DATED FEBRUARY 23, 2010 FISCAL YEAR ENDED AUGUST 31, …bondholder-information.stanford.edu/pdf/AnnualDisclosure_2009.pdf · International Union, and 26 were police officers represented

ANNUAL DISCLOSURE REPORTOF

THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITYFOR THE

FISCAL YEAR ENDED AUGUST 31, 2009

DATED FEBRUARY 23, 2010

ANNUAL DISCLOSURE REPORTOF

THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITYFOR THE

FISCAL YEAR ENDED AUGUST 31, 2009

TABLE OF CONTENTS

Page

INTRODUCTION 1

II. CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY FORTHE FISCAL YEAR ENDED AUGUST 31, 2009 4

III. FACULTY AND STAFF 4

IV. STUDENTS 4

V. CAPITAL IMPROVEMENT PROGRAM 5

VI. SELECTED FINANCIAL DATA 5

VII. INVESTMENTS 5

APPENDIX A - Consolidated Financial Statements of the UniversityFor the Fiscal Years Ended August 31, 2009 and 2008 A-1

I. INTRODUCTION

Pursuant to the following Continuing Disclosure Agreements (collectively, the "Disclosure Agreements")executed and delivered in connection with the following bond issues (collectively, the "Bonds"), The Board ofTrustees of the Leland Stanford Junior University (the "University") hereby provides its annual disclosure reportfor the fiscal year ended August 31, 2009 (the "Annual Disclosure Report").

• Continuing Disclosure Agreement dated October 6, 1998 (the "Series 0 Disclosure Agreement") relating tothe California Educational Facilities Authority Refunding Revenue Bonds (Stanford University) Series 0 (the"Series 0 Bonds")

• Continuing Disclosure Agreement dated March 30, 1999 (the "Series P Disclosure Agreement") relating tothe California Educational Facilities Authority Revenue Bonds (Stanford University) Series P (the "Series PBonds")

• Continuing Disclosure Agreement dated May 3, 2001 (the "Series Q Disclosure Agreement") relating to theCalifornia Educational Facilities Authority Revenue Bonds (Stanford University) Series Q (the "Series QBonds")

• Continuing Disclosure Agreement dated August 16, 2001 (the "Series R Disclosure Agreement") relating tothe California Educational Facilities Authority Refunding Revenue Bonds (Stanford University) Series R (the"Series R Bonds")

• Continuing Disclosure Agreement dated June 1, 2007 (the "Series T-1 Disclosure Agreements") relating tothe California Educational Facilities Authority Revenue Bonds (Stanford University) Series T-1 (the "SeriesT-1 Bonds")

• Continuing Disclosure Agreement dated September 1, 2007 (the "Series T-3 Disclosure Agreements") relatingto the California Educational Facilities Authority Revenue Bonds (Stanford University) Series T-3 (the"Series T-3 Bonds")

• Continuing Disclosure Agreement dated May 1, 2008 (the "Series T-4 Disclosure Agreements") relating to theCalifornia Educational Facilities Authority Revenue Bonds (Stanford University) Series T-4 (the "Series T-4Bonds")

• Continuing Disclosure Agreement dated August 1, 2009 (the "Series 1-5 Disclosure Agreements") relating tothe California Educational Facilities Authority Revenue Bonds (Stanford University) Series 'f-5 (the "SeriesT-5 Bonds")

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CUSIP Numbers

Each maturity of the Bonds is identified by the corresponding CUSIP Number set forth below:

Maturity Date Series CUSIP

11-01-2011 Series R 130175UN011-01-2011 Series R 130175UM212-01-2013 Series P 13017513A903-15-2014 Series T-4 130178NG703-15-2014 Series T-4 130178NH511-01-2021 Series R 130175UP503-15-2023 Series T-5 130178TQ912-01-2023 Series P 1301751313703-15-2026 Series T-3 13017811,101-01-2031 Series 0 1301743Y912-01-2032 Series Q 130175QD703-15-2039 Series T-1 1301787D9

Note: The CUSIP Numbers above are provided for the convenience of Bondholders. The University is notresponsible for the accuracy or completeness of such numbers.

Annual Disclosure Report

The University's Annual Disclosure Report includes this Introduction, sections 11-V11, and all appendicesattached hereto. In addition, the Stanford Hospital and Clinics ("SHC") and Lucile Salter Packard Children'sHospital at Stanford ("LPCH" and together with SHC, the "Hospitals") each have an obligation to file annualdisclosure reports for the fiscal year ended August 31, 2009 (the "Hospital Annual Disclosure Reports"). Basedon the fact that the University is not an obligor or guarantor with respect to any obligations of the Hospitals, theHospital Annual Disclosure Reports are not considered material to the financial condition of the University and,therefore, are not included herein.

Other Matters

This Annual Disclosure Report is provided solely pursuant to the Disclosure Agreements, The filing ofthis Annual Disclosure Report does not constitute or imply any representation (i) that all of the informationprovided is material to investors, (ii) regarding any other financial, operating or other information about theUniversity or the Bonds, or (iii) that no changes, circumstances or events have occurred since the end of the fiscalyear to which this Annual Disclosure Report relates (other than as contained in this Annual Disclosure Report), orany other date specified with respect to any of the information contained in this Annual Disclosure Report, or thatno other information exists, which may have a bearing on the security for the Bonds, or an investor's decision tobuy, sell or hold the Bonds. The information contained in this Annual Disclosure Report has been obtained fromsources which are believed to be reliable. No statement in this Annual Disclosure Report should be construed as aprediction or representation about future financial performance of the University.

This Annual Disclosure Report, which includes Appendix A hereto, contains certain forward-lookingstatements that involve risks and uncertainties. Any statements that express, or involve discussions as toexpectations, beliefs, plans, objectives, assumptions, future events or performance (often, but not always, throughthe use of words or phrases such as "will result," "expect to," "will continue," "anticipates," "plans," "intends,""estimated," "projects," and "outlook") are not historical and may be forward-looking. Forward-lookingstatements are subject to known and unknown risks, uncertainties and other factors which may cause actual resultsto be materially different from those expressed or implied by such forward-looking statements. Although theUniversity believes that the expectations reflected in the forward-looking statements are reasonable, the Universitycannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the University

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THE BOARD OF TRUSTEES OF THE LELANDSTANFORD JUNIOR UNIVERSITY

Vice President for Business Affairsand Chief Financial Officer

nor any other person assumes responsibility for the accuracy or completeness of these statements. Accordingly,investors should not rely on forward-looking statements in this Annual Disclosure Report. The Universityundertakes no obligation to publicly update or revise any forward-looking statements in this Annual DisclosureReport, whether as a result of new information, future events or otherwise.

Dated: February 23, 2010

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II. CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITYFOR THE FISCAL YEAR ENDED AUGUST 31, 2009

The consolidated financial statements of the University for the fiscal year ended August 31, 2009,together with the report thereon of the University's independent auditors, are attached hereto as Appendix A. Theconsolidated financial statements include the accounts of the University, the Hospitals, and other majority ownedentities.

III. FACULTY AND STAFF

For the 2009 fall quarter, the Stanford professoriate had 1,910 members, including members of theAcademic Council, certain Medical Center line faculty, assistant professors who have been appointed subject totheir receipt of the Ph.D. degree, and other faculty who are not Academic Council members. Of the 1,910 memberprofessoriate 54% were tenured professors and associate professors and more than 99% hold the highest degrees intheir respective fields. The Academic Council comprises the main body of the faculty. Of its 1,475 members,1,337 professors, associate professors and assistant professors are in the tenure line, and 138 professors, associateprofessors and assistant professors arc in the non-tenure line. The student-Academic Council ratio (excludinggraduate students who are completing their dissertations but are not attending classes) is 9.4 to 1.

As of August 31, 2009, the University, including the SLAC National Accelerator Laboratory, employed11,182 non-academic staff members. Of these employees, 1,262 were represented by the Service EmployeesInternational Union, and 26 were police officers represented by the Stanford Deputy Sheriffs' Association.Contracts between the University and those unions expire on August 31, 2014 and July 31, 2010, respectively.

IV. STUDENTS

For the 2009 fall quarter, the University enrolled 6,878 undergraduate and 8,441 graduate students.During academic year 2008-2009, 1,680 bachelor degrees and 2,932 advanced degrees were conferred. Both theundergraduate and graduate student bodies arc among the most highly qualified in the country. The followingtable provides a summary for the last five academic years of undergraduate and graduate applications, admissionsand enrollment.

AcademicYear

Undergraduate (1)f2)(3) Graduate(2)(3)

Applications Admissions Enrollment Applications Admissions Enrollment

2005-06 21,476 2,488 1,682 30,222 4,356 2,405

2006-07 23,740 2,516 1,708 31,583 4,323 2,337

2007-08 25,358 2,487 1,741 33,623 4,352 2,400

2008-09 26,479 2,425 1,725 34,566 4,350 2,379

2009-10 31,731 2,451 1,715 36,326 4,419 2,345

(1) Includes both freshman and transfer students.

(2) Fall only.

(3) Certain statistics have been restated to conform to current definitions of applications, admissions and enrollment.

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V. CAPITAL IMPROVEMENT PROGRAM

The University makes a significant investment in its facilities for teaching, research and related activities.The University's Capital Plan is based on a projection of the major capital projects that the University intends topursue relating to its academic mission and is subject to change based on funding availability and Universitypriorities. The approved Capital Budget for fiscal year 2010 is $646.7 million. The Board of Trustees alsoreviews the Capital Plan which is subject to change based on funding availability and University priorities. TheCapital Plan is a rolling, three-year plan which includes projects that are in progress or are expected to commenceduring that three-year period. The fiscal year 2010 three-year Capital Plan presented to the Board of Trustees inJune 2009, includes capital projects with estimated total costs of $1.8 billion. Funding sources included in thefiscal year 2010 Capital Plan consisted of $883.1 million of gifts, $438.1 million of debt, $469.6 million ofreserves and other funds with $9.7 million of resources to be identified. In addition, medium-term debt will berequired to bridge timing differences between the capital expenditures and the receipt of gifts.

In 2000, the Santa Clara County Board of Supervisors approved a General Use Permit (the "2000 GUP")and the Stanford University Community Plan (the "Community Plan"), updating and extending the general usepermit and plan previously in force since 1989. These documents govern the use and development of Universitylands within the County. Any change to either document is subject to the approval of the Santa Clara CountyBoard of Supervisors. The 2000 GUP permits Stanford to develop approximately 2,000,000 gross square feet ofnew academic facilities and approximately 3,000 new housing units for students, faculty and staff. The 2000 GUPcontains a number of significant restrictions and conditions governing and limiting such developments. ThroughAugust 3 1, 2009, projects using approximately 810,775 gross square feet of the GUP allotment were completed orunder construction and 1,346 housing units were added.

VI. SELECTED FINANCIAL DATA

The Consolidated Financial Statements (the "financial statements") of Stanford University for the fiscalyears ended August 31, 2009 and 2008 were prepared in accordance with accounting principles generally acceptedin the United States of America and are presented in Appendix A. See Note 1 to the financial statements for adiscussion of the University's significant accounting policies. The Selected Financial Data described in certain ofthe Disclosure Agreements can be found in the financial statements.

VII. INVESTMENTS

At August 31, 2009, the University held investments with a fair value of approximately $16.5 billion.The following table summarizes the fair value of the University's investment for each of the past five fiscal years.The table below should be read in conjunction with the financial statements.

STANFORD UNIVERSITYINVESTMENTS

Years Ended August 31(in thousands of dollars)

2009 2008 2007 2006 2005

'total Investments $16,500,670 $21,757,716 $21,167,073 $17,524,666 $15,131,630

Less: Permanently Restricted Investments 4,658,949 4,865,486 4,480,745 4,230,293 3,538,198

Unrestricted and Temporarily Restricted

Investments $11,841,721 S16,892,230 816,686,328 $13,294,373 S11,593,432

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APPENDIX A

Consolidated Financial Statements of the UniversityFor the Fiscal Years Ended August 31, 2009 and 2008

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DISCUSSIONOFFINANCIALRESULTS

Fiscalyear2009(FY09)wasdominatedbysignificantturmoilinthefinancialmarketsandglobaleconomy.DuringtheyearStanfordrecognizedalargedecreaseintheoverallvalueofitsinvestments.Consolidatednetassetsdecreased$4.9billionor20%to$19.9billionatAugust31,2009.AlthoughStanford’soperatingresultswerestrong,withconsolidatedrevenues,includingendowmentpayout,exceedingexpensesby$509million,FY09financialresultswereovershadowedbyinvestmentlosses.

BelowareadditionaldetailsabouttheUniversity’sandHospitals’operationsandfinancialresults.

UniversityInFY09,theUniversity’sinvestmentsdeclined$5.3billionor24%to$16.5billion,theendowmentdeclined$4.6billionor27%to$12.6billion,andnetassetsdeclined$4.7billionor21%to$18.0billion.Despitetheeconomicclimate,theUniversityendedtheyearwithasurplusfromoperationsof$362millioncomparedto$300millioninfiscalyear2008(FY08).Theoperatingsurpluswaslargelyduetothreefactors:1)endowmentpayoutwasfixedpriortothebeginningofthefiscalyearandthefinancialdownturn;2)substantialoperatingfundswereallocatedforfacilitiesprojectsandwerecapitalizedratherthanexpensed;and3)asthefinancialdownturnunfolded,expenseswerereducedinanticipationoflowerrevenuesinfiscalyear2010(FY10)andthereafter.TheeffectsofthemarketdeclineontheUniversity’soperationswillbefeltmorefullyinthenextfewyearsasendowmentpayoutisreduced.

EarlyinFY09,theUniversity’sPresidentandProvostannouncedplanstocurtailspending,andrequiredbudgetunitstoidentifyspecificactionstoachievethisgoal.FY09operatingresultsreflecteda1%decreaseintotalexpenses.Byyearend,morethan400staffhadbeenlaidoffandmorethan50facultysearcheswerefrozen.Inaddition,theUniversitysuspendedorcancelledover$1billionofplannedconstructionprojects.

Maintainingadequateliquiditywasafocalpointthroughouttheyear.InApril,theUniversityissued$1billionoftaxabledebtofwhich$800million,netofissuancecosts,wassetasideinafundinvestedinmoneymarketsecuritiestoprovideadditionalliquidityfortheUniversity’sgeneralpurposes.

Despitethefinancialcrisis,theUniversityhasnotlostsightofitspurpose.Teachingandresearchremainthehighestpriorities.TheUniversitycontinuestosupporttheexpandedstudentaidprogramsintroducedinFY08whichmakeStanfordmoreaffordabletostudentsandtheirfamilies.

Throughoutthisyear,ourdonorshavecontinuedtoshowtheirsupport.TheStanfordChallenge,thefive-yeareffortlaunchedin2006,surpassedthe$4.3billionmilestone,reachingatotalof$4.48billioninFY09.Itisimportanttonotethatmanypriorityareasincludedintheoriginalgoalhavenotyetbeenfunded,andnewneedshavebeenidentifiedsincethecampaignbegan.CampaignaccomplishmentsinFY09includedtheestablishmentof11newendowedprofessorships,66newfundsforgraduatefellowships,and30newundergraduatescholarshipfunds.

OPERATIONS Operatingactivitiesincludeallrevenuesandexpensesthatsupportcurrent-yearteachingandresearcheffortsandotherUniversitypriorities.Totalrevenuesof$3.5billionexceededexpensesby$362millioninFY09.

OPERATING REVENUESTheUniversity’soperatingrevenueswereprimarilycomprisedofsponsoredresearchsupport(30%),investmentincomedistributedforoperations(30%),studentincome(11%)andhealthcareservicesrevenues(12%).

Total student incomedeclinedamodest1%to$401millioninFY09.Tuitionratesincreased3.5%forundergraduatestudentsand,onaverage,4.5%forgraduatestudents.Inkeepingwith

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Stanford’scommitmenttoprovideanaffordableeducationtoallstudents,financialaidincreased19%to$210millioninFY09.

Sponsored research supportdecreased$45millionor4%to$1billioninFY09,primarilyduetoadecreaseinfundingfromtheDepartmentofEnergyforconstructionofSLAC’sLinacCoherentLightSourcefacilitieswhichwerecompletedinFY09.Approximately80%ofsponsoredresearchsupportwasreceiveddirectlyorindirectlyfromthefederalgovernment.OthersponsorsincludedtheCaliforniaInstituteforRegenerativeMedicine,voluntaryhealthorganizations,corporationsandfoundations.

Investment Income Distributed to OperationswasasignificantsourceofoperatingrevenuefortheUniversity,coveringapproximately34%ofexpensesinFY09comparedto31%inFY08.Endowmentpayoutincreased9%fromFY08levelsto$957million.Otherinvestmentincomedecreased15%to$94millionduetolowerinterestratesoncashandshort-terminvestments.InlightofthedeclineinthevalueoftheUniversity’sinvestments,theendowmentpayoutonexistingfundsisbudgetedtodecrease10%inFY10andexpectedtodecreaseafurther15%infiscalyear2011(FY11).

