 8 7 7 4 8 5 2 3 4 3 6 4 , 3 1 5 3 2 , 8 7 0 2 8 , 8 7 4Telephone 1 , 2 2 4 5 , 7 8 6 7 , 0 1 0 6 , 6 0 8Other 2 9 , 1 1 0 3 , 4 0 1 7 9 3 6 , 5 4 0 3 2 5 6 , 4 7 4 4 6 , 6 4 3 4 5 , 2 7 7USC Care purchased services 3 3 , 1 1 8 3 3 , 1 1 8 2 4 , 9 0 9Loss on refunding 4 , 3 3 5 4 , 3 3 5

6 3 5 , 5 5 6 2 8 7 , 8 8 1 2 2 , 5 9 4 1 6 2 , 7 2 2 3 6 , 7 4 3 1 2 9 , 9 1 3 7 6 , 5 9 6 8 9 , 5 5 9 2 5 , 8 1 9 1 7 2 , 1 0 4 1 , 6 3 9 , 4 8 7 1 , 5 1 8 , 5 8 0Allocations:

Depreciation 3 6 , 1 0 9 1 5 , 3 9 5 5 , 7 8 7 3 , 7 9 9 4 , 2 1 4 3 , 4 6 2 1 6 3 1 7 , 1 6 3 8 6 , 0 9 2 7 5 , 7 8 5Interest 1 3 , 5 9 0 5 5 0 3 , 8 5 4 1 , 0 6 1 1 9 , 0 5 5 1 8 , 6 6 6Plant operations and maintenance 5 8 , 0 7 2 1 0 , 3 2 8 1 , 1 5 9 5 , 7 9 5 ( 1 3 0 , 4 6 3 ) 2 , 7 1 1 1 1 , 0 4 5 1 6 8 4 1 , 1 8 5

$ 7 4 3 , 3 2 7 $ 3 1 3 , 6 0 4 $ 2 9 , 5 4 0 $ 1 6 2 , 7 2 2 $ 4 6 , 3 3 7 $ 8 3 , 5 2 1 $ 1 0 7 , 9 2 0 $ 2 6 , 1 5 0 $ 2 3 1 , 5 1 3 $ 1 , 7 4 4 , 6 3 4 $ 1 , 6 1 3 , 0 3 1


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CO N S O LI DAT ED STAT EM EN T of CA S H FLOW S

in thousands

NOTE 1

Significant accounting policies followed by theU n iv er s i ty of S o u t h ern California are set forth bel o w:

The University of Southern California is a not-for-profit, major private research university. The finan-cial statements have been prepared on the accrualbasis and include the accounts of the Universityof Southern California and all wholly-owned subsidiaries. All material transactions between theu n i ve r s i ty and its subsidiaries have been eliminated.

For financial reporting purposes, net assets andrevenues, expense, gains, and losses are classifiedinto one of three categories: unrestricted, tem-p o ra ri ly re s t ri c t e d , or perm a n e n t ly re s t ri c t e d . T h e s ecategories, as described below, are the method bywhich the Financial Accounting Standards Boardhas chosen to standardize the financial statementsof all private not-for-profit institutions.

Unrestricted net assets:

Education and general: Education and generalinclude the revenues and expenses associated withthe principal educational mission of the university.

Health care services: Health care services arereflective of the revenues and expenses associatedwith the Health Care Consultation Center, theProfessional Services Agreement with Los AngelesC o u n ty, the Kenneth No r ris Jr. Cancer Hospital (seeNote 2) and USC Care, Inc., a contracting entityfor the independent private practices and the pro-fessional services provided to affiliated hospitals.

Sponsored research and departmental activities:Sponsored research agreements recognize revenueas it is earned through expenditure in accordancewith the agreement. Any funding received inadvance of expenditure is recorded as refundableadvances. Departmental net assets include gifts tothe university and its various schools and depart-ments. The university has determined that anydonor-imposed restrictions for current or develop-ing programs and activities are generally met with-in the operating cycle of the university and, there-fore, the university's policy is to record these netassets as unrestricted. Internally designated netassets are those which have been appropriated bythe Board of Trustees or designated by management.

Unexpended plant and debt service funds:Unexpended plant and debt service net assetsinclude gifts and income earned on unexpendedbalances for capital projects which are currentlyunder construction and transfers from the operat-ing budget to fund the debt service requirementsfor outstanding bonds, notes and mortgagespayable. The university follows the policy of liftingthe restrictions on contributions of cash or otherassets received for the acquisition of long-livedassets when the long-lived assets begin construc-tion or are acquired.

Invested in plant: Invested in plant assets, includingcollections of works of art and historical treasures,are stated at cost or fair value at the date of gift,plus the estimated value of any associated legalretirement obligations, less accumulated deprecia-tion, computed on a straight-line basis over theestimated useful or component lives of the assets(equipment and library books useful lives rangingfrom 5 to 10 years and buildings component livesranging from 5 to 50 years). Equipment is removedfrom the records at the time of disposal. The uni-versity follows the policy of recording contributionsof long-lived assets directly in invested in plantassets instead of recognizing the gift over the useful life of the asset.

Long-term investment: Long-term investmentsinclude gifts and Board of Trustee designations tofunds functioning as endowment, realized andunrealized gains and reinvested income (incomeearned in excess of the spending rule) on allendowment funds.

Student loan: Student loan net assets record lendingactivity to students utilizing university resourcesdesignated for that purpose.

Temporarily restricted net assets:

Gifts for which donor imposed restrictions havenot been met (primarily future capital projects),charitable remainder unitrusts, pooled incomefunds, gift annuities and pledges receivable forwhich the ultimate purpose of the proceeds is notpermanently restricted are included in temporarilyrestricted net assets.

Year Ended Year EndedJune 30, 2006 June 30, 2005

CA S H FLOW S F RO M OP ERAT I N G AC T I V I TI ES A B

Change in Net Assets $ 4 6 1 , 4 9 6 $ 5 1 0 , 2 0 2Adjustments to reconcile change in net assets to net cash provided by

Operating activities:Depreciation 8 6 , 0 9 2 7 5 , 7 8 5Cumulative effect of change in accounting principle 6 1 , 8 9 2Affiliation with HRA, net of cash ( 8 , 4 1 0 )Loss on the disposal/sale of plant assets 8 5 2 5 , 7 9 4Loss on refunding 4 , 3 3 5Equipment gifts-in-kind ( 1 , 6 5 0 ) ( 3 , 1 2 6 )Present value adjustment to annuities payable 4 1 8 2 , 7 3 5(Increase) decrease in accounts receivable ( 4 , 6 6 7 ) 2 , 8 4 2Increase in pledges receivable ( 1 9 , 1 3 3 ) ( 2 5 , 6 2 2 )Decrease (increase) in inventories, prepaid expenses and other assets 1 , 0 8 5 ( 4 , 3 2 1 )Increase (decrease) in accounts payable 1 2 , 1 8 6 ( 5 , 0 2 3 )Increase in accrued liabilities 8 , 6 7 6 5 , 8 3 1Increase (decrease) in refundable advances 4 , 4 4 9 ( 3 , 8 2 3 )Increase in deferred revenue 1 5 , 7 2 6 8 , 1 1 8Decrease in post-retirement health benefit obligation ( 1 , 2 0 5 )Increase in other 1 , 9 6 9 3 , 0 7 6Contributions restricted for permanent investment and property, plant and equipment ( 8 6 , 2 1 7 ) ( 6 7 , 6 3 8 )Net realized gain on sale of investments ( 1 9 8 , 0 5 7 ) ( 2 0 6 , 7 1 6 )Net unrealized appreciation in investments ( 1 0 5 , 8 3 1 ) ( 1 3 2 , 2 7 6 )

Net cash provided by operating activities 2 3 4 , 0 0 6 1 6 5 , 8 3 8

CA S H FLOW S F RO M IN V E S TI N G AC T I V IT I ES

Proceeds from note collections and sale of notes 2 0 , 7 4 0 1 8 , 6 6 5Notes issued ( 1 9 , 8 6 8 ) ( 2 0 , 4 0 2 )Proceeds from sale of investments 2 , 0 9 8 , 2 9 0 1 , 9 4 5 , 9 7 6Purchase of investments ( 2 , 1 4 5 , 9 8 2 ) ( 1 , 9 6 7 , 3 4 0 )Purchase of property, plant and equipment, net ( 2 8 3 , 8 6 9 ) ( 1 9 8 , 6 2 9 )

Net cash used by investing activities ( 3 3 0 , 6 8 9 ) ( 2 2 1 , 7 3 0 )

CA S H FLOW S F RO M FI NA N C I N G AC T I V I TI ES

Contributions restricted for permanent investment:Endowment 6 9 , 9 9 6 5 1 , 4 2 7Plant 1 6 , 5 8 5 1 9 , 0 8 4Trusts and other ( 3 6 4 ) ( 2 , 8 7 3 )

Repayment of long-term debt ( 6 8 , 5 4 6 ) ( 3 2 7 )Increase in long-term debt 6 6 , 5 4 5Increase in federal student loan funds 2 1 3 4 5 0Investment income and (losses) on annuities payable 1 0 , 4 6 5 ( 3 , 8 4 4 )Payments on annuities payable ( 1 5 , 9 9 2 ) ( 1 4 , 9 8 5 )Increase to annuities payable resulting from new gifts 6 , 3 8 0 1 1 , 2 7 5

Net cash provided by financing activities 8 5 , 2 8 2 6 0 , 2 0 7

Net (decrease) increase in cash and cash equivalents ( 1 1 , 4 0 1 ) 4 , 3 1 5Cash and cash equivalents at beginning of year 4 4 8 , 2 7 1 4 4 3 , 9 5 6Cash and cash equivalents at end of ye a r $ 4 3 6 , 8 7 0 $ 4 4 8 , 2 7 1


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Note 1 continued

Permanently restricted net assets:

Gifts, charitable remainder unitrusts, pooledincome funds, gift annuities and pledges receivablewhich require by donor restriction the investmentof the corpus in perpetuity and only the income bemade available for pro g ram opera t i ons in accord a n c ewith donor restrictions and gifts which have beendonor stipulated to provide loans to students areincluded in permanently restricted net assets.

