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Stanford University reports FY 2002 financial results
Stanford University incurred a deficit from operations of $17 million for the 2002 fiscal year ending Aug. 31, 2002, but continuing improvements in the financial situation at university hospitals resulted in a $34 million consolidated surplus for the year, according to the FY02 annual report released Feb. 3.
"The 2002 fiscal year was a challenging one for higher education institutions, including Stanford," Randy Livingston, vice president for business affairs and chief financial officer, wrote in the annual report. "Many universities experienced negative investment returns for the second year in a row, reflecting the continuing decline in equity market values," Livingston added.
Stanford's consolidated net assets declined $461 million during the 2002 fiscal year to end the year at $11.1 billion, following a decline of $591 million in fiscal year 2001. Although weak investment performance over the past two years has offset some of the strong investment performance of the late 1990s, Stanford's consolidated net assets at the end of FY02 have increased more than $4 billion -- or 57 percent -- since the beginning of fiscal year 1998.
The $17 million deficit does not reflect the financial performance of Stanford Hospital and Clinics or the Lucile Packard Children's Hospital, which recorded a combined excess of operating revenues over expenses of $51 million for the same period. On a consolidated basis, including the two hospitals, the university had an excess of operating revenues over expenses of $34 million, as compared to a surplus of $46 million in fiscal 2001. The university's hospitals are separate legal entities, but their financial results are reported in the university's annual report on a consolidated basis.
In FY02, the hospitals improved their financial performance despite rising costs and less than comparable increases in federal and state support for academic medical centers. The hospitals' surplus of $51 million in FY02 compares to a deficit of $13 million in FY01.
The $17 million operating deficit incurred by the university in FY02 compares to a surplus of $59 million in FY01. A prolonged weak investment environment, the increasing need of Stanford students for financial aid and the pressures of burgeoning health care benefit costs had a negative impact on the university's financial operations in FY02. In addition, the university absorbed new commitments, including operating costs for newly constructed buildings, and one-time investments in support of the Campaign for Undergraduate Education (CUE), which as of October 2002 had raised 75 percent of its $1 billion goal in gifts and pledges.
The university has taken a number of steps to reduce expenditures and to conserve resources in anticipation of continuing declines in investment income and expendable gifts. These measures include 3 to 10 percent reductions in general funds budget allocations to academic and administrative departments in fiscal year 2003, planning for additional general funds budget reductions in fiscal year 2004, a universitywide hiring freeze, which was initiated in October, and stretching out the timetable for commencing major new capital projects.
Among the strengths reported in this year's annual report was an increase in university research activities. Sponsored research support represented 38 percent of university operating revenue and increased 10 percent. The School of Medicine, in particular, experienced growth in research activity of 11 percent in FY02.
For the full text of the 2002 annual report, visit http://bondholder-information.stanford.edu.