Health care services revenuesincreased$57millionor15%to$429millioninFY09.HealthcareservicesincludedtheSchoolofMedicinefacultyphysicianservicesandbloodcenterservicesprovidedtotheHospitals.Theseamountswere

eliminatedinconsolidation.Facultyphysiciansalsoprovidedservicestoexternalparties,includingtheSantaClaraValleyMedicalCenterandthePaloAltoVeteransAffairsHospitalgenerating$16millioninrevenue.

Special program fees and other incometotaled$341millioninFY09,a4%decreaseoverFY08dueprimarilytolowerparticipationintravelstudyprograms,professionaleducationprograms,otherspecialprogramsandconferences.Alsoincludedinthiscategorywererevenuesfromtechnologylicensing,operationsofresidentialhousinganddining(otherthanstudentroomandboard)andintercollegiateathleticactivities.

OPERATING EXPENSESWiththeeconomicdownturninOctober2008,theProvostrequestedallUniversityunitstosignificantlyreducetheiroperatingexpenses.Theseactionsresultedinadeclineinoperatingexpensesof$46millionor1%fromprioryearlevels.

Salaries and benefitsincreased6%inFY09to$2.0billion.AveragestaffheadcountinFY09wasabout3%higherthanduringFY08.MostofthestaffreductionsoccurredduringthesecondhalfofFY09,andtheUniversityincurredone-timeseveranceexpensesforterminatedemployees.Inaddition,healthcarecostsandexpensesassociatedwithretirementplansdroveFY09benefitcostshigher.

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Depreciation expense declined4%to$214millioninFY09.FY08wasmoderatelyhigherduetothedemolitionandrelatedwrite-offofbuildingstomakewayfornewconstruction.Other operating expensesdecreased14%to$920millioninFY09.ThisdeclinereflectsthecostcuttingeffortsimplementedbyUniversitydepartmentsandincludesareductionof$53millioninsupplies,foodandtravel.Inaddition,SLACconstructioncostswerelowerby$50millionduetothecompletionoftheLinacCoherentLightSourcefacility.Interestcostsdeclined$20millionduetolowerinterestrates.

OTHER FINANCIAL HIGHLIGHTS

Gifts and PledgesTotalgiftsandpledgesdecreased$384millionfromFY08levels.Despitethesedifficulttimes,Universitydonorscontinuedtoshowtheirsupportasevidencedbyover104,000giftstotaling$542millionasreportedinthefinancialstatements($640milliononacashbasisasreportedbytheUniversityOfficeofDevelopment).InvestmentsTotalinvestmentlosseswere$4.0billion,comparedtopositivereturnsof$767millioninFY08.TheselossesoccurredduringayearinwhichU.S.andinternationalequitymarkets,andmostotherassetclasseswerealsodown.Investmentincome,includinginterestanddividends,was$162millioninFY09comparedto$268millioninFY08.Netrealizedandunrealizedlossesoninvestmentswere$4.2billioninFY09comparedtogainsof$499millioninFY08.SeethereportfromtheStanfordManagementCompanyonpage47foradditionalanalysisofUniversityinvestmentstrategiesandperformance.

EndowmentTheUniversity’sendowmentisacollectionofgiftfundsandreserveswhicharesetasideandinvestedtosupporttheUniversity’steachingandresearchmissions.AtAugust31,2009,theendowmenttotaled$12.6billion,adeclineof27%fromthepreviousyearandrepresentedapproximately70%oftheUniversity’snetassets.Investmentlossesanddistributionoffundstooperationsweretheprincipalfactorsintheendowment’sdecline.SeeNote11totheconsolidatedfinancialstatementsforadetaileddiscussionoftheUniversity’sendowment.

Plant FacilitiesPlantfacilitiesincreased$383millionto$3.3billionasofAugust31,2009.ProjectscompletedinFY09includefourofthefiveMungerGraduateResidencebuildingsandrenovationsofCrothersHallandCrothersMemorialHallwhichhavebeenconvertedtoundergraduatehousing.ProgresscontinuesontheKnightManagementCenter,thenewGraduateSchoolofBusinesscampus.OthermajorconstructionprojectsunderwayincludetheHuangSchoolofEngineeringCenter,theLorryI.LokeyStemCellResearchBuilding,theSchoolofMedicine’sLiKaShingCenterforLearningandKnowledge,andtheCenterforNanoscaleScienceandTechnology.

BorrowingsTheUniversity’sdebtpolicygovernstheamountandtypeofdebtStanfordmayincurandisintendedtopreservelong-termdebtcapacity,financialflexibilityandaccesstocapitalmarketsatcompetitiverates.TheUniversityusesacombinationoffixedandvariableratedebttofundacademicfacilities,residentialhousinganddiningfacilities,andotherinfrastructureprojects.

Totalborrowingsincreased$984millionto$2.5billionasofAugust31,2009.InFY09theUniversityissued$1billionintaxablebonds,ofwhichapproximately$800millionisbeingheldforliquiditypurposes.Theremainingproceedswereusedtoconverttaxablecommercialpapertofixedratedebttotakeadvantageoffavorableinterestrates.Inconnectionwiththebondissuance,theUniversity’sAAA/Aaa/AAAratingswereaffirmedbyStandard&Poor’s,Moody’sandFitch,respectively.SeeNote9totheconsolidatedfinancialstatementsforfurtherdiscussion.

Net Assets—Permanently Restricted, Temporarily Restricted, UnrestrictedNetassetsarepresentedinthreecategoriesinthefinancialstatements,reflectingthenatureoftherestrictionsplacedongiftsbydonors.Thesenetassetcategoriesreflecttheresultsdescribedabove.

Permanentlyrestrictednetassetsrepresentgiftswhoseoriginalprincipalistobemaintainedinperpetuity.IncomefromthesegiftsprovidescriticalongoingfundingtosupportimportantUniversityprogramsandactivities.Thedecreaseinpermanentlyrestrictednetassetsof$101millionto$4.7billioninFY09reflectsinvestmentlossesof$243millionoffsetby$172millioninnewgiftsandpledges.

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Statement of ActivitiesSHCrevenuesincreasedby10%to$1.8billioninFY09duetoincreasedpatientrevenues.Inpatientrevenues,comprising54%oftotalpatientrevenues,grewby9%duetocontinuingincreasesinpatientvolume.Outpatientrevenuesincreasedby12%.Otherincome,whichincludestheresultsofvariousrelatedentities,increasedby13%to$58million.

Expensesincreasedby12%to$1.7billion.Salariesandbenefitsgrew10%to$787millionduetothegrowthinpatientvolumes,staffingofexpandedclinicalfacilitiesandthecompetitivemarketforhealthcareprofessionals.Physicians’servicesandsupportincreased14%to$296millionwhichincludesallpaymentstotheUniversityforservices.Additionally,otheroperatingexpensesincreasedby13%to$576millionlargelyasaresultofcostsrelatedtotheincreaseinpatientactivityandexpandedclinicalservices.

Financial PositionSHC’sunrestrictednetassetsdecreased$178millionto$731millionduetoinvestmentlossesof$143million,fairmarketvalueadjustmentsof$48milliononinterestrateexchangeagreements,and$75millionincreaseinaccruedliabilityoncertainpensionandpostretirementplans.Temporarilyrestrictednetassetsincreasedby$14millionto$70millionduetonewgiftsandtransfersfromtheUniversityof$21millionoffsetbyassetsreleasedfromrestrictionsof$6millionandinvestmentlossesof$1million.Permanentlyrestrictednetassetsremainedconstantat$6millioninFY09.

LUCILE PACKARD CHILDREN’S HOSPITALLPCHgeneratedexcessoperatingrevenuesoverexpensesof$53millioninFY09,anincreaseof$11millionfromFY08.OperatingresultswerestrengthenedbyseveralfactorsinFY09,includingtheadditionofMediCalDisproportionateShareHospital(DSH)revenue,favorablecontractrateincreases,increasedoutpatientactivity,continuedenhancementstothehospital’schargingprocessesandsuccessfuleffortstodecreasetherateofgrowthinoperatingcosts.

Netassetsdecreased$125millionto$1.1billionasofAugust31,2009.Investmentlossesof$167milliondrovethedecrease.Operatingexpensesgrewby9%.Salariesandbenefitsrepresenting44%oftotalexpensesincreased7%inFY09.

Temporarilyrestrictednetassetsincreased$3.8billionto$5.1billioninFY09.Theadoptionofanewaccountingprinciple(FSP117-1)resultedinreclassifying$6.3billionofexpendableappreciationondonor-restrictedendowmentfundsfromunrestrictedtotemporarilyrestrictednetassets.Investmentlossesof$2.5billionandnewgiftsandpledgesof$209millionalsoimpactedtemporarilyrestrictednetassets.

UnrestrictednetassetsoftheUniversitydeclined$8.3billioninFY09.The$362millionexcessofrevenuesoverexpenseswasoffsetbythe$6.3billionreclassificationdiscussedaboveanda$2.2billiondecreaseinreinvestedgains.

HospitalsThefinancialresultsandfinancialpositionofStanfordHospitalandClinics(SHC)andtheLucilePackardChildren’sHospital(LPCH)arecombinedintheconsolidatedfinancialstatementsunderthe“Hospitals”column.TheUniversityisthesolememberofeachoftheHospitals.TheHospitalshadacombinedoperatingsurplusof$147millioninFY09.AtAugust31,2009,theHospitals’netassetswere$1.9billioncomparedto$2.2billionatAugust31,2008,adecreaseof$289million.AsdiscussedinNote1totheconsolidatedfinancialstatements,theconsolidatedstatementofcashflowsfor2008wasrestatedtocorrecterrorsintheclassificationofcashflowactivitiesamongoperating,investingandfinancingactivities.TherewasnoimpactonthereportedamountsforcashandcashequivalentsasofAugust31,2008orforthenetincreaseincashandcashequivalentsfortheyearthenended.

ThefollowingdiscussionsummarizestheindividualfinancialresultsofSHCandLPCH.

STANFORD HOSPITAL AND CLINICSSHCgenerated$95millionofincomefromoperationsinFY09comparedto$105millionforFY08.Despitethesesolidresults,overallnetassetsdeclinedby$165millionto$807millioninFY09.

InFebruary2009,SHCexpandeditspatientcarecapacitybyopeningtheStanfordMedicineOutpatientCenterinRedwoodCity,California,thatincludes96examrooms,advancedimagingservice,andeightoperatingrooms.Inaddition,inFY09,SHCcompletedimplementationofanewClinicalInformationSystem.

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Fulltimeequivalentstaffincreased3%due,inpart,totheopeningofnewoperatingroomsandadditionalbeds;theseincreasesweresomewhatoffsetbyatransferoflabpersonneltoSHC.Additionally,salariesandbenefitsincreasedtoremaincompetitiveinthemarketforhealthcareprofessionals.Supplycostsincreased33%,principallyduetotheadditionofthenewoperatingroomsanda14%increaseinpharmaceuticalcosts.ThecompletionofthePhaseIbuildingprogram,whichconsistedofconstructionof25additionalbedsandsevensurgicalsuiteswascompletedduringtheyearanddrovea29%increaseindepreciation.

Unrestrictedcashandinvestmentsdecreasedby$110millionto$386millionatAugust31,2009.Thisrepresentsadecreaseinday’scashonhandfrom293to212.ThedecreaseinunrestrictedcashandinvestmentsistheresultofinvestmentlossesandLPCH’simplementationofFSP117-1,whichresultedinareclassificationof$112millionfromunrestrictedtotemporarilyrestrictednetassets.ChallengesfacingtheUniversityandHospitals

GlobalequitymarketsarecontinuingtorecoverintheearlymonthsofFY10,althoughitwilltakeyearsofeconomicgainsandcontinuedvigilanceofexpenditurelevelstorestoretheUniversityandHospitalinvestmentbalancestothe2008levels.Weanticipatethatgiftswillnotreturntothestronglevelsofthepastfewyearsinthenearterm,asdonorsalsofeelthestrainofdeclininginvestmentportfolios.Inaddition,weexpectfamiliesofUniversitystudentswillcontinuetoneedincreasedfinancialassistanceintheyearstocome.

Asaresultofourswiftresponsetotheeconomicdownturn,ourcostreductionmeasuresarelargelyidentifiedandinplacetosupportthefuture.Inaddition,wearebeginningtoreceiveawardsfromthefederalresearchstimulusfundsundertheAmericanRecoveryandReinvestmentActof2009(ARRA).Todate,ARRAawardedStanfordfundstotaling$173million.

TheUniversity’sPresidentandProvostareaskingallfacultyandstafftofindnewwaystofunctionefficientlyandprovidehighlevelsofservicewithreducedresources.TheProvosthasannouncedplanstofocusouringenuityandenergiesonincreasingefficiencyasweadjusttothelossofvariousprogramsandvaluedemployees.Aspartofthiseffort,theProvosthaslaunchedseveraltaskforcestoexaminemajorfunctionsthatcutacrossorganizationalboundariesattheUniversity.

Onthehealthcareside,theHospitalscontinuetobeconstrainedbyinpatientcapacity,alongwithescalatingcosts.Constructionofnewfacilitiestomeetcommunityhealthcareneedscontinuestobeapriority.Thesenewfacilitiesareprojectedtocostmorethan$3billion,representingthelargestcapitalprojectseverundertakenbytheHospitals.

WiththefinancialchallengesthattheUniversityandHospitalsfacedthispastyear,wehaverecommittedandrefocusedonourcoremissionsofteaching,researchandhealthcare,andarepoisedtocontinueaddressingfuturechallenges.Wecontinuetocriticallyexamineourresourcesandprocessestoensuretheysupporttheexcellenceofourworldclassinstitutions,allowingustoidentifysolutionstoglobalproblems,educateanewgenerationofleadersandprovidepreeminenthealthcareservices.WeappreciatethecontinuedsupportoftheentireStanfordcommunitythatenablesustoachievethesegoals.

RandallS.Livingston AllisonBaird-JamesVicePresidentforBusinessAffairsand ControllerChiefFinancialOfficer StanfordUniversityStanfordUniversity

DanielJ.Morissette TimothyW.CarmackChiefFinancialOfficer ChiefFinancialOfficerStanfordHospitalandClinics LucileSalterPackardChildren’sHospital

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SELECTEDFINANCIALDATA FiscalYearsEndedAugust31

2009 2008 2007 2006 2005 2004

(inmillionsofdollars)

STATEMENTOFACTIVITIESDATA:Studentincome(A) $ 401 $ 405 $ 394 $ 376 $ 356 $ 332Sponsoredresearchsupport 1,031 1,076 1,058 994 973 924Healthcareservices 2,424 2,193 1,997 1,851 1,699 1,501Currentyeargiftsinsupportofoperations 155 189 198 168 144 105Netassetsreleasedfromrestrictions 97 104 122 117 104 64Investmentincomedistributedforoperations 1,071 1,007 710 609 514 460Specialprogramfeesandotherincome 423 429 398 396 351 329

TotalRevenues 5,602 5,403 4,877 4,511 4,141 3,715TotalExpenses 5,093 4,957 4,467 4,212 3,842 3,572

Excessofrevenuesoverexpenses 509 446 410 299 299 143 Otherchangesinnetassets (5,450) 471 3,647 2,709 2,598 1,596

Netchangetototalnetassets (4,941) 917 4,057 3,008 2,897 1,739

FINANCIALPOSITIONHIGHLIGHTS:Cashandcashequivalents $ 1,781 $ 859 $ 647 $ 579 $ 629 $ 638Pledgesreceivable,net 894 883 758 619 507 454Investmentsatfairvalue 17,757 23,470 23,119 19,263 16,351 13,318 Plantfacilities,netofaccumulateddepreciation 4,530 3,967 3,472 3,164 2,800 2,743Notesandbondspayable:University 2,517 1,532 1,494 1,309 1,266 1,288Hospitals 999 1,007 1,015 1,006 582 587Totalnetassets,endofyear 19,914 24,855 23,938 19,881 16,873 13,976Universityendowment 12,619 17,214 17,165 14,085 12,205 9,922

STUDENTS:ENROLLMENT:(B)Undergraduate 6,878 6,812 6,759 6,689 6,705 6,753Graduate 8,441 8,328 8,186 8,201 8,176 8,093

DEGREESCONFERRED:Bachelordegrees 1,680 1,646 1,709 1,756 1,790 1,713Advanceddegrees 2,932 2,928 3,100 3,093 2,945 2,931

FACULTY:MembersofTheAcademicCouncil 1,451 1,459 1,428 1,418 1,400 1,410

ANNUALUNDERGRADUATETUITIONRATE $ 36,030 $ 34,800 $ 32,994 $ 31,200 $ 29,847 $ 28,563(indollars)

(A)Financialaidisreportedasareductionofstudentincomeinthestatementofactivities.(B)Enrollmentforfallquarterimmediatelyfollowingfiscalyearend.

8

REPORTOFINDEPENDENTAUDITORS

TotheBoardofTrusteesStanfordUniversity

Inouropinion,theaccompanyingconsolidatedstatementsoffinancialpositionandtherelatedconsolidatedstatementsofactivitiesandcashflows,presentfairly,inallmaterialrespects,thefinancialpositionofStanfordUniversity(the“University”)atAugust31,2009and2008andthechangesinitsnetassetsanditscashflowsfortheyearsthenendedinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.ThesefinancialstatementsaretheresponsibilityoftheUniversity’smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.WeconductedourauditsofthesestatementsinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,andevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.