Other accounting policies:

The financial statements present expenses by functional classification in accordance with theoverall service mission of the university. Each func-tional classification displays all expenses related tothe underlying operations by natural classification.Depreciation expense is allocated based on squarefootage occupancy. Interest expense on externaldebt is allocated to the functional categories whichhave benefited from the proceeds of the externaldebt. Plant operations and maintenance representsspace related costs which are allocated to the functional categories directly and/or based onthe square footage occupancy.

Cash equivalents consist of resources invested in money market funds, bankers’ acceptances and negotiable certificates of deposit, maturingwithin 30 days.

Investments are stated at market value exceptmortgages and gifts of real estate which are statedat cost or fair market value on the date of gift, inaccordance with SFAS No. 124, Accounting forCertain Investments Held by Not-for-ProfitOrganizations. Net appreciation (depreciation) in the fair value of investments, which consists of the realized gains or losses and the unrealizedappreciation (depreciation) on those investments,is shown in the statement of activities. Realizedgains and losses upon the sale of investments arecalculated using the specific identification methodand trade date.

Diversified venture capital holdings and certainother limited partnership interests are invested inboth publicly and privately owned securities. Thefair values of private investments are based on

estimates and assumptions of the general partnersor partnership valuation committees in the absence of readily determinable market values, generallyat March 31, prior to the university’s fiscal yearend. Such valuations generally reflect discounts for illiquidity and consider variables such as financialperformance of investments, recent sales prices of investments and other pertinent information.The private investments have a high concentrationof pre-initial public offering securities, subjectingthese investments to market value volatility. For the year ended June 30, 2006, included in the net appreciation in fair value of investments of$297,697,000 on the Consolidated Statement of Activities is $88,486,000 of net appreciationrelated to venture capital holdings and certainother limited partnership interests.

Inventories are valued at the lower of cost (first-in, first-out) or market.

The university receives federal reimbursement for a portion of the costs of its facilities and equipmentused in organized sponsored research. The Officeof Management and Budget, Circular A-21, estab-lishes principles for determining such reimbursablecosts, requires conformity of the lives and methodsused for federal cost reimbursement accountingand financial reporting purposes. The university’spolicies and procedures are in conformity withthese principles.

Student tuition and fees are recorded as revenuesduring the year the related academic services arerendered. Student tuition and fees received inadvance of services to be rendered are recorded as deferred revenue.

The actuarial liability for annuities payable includegift annuities, unitrusts, pooled income funds andlife estates which are based on the present value offuture payments using discount rates ranging from3.3% to 7.5% and 1994 Group Annuity Table forannuities issued on or before December 31, 2004and Annuity 2000 Mortality Table for annuitiesissued on or after January 1, 2005.

The university has recorded conditional assetretirement obligations (Note 17) associated withthe legally required removal and disposal of certainhazardous materials, primarily asbestos, present inour facilities. When an asset retirement obligation

Note 1 continuedis identified, the university records the fair value of the obligation as a liability. The fair value of theobligation is also capitalized as property, plant andequipment and then amortized over the estimateduseful life of the associated asset. The fair value ofthe conditional asset retirement obligations wereestimated using a probability weighted, discountedcash flow model. The present value of future esti-mated cash flows was calculated using the creditadjusted, risk free rate applicable to the universityin order to determine the fair value of the condi-tional asset retirement obligations.

In accordance with the university’s Revenue CenterManagement (RCM) policy, educational and gen-eral activities are reflective of the performance of a balanced operating budget for the year and anysurplus at the end of the year is transferred tointernally designated departmental assets. In accor-dance with RCM policy, operating units with edu-cational and general activities which result indeficit balances are required at the end of the yearto transfer departmentally designated assets suffi-cient to fund the deficit balance.

The preparation of financial statements in con-formity with accounting principles generallyaccepted in the United States of America requiresmanagement to make estimates and assumptionsthat affect the reported amounts of assets and lia-bilities and disclosure of contingent assets and lia-bilities at the date of the financial statements andthe reported amounts of revenues and expensesduring the reporting period. Actual results coulddiffer from these estimates.

The financial statements include certain prior-yearsummarized comparative information in total butnot by net asset category. Such information doesnot include sufficient detail to constitute a presen-tation in conformity with accounting principlesgenerally accepted in the United States of America.Accordingly, such information should be read inconjunction with the university’s financial state-ments for the year ended June 30, 2005 fromwhich the summarized financial information wasderived. Certain reclassifications have been madeto summarized financial information for compara-tive purposes.

NOTE 2

Effective January 1, 2006, the University ofSouthern California and Health ResearchAssociation, Inc. (HRA) entered into an AffiliationAgreement (Agreement) whereby HRA became a subsidiary of the university and the universitybecame the sole corporate member of HRA.

HRA’s corporate purpose of serving as the principal clinical trial management supportof the university’s private industry-sponsored clinical research programs was not changed as aresult of the Agreement. No cash or property wasexchanged as a result of this Agreement. EffectiveJanuary 1, 2006, the administrative employees ofHRA became employees of the university. Theconsolidated financial statements include the operating activities of HRA for the period fromJanuary 1, 2006 through June 30, 2006.

The USC/Norris Cancer Center Foundation(Foundation), formerly Kenneth Norris Jr. CancerHospital (Hospital), is a not-for-profit public benefit corporation organized under the laws of theState of California whose sole corporate member is the University of Southern California. EffectiveDecember 16, 2003, the university completed thesale of the Hospital operations and certain tangibleassets for $35,000,000 consisting of cash and anote receivable, to an unaffiliated third party(Buyer). Subsequent to the sale of the Hospitaloperations, the not-for-profit purpose of theHospital was changed to create the Foundation.The purpose of the Foundation is to provide fund-ing for inpatient and outpatient cancer care as wellas clinical, therapeutic, specimen and preventionresearch trials that provide cancer care. The pro-ceeds from the sale of the Hospital are used tofund the Foundation as required by the AttorneyGeneral for the State of California.

In accordance with SFAS No. 144, Accounting forthe Impairment or Disposal of Long-Lived Assets,the results of operations for the Hospital have beenincluded in discontinued operations on theStatement of Activities.

A portion of the Hospital’s revenue from healthcare services is derived from funds provided onbehalf of patients under federal programs.

NO T ES to CO N S O LI DAT ED FI N A N C I A L STAT EM EN T SNO T ES to CO N S O LI DAT ED FI N A N C I A L STAT EM EN T S


Note 2 continuedRevenues under the programs are dependent uponfederal governmental reimbursement principles andpolicies. Funds received are subject to audit whichcould result in re t ro a c t i ve adjustments. M a n a g e m e n tbelieves that it has properly applied these principlesand policies in the determination of net revenuefrom these programs.

The Hospital has agreements with third-partyp ayo r s , i n cluding health maintenance organiza t i on s ,that provide payment for health care services atamounts different from standard rates establishedby the Hospital. The Hospital’s health care servicesrevenue is reported net of contractual allowancesfrom third-party payors and others for services rendered, and further adjusted for estimates ofu n c o llectible amounts. As of June 30, 2005 and 2006,the Hospital has no net receivables outstanding.

During 2001, the Hospital entered into a five-yearagreement with an affiliate of the Buyer to managethe day-to-day operations of the Hospital. Thisagreement was terminated on the effective date of the sale of the Hospital.

NOTE 3

Accounts receivable (in thousands):

U.S. Government, net of allowance for doubtful accounts of $ 8 1 3 $ 1 3 , 8 6 5

Student and other, net of allowance for doubtful accounts of $ 5 , 7 6 0 3 5 , 1 2 7

Patient care and practice plans, net of allowance for doubtful accounts andcontractual adjustments of $ 2 4 , 2 4 6 1 3 , 1 7 2

$ 6 2 , 1 6 4

NOTE 4

Investments (in thousands):

Cost Market

Stocks $ 1 , 3 3 6 , 2 3 5 $ 1 , 6 1 9 , 4 0 5Bonds:

U.S. Government 1 3 6 , 8 9 8 1 3 4 , 6 5 1Corporate 2 5 5 , 6 5 4 2 4 8 , 2 0 9

International investments 4 1 0 , 7 4 2 6 7 9 , 4 7 3Venture capital 4 0 7 , 1 9 2 3 4 3 , 2 3 1Assets held by

other trustees 2 2 0 , 8 1 7 2 4 4 , 2 8 7Mortgages, notes

and other receivables 1 , 1 9 0 1 , 9 2 0Real estate and other 1 0 6 , 7 2 3 1 3 3 , 5 0 3TO TA L $ 2 , 8 7 5 , 4 5 1 $ 3 , 4 0 4 , 6 7 9

NOTE 5

Property, plant and equipment (in thousands):

Land and improvements $ 9 8 , 9 9 6Building and improvements 1 , 3 4 9 , 5 5 3Equipment 3 3 4 , 9 6 8Library books and collections 1 8 1 , 4 1 7Construction-in-progress 2 8 0 , 9 4 9

2 , 2 4 5 , 8 8 3

Less: Accumulated depreciation 9 5 2 , 3 3 4$ 1 , 2 9 3 , 5 4 9

NOTE 6

Bonds, notes and mortgages payable (in thousands):

Interest % Maturity

California Educational Facilities Authority(CEFA) Revenue Bonds and Notes:

Se ries 1 9 9 7 A 5 . 5 0 - 5 . 7 0 2 0 0 7 - 2 0 1 2 $ 1 4 , 6 1 5D i s c o u n t ( 9 4 )

Se ries 1 9 9 8 A 5 . 0 0 2 0 2 9 3 0 , 3 6 0Se ries 1 9 9 9 5 . 5 0 2 0 2 8 6 0 , 0 0 0

Pre m i u m 9 5 0Se ries 2 0 0 3 A 4 . 7 5 - 5 . 0 0 2 0 2 4 , 2 0 3 4 1 5 0 , 0 0 0

Pre m i u m 1 , 9 1 7Se ries 2 0 0 3 B 5 . 0 0 2 0 0 7 - 2 0 1 6 1 0 , 1 6 5

Pre m i u m 9 3 5Se ries 2 0 0 3 C 5 . 0 0 2 0 3 4 5 0 , 0 0 0

Pre m i u m 3 , 5 6 9Se ries 2 0 0 5 4 . 0 0 - 5 . 0 0 2 0 2 9 6 6 , 5 4 5

Pre m i u m 2 , 9 0 5

University of Southern California BondsSe ries 1 9 9 8 5 . 5 7 - 6 . 2 6 2 0 0 9 - 2 0 1 9 1 1 , 5 8 5

D i s c o u n t ( 3 4 )

M o rt g a g e s 6 . 9 9 2 0 0 7 - 2 0 2 0 3 , 3 5 34 0 6 , 7 7 1

Less current port i on of lon g - t e rm debt 3 , 2 1 6$ 4 0 3 , 5 5 5

Principal payment re q u i rements relating to bon d s , notes and mortgages pay a b l e, a fter giving effect to re f u n d i n g,for the next five fiscal years are approximately: 2007 $3,216,000; 2008 $3,402,000; 2009 $6,598,000;2010 $3,791,000; 2011 $4,019,000.

Interest payments for fiscal year 2006 were $18,335,000.

The bond agreements contain certain re s t ri c t i ve covenants including the re q u i rement to maintain a designatedamount of available assets, as defined in the agreements.

On July 14, 2 0 0 5 , the unive r s i ty issued $66,545,000 of CEFA Se ries 2005 bon d s . These proceeds were depositedinto a refunding escrow account, which will be used to pay interest, principal and redemption premium for aportion of CEFA Series 1997A and all of CEFA Series 1997C bonds.

On November 15, 2005, the university entered into an interest rate swap transaction with a counterpartyfor a notional amount of $62,250,000. Under the terms of this agreement, the effective date of the swap isJuly 8, 2009 at which point the university will begin to accrue payments (to the counterparty) at a rate of4.525% times the above notional amount and will receive payment equal to the prevailing weekly BondMarket Association Municipal Swap Index rate from the counterparty times the above notional amount.These net payments or receipts will settle on the first calendar day of each month commencing on August 1,2009 until the swap is either terminated or expires on October 1, 2027. As of June 20, 2006, the estimatedfair value of the swap was an asset of $606,617.

In May 2005, HRA entered into a $3,500,000 term note and Credit Agreement (Note) with a bank securedby a first trust deed. The term of the Note is 15 years with final payment due on May 1, 2020. As defined inthe Note, interest is payable monthly at LIBOR, which was 5.1% at June 30, 2006, plus 2.0%.



NOTE 9

Unconditional promises are included in the consol-idated financial statements as pledges receivableand revenue of the appropriate net asset category.Pledges are recorded after discounting at 6% to thepresent value of the future cash flows.

Unconditional promises are expected to be realizedin the following periods (in thousands):

In one year or less $ 1 6 , 9 6 7Between one year and five years 1 2 1 , 5 9 6More than five years 9 4 , 6 4 1Less: discount of $52,422

and allowance of $10,567 ( 6 2 , 9 8 9 )$ 1 7 0 , 2 1 5

Pledges receivable at June 30, 2006 have the following restrictions (in thousands):

Endowment for departmental programs and activities $ 4 2 , 0 0 4

Endowment for scholarship 3 , 6 1 5Building construction 1 2 , 6 4 8Departmental programs and activities 1 1 1 , 9 4 8

$ 1 7 0 , 2 1 5

NOTE 10

Executed contracts, grants, subcontracts and coop-erative agreements for future sponsored researchactivity which are not reflected in the consolidatedfinancial statements at June 30, 2006 are summa-rized as follows (in thousands):

Current sponsored awards $ 3 1 8 , 5 7 0Executed grants and contracts

for future periods 4 7 5 , 7 9 3$ 7 9 4 , 3 6 3

NOTE 11

At June 30, 2006, internal loans for capital invest-ment were $202,298,000 which are repaid throughnonmandatory transfers from the operating budgetto unexpended plant within unrestricted net assets.The maturity dates range from 2007 to 2034 withvarious interest rates.

Internal loans maturing within each of the next five fiscal years range from $14.4 million to$25.3 million.

NOTE 12

Contractual commitments for educational plantamounted to approximately $147,109,000 at June30, 2006. It is expected that the resources to satisfythese commitments will be provided from certainunexpended plant net assets, anticipated giftsand/or debt proceeds.

Du ring the year ended June 30, 2 0 0 1 , the unive r s i tyentered into an agreement with the County of Los Angeles to provide professional services atLAC+USC Medical Center. Under the terms ofthe agreement the contract automatically renewedon an annual basis unless either party gives fouryears’ notice of the termination.

NOTE 13

Retirement benefits for exempt employees are pro-vided through the Teachers Insurance and AnnuityAssociation and the College Retirement EquitiesFund, The Vanguard Group, AIG SunAmerica,Fidelity Investments and Prudential Financial.Under these defined contribution plans, the univer-sity and plan participants make monthly contribu-tions to purchase individual, fixed or variable annu-ities equivalent to retirement benefits earned or toparticipate in a variety of mutual funds or a fixedincome fund. Benefits commence upon retirementand pre-retirement survivor death benefits are alsoprovided. Charges to education and general activi-ties expenses for the university's share of costs wereapproximately $57,275,000 during the year endedJune 30, 2006.

Note 6 continuedIn addition, HRA entered into a $3,500,000 Interest Rate Swap Agreement in May 2005 and terminates inMay 2020. This swap was executed with the purpose of fixing the rate on the Note. Under the terms of theswap agreement, the floating interest rate on the Note has been effectively fixed at 6.99%. The differencebetween interest earned and the interest obligation accrued is recorded as interest expense. The fair value ofthis agreement at June 30, 2006 was an asset of $124,305.

NOTE 7

Financial aid is awarded to students based on need and merit. Financial aid does not include paymentsmade to students for services rendered to the university. Financial aid for the year ended June 30, 2006 consists of the following (in thousands):

Undergraduate Graduate Total

I n s t i t u t i onal sch o l a r s h i p s $ 1 4 8 , 4 1 3 $ 6 8 , 2 3 5 $ 2 1 6 , 6 4 8E n d owed sch o l a r s h i p s 1 4 , 2 0 4 6 , 5 3 1 2 0 , 7 3 5E x t e rnal financial aid 1 5 , 4 4 6 7 , 1 0 1 2 2 , 5 4 7

$ 1 7 8 , 0 6 3 $ 8 1 , 8 6 7 $ 2 5 9 , 9 3 0

NOTE 8

Endowment net assets are subject to the restrictions of gift instruments requiring that the principal beinvested in perpetuity and only the income be utilized for current and future needs. Long-term investmentnet assets (funds functioning as endowment and departmentally designated funds) have been establishedfrom restricted gifts whose restrictions have been met and unrestricted gifts which have been designated bythe Board of Trustees or management for the same purpose as endowment. The university also has a benefi-cial interest in the net income earned from assets which are held and managed by other trustees.

Endowment and long-term investment net assets functioning as endowment are summarized as follows (in thousands):

Funds functioning DepartmentallyEndowment as endowment designated funds Total

Po o l e d $ 9 4 1 , 9 1 7 $ 1 , 6 7 5 , 8 6 6 $ 9 , 6 6 6 $ 2 , 6 2 7 , 4 4 9Non - p o o l e d 7 9 , 3 6 1 3 5 9 , 1 2 5 4 3 8 , 4 8 6

$ 1 , 0 2 1 , 2 7 8 $ 2 , 0 3 4 , 9 9 1 $ 9 , 6 6 6 $ 3 , 0 6 5 , 9 3 5

Pooled investments represent endowment and long-term investment net assets which have been commin-gled in a unitized pool (unit market value basis) for purposes of investment. The pool is comprised of bonds(8%), stocks (50%), international investments (26%), venture capital (13%) and other investments (3%).Access to or liquidation from the pool is on the basis of the market value per unit on the preceding monthlyvaluation date. The unit market value at June 30, 2006 was $564.29.

The university utilizes a spending rule for its pooled endowment in order to maximize the current and long-term investments of the endowment pool. The spending rule determines the endowment income to bedistributed currently for spending with the provision that any amounts remaining after the distribution betransferred and reinvested in the endowment pool as funds functioning as endowment.

For the 2006 fiscal year, the Board of Trustees approved current distribution of 103% of the prior year’spayout, within a minimum of 4% and a maximum of 6% of the average market value for the previous 12 calendar quarters. Under the provisions of the spending rule, $23.57 was distributed to each time-weightedunit for a total spending rule allocation of $107,572,000. Investment income amounting to $11.76 per timeweighted unit was earned, totaling $53,695,000, and $53,878,000 was appropriated for current operationsfrom cumulative gains of pooled investments. Endowment pool earnings allocated for spending in fiscal year2006 represent 3.9% of the market value of the endowment pool at June 30, 2006. Total earnings allocatedfor spending in fiscal year 2006 represent 3.6% of the market value of total endowment at June 30, 2006.

