F–6 STANDING COMMITTEES Finance and Asset Management Committee Approve 2018 Audited Financial Statements and Report RECOMMENDED ACTION It is the recommendation of the Finance and Asset Management Committee that the Board of Regents approve the receipt and acceptance of the independent auditor’s report (KPMG) to the Board on the Financial Statements produced by University management. Regent Zeeck, Chair of the Audit Advisory Committee Chair, Jeff Scott, Treasurer of the Board and Executive Vice President, Finance & Administration, and Brian McCartan, Vice President UW Finance, will report. The UW 2018 Financial Report will be available online at annualreport.uw.edu following the meeting of the Board, subject to its acceptance by the Board. The Independent Auditor’s report is found on pages 3 and 4 (pages 1 and 2 as paginated in the original printing) of the attached financial report. Attachments University of Washington 2018 Financial Report F–6/211-18 11/8/18 ATTACHMENT F-6.1/211-18 11/8/18 Page 1 of 56 2018 FINANCIAL REPORT Table of Contents 1 INDEPENDENT AUDITORS’ REPORT 3 MANAGEMENT’S DISCUSSION AND ANALYSIS 15 FINANCIAL STATEMENTS 20 NOTES TO FINANCIAL STATEMENTS 49 SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATION INSIDE BACK COVER BOARD OF REGENTS AND ADMINISTRATIVE OFFICERS University Facts FISCAL YEAR 2018 FISCAL YEAR 2013 FISCAL YEAR 2008 Academic Year Academic Year Academic Year 2017–2018 2012–2013 2007–2008 STUDENTS Autumn Enrollment (headcount) Undergraduate 41,670 36,785 32,355 Graduate 14,059 12,782 10,591 Professional 2,126 1,999 1,803 TOTAL 57,855 51,566 44,749 Professional and Continuing Education – Course and Conference Registrations 79,503 74,922 56,097 Number of Degrees Awarded Bachelor’s 11,179 9,782 8,181 Master’s 4,514 3,906 2,904 Doctoral 820 763 622 Professional 551 566 504 TOTAL 17,064 15,017 12,211 FACULTY 1 4,380 4,356 3,984 FACULTY AND STAFF2 30,932 26,315 24,468 RESEARCH FUNDING – ALL SOURCES (in thousands of dollars) $ 1,350,767 $ 1,122,933 $ 1,010,941 SELECTED REVENUES (in thousands of dollars) Net Patient Service and Other Medical-Related Revenues 3 $ 2,710,758 $ 1,971,451 $ 968,215 Gifts, Grants, and Contracts 1,627,139 1,458,196 1,115,974 Tuition and Fees 4 989,912 808,053 419,690 Auxiliary Enterprises and Other Revenues 660,442 473,167 312,515 Investment Income 404,412 341,241 77,379 State Appropriations (Operating) 362,267 218,165 388,485 SELECTED EXPENSES (in thousands of dollars) Medical-Related 3 $ 2,335,063 $ 1,785,696 $ 748,832 Instruction, Academic Support and Student Services 1,981,058 1, 4 2 6 , 3 8 6 1,193,775 Research and Public Service 834,139 803,980 654,468 Institutional Support and Physical Plant 836,674 687,481 524,900 Auxiliary Enterprises 494,956 203,615 161,807 CONSOLIDATED ENDOWMENT FUND 5 (in thousands of dollars) $ 3,407,000 $ 2,347,000 $ 2,161,000 SQUARE FOOTAGE 6 (in thousands of square feet) 25,700 21,773 18,535 1 Prior to 2018, this number represents headcount for core faculty (Professorial, Instructional and Research). Starting in 2018, this number represents full time faculty from all campuses including the Medical Centers. 2 Full time equivalents - restated (historically) using centralized data source and enterprise definitions 3 Includes Valley Medical Center and Northwest Hospital in 2018 and 2013 only 4 Net of scholarship allowances of $154,854,000 in 2018, $135,354,000 in 2013 and $69,027,000 in 2008 5 Stated at fair value F-6.1/211-18 6 Gross square footage, all campuses 11/8/18 Page 2 of 56 KPMG LLP Suite 2900 1918 Eighth Avenue Seattle, WA 98101 Independent Auditors’ Report The Board of Regents University of Washington: Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of the University of Washington (the University), an agency of the state of Washington, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the University’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of the University of Washington as of June 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with F-6.1/211-18 KPMG International Cooperative (“KPMG International”), a Swiss entity. 11/8/18 Page 3 of 56 Emphasis of Matters As discussed in note 1 to the financial statements, the financial statements of the University of Washington, an agency of the state of Washington, are intended to present the financial position, the changes in financial position, and where applicable, cash flows of only the respective portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the state of Washington that are attributable to the transactions of the University of Washington and its discretely presented component unit. They do not purport to, and do not, present fairly the financial position of the state of Washington as of June 30, 2018, the changes in its financial position or, where applicable, its cash flows for the year then ended, in accordance with U.S. generally accepted accounting principles. Our opinion is not modified with respect to this matter. As discussed in note 1 to the financial statements, on July 1, 2017, the University adopted new accounting guidance requiring governments providing postemployment benefits other than pensions (OPEB) to employees of state and local government employers to recognize the OPEB liability, as well as recognize most changes in the OPEB liability within benefits expense. Our opinion is not modified with respect to this matter. As discussed in note 1 to the financial statements, on July 1, 2017, the University adopted new accounting guidance requiring governments receiving irrevocable split-interest agreements to recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the management’s discussion and analysis on pages 3 through 14, and the schedules of required supplementary information on pages 49 through 51, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the University’s basic financial statements. The accompanying information under the table of contents titled “University Facts” is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.