AsdiscussedinNote1tothefinancialstatements,effectiveSeptember1,2008theUniversityadoptedtheprovisionsofStatementofFinancialAccountingStandardsNo.157,FairValueMeasurementsandchangedthemannerinwhichitevaluatesthefairvalueoffinancialassetsandliabilities.Also,asdiscussedinNote1,effectiveSeptember1,2008theUniversityadoptedtheprovisionsofFinancialAccountingStandardsBoard(FASB)StaffPositionNo.117-1,EndowmentsofNot-for-ProfitOrganizations:NetAssetClassificationofFundsSubjecttoanEnactedVersionoftheUniformPrudentManagementofInstitutionalFundsAct,andEnhancedDisclosuresforallEndowmentFundsandchangedthemannerinwhichitclassifiesdonor-restrictedendowmentfunds.

AsdescribedinNote1,thefiscalyear2008consolidatedstatementofcashflowshasbeenrestated.

December14,2009

9

CONSOLIDATEDSTATEMENTSOFFINANCIALPOSITION AtAugust31,2009and2008(inthousandsofdollars)

2009 2008 UNIVERSITY HOSPITALS CONSOLIDATED CONSOLIDATED

ASSETSCashandcashequivalents $ 1,335,145 $ 446,129 $ 1,781,274 $ 859,030Accountsreceivable,net 186,613 369,357 555,970 599,779Receivables(payables)fromSHCandLPCH,net 51,942 (51,942) - -Prepaidexpensesandotherassets 51,595 79,872 131,467 146,974Pledgesreceivable,net 782,523 111,922 894,445 883,347Studentloansreceivable,net 72,375 - 72,375 70,950Facultyandstaffmortgagesandotherloansreceivable,net 421,052 - 421,052 376,491Investmentsatfairvalue,includingsecuritiespledgedoronloanof$193,862and$464,777for2009and2008,respectively 16,500,670 1,256,803 17,757,473 23,469,799Plantfacilities,netofaccumulateddepreciation 3,269,635 1,260,001 4,529,636 3,967,183Worksofartandspecialcollections - - - -

TOTAL ASSETS 22,671,550 3,472,142 26,143,692 30,373,553

LIABILITIESANDNETASSETSLIABILITIES:Accountspayableandaccruedexpenses 637,868 452,766 1,090,634 1,107,114Accruedpensionandpostretirementbenefitcost 415,747 145,305 561,052 287,987Pendingtrades 66,160 - 66,160 170,919Liabilitiesundersecuritylendingagreements 248,048 - 248,048 548,951Deferredrentalincome 378,496 - 378,496 388,018Incomebeneficiaryshareofsplitinterestagreements 316,404 - 316,404 423,197Notesandbondspayable 2,516,584 999,006 3,515,590 2,539,536U.S.governmentrefundableloanfunds 53,203 - 53,203 52,848

TOTAL LIABILITIES 4,632,510 1,597,077 6,229,587 5,518,570 NETASSETS:Unrestricted 8,286,639 1,372,851 9,659,490 18,261,974Temporarilyrestricted 5,094,032 213,133 5,307,165 1,558,349Permanentlyrestricted 4,658,369 289,081 4,947,450 5,034,660

TOTAL NET ASSETS 18,039,040 1,875,065 19,914,105 24,854,983

TOTAL LIABILITIES AND NET ASSETS $ 22,671,550 $ 3,472,142 $ 26,143,692 $ 30,373,553

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

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CONSOLIDATEDSTATEMENTSOFACTIVITIES FortheyearsendedAugust31,2009and2008(inthousandsofdollars)


UNRESTRICTEDNETASSETSREVENUES:Studentincome:Undergraduateprograms $ 252,291 $ - $ 252,291 $ 241,302Graduateprograms 249,401 - 249,401 234,986Roomandboard 110,123 - 110,123 104,977Studentfinancialaid (210,320) - (210,320) (176,444)

TOTAL STUDENT INCOME 401,495 - 401,495 404,821

Sponsoredresearchsupport:Directcosts-University 563,695 - 563,695 555,898Directcosts-SLACNationalAcceleratorLaboratory 293,666 - 293,666 350,989Indirectcosts 173,984 - 173,984 169,042

TOTAL SPONSORED RESEARCH SUPPORT 1,031,345 - 1,031,345 1,075,929

Healthcareservices:Patientcare,net - 2,407,724 2,407,724 2,179,841Physicians’servicesandsupport-SHCandLPCH,net 412,883 (412,883) - -Physicians’servicesandsupport-otherfacilities,net 16,205 - 16,205 13,127

TOTAL HEALTH CARE SERVICES 429,088 1,994,841 2,423,929 2,192,968

CURRENT YEAR GIFTS IN SUPPORT OF OPERATIONS 149,035 6,002 155,037 189,378

Netassetsreleasedfromrestrictions:Prioryearpledgesreleased 58,334 1,037 59,371 57,006Prioryeargiftsreleasedfromdonorrestrictions 30,668 7,389 38,057 47,350

TOTAL NET ASSETS RELEASED FROM RESTRICTIONS 89,002 8,426 97,428 104,356

Investmentincomedistributedforoperations:Endowment 956,518 20,039 976,557 896,011Expendablefundspoolandotherinvestmentincome 94,248 - 94,248 110,908

TOTAL INVESTMENT INCOME DISTRIBUTED FOR OPERATIONS 1,050,766 20,039 1,070,805 1,006,919

SPECIAL PROGRAM FEES AND OTHER INCOME 341,265 81,476 422,741 429,188

TOTAL REVENUES 3,491,996 2,110,784 5,602,780 5,403,559

EXPENSES:Salariesandbenefits 1,995,889 1,094,394 3,090,283 2,884,928Depreciation 213,673 107,937 321,610 315,415Otheroperatingexpenses 920,284 761,291 1,681,575 1,756,741

TOTAL EXPENSES 3,129,846 1,963,622 5,093,468 4,957,084

EXCESS OF REVENUES OVER EXPENSES $ 362,150 $ 147,162 $ 509,312 $ 446,475


11

CONSOLIDATEDSTATEMENTSOFACTIVITIES FortheyearsendedAugust31,2009and2008(inthousandsofdollars)


UNRESTRICTEDNETASSETS(continued)EXCESS OF REVENUES OVER EXPENSES $ 362,150 $ 147,162 $ 509,312 $ 446,475 Otherchangesinunrestrictednetassets:Decreaseinreinvestedgains(1) (2,214,825) (244,604) (2,459,429) (201,623)Donoradvisedfunds,net 1,010 - 1,010 165,583Currentyeargiftsnotincludedinoperations 10,711 - 10,711 8,976ContributionrevenuefrommergerwithCASBS - - - 29,198Hospitalequitytransfers 12,904 (12,904) - -Capitalandothergiftsreleasedfromrestrictions 101,741 76,293 178,034 66,742Pensionandotherpostemploymentbenefitrelatedchangesotherthannetperiodicbenefitexpense (200,258) (78,070) (278,328) (13,572)Transfertopermanentlyrestrictednetassets,net (52,236) - (52,236) (41,348)Transfertotemporarilyrestrictednetassets,net (6,552) - (6,552) (43,657)Swapinterestandunrealizedlosses (17,650) (48,338) (65,988) (52,243)Lossonextinguishmentofdebt - - - (17,855)Other 6,235 - 6,235 1,028

Net change in unrestricted net assets before effect of change in accounting principle (1,996,770) (160,461) (2,157,231) 347,704 Effectofchangeinaccountingprinciple(seeNote1) (6,333,634) (111,619) (6,445,253) -

NET CHANGE IN UNRESTRICTED NET ASSETS AFTER EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (8,330,404) (272,080) (8,602,484) 347,704

TEMPORARILYRESTRICTEDNETASSETSGiftsandpledges,net 209,293 18,509 227,802 366,471(Decrease)increaseinreinvestedgains(1) (2,546,249) (65,056) (2,611,305) 5,883Changeinvalueofsplitinterestagreements,net (3,070) (490) (3,560) 5,530Netassetsreleasedtooperations (89,002) (34,467) (123,469) (125,764)Capitalandothergiftsreleasedtounrestrictednetassets (101,741) (76,293) (178,034) (66,742)CapitalgiftstransferredtoHospitals (15,167) 15,167 - -Transferfromunrestrictednetassets,net 6,552 - 6,552 43,657Transfer(to)frompermanentlyrestrictednetassets,net (12,859) 508 (12,351) (18,396)Other (2,072) - (2,072) (781)

Net change in temporarily restricted net assets before effect of change in accounting principle (2,554,315) (142,122) (2,696,437) 209,858 Effectofchangeinaccountingprinciple 6,333,634 111,619 6,445,253 -

NET CHANGE IN TEMPORARILY RESTRICTED NET ASSETS AFTER EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 3,779,319 (30,503) 3,748,816 209,858

PERMANENTLYRESTRICTEDNETASSETSGiftsandpledges,net 172,128 18,740 190,868 299,459ContributionrevenuefrommergerwithCASBS - - - 29,690Investmentlosses (243,488) - (243,488) (13,458)Changeinvalueofsplitinterestagreements,net (97,236) (1,917) (99,153) (12,285)Transferfromunrestrictednetassets,net 52,236 - 52,236 41,348Transferfrom(to)temporarilyrestrictednetassets,net 12,859 (508) 12,351 18,396Other 2,998 (3,022) (24) (3,255)

NET CHANGE IN PERMANENTLY RESTRICTED NET ASSETS (100,503) 13,293 (87,210) 359,895

NET CHANGE IN TOTAL NET ASSETS (4,651,588) (289,290) (4,940,878) 917,457

Totalnetassets,beginningofyear 22,690,628 2,164,355 24,854,983 23,937,526

TOTAL NET ASSETS, END OF YEAR $ 18,039,040 $ 1,875,065 $ 19,914,105 $ 24,854,983

(1)InvestmentreturnsfortheyearendedAugust31,2009reflectnetgainsandlossesundertheguidelinesofFSP117-1.ResultsfortheyearendedAugust31,2008havenotbeenrestated.Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

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CONSOLIDATEDSTATEMENTSOFCASHFLOWS FortheyearsendedAugust31,2009and2008(inthousandsofdollars)


CASHFLOWFROMOPERATINGACTIVITIES: (asrestated,Note1)Changeinnetassets $ (4,651,588) $ (289,290) $ (4,940,878) $ 917,457Adjustmentstoreconcilechangeinnetassetstonetcash(usedfor)providedbyoperatingactivities:Depreciation,amortizationandlossondisposaloffixedassets 215,452 109,505 324,957 317,287Netrealizedandunrealizedlosses(gains)oninvestmentsandsecurityagreements 4,239,363 316,028 4,555,391 (439,399)Netrealizedandunrealizedlossesonderivatives 12,679 48,338 61,017 52,212Actuarialchangeinsplitinterestagreements (54,707) - (54,707) (55,947)Permanentlyrestrictedinvestmentincome (11,957) - (11,957) (18,838)Giftsrestrictedforlong-terminvestments (227,204) (24,042) (251,246) (473,693)Giftsofsecuritiesandproperties (81,544) - (81,544) (167,038)ContributionrevenuefrommergerwithCASBS - - - (59,319)Gainfromsaleofdiscontinuedoperations - - - (21,273)Lossonextinguishmentofdebt 260 - 260 25,452Netdecrease(increase)inaccountsreceivable,pledgesreceivableandreceivablesfromSHCandLPCH 3,133 5,144 8,277 (21,757)Decreaseinprepaidexpensesandotherassets 24,935 13,639 38,574 14,111(Decrease)increaseinaccountspayableandaccruedexpenses (67,047) (17,668) (84,715) 120,973Increaseinaccruedpensionandpostretirementbenefitcosts 196,795 76,270 273,065 10,714Decreaseindeferredrentalincome (9,522) - (9,522) (4,981)IncreaseinU.S.governmentrefundableloanfunds 355 - 355 163

NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (410,597) 237,924 (172,673) 196,124

CASHFLOWFROMINVESTINGACTIVITIES:Land,buildingandequipmentpurchases (579,308) (293,580) (872,888) (723,822)Student,facultyandotherloans:Newloansmade (76,634) - (76,634) (78,620)Principalcollected 25,203 - 25,203 29,642ContributionrevenuefrommergerwithCASBS - - - 59,319Netproceedsfromsaleofdiscontinuedoperations - - - 21,273Purchasesofinvestments (12,975,015) (44,496) (13,019,511) (21,767,875)Salesandmaturitiesofinvestments 13,954,656 161,085 14,115,741 22,141,467

NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 348,902 (176,991) 171,911 (318,616)

CASHFLOWFROMFINANCINGACTIVITIES:Giftsandreinvestedendowmentincome,capitalprojectsandotherrestrictedpurposes 188,575 50,709 239,284 400,872Investmentincomeforrestrictedpurposes 11,957 - 11,957 18,838Proceedsfromborrowing 1,141,955 70,500 1,212,455 1,123,646Bondissuancecostsandinterestrateswaps (5,179) - (5,179) (13,380)Repaymentofnotesandbondspayable (154,262) (80,346) (234,608) (1,095,302)Decreaseinliabilitiesundersecurityagreements (300,903) - (300,903) (99,772)

NET CASH PROVIDED BY FINANCING ACTIVITIES 882,143 40,863 923,006 334,902

INCREASE IN CASH AND CASH EQUIVALENTS 820,448 101,796 922,244 212,410

Cashandcashequivalents,beginningofyear 514,697 344,333 859,030 646,620

CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,335,145 $ 446,129 $ 1,781,274 $ 859,030

SUPPLEMENTALDATA:Interestpaidduringtheyear $ 78,066 $ 43,668 $ 121,734 $ 118,390Cashcollateralreceivedundersecuritieslendingagreements $ 205,622 $ - $ 205,622 $ 491,944(Increase)decreaseinpayablesforplantfacilities $ (14,326) $ (5,719) $ (20,045) $ 4,638


13

1. Basis of Presentation and Significant Accounting PoliciesBASIS OF PRESENTATIONTheconsolidatedfinancialstatementsincludetheaccountsofStanfordUniversity(theUniversity),StanfordHospitalandClinics(SHC),LucileSalterPackardChildren’sHospitalatStanford(LPCH)andothermajority-ownedorcontrolledentities.Allsignificantinter-entitytransactionsandbalanceshavebeeneliminateduponconsolidation.Certainprioryearamountshavebeenreclassifiedtoconformtothecurrentyear’spresentation.Thesereclassificationsandrevisionshadnoimpactonthechangeinnetassetsortotalnetassets.

UniversityTheUniversityisaprivate,not-for-profiteducationalinstitution,foundedin1885bySenatorLelandandMrs.JaneStanfordinmemoryoftheirson,LelandStanfordJr.ABoardofTrustees(theBoard)governstheUniversity.The“University”categorypresentedinthefinancialstatementscomprisesalloftheaccountsoftheUniversity,includingtheHooverInstitutionandotherinstitutesandresearchcenters,theStanfordManagementCompanyandtheSLACNationalAcceleratorLaboratory(SLAC).

TheUniversitymanagesandoperatesSLACfortheDepartmentofEnergy(DOE)underamanagementandoperatingcontract;therefore,therevenuesandexpendituresofSLACareincludedinthestatementofactivities.SLACisafederallyfundedresearchanddevelopmentcenterownedbytheDOEand,accordingly,theassetsandliabilitiesarenotincludedintheUniversity’sstatementoffinancialposition,otherthancertainemployee-relatedaccruedcompensationandrelatedreceivablesfromtheDOE.

HospitalsThehealthcareactivitiesofSHCandLPCH(theHospitals),includingrevenues,expenses,assetsandliabilities,areconsolidatedintothesefinancialstatements.EachoftheHospitalsisaCalifornianot-for-profitpublicbenefitcorporation.TheUniversityisthesolememberofeachoftheHospitals.TheHospitalssupportthemissionofmedicaleducationandclinicalresearchoftheUniversity’sSchoolofMedicine.TheyoperatetwolicensedacutecareandspecialtyhospitalsontheStanfordcampusandnumerousphysicianclinicsonthecampus,incommunitysettingsandinassociationwithregionalhospitalsintheSanFranciscoBayArea.TheHospitalsjointlycontrolacaptiveinsurancecompany.

EachoftheHospitalspreparesseparate,stand-alonefinancialstatements.ForpurposesofpresentationoftheHospitals’balancesheets,statementsofoperationsandchangesinnetassetsandstatementsofcashflowsintheseconsolidatedfinancialstatements,conformingreclassificationshavebeenmadetotheHospitals’revenues,expenses,investmentincomeandinter-entityreceivablesandpayablesconsistentwithcategoriesintheseconsolidatedfinancialstatements.

TAX STATUS TheUniversityandtheHospitalsareexemptfromfederalandstateincometaxestotheextentprovidedbySection501(c)(3)oftheInternalRevenueCodeandequivalentstateprovisions.

BASIS OF ACCOUNTINGThefinancialstatementsarepreparedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Theseprinciplesrequiremanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.

NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTS

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Forfinancialreportingpurposes,netassetsandrevenues,expenses,gainsandlossesareclassifiedintooneofthreecategories–unrestricted,temporarilyrestrictedorpermanentlyrestricted.

Unrestricted Net AssetsUnrestrictednetassetsareexpendableresourcesusedtosupporttheUniversity’scoreactivitiesofteachingandresearchortheHospitals’patientcare,teachingandresearchmissions.ThesenetassetsmaybedesignatedbytheUniversityortheHospitalsforspecificpurposesunderinternaloperatingandadministrativearrangementsorbesubjecttocontractualagreementswithexternalparties.Donor-restrictedcontributionsthatrelatetotheUniversity’sortheHospitals’coreactivitiesandarereceivedandexpendedordeemedexpendedbasedonthenatureofdonors’restrictionsareclassifiedasunrestricted.Allexpensesarerecordedasareductionofunrestrictednetassets.Unrestrictednetassetsincludefundsdesignatedforoperations,plantfacilities,certaininvestmentandendowmentgainsandfundsfunctioningasendowment.

Managementconsidersallrevenuesandexpensestoberelatedtooperations.Increases(decreases)inreinvestedgains,donoradvisedfunds,capitalandothergiftsreleasedfromrestrictions,hospitalequitytransfers,amountstransferredtoothernetassetcategoriesandcertainothernon-operatingchangesarereportedinotherchangesinunrestrictednetassets.

Transfersfromunrestrictednetassetstotemporarilyrestrictednetassetsandpermanentlyrestrictednetassetsareprimarilytheresultofdonorredesignationsormatchingfundsthatareaddedtothedonorgiftfundsandthentakeonthesamerestrictionsasthedonorgift.

Temporarily Restricted Net Assets Temporarilyrestrictednetassetsincludegiftsandpledgesthataresubjecttodonor-imposedrestrictionsthatexpirewiththepassageoftime,paymentofpledgesorspecificactionstobeundertakenbytheUniversityortheHospitals,whicharethenreleasedandreclassifiedtounrestrictedsupport.Inaddition,appreciationandincomeoncertaindonor-restrictedendowmentfundsareclassifiedastemporarilyrestrictednetassetsuntilauthorizedforspending(seeNote11).Donor-restrictedresourcesintendedforcapitalprojectsareinitiallyrecordedastemporarilyrestrictedandreleasedfromtheirtemporaryrestrictionsandreclassifiedasunrestrictedsupportwhentheassetisplacedinservice.

Permanently Restricted Net Assets Permanentlyrestrictednetassetsconsistprincipallyofendowment,annuityandlifeincomefunds,whicharesubjecttodonor-imposedrestrictionsrequiringthattheprincipalbeinvestedinperpetuity.Permanentlyrestrictednetassetsmayalsoincludefundsreclassifiedfromotherclassesofnetassetsasaconsequenceofdonor-imposedstipulations.

CASH AND CASH EQUIVALENTSCashandcashequivalentsconsistofU.S.Treasurybills,commercialpaper,certificatesofdeposit,moneymarketfundsandallothershort-terminvestmentswithoriginalmaturitiesof90daysorlessatthetimeofpurchase.Theseamountsarecarriedatcost,whichapproximatesfairvalue.Cashandcashequivalentamountsheldforinvestmentpurposes,collateralheldforsecuritiesloanedandcertaincashrestrictedinitsuse,areclassifiedasinvestments.

PLEDGES RECEIVABLEUnconditionalpromisestogiveareincludedinthefinancialstatementsaspledgesreceivableandareclassifiedastemporarilyrestrictedorpermanentlyrestricted,dependingupondonorrequirements.Pledgesarerecordedatthepresentvalueofthediscountedcashflows.Thediscountrateconsidersmarketandrealizabilityfactors,asapplicable.Conditionalpromises,whichdependontheoccurrenceofaspecifiedfutureanduncertainevent,suchasmatchinggiftsfromotherdonors,arerecognizedwhentheconditionsaresubstantiallymet.

15

ACCOUNTS AND STUDENT LOANS RECEIVABLEAccountsandstudentloansreceivablearecarriedatcost,lessanallowancefordoubtfulaccounts.

INVESTMENTSInvestmentsarerecordedatfairvalue.Gainsandlosses(realizedandunrealized)oninvestments,exceptfordonatedassetsandundevelopedland,arerecognizedintheconsolidatedstatementsofactivities(seeNote5).

Cashandcashequivalentscategorizedasinvestmentsincludemoneymarketfundsandovernightreceivablesonrepurchaseagreements.Collateralheldforsecuritiesloanedoriginatesintheformofshort-termU.S.governmentobligations,aswellascashwhichisreinvestedforincomeincashequivalentvehicles.

Publiclytradedequitysecuritiesandmutualfundsarevaluedbasedonquotedmarketprices(andexchangerates,ifapplicable).Securitiestransactionsarereportedonatrade-datebasis.Non-exchangetradeddebtinstrumentsareprimarilyvaluedusingindependentpricingservicesorbybroker/dealerswhoactivelymakemarketsinthesesecurities.

Derivativessuchasforwardcontracts,currencyoptions,interestrateswapsandcreditdefaultswapsarevaluedusingmodelsbasedonmarketverifiableinputs,orbyusingindependentbrokerquotes.

Allotherinvestmentsarerecordedbasedonestimatedfairvalues.Mostnon-publicequityinvestmentsandlimitedpartnershipsareconsideredalternativeinvestments,withtheinvestmentmanagerreportingtheNetAssetValue(NAV)oftheunderlyinginvestmentsonaperiodicbasis.Theseinvestmentsaregenerallylessliquidthanotherinvestments,andthevaluereportedbythegeneralpartnerorinvestmentmanagermaydifferfromthevaluesthatwouldhavebeenreportedhadareadymarketforthesesecuritiesexisted.TheUniversityexercisesduediligenceinassessingthepolicies,procedures,andcontrolsimplementedbyitsexternalinvestmentmanagers,andbelievesthecarryingamountoftheseassetsisareasonableestimateoffairvalue.

Forthesealternativeinvestments,theUniversityhasreportedtheNAVpershare,adjustedasdescribedbelow,asareasonableestimateoffairvalue.ThemostrecentNAVreportedbytheinvestmentmanagerisadjustedforcapitalcalls,distributionsandsignificantknownvaluationchangesinmarketvaluesofpubliclyheldsecuritiescontainedintheportfolioandsecuritiesdistributionsthroughAugust31,2009.

Amajorityofthenon-publicequityinvestmentsconsistofabsolutereturninterests,heldascorporateequityinvestments.Otherinvestmentsinthiscategoryincludehedgefundsinvestinginpublicequities,aswellasfundsinvestinginnaturalresourcesandrealestate.Directequityinvestmentsinprivatecompaniesarealsoincludedinthiscategory.

Limitedpartnershipsincludevariousinvestmentstrategiesownedinpartnershipform.LimitedpartnershipsincludeinvestmentsintheassetclassesofPrivateEquity,RealEstate,NaturalResources,AbsoluteReturn,andPublicEquity.

AssetsheldbyothertrusteesgenerallyrepresenttheUniversity’sandtheHospitals’residualinterestinsplitinterestagreements,whicharediscussedinmoredetailbelow.Theresidual(orbeneficial)interestrepresentsthepresentvalueofthefuturedistributionsexpectedtobereceivedoverthetermoftheagreement,whichapproximatesfairvalue,andtheassetsarebasedonestimatesprovidedbytrustees.

Thefairvalueofrealestateandimprovementsisbasedprimarilyondiscountedcashflows,usingestimatesfromtheassetmanagerorgeneralpartner,corroboratedbyappraisalsandmarketdata,ifavailable.

Assetslimitedastouseincludevarioushospitalaccountsheldbyatrusteeinaccordancewithindenturerequirements.Theindenturetermsrequirethatthetrusteecontroltheexpenditureofbondsproceedsforhospitalcapitalprojects,andtheassetsarerecordedatfairvalue.Assetslimitedastouseof$49,327,000and$189,770,000asofAugust31,2009and2008,respectively,areincludedin“Cashandcashequivalents”ontheinvestmenttableinNote5.

16

Donatedassetsarerecordedatfairvalueatthedateofdonation.Undevelopedlandisreportedatfairvalueatthedateofacquisition.UndertheoriginalendowmentfromSenatorLelandandMrs.JaneStanford,asignificantportionofUniversitylandmaynotbesold.

Withtheexceptionsofcashequivalents,publicequities,mutualfundsandderivatives,theaboveinvestmentsgenerallyarenotreadilyconvertibletocash,excepttotheextenttheinvestmentagreementprovidesforredemptionperiodsorliquidatingpayments.Althoughcertainoftheseinvestmentsmaybesoldinasecondarymarket,thesemarketsgenerallyareinactive.IftheUniversityweretosellanassetinthesecondarymarket,itispossiblethesalecouldoccuratapricemateriallydifferentfromthereportedfairvalue.Fairvaluereportingrequiresmanagementtomakeestimatesandassumptionsabouttheeffectsofmattersthatareinherentlyuncertain,includingrisksrelatedtoinactivemarkets.Estimatesdevelopedusingmethodssuchasdiscountedcashflowaresubjective,requiringsignificantjudgmentssuchastheamountandtimingoffuturecashflowsandtheselectionofappropriatediscountratesthatreflectmarketandcreditrisks.Estimates,bytheirnature,arebasedonjudgmentandavailableinformation.Changesinassumptionscouldhaveasignificanteffectonthefairvalueoftheseinstruments.Actualresultscoulddifferfromtheseestimatesandsuchdifferencescouldhaveamaterialimpactonthefinancialstatements.

PLANT FACILITIESPlantfacilitiesarerecordedatcostor,fordonatedassets,atfairvalueatthedateofdonation.Interestforconstructionfinancingiscapitalizedasacostofconstruction.Depreciationiscomputedusingthestraight-linemethodovertheestimatedusefullivesoftheassets.

TheusefullivesusedincalculatingdepreciationfortheyearsendedAugust31,2009and2008areasfollows:

UNIVERSITY HOSPITALS Land improvements 10-25 years 10-25 years Buildings and building improvements 4-50 years 7-40 years Furniture, fixtures and medical equipment 5-10 years 3-20 years Equipment, books and software 3-10 years 3-20 years

WORKS OF ART AND SPECIAL COLLECTIONSWorksofart,historicaltreasures,literaryworksandartifacts,whicharepreservedandprotectedforeducational,researchandpublicexhibitionpurposes,arenotcapitalized.Purchasesofsuchcollectionsarerecordedasoperatingexpensesintheperiodinwhichtheyareacquired.SELF-INSURANCETheUniversityself-insuresatvaryinglevelsforunemployment,disability,workers’compensation,propertylosses,certainhealthcareplansandgeneralandprofessionalliabilitylosses.TheHospitalsself-insureatvaryinglevelsforhealthcareplans,workers’compensationand,throughtheircaptiveinsurancecompany,forprofessionalliabilitylosses.Third-partyinsuranceispurchasedtocoverliabilitiesabovetheself-insurancelimits.Estimatesofretainedexposuresareaccrued.

DONOR ADVISED FUNDSTheUniversityreceivesgiftsfromdonorsunderdonoradvisedfundagreements(DAFs).ThesefundsareownedandcontrolledbytheUniversityandareseparatelyidentifiedbythedonor.AsubstantialportionofthegiftmustbedesignatedtotheUniversity.Thebalancemaybeusedtosupportotherapprovedcharities.Thedonorshaveadvisoryprivilegeswithrespecttothedistributionofcertainamountsinthefunds.DAFsarerecordedinotherchangesinunrestrictednetassetsatthefullamountofthegift.Transfersoffundstoothercharitableorganizationsarerecordedonthestatementofactivitiesasareductiontootherchangesinunrestrictednetassetsatthetimethetransferismade.AtAugust31,2009and2008,approximately$139,000,000and$180,000,000,respectively,ofDAFsarenotdesignatedtotheUniversity.

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SPLIT INTEREST AGREEMENTSSplitinterestagreementsrepresenttrustswithlivingincomebeneficiarieswheretheUniversityhasaresidualinterest.ThediscountedpresentvalueofanyincomebeneficiaryinterestisreportedasaliabilityinthestatementoffinancialpositionbasedonactuarialtablesestablishedbytheInternalRevenueServiceusingdiscountratesrangingfrom3%to6%.Discountratesusedapplytotheyearthegiftwasreceivedandconsidermarketandrealizabilityfactors,asapplicable.Giftssubjecttosuchagreementsarerecordedasrevenue,netoftheincomebeneficiaryshare,atthedateofthegift.Actuarialgainsorlossesareincludedin“Changeinvalueofsplitinterestagreements”inthestatementofactivities.Resourcesthatareexpendableuponmaturityareclassifiedastemporarilyrestrictednetassets;allothersareclassifiedaspermanentlyrestrictednetassets.

STUDENT INCOMEFinancialassistanceintheformofscholarshipandfellowshipgrantsthatcoveraportionoftuition,livingandothercostsisreflectedasareductionofstudentincome.

HEALTH CARE SERVICESTheHospitalsderiveamajorityofpatient-carerevenuesfromcontractualagreementswiththird-partypayersincludingMedicare,Medi-Calandotherpayers.Paymentsundertheseagreementsandprogramsarebasedonapercentageofcharges,perdiem,perdischarge,perservice,afeeschedule,costreimbursementornegotiatedcharges.

TheUniversityhasenteredintovariousoperatingagreementswiththeHospitalsforprofessionalservicesoffacultymembersfromtheSchoolofMedicine,telecommunicationsservicesandotherservicesandfacilitiescharges.

CHARITY CARE TheHospitalsprovidecaretopatientswhomeetcertaincriteriaundertheircharitycarepolicieswithoutchargeoratamountslessthantheirestablishedrates.TheHospitalsdonotrecordrevenueforamountsdeterminedtoqualifyascharitycare.Theamountofcharitycareservices,quantifiedatestablishedrates,was$60,500,000and$52,674,000fortheyearsendedAugust31,2009and2008,respectively.TheHospitalsalsoprovideservicestootherpatientsunderMedi-Calandotherpubliclysponsoredprograms,whichreimburseatamountslessthanthecostoftheservicesprovidedtotherecipients.EstimatedcostsinexcessofreimbursementsforMedi-CalandcountyservicesfortheyearsendedAugust31,2009and2008were$186,033,000and$178,573,000,respectively.

RECENT PRONOUNCEMENTS EffectiveSeptember1,2008,theUniversityandtheHospitalsadoptedStatementofFinancialAccountingStandardsNo.157,FairValueMeasurements(FAS157),whichdefinesfairvalue,establishesaframeworkformeasuringfairvalueandexpandstherelateddisclosurerequirementsaboutfairvaluemeasurements.TheimpactofadoptingFAS157isdiscussedinNote6.

EffectiveSeptember1,2008,theUniversityandtheHospitalsadoptedFASBStaffPositionNo.157-4,DeterminingFairValueWhentheVolumeandLevelofActivityfortheAssetorLiabilityHaveSignificantlyDecreasedandIdentifyingTransactionsThatAreNotOrderly(FSPFAS157-4).FSPFAS157-4providesadditionalguidanceonestimatingthefairvalueofanassetorliabilitywherethelevelofactivityhasdecreasedsignificantly,andaffirmsthattheobjectivefairvalueisthepricethatwouldbereceivedtoselltheassetinanorderlytransaction,evenwhenthemarketfortheassetisnotactive.TheUniversity’svaluationmethodologyisconsistentwithFSPFAS157-4.

InSeptember2009,theFASBissuedFASBAccountingStandardsUpdateNo.2009-12,InvestmentsinCertainEntitiesThatCalculateNetAssetValueperShare(oritsEquivalent)(ASU2009-12).ASU2009-12amendsFASBStatementNo.157,FairValueMeasurements,andprovidesguidanceforestimatingthefairvalueofinvestmentsininvestmentcompaniesthatcalculatenetassetvaluepershare,allowingtheNetAssetValueperShare(NAV),oritsequivalent,tobeusedasapracticalexpedientforfairvaluewhereinvestmentcompaniesfollowtheAmericanInstituteofCertifiedPublicAccounts(AICPA)Guideinarrivingattheirreported

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NAV.EffectiveSeptember1,2008,theUniversityearly-adoptedthe“practicalexpedient”provisionsofASU2009-12.AspermittedbyASU2009-12,thedisclosureprovisionswillnotbeadopteduntiltheyearendedAugust31,2010.

InFebruary2007,theFASBissuedStatementofFinancialAccountingStandardsNo.159,TheFairValueOptionforFinancialAssetsandFinancialLiabilities—IncludinganAmendmentofFASBStatementNo.115(FAS159).FAS159permitsentitiestochoosetomeasureeligibleitemsatfairvalueatspecificelectiondates(the“fairvalueoption”).FAS159waseffectivefortheUniversityandtheHospitalsfortheirfiscalyearendedAugust31,2009.TheUniversityandtheHospitalschosenottoelectthefairvalueoptionforanyeligibleitemsunderFAS159.