Ap p rox i m a t e ly $10,004,000 of the unive r s i ty's unre s t ricted lon g - t e rm investments have been designated to support student loans.



Note 13 continuedRetirement benefits for non-exempt employees areprovided through a noncontributory defined bene-fit pension plan. The following table sets forth thep l a n’s funded status at June 30, 2006 (in thousands):

Benefit cost $ 7 , 7 7 0Employer contribution $ 3 , 0 0 0Benefits paid $ 4 , 1 5 4

Accumulated benefit obligationat end of year $ 1 2 7 , 7 5 4

Projected benefit obligation $ 1 4 2 , 5 7 5Fair value of plan assets 1 5 7 , 1 3 9Funded status $1 4 , 5 6 4

Items recognized in the consolidated balance sheet:Prepaid benefit cost $ 3 6 , 4 3 7

Weighted-average assumptions:Discount rate 6 . 2 5 %Expected return on plan assets 8 . 0 0 %Rate of compensation increase 5 . 0 0 %

The overall expected rate of return on assets of 8%is based on historical returns of the plan, as well aslong-term return assumptions given the plan’s assetallocation.

The pension plan’s weighted average asset alloca-tions, by asset category, are as follows:

Target atAsset Category June 30, 2006 June 30, 2006

Equity securities 6 6 . 6 % 6 0 . 0 %Debt securities 3 2 . 1 % 4 0 . 0 %Other 1 . 3 % 0 . 0 %TO TA L 1 0 0 . 0 % 1 0 0 . 0 %

No contribution to the pension plan is required during the fiscal year ending June 30, 2007. Theuniversity may make discretionary contributions to its pension plan during the next fiscal year.This will be reassessed during the year.

The following benefit payments, which reflectexpected future service, as appropriate, areexpected to be paid (in thousands):

Fiscal Year Ending June 30,

2007 $ 4 , 1 5 32008 $ 4 , 6 2 42009 $ 5 , 1 0 52010 $ 5 , 6 7 32011 $ 6 , 2 3 52012 - 2016 $ 4 0 , 4 8 2

NOTE 14

Statement of Financial Accounting Standards(SFAS) No. 106, Employers’ Accounting for Post-retirement Benefits Other Than Pensions, requiresan employer to disclose information in its financialstatements about the obligation to provide post-retirement benefits and the cost of providing thosebenefits. The university established a defined bene-fit post-retirement health care plan that providesmedical coverage to retirees (and their dependents)who retired under an incentive program in 1997.The cost of retiree and dependent medical benefitswill be paid entirely by the university over the next year.

The following table sets forth the plan’s fundedstatus reconciled with the amount shown in theuniversity’s consolidated balance sheet at June 30,2006 (in thousands):

Benefit cost ($ 1 7 6 )Employer contributions $ 4 6 8Plan participant contributions $ 0Benefits paid $ 4 6 8

Benefit obligation $ 6 1 8Fair value of plan assets 0Funded status ( $ 6 1 8 )

Ac c rued benefit cost re c o g n i zed inthe consolidated balance sheet ( $ 1 , 1 0 9 )

Weighted-average assumption:Discount rate 4 . 0 0 %

Note 14 continuedFor measurement purposes, a 5.5% annual rate ofincrease in the per capita cost of post-retirementmedical benefits for the health maintenance organ-ization and indemnity programs was assumed for2006.

The following projected benefit payments and con-tributions are expected to be paid (in thousands):

Fiscal Year Ending June 30,

2007 $ 6 3 0

NOTE 15

The university is contingently liable as guarantoron certain obligations relating to equipment loans,student and parent loans, and various campusorganizations. The university receives funding orreimbursement from governmental agencies forvarious activities, which are subject to audit. Inaddition, certain litigation has been filed againstthe university and in the opinion of universitymanagement, after consultation with legal counsel,the liability, if any, for the aforementioned matterswill not have a material effect on the university'sfinancial position.

NOTE 16

The estimated fair value of the university's bonds,notes and mortgages payable was $413,654,000 atJune 30, 2006. This fair value was estimated basedupon the discounted amount of future cash out-flows using the rates offered to the university fordebt of the same remaining maturities.

Determination of the fair value of notes receivable,which are primarily federally sponsored studentloans with U.S. Government mandated interestrates and re p ayment terms and subject to significa n trestrictions as to their transfer or disposition, couldnot be made without incurring excessive costs.

Investments are carried at market value except forthose for which market values are not readilydeterminable.

NOTE 17

Financial Accounting Standards Board (FASB)Interpretation No. 47, Accounting for ConditionalAsset Retirement Obligations (an interpretationof FASB Statement No. 143) (FIN 47) was issuedin March 2005. This interpretation provides clarifi-cation with respect to the timing of liability recog-nition for legal obligations associated with theretirement of tangible long-lived assets when thetiming and/or method of settlement of the obliga-tion is conditional on a future event. This interpre-tation requires that the fair value of a liability for ac on d i t i onal asset re t i rement obligation be re c o g n i ze din the period in which it occurred if a reasonableestimate of fair value can be made. Upon adoptionof FIN 47 on June 30, 2006, the university recog-nized asset retirement obligations related primarilyto asbestos contamination in buildings and record-ed a non-cash transition charge of approximately$61,892,000 which is reported as a cumulativeeffect of a change in accounting principle in theconsolidated statement of activities, and a liabilityfor conditional asset retirement obligations of$78,500,000.

NOTE 18

On August 22, 2006, the university filed a lawsuitto order a Tenet Healthcare Corporation subsidiaryto give up ownership and con t rol of USC Unive r s i tyHospital. The lawsuit seeks a judicial declarationterminating the university’s agreements with Tenet,an order forcing Tenet to vacate the premises andan order mandating that Tenet deliver a quitclaimdeed to the university to clear title to the premises.The impact of the lawsuit is not determinable atthis time.



2007 SU M M A RY of BU D G ET E D OP ERATI N G REV EN U ES and EX PEN S E S

2006-07 Budget | in thousands

U n d e s i gnated Budget U n d e s i gnated BudgetE d u ca tion and Genera l Health Care Se rv i c e s D e s i gnated Budget Total Budget

2005-06 2006-07 Percent 2005-06 2006-07 Percent 2005-06 2006-07 Percent 2005-06 2006-07 PercentBudget Budget Change Budget Budget Change Budget Budget Change Budget Budget Change

RE V EN U ES

Tu i t i on and fe e s $ 8 9 8 , 3 2 4 $ 9 4 0 , 9 2 6 4 . 7 4 % $ 8 9 8 , 3 2 4 $ 9 4 0 , 9 2 6 4 . 7 4 %Less student aid ( 2 2 3 , 9 4 3 ) ( 2 3 5 , 1 3 5 ) 5 . 0 0 % ( $ 7 4 0 ) ( 1 0 0 . 0 0 % ) ( $ 4 8 , 7 0 5 ) ( $ 4 2 , 2 2 9 ) ( 1 3 . 3 0 % ) ( 2 7 3 , 3 8 8 ) ( 2 7 7 , 3 6 4 ) 1 . 4 5 %

Net tuition and fe e s 6 7 4 , 3 8 1 7 0 5 , 7 9 1 4 . 6 6 % ( 7 4 0 ) ( 1 0 0 . 0 0 % ) ( 4 8 , 7 0 5 ) ( 4 2 , 2 2 9 ) ( 1 3 . 3 0 % ) 6 2 4 , 9 3 6 6 6 3 , 5 6 2 6 . 1 8 %E n d owment incom e 5 5 , 6 0 0 5 7 , 9 8 5 4 . 2 9 % 4 0 , 7 9 2 3 8 , 4 7 7 ( 5 . 6 8 % ) 9 6 , 3 9 2 9 6 , 4 6 2 0 . 0 7 %I nvestment incom e 2 , 8 8 5 4 , 5 3 5 5 7 . 1 9 % 2 , 8 8 5 4 , 5 3 5 5 7 . 1 9 %G i ft s 2 5 , 8 0 8 3 1 , 2 1 5 2 0 . 9 5 % 1 1 5 , 3 3 7 1 3 5 , 5 5 0 1 7 . 5 3 % 1 4 1 , 1 4 5 1 6 6 , 7 6 5 1 8 . 1 5 %C on t racts and grants – dire c t 3 2 5 , 4 6 2 3 3 7 , 5 9 4 3 . 7 3 % 3 2 5 , 4 6 2 3 3 7 , 5 9 4 3 . 7 3 %R e c ove ry of indirect costs:

C on t racts and gra n t s 1 0 5 , 7 0 1 1 0 0 , 6 9 4 ( 4 . 7 4 % ) 1 0 5 , 7 0 1 1 0 0 , 6 9 4 ( 4 . 7 4 % )E n d ow m e n t s / G i ft s 8 , 6 7 4 1 0 , 4 5 5 2 0 . 5 3 % 8 , 6 7 4 1 0 , 4 5 5 2 0 . 5 3 %

Au x i l i a ry enterp ri s e s 1 9 0 , 0 5 9 2 1 9 , 8 2 1 1 5 . 6 6 % 1 9 0 , 0 5 9 2 1 9 , 8 2 1 1 5 . 6 6 %Sales and service and other sourc e s 8 8 , 2 9 1 1 0 0 , 3 4 4 1 3 . 6 5 % 1 4 5 , 9 5 8 1 3 2 , 9 7 3 ( 8 . 9 0% ) 2 3 4 , 2 4 9 2 3 3 , 3 1 7 ( 0 . 4 0% )TO TAL REV EN U ES $ 1 , 1 5 1 , 3 9 9 $ 1 , 2 3 0 , 8 4 0 6 . 9 0 % $ 1 4 5 , 2 1 8 $ 1 3 2 , 9 7 3 ( 8 . 4 3 % ) $ 4 3 2 , 8 8 6 $ 4 6 9 , 3 9 2 8 . 4 3 % $ 1 , 7 2 9 , 5 0 3 $ 1 , 8 3 3 , 2 0 5 6 . 0 0 %