EffectiveSeptember1,2008,theUniversityandtheHospitalsadoptedStatementofFinancialAccountingStandardsNo.165,SubsequentEvents(FAS165).FAS165establishesstandardsofaccountingforanddisclosureofeventsoccurringafterthereportingdatebutbeforeissuanceofthefinancialstatements.TheadoptionofFAS165didnothaveasignificantimpactontheUniversity’sfinancialstatements.

EffectiveSeptember1,2008,theUniversityandtheHospitalsadoptedFASBStaffPositionNo.117-1,EndowmentsofNot-for-ProfitOrganizations:NetAssetClassificationofFundsSubjecttoanEnactedVersionoftheUniformPrudentManagementofInstitutionalFundsActandEnhancedDisclosuresforAllEndowmentFunds(FSPFAS117-1).FSPFAS117-1providesguidanceonthenetassetclassificationofdonor-restrictedendowmentfundsforanot-for-profitorganizationthatissubjecttoanenactedversionoftheUniformPrudentManagementofInstitutionalFundsAct(UPMIFA)andrequiresadditionaldisclosuresaboutanorganization’sendowmentfunds.CaliforniaadoptedaversionofUPMIFAeffectiveJanuary1,2009.TheimpactofadoptingFSPFAS117-1wasareclassificationof$6,333,634,000and$111,619,000fromunrestrictednetassetstotemporarilyrestrictednetassetsfortheUniversityandtheHospitals,respectively,andisdiscussedinNotes11and12totheconsolidatedfinancialstatements.

EffectiveSeptember1,2008,theUniversityandtheHospitalsadoptedFASBStaffPositionNo.133-1andFIN45-4,DisclosuresaboutCreditDerivativesandCertainGuarantees:AnAmendmentofFASBStatementNo.133andFASBInterpretationNo.45;andClarificationoftheEffectiveDateofFASBStatementNo.161(FSPFAS133-1andFIN45-4).FSPFAS133-1andFIN45-4establishesadditionaldisclosurerequirementsforcreditderivativesandcertainguaranteecontracts.TheadoptionofFSPFAS133-1andFIN45-4didnothaveasignificantimpactonthefinancialstatementsandisdiscussedinNote5.

ThefollowingaccountingpronouncementswillbeeffectivefortheUniversityandtheHospitalsfortheyearendingAugust31,2010andarecurrentlybeingassessedtodeterminetheirimpactonthefinancialstatements:

FSPFAS157-2,EffectiveFASDateofFASBStatementNo. 157(FSPFAS157-2)delaystheeffectivedateofFAS157asitrelatestononfinancialassetsandnonfinancialliabilities.

StatementofFinancialAccountingStandardsNo.161,DisclosuresaboutDerivativeInstrumentsandHedgingActivities—AnAmendmentofFASBStatementNo.133(FAS161)requiresentitiesthatutilizederivativeinstrumentsorhedgestoincludeenhanceddisclosuresabouttheseactivitiesintheirfinancialstatements,includingtheirobjectivesforusingderivativeinstrumentsintermsofunderlyingriskandaccountingdesignation,thefairvaluesofderivativeinstrumentsandrelatedgainsandlosses,andinformationaboutcredit-risk-relatedcontingentfeatures.

FASBStaffPositionNo.132(R)-1,Employers’DisclosuresaboutPostretirementBenefitPlanAssets(FSP132(R)-1)requiresentitieswithdefinedbenefitorotherpostretirementplanstoprovideinformationregardinghowinvestmentdecisionsaremade,majorcategoriesofplanassets,inputsandvaluationtechniquesusedinmeasuringthefairvalueofplanassets,theeffectoffairvaluemeasurementsusingsignificantunobservableinputsonchangesinplanassets,andsignificantconcentrationsofriskwithinplanassets.

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AccountingStandardsUpdateNo.2009-05,MeasuringLiabilitiesatFairValue(ASU2009-05)providesguidanceonmeasuringthefairvalueofliabilitiesandestablishesthatthequotedmarketpriceforanidenticalliability,whentradedinanactivemarketasanasset,qualifiesasaLevel1measurementforthatliabilitywhenthereisnoadjustmenttothequotedmarketpricerequired.

RESTATEMENT OF FISCAL YEAR 2008 CONSOLIDATED STATEMENT OF CASH FLOWSThefiscalyear2008consolidatedstatementofcashflowshasbeenrestatedtocorrecterrorsintheclassificationofcashflowactivitiesamongoperating,investingandfinancingactivitiesintheconsolidatedstatementofcashflows.ThereisnoimpactonthereportedamountsforcashandcashequivalentsasofAugust31,2008orforthenetincreaseincashandcashequivalentsfortheyearthenended.Thefiscalyear2008cashflowstatementmisclassifiedapproximately$170,000,000ofcashactivityrelatedtochangesinassetslimitedastouse,heldbytrustees,fromSHCasoperatingactivitiesratherthaninvestingactivities;certainSHCdonorrestrictedgiftsasfinancingactivitiesratherthanasoperatingactivities;andcertainLPCHnoncashtransactionsasinvestingactivitiesratherthanoperatingactivities.Theeffectoftherestatementadjustmentsontheaccompanyingfiscalyear2008consolidatedstatementofcashflowsareasfollows,inthousandsofdollars:

2. Accounts ReceivableAccountsreceivableatAugust 31,2009and2008,inthousandsofdollars,areasfollows:

2009 2008

UNIVERSITY:U.S.government $ 66,010 $ 70,048Non-governmentsponsors 31,273 27,122Duefrombrokers 45,488 46,819Accruedinterestoninvestments 3,892 12,608Student 8,000 7,322Other 34,044 38,962

188,707 202,881Lessbaddebtallowances (2,094) (2,007)

Universityaccountsreceivable,net 186,613 200,874

HOSPITALS:Patientreceivables 435,891 448,241Other 13,327 33,739

449,218 481,980Lessbaddebtallowances (79,861) (83,075)

Hospitals’accountsreceivable,net 369,357 398,905

CONSOLIDATED ACCOUNTS RECEIVABLE, NET $ 555,970 $ 599,779

ASPREVIOUSLY REPORTED ADJUSTMENT ASRESTATED

Netcashprovidedbyoperatingactivities $ 352,091 $ (155,967) $ 196,124Netcashusedforinvestingactivities (480,146) 161,530 (318,616)Netcashprovidedbyfinancingactivities 340,465 (5,563) 334,902

INCREASE IN CASH AND CASH EQUIVALENTS $ 212,410 $ - $ 212,410

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3. Pledges ReceivablePledgesarerecordedatthepresentvalueofthediscountedfuturecashflows,netofallowances,usingdiscountratesrangingfrom1.5%to6.4%.AtAugust 31,2009and2008,pledgesreceivableareasfollows,inthousandsofdollars:

2009 2008

UNIVERSITY HOSPITALS CONSOLIDATED CONSOLIDATED

Oneyearorless $ 84,244 $ 48,349 $ 132,593 $ 117,792Betweenoneyearandfiveyears 660,128 78,210 738,338 708,660Morethanfiveyears 309,687 3,333 313,020 366,083

1,054,059 129,892 1,183,951 1,192,535

Lessdiscountandallowances (271,536) (17,970) (289,506) (309,188)

PLEDGES RECEIVABLE, NET $ 782,523 $ 111,922 $ 894,445 $ 883,347

ConditionalpledgesfortheUniversity,whichdependontheoccurrenceofaspecifiedfutureanduncertainevent,were$17,802,000and$13,772,000atAugust31,2009and2008,respectively.TheHospitalsdonothaveanyconditionalpledges.

4. Faculty and Staff MortgagesInaprogramtoattractandretainexcellentfacultyandseniorstaff,theUniversityprovideshomemortgagefinancingassistance.Notesreceivableamountingto$418,166,000and$375,582,000atAugust31,2009and2008,respectively,fromUniversityfacultyandstaffareincludedin“Facultyandstaffmortgagesandotherloansreceivable,net”intheconsolidatedstatementsoffinancialpositionandarecollateralizedbydeedsoftrustonpropertiesconcentratedintheregionsurroundingtheUniversity.

5. InvestmentsInvestmentsheldbytheUniversityandtheHospitalsatAugust31,2009and2008areasfollows,inthousandsofdollars:

2009 2008


Cashandcashequivalents $ 327,154 $ 83,900 $ 411,054 $ 535,193Collateralheldforsecuritiesloaned 205,622 - 205,622 491,944Publicequitiesandmutualfunds 1,929,878 42,629 1,972,507 3,457,453Derivatives 1,379 - 1,379 (17,026)Bondsandshort-terminvestments 227,827 - 227,827 695,816Non-publicequities 2,153,117 - 2,153,117 3,106,040Assetsheldbyothertrustees(netofincomebeneficiaryshareof$160,400and$94,151atAugust31,2009and2008,respectively) 139,474 13,997 153,471 213,208Realestateandimprovements,includingStanfordShoppingCenterandResearchPark 2,054,793 - 2,054,793 2,069,029Limitedpartnershipinvestments 10,507,461 - 10,507,461 12,819,211Other 70,242 - 70,242 98,931

17,616,947 140,526 17,757,473 23,469,799TheHospitals’investmentintheUniversity’sMergedPool (1,116,277) 1,116,277 - -

INVESTMENTS AT FAIR VALUE $ 16,500,670 $ 1,256,803 $ 17,757,473 $ 23,469,799

TheUniversitymanagedaportionoftheHospitals’investmentsincludingtheHospitals’investmentintheMergedPool,withacombinedfairvalueof$1,116,277,000and$1,441,181,000atAugust31,2009and2008,respectively.

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Totalinvestment(losses)returnsfortheyearsendedAugust31,2009and2008,inthousandsofdollars,areasfollows:

2009 2008


Investmentincome $ 162,068 $ 3,589 $ 165,657 $ 292,288Netrealizedandunrealized(losses)gains (4,178,144) (315,656) (4,493,800) 538,342

TOTAL INVESTMENT (LOSS) RETURN $ (4,016,076) $ (312,067) $ (4,328,143) $ 830,630

Investmentreturnsarenetofinvestmentmanagementexpenses,includingbothexternalmanagementfeesandinternalUniversitysalaries,benefitsandoperatingexpenses,andtheportionofinterestexpenseandamortizationrelatedtothe2009bondissuanceheldforliquiditypurposes(seeNote9).

TheUniversity’sinvestmentsareheldinvariouspoolsorinspecificinstrumentstocomplywithdonorrequirementsasindicatedinthefollowingtable,asofAugust31,2009and2008,inthousandsofdollars:

2009 2008

UNIVERSITY:MergedPool $ 15,093,093 $ 20,436,127ExpendableFundsPool 2,034,885 2,087,214EndowmentIncomeFundsPool 356,319 292,698OtherInvestmentPools 361,418 450,909SpecificInvestments 2,147,272 2,272,284

19,992,987 25,539,232Lessamountsincludedincashandcashequivalents (510,843) (467,018)Lessfundscross-investedininvestmentpools(includingtheHospitals’investmentof$1,116,277and$1,425,087in2009and2008,respectively,intheUniversity’sMergedPool) (2,981,474) (3,314,498)

16,500,670 21,757,716HOSPITALS:Investments 1,256,803 1,712,083

INVESTMENTS AT FAIR VALUE $ 17,757,473 $ 23,469,799

TheMergedPool(MP)istheprimaryinvestmentpoolinwhichendowment(seeNote11)andotherlong-termfundsareinvested.TheMPisinvestedwiththeobjectiveofmaximizinglong-termtotalreturn.Itisaunitizedpoolinwhichthefundholderspurchaseinvestmentsandwithdrawfundsbasedonamonthlysharevalue.

TheExpendableFundsPool(EFP)andEndowmentIncomeFundsPool(EIFP)aretheprincipalinvestmentvehiclesfortheUniversity’sexpendablefunds.AsubstantialportionoftheEFPiscross-investedintheMP.TheEIFPholdsincomepreviouslydistributedtoholdersofpermanentlyrestrictedendowmentfundsthathasnotyetbeenexpended.TheEIFPisinvestedinhighlyliquidinstrumentsandisincludedinthestatementoffinancialpositionascashandcashequivalents.ThetotalreturnoninvestmentsintheEIFPisdistributedtofundholders.FortheyearendedAugust31,2008,thedistributionwas$3,354,000.FortheyearendedAugust31,2009,theEIFPexperiencedlossesonitsinvestments,resultinginareductionofthefundholders’principalbalancesof$867,000.

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TheUniversityutilizesderivativesandotherstrategiestoreduceinvestmentrisk,toserveasatemporarysurrogateforinvestmentinstocksandbonds,tomanageinterestexposureontheUniversity’svariableratedebtortoachievespecificexposuretoforeigncurrencies.TheUniversity’sderivativepositionsincludeforwardcontracts,swaps,optionsandfuturescontracts.Thenetunrealizeddepreciationonthesederivativeswas$25,634,000and$25,805,000atAugust31,2009and2008,respectively.

TheUniversity’sderivativeactivitiesincludeboththepurchaseandsaleofcreditdefaultswaps.Creditdefaultswaps(CDSs)arecontractsunderwhichcounterpartiesareprovidedprotectionagainsttheriskofdefaultonasetofdebtobligationsissuedbyspecificcompanies(orgroupofcompaniescombinedinanindex).ThebuyeroftheCDSswillmakepaymenttothesellerandinreturnreceivespaymentiftheunderlyinginstrumentgoesintodefaultoristriggeredbysomeothercreditevent.TheUniversity’sCDStransactionsincludebothsinglenameentitiesaswellasindexCDSs.UndertheindexCDSs,thecrediteventsthatwouldtriggersettlementofthecreditdefaultswapandrequiretheUniversitytoremitpaymentaregenerallybankruptcyandfailuretopay.ThetablebelowsummarizescertaininformationregardingprotectionsoldthroughCDSsasofAugust31,2009,inthousandsofdollars:

FAIRVALUECREDITRATINGSOFTHEREFERENCE ASSET/OBLIGATION(1) LESSTHAN1 1-3 3-5 OVER5 TOTAL (LIABILITY)

Singlenamecreditdefaultswaps:A+ $ - $ - $ - $ (2,300) $ (2,300) $ (152)A - - (400) (6,400) (6,800) (205)BBB+ - (1,200) - - (1,200) (56)

Totalsinglenamecreditdefaultswaps $ - $ (1,200) $ (400) $ (8,700) $ (10,300) $ (413)

Indexcreditdefaultswaps(2) - - (35,865) - (35,865) 751

TOTAL CREDIT DEFAULT SWAPS SOLD $ - $ (1,200) $ (36,265) $ (8,700) $ (46,165) $ 338

(1)ThecreditratingisaccordingtoStandard&Poor’sandrepresentsthecurrentperformanceriskoftheswap.(2)Indexcreditdefaultswapsaremadeupofapproximately125NorthAmericaninvestmentgradeentitieswithatleast80%oftheincludedentitieshavingaStandard&Poor’sratingofBBB-orhigher.

Foreigncurrencyforwardcontracts,interestrateswapsandstocklendingandrepurchaseagreementsnecessarilyinvolvecounterpartycreditrisk.TheUniversityseekstocontrolthisriskbyenteringintotransactionswithhigh-qualitycounterpartiesandthroughcounterpartycreditevaluationsandapprovals,counterpartycreditlimitsandexposuremonitoring.

TheBoardhasestablishedapolicyforthedistributionoftheinvestmentreturnsoftheEFP.Thedifferencebetweentheactualreturnofthispoolandtheapprovedpayoutisdepositedin,orwithdrawnfrom,fundsfunctioningasendowment.FortheyearsendedAugust 31,2009and2008,theresultsoftheEFP,inthousandsofdollars,areasfollows:

2009 2008

Totalinvestment(loss)/returnoftheEFP $ (406,091) $ 44,796Lessdistributionstofundholdersandoperations (81,896) (91,495)

AMOUNTS WITHDRAWN FROM THE ENDOWMENT $ (487,987) $ (46,699)

PROTECTIONSOLDMAXIMUMPOTENTIALPAYOUT/NOTIONALAMOUNT

YEARSTOMATURITY

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6. Fair Value of Financial InstrumentsFAS157definesfairvalueasthepricereceiveduponsaleofanassetorpaidupontransferofaliabilityinanorderlytransactionbetweenmarketparticipantsandestablishesahierarchyofvaluationinputsbasedontheextenttowhichtheinputsareobservableinthemarketplace.Observableinputsreflectmarketdataobtainedfromindependentsources.Incontrast,unobservableinputsreflecttheentity’sassumptionsabouthowmarketparticipantswouldvaluethefinancialinstrument.ValuationtechniquesusedunderFAS157mustmaximizetheuseofobservableinputstotheextentavailable.

Thefollowingdescribesthehierarchyofinputsusedtomeasurefairvalueandtheprimaryvaluationmethodologiesusedforfinancialinstrumentsmeasuredatfairvalueonarecurringbasis:

LEVEL1–Quotedpricesinactivemarketsforidenticalassetsorliabilities,atthereportingdate,withoutadjustment.Marketpricedataisgenerallyobtainedfromrelevantexchangeordealermarkets.