EX PE N S ES

C om p e n s a t i on :Fa c u l ty salari e s $ 2 2 2 , 7 8 0 $ 2 3 5 , 3 4 7 5 . 6 4 % $ 6 8 , 5 3 8 $ 5 8 , 5 0 3 ( 1 4 . 6 4 % ) $ 5 6 , 8 2 9 $ 6 2 , 2 4 6 9 . 5 3 % $ 3 4 8 , 1 4 7 $ 3 5 6 , 0 9 6 2 . 2 8 %Other salaries and wages 3 2 8 , 3 3 5 3 5 4 , 8 1 5 8 . 0 6 % 2 6 , 0 2 0 3 1 , 0 7 8 1 9 . 4 4 % 1 2 8 , 8 3 5 1 3 7 , 1 0 5 6 . 4 2 % 4 8 3 , 1 9 0 5 2 2 , 9 9 8 8 . 2 4 %E m p l oyee benefits 1 5 6 , 3 1 0 1 6 5 , 4 3 1 5 . 8 4 % 3 0 , 2 5 8 2 8 , 2 1 8 ( 6 . 7 4 % ) 4 8 , 6 6 4 4 9 , 3 0 1 1 . 3 1 % 2 3 5 , 2 3 2 2 4 2 , 9 5 0 3 . 2 8 %

TO TAL CO M PEN S ATI O N 7 0 7 , 4 2 5 7 5 5 , 5 9 3 6 . 8 1 % 1 2 4 , 8 1 6 1 1 7 , 7 9 9 ( 5 . 6 2 % ) 2 3 4 , 3 2 8 2 4 8 , 6 5 2 6 . 1 1 % 1 , 0 6 6 , 5 6 9 1 , 1 2 2 , 0 4 4 5 . 2 0 %

C u r rent expense 2 5 8 , 2 3 0 2 8 0 , 5 5 9 8 . 6 5 % 9 , 0 6 3 7 , 0 5 5 ( 2 2 . 1 6 % ) 1 3 9 , 9 7 7 1 6 2 , 0 1 0 1 5 . 7 4 % 4 0 7 , 2 7 0 4 4 9 , 6 2 4 1 0 . 4 0 %Capital financing 6 1 , 1 9 5 7 0 , 9 6 8 1 5 . 9 7 % 6 , 0 1 1 5 , 4 1 5 ( 9 . 9 2% ) 4 5 4 5 4 7 2 0 . 4 8% 6 7 , 6 6 0 7 6 , 9 3 0 1 3 . 7 0 %Pro fe s s i onal serv i c e s 3 0 , 2 2 3 2 8 , 3 9 2 ( 6 . 0 6 % ) 4 , 3 7 7 2 , 0 8 2 ( 5 2 . 4 3 % ) 1 2 , 4 6 3 1 6 , 8 5 1 3 5 . 2 1 % 4 7 , 0 6 3 4 7 , 3 2 5 0 . 5 6 %E q u i pm e n t / L i b ra ry 2 2 , 8 6 5 2 1 , 9 0 6 ( 4 . 1 9 % ) 3 6 8 (1 0 0 . 0 0 % ) 1 7 , 1 2 1 1 1 , 8 4 2 ( 3 0 . 8 3 % ) 4 0 , 3 5 4 3 3 , 7 4 8 ( 1 6 . 3 7 % )Ut i l i t i e s / Te l e ph on e 3 2 , 9 2 6 3 5 , 2 4 2 7 . 0 3 % 3 2 , 9 2 6 3 5 , 2 4 2 7 . 0 3 %O f f - campus facilities 1 5 , 8 8 1 1 5 , 9 7 0 0 . 5 6 % 3 2 9 1 3 , 0 5 5 1 2 , 8 4 7 ( 1 . 5 9 % ) 2 9 , 2 6 5 2 8 , 8 1 7 ( 1 . 5 3 % )Tra ve l 1 2 , 4 0 5 1 4 , 4 8 1 1 6 . 7 4 % 4 5 2 3 ( 4 8 . 8 9 % ) 1 4 , 4 0 2 1 5 , 9 8 0 1 0 . 9 6 % 2 6 , 8 5 2 3 0 , 4 8 4 1 3 . 5 3 %Rentals and leases 1 0 , 2 4 9 7 , 7 2 9 ( 2 4 . 5 9 % ) 2 0 9 5 9 9 1 8 6 . 6 0 % 1 , 0 8 6 6 6 3 ( 3 8 . 9 5% ) 1 1 , 5 4 4 8 , 9 9 1 ( 2 2 . 1 2 % )TO TAL EX PEN S ES $ 1 , 1 5 1 , 3 9 9 $ 1 , 2 3 0 , 8 4 0 6 . 9 0 % $ 1 4 5 , 2 1 8 $ 1 3 2 , 9 7 3 ( 8 . 4 3 % ) $ 4 3 2 , 8 8 6 $ 4 6 9 , 3 9 2 8 . 4 3 % $ 1 , 7 2 9 , 5 0 3 $ 1 , 8 3 3 , 2 0 5 6 . 0 0 %


2007 CO LLE G ES, SC HO O L S, CEN T ER S and IN S T I T U T E S

Individual Revenue Center Summary | 2006-07 Budget | in thousands

Annenberg Center Annenberg School School offor Communication for Communication School of Architecture Cinematic Arts

Undesignated Designated Undesignated Designated Undesignated Designated Undesignated Designated RE V EN U ES

Direct $ 7 , 2 9 5 $ 7 4 5 $ 3 3 , 6 7 8 $ 9 , 1 0 0 $ 1 0 , 9 9 1 $ 1 , 7 4 3 $ 3 1 , 8 8 9 $ 1 0 , 0 0 8Center 7,295 745 42,163 9,100 14,831 1,743 40,214 10,008UG Student Aid Fu n d ( 7 , 5 5 2 ) ( 3 , 4 6 7 ) ( 7 , 3 1 2 )Facilities Impro vement Fu n d ( 9 3 3 ) ( 3 7 3 ) ( 1 , 0 1 3 )

Indirect (5 ) ( 3 6 9 ) ( 9 5 7 ) ( 1 , 2 6 0 )Pa rticipation ( 5 ) ( 2 , 4 2 9 ) ( 9 7 3 ) ( 2 , 6 3 6 )Academic Initiatives 130Provost’s Initiatives 8 16 146Graduate Programs 2,052 1,100

TO TAL REV EN U ES $ 7 , 2 9 0 $ 7 4 5 $ 3 3 , 3 0 9 $ 9 , 1 0 0 $ 1 0 , 0 3 4 $ 1 , 7 4 3 $ 3 0 , 6 2 9 $ 1 0 , 0 0 8

EX PE N S ES

Direct $ 5 , 7 4 0 $ 7 4 5 $ 2 6 , 7 8 9 $ 9 , 1 0 0 $ 6 , 5 4 9 $ 1 , 7 4 3 $ 2 0 , 1 2 1 $ 1 0 , 0 0 8Indirect 1 , 5 5 0 6 , 5 2 0 3 , 4 8 5 1 0 , 5 0 8

Allocated Central Costs 1,153 5,622 2,838 9,072Facilities Based 397 898 647 1,436

TO TAL EX PEN S ES $ 7 , 2 9 0 $ 7 4 5 $ 3 3 , 3 0 9 $ 9 , 1 0 0 $ 1 0 , 0 3 4 $ 1 , 7 4 3 $ 3 0 , 6 2 9 $ 1 0 , 0 0 8

Centers for Creative Davis SchoolTechnologies of Gerontology Gould School of Law Graduate Programs


Direct $ 3 , 9 1 6 $ 2 7 , 9 7 0 $ 5 , 1 9 2 $ 7 , 9 4 0 $ 3 2 , 0 0 9 $ 2 , 4 9 1 $ 4 6 , 8 8 4Center 3,916 27,970 5,647 7,940 33,077 2,491 46,884UG Student Aid Fu n d ( 3 9 1 ) ( 2 9 2 )Facilities Impro vement Fu n d ( 6 4 ) ( 7 7 6 )

Indirect ( 2 4 4 ) 1 , 5 6 2 1 , 0 0 6 ( 4 6 , 7 8 0 )Pa rticipation ( 2 4 4 ) ( 2 7 1 ) ( 1 , 8 4 1 )Academic Initiatives 1,200 2,000 16,200Provost’s Initiatives 847Graduate Programs 633 (62,980)

TO TAL REV EN U ES $ 3 , 6 7 2 $ 2 7 , 9 7 0 $ 6 , 7 5 4 $ 7 , 9 4 0 $ 3 3 , 0 1 5 $ 2 , 4 9 1 $ 1 0 4

EX PE N S ES

Direct $ 3 , 0 9 6 $ 2 7 , 9 7 0 $ 3 , 0 4 8 $ 7 , 9 4 0 $ 2 4 , 8 3 7 $ 2 , 4 9 1 $ 1 0 4Indirect 5 7 6 3 , 7 0 6 8 , 1 7 8

Allocated Central Costs 576 3,200 6,989Facilities Based 506 1,189

TO TAL EX PEN S ES $ 3 , 6 7 2 $ 2 7 , 9 7 0 $ 6 , 7 5 4 $ 7 , 9 4 0 $ 3 3 , 0 1 5 $ 2 , 4 9 1 $ 1 0 4

College of Letters, Marshall School School of Policy, Planning,Arts and Sciences of Business and Development Roski School of Fine Arts


Direct $ 1 9 8 , 7 3 8 $ 5 4 , 2 4 4 $ 1 2 0 , 7 2 1 $ 1 3 , 6 8 3 $ 2 2 , 8 6 3 $ 9 , 9 9 8 $ 6 , 9 0 3 $ 5 2 0Center 281,813 54,244 150,316 13,683 26,209 9,998 9,663 520UG Student Aid Fu n d ( 7 6 , 2 1 5 ) ( 2 5 , 7 9 5 ) ( 2 , 6 1 0 ) ( 2 , 5 2 5 )Facilities Impro vement Fu n d ( 6 , 8 6 0 ) ( 3 , 8 0 0 ) ( 7 3 6 ) ( 2 3 5 )

Indirect 1 2 , 3 0 4 ( 8 , 2 1 0 ) ( 3 6 9 ) ( 4 9 3 )Pa rticipation ( 1 9 , 1 0 1 ) ( 9 , 7 0 2 ) ( 1 , 8 1 9 ) ( 6 2 8 )Academic Initiatives 200 100Provost’s Initiatives 509 13Graduate Programs 30,696 1,492 1,450 22

TO TAL REV EN U ES $ 2 1 1 , 0 4 2 $ 5 4 , 2 4 4 $ 1 1 2 , 5 1 1 $ 1 3 , 6 8 3 $ 2 2 , 4 9 4 $ 9 , 9 9 8 $ 6 , 4 1 0 $ 5 2 0

EX PE N S ES

Direct $ 1 3 7 , 7 3 5 $ 5 4 , 2 4 4 $ 8 2 , 3 7 9 $ 1 3 , 6 8 3 $ 1 4 , 9 4 3 $ 9 , 9 9 8 $ 4 , 6 0 7 $ 5 2 0Indirect 73,307 3 0 , 1 3 2 7 , 5 5 1 1 , 8 0 3

Allocated Central Costs 61,156 28,014 6,813 1,504Facilities Based 12,151 2,118 738 299

TO TAL EX PEN S ES $ 2 1 1 , 0 4 2 $ 5 4 , 2 4 4 $ 1 1 2 , 5 1 1 $ 1 3 , 6 8 3 $ 2 2 , 4 9 4 $ 9 , 9 9 8 $ 6 , 4 1 0 $ 5 2 0

Rossier School Summer and of Education School of Social Work Special Programs School of Theatre

Undesignated Designated Undesignated Designated Undesignated Designated Undesignated DesignatedRE V EN U ES

Direct $ 2 1 , 7 6 7 $ 4 , 1 2 7 $ 1 7 , 8 2 2 $ 4 , 7 6 3 $ 2 , 1 7 2 $ 9 , 6 3 7 $ 4 2 7Center 23,021 4,127 18,427 4,763 2,205 13,659 427UG Student Aid Fu n d ( 7 0 3 ) ( 7 9 ) ( 3 , 6 9 4 )Facilities Impro vement Fu n d ( 5 5 1 ) ( 5 2 6 ) ( 3 3 ) ( 3 2 8 )

Indirect (5 7 2 ) ( 5 7 6 ) ( 2 3 8 )Pa rticipation ( 1 , 4 6 6 ) ( 1 , 2 4 8 ) ( 8 7 8 )Academic Initiatives 325 393Provost’s Initiatives 35 3 194Graduate Programs 534 669 53

TO TAL REV EN U ES $ 2 1 , 1 9 5 $ 4 , 1 2 7 $ 1 7 , 2 4 6 $ 4 , 7 6 3 $ 2 , 1 7 2 $ 9 , 3 9 9 $ 4 2 7

EX PE N S ES

Direct $ 1 6 , 0 6 1 $ 4 , 1 2 7 $ 1 2 , 9 8 3 $ 4 , 7 6 3 $ 2 , 1 7 2 $ 6 , 7 4 8 $ 4 2 7Indirect 5 , 1 3 4 4 , 2 6 3 2 , 6 5 1

Allocated Central Costs 4,511 3,955 2,045Facilities Based 623 308 606

TO TAL EX PEN S ES $ 2 1 , 1 9 5 $ 4 , 1 2 7 $ 1 7 , 2 4 6 $ 4 , 7 6 3 $ 2 , 1 7 2 $ 9 , 3 9 9 $ 4 2 7

Total Colleges, Schools,Thornton School of Music Academic Programs I n f o rmation Sciences Institu te Centers and Institutes


Direct $ 2 1 , 1 6 5 $ 1 , 5 4 8 $ 7 2 , 5 2 3 $ 4 4 , 2 3 9 $ 9 , 2 4 1 $ 6 3 , 5 1 2 $ 6 7 5 , 4 0 6 $ 2 5 7 , 0 5 8Center 27,578 1,548 83,067 44,239 9,241 63,512 839,226 257,058UG Student Aid Fu n d ( 5 , 7 3 9 ) ( 8 , 5 8 7 ) ( 1 4 4 , 9 6 1 )Facilities Impro vement Fu n d ( 6 7 4 ) ( 1 , 9 5 7 ) ( 1 8 , 8 5 9 )

Indirect 2 , 6 3 7 1 9 , 3 0 9 ( 6 1 ) ( 2 3 , 3 1 6 )Pa rticipation ( 1 , 8 0 6 ) ( 5 , 7 8 6 ) ( 5 1 1 ) ( 5 1 , 3 4 4 )Academic Initiatives 4,200 9,000 450 34,198Provost’s Initiatives 46 5 1,822Graduate Programs 197 16,090 (7,992)

TO TAL REV EN U ES $ 2 3 , 8 0 2 $ 1 , 5 4 8 $ 9 1 , 8 3 2 $ 4 4 , 2 3 9 $ 9 , 1 8 0 $ 6 3 , 5 1 2 $ 6 5 2 , 0 9 0 $ 2 5 7 , 0 5 8

EX PE N S ES

Direct $ 1 6 , 4 5 2 $ 1 , 5 4 8 $ 5 7 , 4 1 0 $ 4 4 , 2 3 9 $ 7 , 0 2 1 $ 6 3 , 5 1 2 $ 4 4 8 , 7 9 5 $ 2 5 7 , 0 5 8Indirect 7 , 3 5 0 3 4 , 4 2 2 2 , 1 5 9 2 0 3 , 2 9 5

Allocated Central Costs 6,422 28,496 2,159 174,525Facilities Based 928 5,926 28,770

TO TAL EX PEN S ES $ 2 3 , 8 0 2 $ 1 , 5 4 8 $ 9 1 , 8 3 2 $ 4 4 , 2 3 9 $ 9 , 1 8 0 $ 6 3 , 5 1 2 $ 6 5 2 , 0 9 0 $ 2 5 7 , 0 5 8

DEF I N I T I O N S:

Direct Revenues and Direct Expenses in Revenue Centersinclude all categories displayed in the Summary of BudgetedOperating Revenues and Expenses.

Center Revenues are directly generated by the center less anyfinancial aid paid from center funds.

The Undergraduate Student Aid is centrally administeredand charged to academic centers on a pre-determined percent of undergraduate tuition. For fiscal year 2006-2007,the rate is 28%.

Indirect Revenues are the sum of Participation, AcademicInitiatives, Provost’s Initiatives, and Graduate Programs.

Participation is a tax on gross tuition revenue, recovery ofindirect costs, sales and service and other sources. For fiscalyear 2006-2007, the rate is 6.4%.

Academic Initiatives funding is for specific activities for alimited time period.

Provost’s Initiatives funding is allocated from centrallycontrolled funds to support university priorities.

Graduate Programs funding is provided to schools in supportof graduate education. All PhD tuition is centralized andallocated to various schools based on academic priorities.

Indirect Expenses are the sum of Allocated Central Costsand Facilities Based and equal the net budgets of administra-tive centers (see Individual Administrative Centers 2006-2007 Budget by Presidential and Senior Vice PresidentialResponsibility Area).

Allocated Central Costs are central administrative costs that benefit the university as a whole and are allocated torevenue centers.

Facilities Based Indirects are space related costs that can belinked directly to a center’s occupancy.

Viterbi School of Engineering


2007 AU X I LI A RI ES and AT H LE T I C S


2007 HE A LT H SC I EN C ES SC HO O L S and HE A LT H CA R E SERV I C E S


Total HealthSchool of Dentistry Keck School of Medicine School of Pharmacy Sciences Schools


Direct $ 7 6 , 9 7 1 $ 1 1 , 4 3 8 $ 1 2 8 , 6 6 6 $ 1 6 5 , 8 6 7 $ 4 0 , 1 5 7 $ 8 , 5 9 5 $ 2 4 5 , 7 9 4 $ 1 8 5 , 9 0 0Center 80,089 11,438 131,271 165,867 40,930 8,595 252,290 185,900UG Student Aid Fu n d ( 1 , 3 7 0 ) ( 1 , 4 1 0 ) ( 2 , 7 8 0 )Facilities Impro vement Fu n d ( 1 , 7 4 8 ) ( 1 , 1 9 5 ) ( 7 7 3 ) ( 3 , 7 1 6 )

Indirect ( 4 , 0 1 9 ) 1 1 , 8 9 5 ( 1 , 6 2 5 ) 6 , 2 5 1Pa rticipation ( 5 , 1 2 0 ) ( 5 , 5 8 5 ) ( 2 , 6 5 2 ) ( 1 3 , 3 5 7 )Academic Initiatives 11,585 11,585Provost’s Initiatives 31 31Graduate Programs 1,101 5,864 1,027 7,992

TO TAL REV EN U ES $ 7 2 , 9 5 2 $ 1 1 , 4 3 8 $ 1 4 0 , 5 6 1 $ 1 6 5 , 8 6 7 $ 3 8 , 5 3 2 $ 8 , 5 9 5 $ 2 5 2 , 0 4 5 $ 1 8 5 , 9 0 0