LEVEL2–InputsotherthanLevel1thatareobservable,eitherdirectlyorindirectly,suchasquotedpricesforsimilarassetsorliabilities,quotedpricesinmarketsthatarenotactive,orotherinputsthatareobservableorcanbecorroboratedbyobservablemarketdataforsubstantiallythesametermoftheassetsorliabilities.Inputsareobtainedfromvarioussourcesincludingmarketparticipants,dealersandbrokers.

LEVEL3–Unobservableinputsthataresupportedbylittleornomarketactivityandthataresignificanttothefairvalueoftheassetsorliabilities.

Afinancialinstrument’scategorizationwithinthishierarchyisbaseduponthelowestlevelofinputthatissignificanttothefairvaluemeasurement.

TheUniversityhascommittedtoinvestinnumerousinvestmentpartnershipsoveraperiodofyearspursuanttoprovisionsoftheindividualpartnershipagreements.AsofAugust31,2009,theaggregatedamountofsuchunfundedcommitmentswas$5,068,997,000.

TheUniversityholdscertaininvestmentpropertiesthatitleasestothirdparties.FutureminimumrentalincomeduefromtheStanfordShoppingCenter,ResearchParkandotherpropertiesundernon-cancelableleasesineffectwithtenantsatAugust31,2009,isasfollows,inthousandsofdollars:

YEAR

2010 $ 71,3502011 62,9482012 59,0272013 56,0542014 54,068Thereafter 1,390,849

TOTAL $ 1,694,296

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ASSETSUNIVERSITY*Cashandcashequivalents $ 327,154 $ 303,308 $ 23,846 $ -Collateralheldforsecuritiesloaned 205,622 110,000 95,622 -Publicequitiesandmutualfunds 1,929,878 1,691,009 238,869 -Derivatives 1,379 80 1,299 -Bondsandshort-terminvestments 227,827 5,162 196,671 25,994Non-publicequities 2,153,117 - 924,164 1,228,953Assetsheldbyothertrustees 139,474 - - 139,474Realestateandimprovements,includingStanfordShoppingCenterandResearchPark 2,054,793 - - 2,054,793Limitedpartnershipinvestments 10,507,461 - 665,625 9,841,836Other 70,242 262 1,548 68,432

TOTAL $ 17,616,947 $ 2,109,821 $ 2,147,644 $ 13,359,482

HOSPITALSCashandcashequivalents $ 83,900 $ 83,900 $ - $ -Publicequitiesandmutualfunds 42,629 - 42,629 -Assetsheldbyothertrustees 13,997 - - 13,997

TOTAL $ 140,526 $ 83,900 $ 42,629 $ 13,997

CONSOLIDATEDCashandcashequivalents $ 411,054 $ 387,208 $ 23,846 $ -Collateralheldforsecuritiesloaned 205,622 110,000 95,622 -Publicequitiesandmutualfunds 1,972,507 1,691,009 281,498 -Derivatives 1,379 80 1,299 -Bondsandshort-terminvestments 227,827 5,162 196,671 25,994Non-publicequities 2,153,117 - 924,164 1,228,953Assetsheldbyothertrustees 153,471 - - 153,471Realestateandimprovements 2,054,793 - - 2,054,793Limitedpartnershipinvestments 10,507,461 - 665,625 9,841,836Other 70,242 262 1,548 68,432

TOTAL ASSETS $ 17,757,473 $ 2,193,721 $ 2,190,273 $ 13,373,479

LIABILITIESHOSPITALS

Interestrateexchangeagreements $ (87,311) $ - $ (87,311) $ -

*AmountsincludetheHospitals’crossinvestmentintheUniversity’sMergedPoolof$1,116,277.

ASOFAUGUST31,2009

QUOTEDPRICESINACTIVEMARKETS

FORIDENTICALASSETS

(LEVEL1)

SIGNIFICANTOTHEROBSERVABLEINPUTS

(LEVEL2)

SIGNIFICANTUNOBSERVABLE

INPUTS(LEVEL3)

FAIRVALUEMEASUREMENTSATREPORTINGDATEUSING

InvestmentsandinterestrateexchangeagreementsmeasuredatfairvalueasofAugust31,2009,inthousandsofdollars,areasfollows:

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UNIVERSITYBondsandshort-terminvestments $ 88,550 $ (66,689) $ (1,004) $ 5,137 $ - $ 25,994Non-publicequities 1,682,364 (27,653) 1,641 (427,399) - 1,228,953Assetsheldbyothertrustees 196,814 20,298 - (77,638) - 139,474Realestateandimprovements 2,069,029 97,458 (4,081) (107,613) - 2,054,793Limitedpartnershipinvestments 12,312,105 644,561 70,854 (2,856,793) (328,891) 9,841,836Other 94,651 (13,231) 5,235 (18,223) - 68,432

$ 16,443,513 $ 654,744 $ 72,645 $ (3,482,529) $ (328,891) $13,359,482

HOSPITALSAssetsheldbyothertrustees $ 16,394 $ - $ 10 $ (2,407) $ - $ 13,997

$ 16,394 $ - $ 10 $ (2,407) $ - $ 13,997CONSOLIDATEDBondsandshort-terminvestments $ 88,550 $ (66,689) $ (1,004) $ 5,137 $ - $ 25,994Non-publicequities 1,682,364 (27,653) 1,641 (427,399) - 1,228,953Assetsheldbyothertrustees 213,208 20,298 10 (80,045) - 153,471Realestateandimprovements 2,069,029 97,458 (4,081) (107,613) - 2,054,793Limitedpartnershipinvestments 12,312,105 644,561 70,854 (2,856,793) (328,891) 9,841,836Other 94,651 (13,231) 5,235 (18,223) - 68,432

TOTAL $ 16,459,907 $ 654,744 $ 72,655 $ (3,484,936) $ (328,891) $ 13,373,479

Realizedgains(losses)andthechangeinunrealizedgains(losses)inthetableaboveappearintheconsolidatedstatementofactivitiesprimarilyasunrestrictednetassets–decreaseinreinvestedgains;temporarilyrestrictednetassets–(decrease)increaseinreinvestedgains;andpermanentlyrestrictednetassets–investmentlosses.Thesecaptionsalsoincludethechangeinunrealizedgains(losses)relatingtoinvestmentsstillheldattheAugust31,2009reportingdate.

TheUniversity’snetassetbalancesareclassifiedasunrestricted,temporarilyorpermanentlyrestrictedbasedupondonorrestrictions.FundsrepresentingthesenetassetbalancesprimarilyownsharesintheMergedPoolorothersimilarunitizedinvestmentpools.Accordingly,thetotalLevel3realizedgains(losses)andchangeinunrealizedgains(losses)aredistributedpro-rataamongunrestricted,temporarilyorpermanentlyrestrictednetassetbalancesbasedupontherelativeownershipoftheunitizedinvestmentpools.Thetotalgains(losses)areallocatedamongtheunrestricted,temporarilyrestrictedandpermanentlyrestrictednetassetsectionsofthestatementofactivities.

ThefollowingtablepresentsareconciliationofbeginningandendingbalancesforLevel3investmentsfortheyearendedAugust31,2009,inthousandsofdollars:

FAIRVALUEMEASUREMENTSUSINGSIGNIFICANTUNOBSERVABLEINPUTS(LEVEL3)

BEGINNINGBALANCE

ASOFSEPTEMBER1,

2008

NETPURCHASES(SALESAND

SETTLEMENTS)

REALIZEDGAINS

(LOSSES)

CHANGEINUNREALIZED

GAINS(LOSSES)

NETTRANSFERS

IN(OUT)

ENDINGBALANCE

ASOFAUGUST31,

2009

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7. Plant FacilitiesPlantfacilitiesatAugust 31,2009and2008,inthousandsofdollars,areasfollows:

2009 2008


Landandimprovements $ 409,861 $ 93,584 $ 503,445 $ 450,969Buildingsandbuildingimprovements 3,308,637 1,075,271 4,383,908 3,852,739Furniture,fixturesandmedicalequipment 61,120 302,610 363,730 333,524Equipment,booksandsoftware 1,469,958 320,146 1,790,104 1,685,827Constructioninprogress 580,851 292,451 873,302 742,183

Plantfacilities 5,830,427 2,084,062 7,914,489 7,065,242Lessaccumulateddepreciation (2,560,792) (824,061) (3,384,853) (3,098,059)

PLANT FACILITIES, NET OF ACCUMULATED DEPRECIATION $ 3,269,635 $ 1,260,001 $ 4,529,636 $ 3,967,183

AtAugust31,2009,$1,543,145,000offullydepreciatedplantfacilitieswerestillinuse.

8. Liabilities Under Security Lending AgreementsAtAugust31,2009and2008,theUniversityreceived$206,277,000and$491,944,000,respectively,ofshort-termU.S.governmentobligationsandcashascollateraldepositsforcertainsecuritiesloanedtemporarilytobrokers.TheUniversityalsoenteredintocertainforwardsaleandpurchaseagreementstotaling$41,771,000and$57,007,000atAugust31,2009and2008,respectively.TheseamountsareincludedasinvestmentsandliabilitiesintheUniversity’sfinancialstatements.TheestimatedfairvalueofsecuritiesonloanatAugust31,2009and2008,was$193,862,000and$464,777,000,respectively.ItistheUniversity’spolicytorequirereceiptofcollateralonsecuritieslendingcontractsandrepurchaseagreementsequaltoaminimumof102%ofthefairmarketvalueofthesecurityloaned.

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9. University Notes and Bonds PayableNotesandbondspayableatAugust31,2009and2008,inthousandsofdollars,areasfollows:

EFFECTIVE YEAROF INTERESTRATE OUTSTANDINGPRINCIPAL MATURITY 2009/2008 2009 2008

Tax-exempt:CaliforniaEducationalFacilitiesAuthority(CEFA)FixedRateRevenueBonds:SeriesO 2031 5.1% $ 89,555 $ 89,555SeriesP 2013 5.3% 51,260 110,440SeriesQ 2032 5.3% 101,860 101,860SeriesR 2011-2021 4.0%-5.0% 111,585 111,585SeriesT 2014-2039 4.0%-5.0% 361,310 309,545

CEFAVariableRateRevenueNotesandBonds:SeriesL 2014-2022 0.14%/1.55% 83,818 83,818SeriesS 2039-2050 0.4%-0.6%/1.42% 181,200 181,200CommercialPaper 2009 0.2%/1.41% 152,140 69,951

Taxable:FixedRateNotesandBonds:StanfordUniversityBonds 2024 6.9% 150,000 150,000MediumTermNotes 2011-2026 6.2%-7.7% 100,000 150,000StanfordUniversitySeries2009A 2014-2019 3.6%-4.8% 1,000,000 -Other 2015-2016 Various 1,601 1,032VariableNotesandBonds:CommercialPaper 2009 0.5%/2.5%* 97,476 140,250

Universitynotesandbondspayable 2,481,805 1,499,236Netpremium 34,779 32,963

TOTAL $ 2,516,584 $ 1,532,199

*Exclusiveofinterestrateexchangeagreements.

AtAugust31,2009and2008,thefairvalueofthesedebtinstrumentsapproximatedtheirrecordedvalue.

Stanford’stax-exemptdebtisissuedthroughtheCaliforniaEducationalFacilitiesAuthority(CEFA).AlthoughCEFAistheissuer,Stanfordisresponsiblefortherepaymentofthetax-exemptdebt.TheCEFAdebtisageneralunsecuredobligationoftheUniversity.

InMarch2009thetaxableMediumTermNotes2Aintheamountof$50,000,000matured.

InApril2009,theUniversityissued$1,000,000,000oftaxablefixedrateSeries2009Abonds.Theserieswascomprisedof$350,000,000inprincipalamountthatwillmaturein2014,$250,000,000inprincipalamountthatwillmaturein2016and$400,000,000inprincipalamountthatwillmaturein2019andbearinterestatarateof3.625%,4.25%and4.75%,respectively.Proceedsof$200,000,000fromthetaxableSeries2009AwereusedtorefinancethedebtincurredtofundcertaincapitalimprovementsoftheUniversityandthe$794,198,000unspentbalance,netofissuancecosts,iscurrentlyinvestedincashandcashequivalentstoprovideadditionalliquidityfortheUniversity’sgeneralpurposes.

InMay2009,CEFASeriesS4(TrancheOne)revenuebondsintheamountof$51,200,000wereconvertedfromadailyratemodetoacommercialpaperratemode.SeriesSbondsbearinterestatacommercialpapermunicipalrateandareoutstandingforvariousperiodswhichmaybefromonedayto270days.

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InAugust2009,CEFAT-5revenuebonds(theT5Bonds)intheamountof$51,765,000plusanoriginalissuepremiumof$7,382,700wereissued.ProceedswereusedtorefundaportionofCEFAPrevenuebonds.Duringfiscalyear2009,theUniversitylegallydefeasedapproximately$59,180,000ofCEFAPrevenuebonds.TheT5Bondsbearinterestatarateof5%,matureonMarch15,2023andaresubjecttoredemptionpriortomaturityattheoptionoftheUniversity.

InconnectionwiththeissuancesofSeries2009Abonds,theconversionofCEFASeriesS4(TrancheOne)revenuebondsandCEFAT5bonds,theUniversity’slong-termratingsofAAA/Aaa/AAAwereaffirmedwithStandardandPoor’s,Moody’sInvestorsServiceandFitchRatings,respectively.

TheUniversity’staxablecommercialpaperfacilityprovidesforborrowingsupto$350,000,000outstandingatanytime.AsofAugust31,2009theoutstandingbalancewas$97,476,000,theweightedaveragedaystomaturitywere19.2andtheweightedaverageeffectiveinterestratewas0.51%.

TheUniversity’stax-exemptcommercialpaperfacilityprovidesforborrowingsupto$300,000,000outstandingatanytime.AsofAugust31,2009theoutstandingbalancewas$152,140,000,theweightedaveragedaystomaturitywere32.3andtheweightedaverageeffectiveinterestratewas0.23%.

TheUniversityhas$265,018,000ofvariable-raterevenuenotesandbonds(VRDBs)outstanding(excludingcommercialpaper).CEFASeriesLbondsbearinterestataweeklyrateandCEFASeriesSbondsbearinterestatacommercialpaperrateandareoutstandingforvariousinterestperiodsof270daysorless.IntheeventtheUniversityreceivesnoticeofanyoptionaltenderofitsVRDBs,orifthebondsbecomesubjecttomandatorytender,thepurchasepriceofthebondswillbepaidfromtheremarketingofsuchbonds.However,iftheremarketingproceedsareinsufficient,theUniversitywillhaveacurrentobligationtopurchasethebondstendered.TheUniversityhasidentifiedseveralsourcesoffundingincludingcash,moneymarketfunds,U.S.treasurysecuritiesandagencies’discountnotestoprovideforthefullandtimelypurchasepriceofanybondstenderedintheeventofafailedremarketing.

TheUniversityusesinterestrateexchangeagreementstomanagetheinterestrateexposureofitsvariableratedebtportfolio.Underthetermsoftheseagreements,theUniversitypaysafixedinterestrate,determinedatinception,andreceivesavariablerateontheunderlyingnotionalprincipalamount.AtAugust31,2009,theUniversityhadexchangeagreementsexpiringNovember1,2039topayaninterestrateofapproximately3.69%on$130,000,000oftheoutstandingbalanceoftheCEFASeriesSVRDBsandexchangeagreementsexpiringthrough2011topayaninterestrateofapproximately5.58%onapproximately$20,000,000ofthevariableratetaxablecommercialpaper.Thenotionalamountandthefairvalueoftheexchangeagreementswere$150,000,000and($24,848,000),respectively,asofAugust31,2009,and$150,000,000and($12,169,000),respectively,asofAugust31,2008.Collateralpostedwithvariouscounterpartieswas$20,000,000asofAugust31,2009,andisincludedinunrestrictednetassets.

TheUniversityincurredinterestexpenseofapproximately$57,901,000and$71,589,000forfiscalyears2009and2008,respectively,whichisnetof$460,000and$4,770,000,respectively,ofinterestincomeandapproximately$3,818,000and$2,902,000,respectively,ininterestcapitalizedasacostofconstruction.InterestexpenseassociatedwiththeSeries2009Abondsintheamountof$10,529,000(netofinterestincomeof$1,144,000)isincludedasaninvestmentexpenseandhasbeenexcludedfromtheinterestexpenseamountabove.Paymentsoninterestrateexchangeagreements,whichareincludedinotherchangesinunrestrictednetassets,totaled$4,971,000and$1,800,000forfiscalyears2009and2008,respectively.

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10. Hospitals’ Notes and Bonds PayableBonds,certificatesofparticipationandcapitalleaseobligationsatAugust31,2009and2008,inthousandsofdollars,areasfollows: EFFECTIVE YEAROF INTERESTRATEOUTSTANDINGPRINCIPAL MATURITY 2009/2008 2009 2008

SHC:CaliforniaHealthFacilitiesFinancingAuthority(CHFFA)Bonds:1998SeriesBFixedRateBonds 2031 5.0% $ 163,435 $ 167,1952003SeriesAFixedRateBonds 2007-2023 2.0%-5.0% 88,015 91,9902003SeriesB,CandDVariableRateBonds 2036 0.67%/1.8%* 150,000 150,0002008SeriesAVariableRateBonds 2040 1.38%/2.2% 260,300 260,3002008SeriesBVariableRateBonds 2045 0.16%/1.5% 168,200 168,200PromissoryNote 2014 7.03% 857 999LPCH:CaliforniaHealthFacilitiesFinancingAuthority(CHFFA)Bonds:2003SeriesCFixedRateBonds 2013-2027 3.25% 55,000 55,0002008SeriesAandBVariableRateBonds 2027-2033 0.15%&0.14%/1.4%&1.6% 60,680 60,6802008SeriesCVariableRateBonds 2015-2023 0.14%/1.6% 32,770 32,770Capitalleaseobligation 15,748 15,896

Hospitalsnotesandbondspayable 995,005 1,003,030Netpremium 4,001 4,307

TOTAL $ 999,006 $ 1,007,337

*Exclusiveofinterestrateexchangeagreements.

AtAugust31,2009and2008,thefairvalueofthesedebtinstrumentsapproximatedtheirrecordedvalue.

TheHospitals’tax-exemptdebtisissuedthroughtheCaliforniaHealthFacilitiesFinancingAuthority(CHFFA).TheCHFFAdebtisageneralobligationoftheHospitals.PaymentsofprincipalandinterestontheHospitals’bondsarecollateralizedbyapledgeoftherevenuesoftherespectivehospital.AlthoughCHFFAistheissuer,theHospitalsareresponsiblefortherepaymentofthetax-exemptdebt.Paymentsofprincipalandinterestoncertainofthebondsareinsuredbymunicipalbondguarantypolicies.

SHCandLPCHareeachpartytoseparatemastertrustindenturesthatinclude,amongotherthings,limitationsontheincurrenceofadditionalindebtedness,liensonproperty,restrictionsondispositionortransferofassetsandcompliancewithcertainfinancialratios.Subjecttoapplicableno-callprovisions,theHospitalsmaycausetheredemptionofthebonds,inwholeorinpart,priortothestatedmaturities.

Scheduledprincipalpaymentsonnotesandbonds,inthousandsofdollars,areasfollows:

YEARENDINGAUGUST31 PRINCIPAL

2010CommercialPaper $ 249,6162010Other 265,0682011 50,0502012 61,6352013 502014 573,720Thereafter 1,281,666

TOTAL $ 2,481,805

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SHChas$578,500,000ofVariableRateDemandBonds(VRDBs)outstanding,including$150,000,000of2003SeriesB,CandD,$104,100,000of2008SeriesA-2and$168,200,000of2008SeriesB,allofwhichbearinterestatweeklyrates.Additionally,SHChas$70,500,000of2008SeriesA-1and$85,700,000of2008SeriesA-3,whichareVRDBsthatbearinterestatalongtermrateandaresubjecttomandatorytenderonJune15,2010andJune15,2011,respectively.

Inordertoprovideliquidityforthe2003SeriesB,CandDVRDBs,SHCenteredintostandbybondpurchaseagreementsintheaggregateamountof$150,000,000,eachofwhichexpiresinJune2011.Liquidityforthe2008SeriesA-2VRDBsissecuredbyadirectpayletterofcreditthatexpiresinJune2011.

The2008SeriesB,SeriesA-1andSeriesA-3VRDBsaresupportedwithself-liquidity,includinganagreementwiththeUniversitytoaccessonasame-daybasis,upto$200,000,000ofSHC’sinvestmentsthataremanagedforSHCbytheUniversity.IntheeventSHCreceivesnoticeofanyoptionalormandatorytenderofthe2008SeriesBVRDBs,orifthe2008SeriesA-1orSeriesA-3becomesubjecttomandatorytender,thepurchasepriceofthebondswillbepaidfromtheremarketingofsuchbonds.However,iftheremarketingproceedsareinsufficient,SHCwillhaveacurrentobligationtopurchaseanytenderedbondsthatarenotremarketed.

During2009,SHCobtainedstandbylettersofcreditintheamountof$85,000,000tosupportcollateralrequirementsundercertaininterestrateexchangeagreements.Additionally,SHChasirrevocablelettersofcreditintheamountof$14,619,000whicharepostedascollateralfortheworkers’compensationself-insurancearrangement.NoamountshavebeendrawnontheselettersofcreditasofAugust31,2009.

SHCusesinterestrateexchangeagreementstoreducetheeffectofinterestratefluctuationswithrespecttotheVRDBs.CertainexchangeagreementsrequiremutualpostingofcollateralbySHCandthecounterpartiesiftheterminationpaymentsexceedapredeterminedthresholddollaramount.

AtAugust31,2009,SHChadinterestrateexchangeagreementsexpiringthroughNovember2045topayfixedinterestratesvaryingfrom3.4%to3.9%ontheoutstandingbalanceof$749,400,000.Theaggregatenotionalamountandthefairvalueoftheexchangeagreementswere$749,400,000and($87,311,000),respectively,asofAugust31,2009and$749,400,000and($38,973,000),respectively,asofAugust31,2008.Theamountofcollateralrequiredtobepostedwithcounterpartieswas$29,718,000asofAugust31,2009andwasmetbythepostingofstandbylettersofcreditintheaggregateamountof$85,000,000,whichmayonlybedrawnuponintheeventofadefaultbySHC.

LPCHhas$93,450,000ofVRDBsoutstanding,CHFFA2008SeriesA,BandC(theLPCH2008Bonds)whichbearinterestataweeklyrate.

TheLPCH2008Bondsaresupportedbyself-liquidityandholdershavetheoptiontotenderthesecertificatesweekly.Inordertoensuretheavailabilityoffundstopurchaseanybondstenderedthattheremarketingagentisunabletoremarket,LPCHhasenteredintoaliquidityagreementwiththeUniversity.TheagreementallowsimmediateavailabilityofLPCHfundsinvestedintheUniversityMergedPoolsforthepurposeoffundingtenders.Theentire2008CHFFASeriesA,B,andCissueisclassifiedasaliability.

LPCHhasirrevocablelettersofcreditintheamountof$5,788,000whicharepostedascollateralfortheworkers’compensationdeductibleplan.NoamountshavebeendrawnontheselettersofcreditasofAugust31,2009.

TheUniversityisnotanobligororguarantorwithrespecttoanyobligationsofSHCorLPCH,norareSHCorLPCHobligorsorguarantorswithrespecttoobligationsoftheUniversity.

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11. University EndowmentTheUniversityclassifiesasubstantialportionofitsfinancialresourcesasendowment,whichisinvestedtogenerateincometobeusedtosupportoperatingandstrategicinitiatives.Theseassetsincludepureendowmentfunds,endowedlands,termendowmentfundsandfundsfunctioningasendowment.Dependingonthenatureofthedonor’sstipulation,theseresourcesarerecordedaspermanentlyrestricted,temporarilyrestrictedorunrestrictednetassets.Termendowmentsaresimilartootherendowmentfundsexceptthat,uponthepassageofastatedperiodoftimeortheoccurrenceofaparticularevent,allorpartoftheprincipalmaybeexpended.Theseresourcesareclassifiedastemporarilyrestrictednetassets.FundsfunctioningasendowmentareUniversityresourcesdesignatedbytheBoardasendowmentandareinvestedforlong-termappreciationandcurrentincome.Theseassets,however,remainavailableandmaybespentattheBoard’sdiscretion.Fundsfunctioningasendowmentarerecordedasunrestrictednetassets.

TheUniversityclassifiesaspermanentlyrestrictednetassets(a)theoriginalvalueofgiftsdonatedtothepermanentendowment,(b)theoriginalvalueofsubsequentgiftstothepermanentendowment,and(c)accumulationstothepermanentendowmentmadeinaccordancewiththedirectionoftheapplicabledonorgiftinstrumentatthetimetheaccumulationisaddedtothefund.Theremainingportionofthedonor-restrictedendowmentfundthatisnotclassifiedinpermanentlyrestrictednetassetsisclassifiedastemporarilyrestrictednetassetsuntilthoseamountsareauthorizedforexpenditure.Netunrealizedlossesonpermanentlyrestrictedendowmentfundsareclassifiedasareductiontounrestrictednetassetsuntilsuchtimeasthefairvalueofthefundequalsorexceedshistoricvalue.AtAugust31,2009,unrestrictednetassetswerereducedby$203,089,000forsuchlosses.

EndowmentfundsbynetassetclassificationasofAugust31,2009,inthousandsofdollars,areasfollows:

TEMPORARILY PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED TOTAL

Donorrestrictedendowmentfunds $ (203,089) $ 3,917,921 $ 4,180,875 $ 7,895,707Fundsfunctioningasendowment 4,723,387 - - 4,723,387

TOTAL ENDOWMENT FUNDS $ 4,520,298 $ 3,917,921 $ 4,180,875 $ 12,619,094

MostoftheUniversity’sendowmentisinvestedintheMP.ThereturnobjectivefortheMPistogenerateoptimaltotalreturnwhilemaintaininganappropriatelevelofriskfortheUniversity.Investmentreturnsareachievedthroughbothcapitalappreciation(realizedandunrealizedgains)andcurrentyield(interestanddividends).Portfolioassetallocationtargetsaswellasexpectedrisk,returnandcorrelationamongtheassetclassesarereevaluatedannuallybyStanfordManagementCompanyandtheBoard.

Throughthecombinationofinvestmentstrategyandpayoutpolicy,theUniversityisstrivingtoprovideareasonablyconsistentpayoutfromendowmenttosupportoperations,whilepreservingthepurchasingpoweroftheendowmentadjustedforinflation.

Estimatedprincipalpaymentsonbonds,promissorynotesandcapitalleaseobligations,assumingremarketingofthe2003and2008variableratebonds,inthousandsofdollars,areasfollows:

YEARENDINGAUGUST31 PRINCIPAL

2010 $ 369,7382011 9,9852012 25,3272013 13,1352014 14,794Thereafter 562,026

TOTAL $ 995,005

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ChangesintheUniversity’sendowment,excludingpledges,fortheyearsendedAugust31,2009and2008,inthousandsofdollars,areasfollows:

2009 2008 TEMPORARILY PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED TOTAL TOTAL

ENDOWMENT,BEGINNINGOFYEAR $ 12,929,342 $ 88,226 $ 4,196,805 $ 17,214,373 $ 17,164,836NetassetreclassificationbasedonadoptionofFSPFAS117-1 (6,333,634) 6,333,634 - - -

Endowmentafterreclassification 6,595,708 6,421,860 4,196,805 17,214,373 17,164,836Investmentreturns:Earnedincome 111,186 - - 111,186 176,072Unrealizedandrealizedgains(losses) (1,429,929) (1,905,295) (246,805) (3,582,029) 467,949

Totalinvestment(losses)returns (1,318,743) (1,905,295) (246,805) (3,470,843) 644,021Amountsdistributedforoperations (353,084) (603,434) - (956,518) (881,570)Giftsandpledgepayments 11,841 2,238 141,280 155,359 188,283Fundsinvestedinendowment,net 82,739 (663) 80,792 162,868 118,331EFPfundswithdrawnfromtheendowment (487,987) - - (487,987) (46,699)Other (10,176) 3,215 8,803 1,842 27,171

NET(DECREASE)INCREASEINENDOWMENT (2,075,410) (2,503,939) (15,930) (4,595,279) 49,537

ENDOWMENT, END OF YEAR $ 4,520,298 $ 3,917,921 $ 4,180,875 $ 12,619,094 $ 17,214,373

12. Hospitals’ EndowmentsTheendowmentsofSHCandLPCHareintendedtogenerateinvestmentincomethatcanbeusedtosupporttheircurrentoperatingandstrategicinitiatives.TheHospitalsinvestthemajorityoftheirendowmentsintheUniversity’sMP.Assuch,theHospitals’endowmentsaresubjecttothesameinvestmentandspendingstrategiesasdescribedinNote11.Thesepoliciesprovideforannualamounts(payout)tobedistributed.TheHospitals’endowmentincomedistributedforoperationsof$20,039,000infiscalyear2009and$14,441,000infiscalyear2008representscurrentyearpayoutspentfordesignatedpurposesduringtheyear.

TheBoardapprovestheamountstobepaidoutannuallyfromendowmentfundsinvestedintheMP.ConsistentwithUPMIFA,whendeterminingtheappropriatepayout,theBoardconsidersthepurposesoftheUniversityandtheendowment,thedurationandpreservationoftheendowment,generaleconomicconditions,thepossibleeffectofinflationordeflation,theexpectedreturnfromincomeandtheappreciationofinvestments,otherresourcesoftheUniversity,andtheUniversity’sinvestmentpolicy.

InFebruary2007theBoardapprovedanincreaseinthetargetedspendingratefrom5%to5.5%effectivebeginninginfiscalyear2008.Thesourcesofpayoutareearnedincomeonendowmentassets(interest,dividends,rentsandroyalties),realizedcapitalgainsandfundsfunctioningasendowment,asneeded.

Infiscalyears2009and2008,earnedincomeandrealizedandpreviouslyreinvestedgainsonendowmentfundsweredistributedforUniversityoperations,asfollows,inthousandsofdollars:

2009 2008

Earnedincome $ 111,186 $ 176,072Realizedandpreviouslyreinvestedgains 845,332 705,498

APPROVED PAYOUT $ 956,518 $ 881,570

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TheHospitalsclassifyaspermanentlyrestrictednetassets(a)theoriginalvalueofgiftsdonatedtothepermanentendowment,(b)theoriginalvalueofsubsequentgiftstothepermanentendowment,and(c)accumulationstothepermanentendowmentmadeinaccordancewiththedirectionoftheapplicabledonorgiftinstrumentatthetimetheaccumulationisaddedtothefund.Theremainingportionofthedonor-restrictedendowmentfundthatisnotclassifiedinpermanentlyrestrictednetassetsisclassifiedastemporarilyrestrictednetassetsuntilthoseamountsareauthorizedforexpenditure.

Netunrealizedlossesonpermanentlyrestrictedendowmentfundsareclassifiedasareductiontounrestrictednetassetsuntilsuchtimeasthefairvalueequalsorexceedshistoricvalue.Theaggregateamountbywhichfairvaluewasbelowhistoricvaluewasapproximately$11,280,000asofAugust31,2009.

ChangesintheHospitals’endowments,fortheyearsendedAugust31,2009and2008,inthousandsofdollars,areasfollows:

2009 2008 TEMPORARILY PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED TOTAL TOTAL

ENDOWMENT,BEGINNINGOFYEAR $ 111,619 $ 18,347 $ 275,788 $ 405,754 $ 355,785NetassetreclassificationbasedonadoptionofFSPFAS117-1 (111,619) 111,619 - - -

Endowmentafterreclassification - 129,966 275,788 405,754 355,785Investmentreturns:Earnedincome - 19,614 - 19,614 21,208Unrealizedandrealizedlosses (10,918) (85,782) (1,917) (98,617) (7,377)

Totalinvestment(losses)returns (10,918) (66,168) (1,917) (79,003) 13,831Amountsdistributedforoperations - (17,761) - (17,761) (14,957)Giftsandpledgepayments - - 18,740 18,740 52,846Other - - (3,530) (3,530) (1,751)

NET(DECREASE)INCREASEINENDOWMENT (10,918) (83,929) 13,293 (81,554) 49,969

ENDOWMENT, END OF YEAR $ (10,918) $ 46,037 $ 289,081 $ 324,200 $ 405,754

AlloftheHospitals’endowmentsareclassifiedasdonorrestricted.

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GiftsrestrictedtoparticularpurposesareusedforthosepurposessubjecttotheUniversity’srestrictedfundpolicy.Underthispolicy,8%oftheexpenditurefromrestrictedfundsisallocatedforspaceandinfrastructurecharge.Giftsforbuildingprojectsandpayoutfromendowmentswhoseprimarypurposeistofundfinancialaid,undergraduateresearchandtenure-linefacultysalaries,areexemptfromtheinfrastructurecharge.