EX PE N S ES

Direct $ 5 5 , 2 8 9 $ 1 1 , 4 3 8 $ 9 8 , 2 0 4 $ 1 6 5 , 8 6 7 $ 3 0 , 1 5 7 $ 8 , 5 9 5 $ 1 8 3 , 6 5 0 $ 1 8 5 , 9 0 0Indirect 1 7 , 6 6 3 4 2 , 3 5 7 8 , 3 7 5 6 8 , 3 9 5

Allocated Central Costs 14,296 32,410 7,145 53,851Facilities Based 3,367 9,947 1,230 14,544

TO TAL EX PEN S ES $ 7 2 , 9 5 2 $ 1 1 , 4 3 8 $ 1 4 0 , 5 6 1 $ 1 6 5 , 8 6 7 $ 3 8 , 5 3 2 $ 8 , 5 9 5 $ 2 5 2 , 0 4 5 $ 1 8 5 , 9 0 0

Total HealthDentistry Health Care Medicine Health Care Pharmacy Health Care Care Services


Direct $ 1 , 4 8 3 $ 1 2 7 , 5 4 4 $ 3 , 9 4 6 $ 1 3 2 , 9 7 3Center 1,483 127,544 3,946 132,973UG Student Aid Fu n dFacilities Impro vement Fu n d

Indirect Pa rticipation Academic Initiatives Provost’s Initiatives Graduate Programs

TO TAL REV EN U ES $ 1 , 4 8 3 $ 1 2 7 , 5 4 4 $ 3 , 9 4 6 $ 1 3 2 , 9 7 3

EX PE N S ES

Direct $ 1 , 4 5 7 $ 1 2 4 , 0 2 3 $ 3 , 8 9 8 $ 1 2 9 , 3 7 8Indirect 2 6 3 , 5 2 1 4 8 3 , 5 9 5

Allocated Central Costs 26 3,521 48 3,595Facilities Based

TO TAL EX PEN S ES $ 1 , 4 8 3 $ 1 2 7 , 5 4 4 $ 3 , 9 4 6 $ 1 3 2 , 9 7 3

Housing andAnimal Resources Hospitality Services Residence Halls Intercollegiate Athletics


Direct $ 4 7 9 $ 2 9 , 7 8 4 $ 4 1 , 0 9 3 $ 5 6 , 4 2 3 $ 4 , 7 2 2Center 479 29,784 41,093 56,423 4,722UG Student Aid FundFacilities Improvement Fund

Indirect Participation Academic Initiatives Provost’s Initiatives Graduate Programs

TO TAL REV EN U ES $ 4 7 9 $ 2 9 , 7 8 4 $ 4 1 , 0 9 3 $ 5 6 , 4 2 3 $4,722

EX PE N S ES

Direct ( $ 1 , 0 2 7 ) $ 2 6 , 8 8 4 $ 3 3 , 4 0 9 $ 4 9 , 0 2 9 $4,722 Indirect 1 , 5 0 6 2 , 9 0 0 7 , 6 8 4 7 , 3 9 4

Allocated Central Costs 578 2,014 4,568 5,093Facilities Based 928 886 3,116 2,301

TO TAL EX PEN S ES $ 4 7 9 $ 2 9 , 7 8 4 $ 4 1 , 0 9 3 $ 5 6 , 4 2 3 $4,722

Student Health andKUSC Counseling Services Transportation Services University Bookstores


Direct $ 5 , 3 2 3 $ 4 0 7 $ 3 0 , 1 3 4 $ 1 7 , 1 0 6 $ 4 8 , 4 6 2Center 5,323 407 30,134 17,106 48,462UG Student Aid FundFacilities Improvement Fund

Indirect Participation Academic Initiatives Provost’s Initiatives Graduate Programs

TO TAL REV EN U ES $ 5 , 3 2 3 $ 4 0 7 $ 3 0 , 1 3 4 $ 1 7 , 1 0 6 $ 4 8 , 4 6 2

EX PE N S ES

Direct $ 4 , 7 6 0 $ 4 0 7 $ 2 8 , 1 4 1 $ 1 2 , 5 3 0 $ 4 5 , 3 1 4Indirect 5 6 3 1 , 9 9 3 4 , 5 7 6 3,148

Allocated Central Costs 563 1,643 3,460 2,620Facilities Based 350 1,116 528

TO TAL EX PEN S ES $ 5 , 3 2 3 $ 4 0 7 $ 3 0 , 1 3 4 $ 1 7 , 1 0 6 $ 4 8 , 4 6 2

Total AuxiliariesUniversity Club University Radisson Hotel University Village and Athletics


Direct $ 3 4 8 $ 5 , 9 6 0 $ 3 , 3 5 3 $ 2 3 8 , 4 6 5 $ 5 , 1 2 9Center 348 5,960 3,353 238,465 5,129UG Student Aid FundFacilities Improvement Fund

Indirect 1 0 0 1 0 0Participation Academic Initiatives 100 100Provost’s Initiatives Graduate Programs

TO TAL REV EN U ES $ 4 4 8 $ 5 , 9 6 0 $ 3 , 3 5 3 $ 2 3 8 , 5 6 5 $ 5 , 1 2 9

EX PE N S ES

Direct $ 1 3 3 $ 5 , 9 6 0 $ 2 , 9 1 9 $ 2 0 8 , 0 5 2 $ 5 , 1 2 9Indirect 3 1 5 4 3 4 3 0 , 5 1 3

Allocated Central Costs 216 434 21,189Facilities Based 99 9,324

TO TAL EX PEN S ES $ 4 4 8 $ 5 , 9 6 0 $ 3 , 3 5 3 $ 2 3 8 , 5 6 5 $ 5 , 1 2 9


2007 IN D I V I D UA L A D M I N I S T RAT I V E CEN T ER S by PRE S I D EN T I A L

and SEN I O R VI C E PRE S I D EN T I A L RES P O N S I B I LI T Y A RE A


2007 CLA S S I F I CAT I O N by CEN T ER


Colleges, Schools,Centers and Institutes Health Sciences Schools Health Care Services

Undesignated Designated Undesignated Designated Undesignated DesignatedRE V EN U ES

Direct $ 6 7 5 , 4 0 6 $ 2 5 7 , 0 5 8 $ 2 4 5 , 7 9 4 $ 1 8 5 , 9 0 0 $ 1 3 2 , 9 7 3Center 839,226 257,058 252,290 185,900 132,973UG Student Aid Fu n d ( 1 4 4 , 9 6 1 ) ( 2 , 7 8 0 )Facilities Impro vement Fu n d ( 1 8 , 8 5 9 ) ( 3 , 7 1 6 )

Indirect ( 2 3 , 3 1 6 ) 6 , 2 5 1Pa rticipation ( 5 1 , 3 4 4 ) ( 1 3 , 3 5 7 )Academic Initiatives 34,198 11,585Provost’s Initiatives 1,822 31Graduate Programs (7,992) 7,992

TO TAL REV EN U ES $ 6 5 2 , 0 9 0 $ 2 5 7 , 0 5 8 $ 2 5 2 , 0 4 5 $ 1 8 5 , 9 0 0 $ 1 3 2 , 9 7 3

EX PE N S ES

Direct $ 4 4 8 , 7 9 5 $ 2 5 7 , 0 5 8 $ 1 8 3 , 6 5 0 $ 1 8 5 , 9 0 0 $ 1 2 9 , 3 7 8Indirect 2 0 3 , 2 9 5 6 8 , 3 9 5 3 , 5 9 5

Allocated Central Costs 174,525 53,851 3,595Facilities Based 28,770 14,544

TO TAL EX PEN S ES $ 6 5 2 , 0 9 0 $ 2 5 7 , 0 5 8 $ 2 5 2 , 0 4 5 $ 1 8 5 , 9 0 0 $ 1 3 2 , 9 7 3

Auxiliaries and Athletics Total Revenue Centers Administrative Centers

Undesignated Designated Undesignated Designated Undesignated Designated RE V EN U ES

Direct $ 2 3 8 , 4 6 5 $ 5 , 1 2 9 $ 1 , 2 9 2 , 6 3 8 $ 4 4 8 , 0 8 7 $ 6 4 , 7 8 2 $ 2 1 , 3 0 5Center 238,465 5,129 1,462,954 448,087 (105,534) 21,305UG Student Aid Fund (147,741) 147,741Facilities Improvement Fund (22,575) 22,575

Indirect 1 0 0 ( 1 6 , 9 6 5 ) 3 4 0Participation (64,701)Academic Initiatives 100 45,883Provost’s Initiatives 1,853 340Graduate Programs

TO TAL REV EN U ES $ 2 3 8 , 5 6 5 $ 5 , 1 2 9 $ 1 , 2 7 5 , 6 7 3 $ 4 4 8 , 0 8 7 $ 6 5 , 1 2 2 $ 2 1 , 3 0 5

EX PE N S ES

Direct $ 2 0 8 , 0 5 2 $ 5 , 1 2 9 $ 9 6 9 , 8 7 5 $ 4 4 8 , 0 8 7 $ 3 7 0 , 9 2 0 $ 2 1 , 3 0 5Indirect 3 0 , 5 1 3 3 0 5 , 7 9 8 ( 3 0 5 , 7 9 8 )

Allocated Central Costs 21,189 253,160 (253,160)Facilities Based 9,324 52,638 (52,638)

TO TAL EX PEN S ES $ 2 3 8 , 5 6 5 $ 5 , 1 2 9 $ 1 , 2 7 5 , 6 7 3 $ 4 4 8 , 0 8 7 $ 6 5 , 1 2 2 $ 2 1 , 3 0 5

Provost Funding Total University

Undesignated Designated Undesignated DesignatedRE V EN U ES

Direct $ 6 , 3 9 3 $ 1 , 3 6 3 , 8 1 3 $ 4 6 9 , 3 9 2Center 6,393 1,363,813 469,392UG Student Aid FundFacilities Improvement Fund

Indirect 1 6 , 6 2 5Participation 6 4 , 7 0 1Academic Initiatives (45,883)Provost’s Initiatives (2,193)Graduate Programs

TO TAL REV EN U ES $ 2 3 , 0 1 8 $ 1 , 3 6 3 , 8 1 3 $ 4 6 9 , 3 9 2

EX PE N S ES

Direct $ 2 3 , 0 1 8 $ 1 , 3 6 3 , 8 1 3 $ 4 6 9 , 3 9 2Indirect

Allocated Central CostsFacilities Based

TO TAL EX PEN S ES $ 2 3 , 0 1 8 $ 1 , 3 6 3 , 8 1 3 $ 4 6 9 , 3 9 2

Net EmployeeOperating Benefits

Budget Budget

President:

President’s Office $ 3 , 2 1 4 —

Provost and Senior Vice President for Academic Affairs:

Academic Senate $ 1 8 1Academic Services 1 , 6 5 3Enrollment Services 1 5 , 9 4 1Emeriti Center 3 6 0Evaluation Services 1 0 3Faculty Sabbaticals $ 1 1 , 5 0 0Graduate School/Programs 2 , 5 1 5Information Technology Services 30,167Provost’s Office 1 4 , 0 6 1Student Affairs 9 , 8 0 6 3 4 7University Art Galleries 4 4 6University Libraries 32,061USC Stevens 1,706TO TA L $ 1 0 9 , 0 0 0 $ 1 1 , 8 4 7

Senior Vice President, Administration:

Administrative Operations $ 2 , 0 6 0 $ 3 , 3 2 5Audit Services 1 , 4 2 9Career and Protective Services 2 6 , 7 0 2 1 1 , 1 8 4Center for Work and Family Life 7 0 1Compliance 1 , 8 3 2Contracts and Grants 3 , 3 5 3General Counsel 8 , 0 3 3Senior Vice President’s Office 1 , 8 3 4University Real Estate 2 , 8 8 0TO TA L $ 4 8 , 1 2 3 $ 1 5 , 2 1 0

Net EmployeeOperating Benefits

Budget Budget

Senior Vice President, Finance & CFO:

Administrative Information Systems $11,623Budget and Planning 1 , 6 0 0 $ 6 4 3Campus Development 1 , 0 5 3Comptroller 6 , 6 3 3 2 2 4 , 4 6 1Corporate Expense 1 7 , 0 8 6Facilities Management Services 6 7 , 5 1 9Financial and Business Services 1 2 , 5 1 5Major Maintenance and Renovation 2 , 0 5 7Off Campus Facilities 4 5 9Senior Vice President's Office 2 , 8 3 9Tram, Escort Services & Rideshare 2 , 5 1 8 8 1 9Treasurer 1 , 3 4 7TO TA L $ 1 2 7 , 2 4 9 $ 2 2 5 , 9 2 3

Senior Vice President, University Advancement:

Senior Vice President’s Office $ 7 , 5 3 2 —

Senior Vice President, University Relations:

University Relations $ 9 , 2 9 8USC Alumni Association 1 , 3 8 2TO TA L $ 1 0 , 6 8 0 —

Employee Benefit Recoveries ( $ 2 5 2 , 9 8 0 )TO TAL ADMINIST RAT IVE CEN T ERS $ 3 0 5 , 7 9 8

Undergraduate Student Aid Fund $ 1 4 7 , 7 4 1Facilities Improvement Fund 2 2 , 5 7 5G RAND TO TA L $ 4 7 6 , 1 1 4 —


OF F I C ER S, A D M I N I S T RATI V E EX E C U TI V ES

and ACA D EM I C DE A N S

BOA R D O F TRU S T EE S

Wallis AnnenbergGale K. BensussenCharles F. Bolden, Jr.Joseph M. BoskovichGregory P. BrakovichAlexander L. CappelloAlan I. CasdenRonnie C. ChanYang Ho ChoFrank H. CruzDavid H. DornsifeMichele Dedeaux EngemannDaniel J. EpsteinStanley P. Gold, ChairmanPatrick C. HadenAnn L. HillB. Wayne Hughes, Sr.Ray R. IraniSuzanne Nora JohnsonBruce E. KaratzLydia H. KennardJohn F. KingJohn KusmierskyDaniel D. LaneMónica C. LozanoKathleen L. McCarthyJerry W. NeelyHarlyne NorrisJoan A. PaydenJane Hoffman PopovichBlake QuinnBruce M. RamerLorna Y. ReedLinda Johnson RiceEdward P. Roski, Jr.Barbara J. RossierSteven B. Sample, PresidentWilliam J. SchoenWilliam E. B. SiartRobert H. SmithJeffrey H. SmulyanGlenn A. SonnenbergSteven SpielbergMark A. Stevens

Ronald D. SugarRatan N. TataRonald N. TutorAndrew J. ViterbiWillis B. Wood, Jr.

LI F E TRU S T EES

George N. BooneMalcolm R. CurrieMontgomery R. FisherGavin S. HerbertWilliam M. Keck IIHerbert G. KleinKenneth LeventhalGordon C. LuceWilliam LyonAlfred E. MannGordon S. MarshallToshiaki OgasawaraJ. Douglas PardeeFrank PriceAllen E. PuckettVirginia M. RamoCarl E. ReichardtForrest N. ShumwayRichard J. StegemeierDavid S. Tappan, Jr.Peter V. UeberrothRaymond A. WattGin D. Wong

TRU S T EE EM ERI T U S

John R. Hubbard

HO N O RA RY TRU S T EE S

Louis J. GalenMerwyn C. GillKatherine B. LokerFlora Laney ThorntonCarmen H. Warschaw

OF F I C ERS A N D EX E C U T I V ES

Steven B. SamplePresident

C. L. Max NikiasProvost and Senior Vice President,Academic Affairs

Todd R. DickeySenior Vice President, AdministrationGeneral Counsel and Secretary of the University

Dennis F. DoughertySenior Vice President, FinanceChief Financial Officer

Martha HarrisSenior Vice President, University Relations

Alan KreditorSenior Vice President, University Advancement

Erik D. BrinkUniversity Comptroller

Elizabeth GarrettVice President, Academic Planning and Budget

Michael L. JacksonVice President, Student Affairs

Carolyn Webb de MacíasVice President, External Relations

Ruth WernigTreasurer

Curtis D. WilliamsVice President, Campus Development and Facilities Management

ACA D E M I C DE A N S

Joseph Aoun College of Letters, Arts and Sciences

Geoffrey Cowan Annenberg School for Communication

Robert A. Cutietta Thornton School of Music

Elizabeth M. DaleyCinema-Television

Gerald C. DavisonArchitecture

Marilyn L. FlynnSocial Work

Karen Symms Gallagher Rossier School of Education

Thomas W. GilliganMarshall School of Business

Brian E. HendersonKeck School of Medicine

Jack H. KnottPolicy, Planning, and Development

Madeline PuzoTheatre

Harold C. SlavkinDentistry

Matthew L. SpitzerGould School of Law

R. Pete VanderveenPharmacy

Ruth E. WeisbergRoski School of Fine Arts

Yannis YortsosViterbi School of Engineering

Elizabeth M. ZelinskiLeonard Davis School of Gerontology

BOA RD of TR U S T EE S, LI F E TR U S T EES ,TRU S T E E EM ER I TU S and HO N O RA RY TRU S T E ES

U N I V ER S IT Y O F S O U T HER N CA LI F O R N AFinancial Report 2 0 0 628

RO LE and MI S S I O N of the UN I V ER S I T Y

The central mission of the University of SouthernCalifornia is the development of human beings and society as a whole through the cultivationand enrichment of the human mind and spirit.The principal means by which our mission isaccomplished are teaching, research, artistic creation, professional practice and selected forms of public service.

Our first priority as faculty and staff is the education of our students, from freshmen to postdoctorals, through a broad array of academic,professional, extracurricular and athletic programsof the first rank. The integration of liberal and professional learning is one of USC’s specialstrengths. We strive constantly for excellence inteaching knowledge and skills to our students,while at the same time helping them to acquirewisdom and insight, love of truth and beauty,moral discernment, understanding of self, andrespect and appreciation for others.

Research of the highest quality by our facultyand students is fundamental to our mission. USCis one of a very small number of premier academicinstitutions in which research and teaching areinextricably intertwined, and on which the nationdepends for a steady stream of new knowledge, artand technology. Our faculty are not simply teachersof the works of others, but active contributors towhat is taught, thought and practiced throughoutthe world.

USC is pluralistic, welcoming outstanding menand women of every race, creed and background.We are a global institution in a global center,attracting more international students over theyears than any other American university. And we are private, unfettered by political control,strongly committed to academic freedom, andproud of our entrepreneurial heritage.

An extraordinary closeness and willingness to help one another are evident among USC students,alumni, faculty, and staff; indeed, for those withinits compass the Trojan Family is a genuinely sup-portive community. Alumni, trustees, volunteersand friends of USC are essential to this familytradition, providing generous financial support,participating in university governance, and assisting students at every turn.

In our surrounding neighborhoods and around the globe, USC provides public leadership andpublic service in such diverse fields as health care,economic development, social welfare, scientificresearch, public policy and the arts. We also servethe public interest by being the largest privateemployer in the city of Los Angeles, as well as thecity’s largest export industry in the private sector.

USC has played a major role in the development of Southern California for more than a century,and plays an increasingly important role in thedevelopment of the nation and the world. Weexpect to continue to play these roles for manycenturies to come. Thus our planning, commit-ments and fiscal policies are directed towardbuilding quality and excellence in the long term.

Adopted by the USC Board of Trustees,February 3, 1993

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