14. Functional ExpensesExpensesforeachoftheyearsendedAugust31,2009and2008arecategorizedonafunctionalbasisasfollows,inthousandsofdollars: 2009 2008 UNIVERSITY HOSPITALS CONSOLIDATED CONSOLIDATED

Organizedresearch(directcosts) $ 816,477 $ - $ 816,477 $ 838,607Instructionanddepartmentalresearch 1,098,245 - 1,098,245 1,089,872Auxiliaryactivities 595,263 - 595,263 564,647Administrationandgeneral 209,961 129,963 339,924 331,006Libraries 147,956 - 147,956 154,718Development 78,935 11,543 90,478 89,551Studentservices 128,608 - 128,608 120,880SLACconstruction 54,401 - 54,401 108,730Patientservices - 1,822,116 1,822,116 1,659,073

TOTAL EXPENSES $ 3,129,846 $ 1,963,622 $ 5,093,468 $ 4,957,084

13. University Gifts and Pledges TheUniversity’sOfficeofDevelopment(OOD)reportstotalgiftsbasedoncontributionsreceivedincashorpropertyduringthefiscalyear.Giftsandpledgesreportedforfinancialstatementpurposesarerecordedontheaccrualbasis.ThefollowingsummarizesgiftsandpledgesreceivedfortheyearsendedAugust 31,2009and2008,perthestatementofactivitiesreconciledtothecashbasis(asreportedbyOOD),inthousandsofdollars:

2009 2008

Currentyeargiftsinsupportofoperations $ 149,035 $ 182,411Donoradvisedfunds,net 1,010 165,583Currentyeargiftsnotincludedinoperations 10,711 8,976Temporarilyrestrictedgiftsandpledges,net 209,293 322,366Permanentlyrestrictedgiftsandpledges,net 172,128 246,613

TOTAL PER STATEMENT OF ACTIVITIES 542,177 925,949AdjustmentstogifttotalasreportedbyOOD:Newpledges (279,505) (378,372)Paymentsmadeonpledges 243,581 215,453Pledgediscountsandotheradjustments 48,089 40,646DonoradvisedfundsnotdesignatedforStanford 43 (88,386)Non-cashgifts 1,361 3,351Non-governmentgrants,recordedassponsoredresearchsupportwhenearned 74,772 63,774StanfordHospitalgrants 7,167 -Other 2,422 2,628

TOTAL AS REPORTED BY OOD $ 640,107 $ 785,043

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Depreciation,interestandoperationsandmaintenanceexpensesareallocatedtoprogramandsupportingactivities,exceptforSLACconstruction.Auxiliaryactivitiesincludehousinganddiningservices,intercollegiateathletics,StanfordAlumniAssociation,otheractivitiesandcertainpatientcareprovidedbytheSchoolofMedicinefaculty.

15. University Retirement PlansTheUniversityprovidesretirementbenefitsthroughbothcontributoryandnoncontributoryretirementplansforsubstantiallyallofitsemployees.TheUniversityalsoprovidescertainhealthcarebenefitsforretiredemployees(postretirementmedicalbenefits)andaretirementincentivebonusforeligiblefaculty(otherbenefits).

Forfiscalyear2008,theUniversityusedJune30asthemeasurementdatetovaluetheplanassetsandthebenefitobligationofthePensionandPostRetirementMedicalBenefitplans.Beginningwithfiscalyear2009,theUniversityisrequiredtouseAugust31asitsmeasurementdateinaccordancewiththemeasurementdateprovisionsofStatementofFinancialAccountingStandardsNo.158,Employers’AccountingforDefinedBenefitPensionandOtherPostretirementPlans(FAS158).Theimpactofthechangeinmeasurementdateduringfiscalyear2009wasanetdecreasetounrestrictednetassetsof$6,259,000.

DEFINED CONTRIBUTION PLANTheUniversityoffersadefinedcontributionplantoeligiblefacultyandstaff.Universityandparticipantcontributionsareinvestedinannuitiesandmutualfunds.Universitycontributionsunderthisplan,whicharevestedimmediatelytoparticipants,wereapproximately$97,705,000and$92,652,000fortheyearsendedAugust 31,2009and2008,respectively.

DEFINED BENEFIT PENSION PLANRetirementbenefitsforcertainemployeesareprovidedthroughanoncontributorydefinedbenefitpensionplan(thePensionplan).ThePensionplanisessentiallyfrozentonewparticipants.TheUniversity’spolicyistofundpensioncostsinaccordancewiththeEmployeeRetirementIncomeSecurityActminimumfundingrequirements.

POST RETIREMENT MEDICAL AND OTHER BENEFIT PLANSTheUniversity’semployeesandtheircovereddependentsmaybecomeeligibleforpostretirementmedicalandotherbenefitsupontheemployee’sretirement.Retireehealthplansarepaidforinpartbyretireecontributions,whichareadjustedannually.Benefitsforretireesunderage65arethesameasthoseprovidedtoactiveemployees.AMedicaresupplementoptionisprovidedforretireesoverage65.Theobligationforthesebenefitshasbeenrecordedinthestatementoffinancialposition.

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ThechangeinPensionandPostRetirementMedicalandOtherBenefitplans’assets,therelatedchangeinbenefitobligationsandtheamountsrecognizedinthefinancialstatements,inthousandsofdollars,areasfollows:

PENSION POSTRETIREMENTMEDICALANDOTHER

2009 2008 2009 2008

CHANGEINPLANASSETSFairvalueofplanassets,beginningofyear $ 268,886 $ 289,646 $ 101,350 $ 102,081Actualreturnonplanassets (7,447) (2,682) (12,108) (6,285)Employercontributions - - 22,861 14,830Planparticipants’contributions - - 6,475 6,206Benefitspaid (15,273) (18,078) (19,389) (15,926)AdjustmentsduetoadoptionofFAS158measurementdateprovisions (4,870) - 896 -MergerwithCASBS - - - 444

FAIR VALUE OF PLAN ASSETS, END OF YEAR $ 241,296 $ 268,886 $ 100,085 $ 101,350

CHANGEINPROJECTEDBENEFITOBLIGATIONBenefitobligation,beginningofyear $ 246,408 $ 250,554 $ 323,842 $ 313,368Servicecost 3,493 3,950 11,104 10,810Interestcost 15,670 15,016 21,990 19,895Planparticipants’contributions - - 6,475 6,206Actuarialloss(gain) 22,357 (5,034) (30,304) (11,850)Benefitspaid,netofMedicaresubsidy (15,273) (18,078) (17,889) (15,031)AdjustmentsduetoadoptionofFAS158measurementdateprovisions (1,676) - 4,994 -MergerwithCASBS - - - 444Benefitobligation,FacultyRetirementIncentiveProgram(FRIP) - - 165,937 -

BENEFIT OBLIGATION, END OF YEAR $ 270,979 $ 246,408 $ 486,149 $ 323,842

AMOUNTSRECOGNIZEDINFINANCIALSTATEMENTSPlanassetsminusprojectedbenefitobligation $ (29,683) $ 22,478 $ (386,064) $ (222,492)Contributionsafterthemeasurementdate - - - 3,540

NET (LIABILITY) ASSET RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION $ (29,683) $ 22,478 $ (386,064) $ (218,952)

Priorservicecost $ 4,390 $ 6,141 $ 48,169 $ 57,041Netactuarialloss(gain) 23,221 (27,427) 51,733 64,419FRIPcost - - 165,937 -

PENSION AND OTHER POST EMPLOYMENT BENEFIT RELATED CHANGES OTHER THAN NET PERIODIC BENEFIT EXPENSE $ 27,611 $ (21,286) $ 265,839 $ 121,460

TheaccumulatedbenefitobligationforthePensionplanwas$266,750,000asofAugust31,2009and$242,198,000asofJune30,2008.TheaccumulatedbenefitobligationoftheFRIPplanwas$135,961,000asofAugust31,2009.

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Netperiodicbenefitexpense(income)andotherchangesinnetassetsrelatedtothePensionandPostRetirementMedicalandOtherBenefitplansfortheyearsendedAugust 31,2009and2008,inthousandsofdollars,includesthefollowingcomponents:


2009 2008 2009 2008

Servicecost $ 3,493 $ 3,950 $ 11,104 $ 10,810Interestcost 15,670 15,016 21,990 19,895Expectedreturnonplanassets (17,803) (19,535) (8,509) (8,287)Amortizationofpriorservicecost 1,501 1,654 7,605 7,605Recognizednetactuarial(gains)losses (63) (2,126) 2,570 2,184

NET PERIODIC BENEFIT EXPENSE (INCOME) $ 2,798 $ (1,041) $ 34,760 $ 32,207

Priorservicecostduringperiod $ - $ - $ - $ -Netactuarialloss(gain)duringperiod 50,574 17,182 (9,648) 2,723Amortizationof:Priorservicecost (1,501) (1,654) (7,605) (7,605)Actuarialgain(loss) 63 2,126 (2,570) (2,184)

TOTAL AMOUNTS RECOGNIZED IN UNRESTRICTED NET ASSETS $ 49,136 $ 17,654 $ (19,823) $ (7,066)

TOTAL AMOUNT RECOGNIZED IN NET PERIODIC BENEFIT EXPENSE AND UNRESTRICTED NET ASSETS $ 51,934 $ 16,613 $ 14,937 $ 25,141

Thepriorservicecostsandnetactuariallossexpectedtobeamortizedfromchangeinnetassetstonetperiodicbenefitexpenseoverthenextfiscalyearareasfollows,inthousandsofdollars:

POSTRETIREMENT PENSION MEDICALANDOTHER

Netactuarialloss $ - $ 1,317

Priorservicecost $ 1,501 $ 7,605

ACTUARIAL ASSUMPTIONSTheweightedaverageassumptionsusedtodeterminethebenefitobligationsforthePensionandPostRetirementMedicalandOtherBenefitplansareshownbelow:


2009 2008 2009 2008

Discountrate 5.75% 6.75% 5.75%-6.00% 6.50%Coveredpayrollgrowthrate 4.21% 4.29% 3.50% N/A

TheweightedaverageassumptionsusedtodeterminethenetperiodicbenefitcostforthePensionandPostRetirementMedicalandOtherBenefitplansareshownbelow:


2009 2008 2009 2008

Discountrate 6.75% 6.25% 5.75%-6.50% 6.25%Expectedreturnonplanassets 7.00% 7.00% 8.00% 8.00%Coveredpayrollgrowthrate 4.29% 5.52% 3.50% N/A

Todevelopthe7%andthe8%expectedlong-termrateofreturnonassetassumptionsforthePensionandPostRetirementMedicalandOtherBenefitplans,respectively,theUniversityconsideredhistoricalreturnsandfutureexpectationsforreturnsineachassetclass,aswellasthetargetassetallocationoftheportfolios.

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TodeterminetheaccumulatedpostretirementmedicalbenefitobligationasofAugust31,2009,an8.5%annualrateofincreaseinthepercapitacostsofcoveredhealthcarewasassumedfor2009-2010,declininggraduallyto5%by2017andremainingatthisratethereafter.Forcovereddentalplans,a5%annualrateofincreasewasassumedfor2009-2010andremainsatthisratethereafter.

Assumedhealthcarecosttrendrateshaveasignificanteffectontheamountsreportedforthehealthcareplans.Increasingthehealthcarecosttrendrateby1%ineachfutureyearwouldincreasetheaccumulatedpostretirementmedicalbenefitobligationby$43,822,000andtheaggregateannualserviceandinterestcostby$5,039,000.Decreasingthehealthcarecosttrendrateby1%ineachfutureyearwoulddecreasetheaccumulatedpostretirementmedicalbenefitobligationby$36,306,000andtheaggregateannualserviceandinterestcostby$4,059,000.

PLAN ASSETSAssetallocationsbyassetcategoryatAugust31,2009andJune30,2008areasfollows:

PENSION POSTRETIREMENTMEDICALANDOTHER 2009 2008 2009 2008

ASSETCATEGORYDomesticequity 34% 33% 38% 38%Internationalequity 11% 11% 37% 37%Fixedincome 54% 55% 25% 25%Cashandcashequivalents 1% 1% - -

TOTAL PORTFOLIO 100% 100% 100% 100%

Theweighted-averagetargetassetallocationforthePensionplanis45%equityand55%fixedincome.ForthePostRetirementMedicalandOtherBenefitplantheweighted-averagetargetassetallocationis38%domesticequity,37%internationalequityand25%fixedincome.Thesetargetassetallocationsareselectedtoresultinafavorablelong-termrateofreturnfromadiversifiedportfolio.

EXPECTED CONTRIBUTIONSNocontributionsareexpectedtobemadetothePensionplanforthefiscalyearendingAugust31,2010.TheUniversityexpectstocontribute$11,596,000toitsPostRetirementMedicalandOtherBenefitplansduringthefiscalyearendingAugust31,2010.

EXPECTED BENEFIT PAYMENTSThefollowingbenefitpayments,whichreflectexpectedfutureservice,areexpectedtobepaid,inthousandsofdollars,forthefiscalyearsendingAugust31:

POSTRETIREMENTMEDICALANDOTHER PENSION EXCLUDING WITHFISCALYEAR PLAN MEDICARESUBSIDY MEDICARESUBSIDY

2010 $ 24,984 $ 60,105 $ 57,9192011 21,411 27,672 25,1862012 21,468 29,637 26,8282013 21,163 31,165 27,9922014 20,779 33,355 29,7972015-2019 102,550 197,133 172,212

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16. Hospitals’ Retirement Plans TheHospitalsprovideretirementbenefitsthroughdefinedbenefitanddefinedcontributionretirementplanscoveringsubstantiallyallemployees.

Forfiscalyear2008,theHospitalsusedJune30asthemeasurementdatetovaluetheplanassetsandthebenefitobligationofthePensionandPostRetirementMedicalBenefitplans.Beginningwithfiscalyear2009,theHospitalsarerequiredtouseAugust31astheirmeasurementdateinaccordancewiththeprovisionsofFAS158.Theimpactofthechangeinmeasurementdateduringfiscalyear2009wasanetdecreasetounrestrictednetassetsof$694,000.

DEFINED CONTRIBUTION PLANEmployercontributionstothedefinedcontributionretirementplanarebasedonapercentageofparticipantannualcompensation.Employercontributionstothisplanamountedtoapproximately$55,581,000and$50,342,000fortheyearsendedAugust31,2009and2008,respectively.

DEFINED BENEFIT PLANSCertainemployeesoftheHospitalsarecoveredbyanoncontributory,definedbenefitpensionplan(Pensionplan).BenefitsofcertainprioremployeesofLPCHarecoveredbyafrozendefinedbenefitplan.Benefitsarebasedonyearsofserviceandtheemployee’scompensation.Contributionstotheplansarebasedonactuariallydeterminedamountssufficienttomeetthebenefitstobepaidtoplanparticipants.

POST RETIREMENT MEDICAL BENEFIT PLANTheHospitalscurrentlyprovidehealthinsurancecoverageforcertainofitsemployeesuponretirementasearlyasage55,withyearsofserviceasdefinedbyspecificcriteria.Thehealthinsurancecoverageforretireeswhoareunderage65isthesameasthatprovidedtoactiveemployees.AMedicaresupplementoptionisprovidedforretireesoverage65.Theobligationforthesebenefitshasbeenrecordedinthestatementoffinancialposition.EffectiveJanuary2009,theHospitalsimplementedachangetotheirpostretirementmedicalplantoaddretireehealthreimbursementaccountsforcertainparticipants,whichresultedinanincreasetothebenefitobligationof$3,632,000fortheyearendedAugust31,2009.

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ThechangeinPensionandPostRetirementMedicalBenefitplans’assets,therelatedchangeinbenefitobligationsandtheamountsrecognizedinthefinancialstatements,inthousandsofdollars,areasfollows:

PENSION POSTRETIREMENTMEDICAL

2009 2008 2009 2008

CHANGEINPLANASSETSFairvalueofplanassets,beginningofyear $ 145,724 $ 157,456 $ - $ -Actualreturnonplanassets (23,078) (11,516) - -Planparticipants’contributions - - 665 682Employercontributions 3,075 6,898 4,490 3,657Benefitspaid (7,763) (7,114) (4,580) (4,339)AdjustmentsduetoadoptionofFAS158measurementdateprovisions (1,179) - (575) -

FAIR VALUE OF PLAN ASSETS, END OF YEAR $ 116,779 $ 145,724 $ - $ -

CHANGEINPROJECTEDBENEFITOBLIGATIONBenefitobligation,beginningofyear $ 151,941 $ 162,628 $ 63,543 $ 66,339Servicecost 1,747 1,720 1,665 1,583Interestcost 12,664 10,270 5,067 4,071Planparticipants’contributions - - 665 682Actuarial(gain)loss 25,787 (15,563) 9,411 (4,793)Benefitspaid (7,763) (7,114) (4,580) (4,339)Planamendment - - 3,632 -AdjustmentsduetoadoptionofFAS158measurementdateprovisions (1,120) - (575) -

BENEFIT OBLIGATION, END OF YEAR $ 183,256 $ 151,941 $ 78,828 $ 63,543

AMOUNTSRECOGNIZEDINFINANCIALSTATEMENTSPlanassetsminusprojectedbenefitobligation $ (66,477) $ (6,217) $ (78,828) $ (63,543)Contributionsmadeaftermeasurementdate - - - 725

NET LIABILITY RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION $ (66,477) $ (6,217) $ (78,828) $ (62,818)

Priorservicecost(credit) $ - $ - $ 2,020 $ (2,585)Netactuarialloss(gain) 67,292 4,295 1,495 (8,972)

PENSION AND OTHER POST EMPLOYMENT BENEFIT RELATED CHANGES OTHER THAN NET PERIODIC BENEFIT EXPENSE $ 67,292 $ 4,295 $ 3,515 $ (11,557)

TheaccumulatedbenefitobligationforthePensionplanwas$179,184,000asofAugust31,2009and$147,989,000asofJune30,2008.

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NetperiodicbenefitexpenseandotherchangesinnetassetsrelatedtotheplansfortheyearsendedAugust 31,2009and2008,inthousandsofdollars,includesthefollowingcomponents:


2009 2008 2009 2008

Servicecost $ 1,747 $ 1,720 $ 1,665 $ 1,583Interestcost 12,664 10,270 5,067 4,071Expectedreturnonplanassets (14,195) (11,386) - -Amortizationofpriorservicecost - - (973) (834)Recognizednetactuariallosses(gains) 97 36 (1,056) (448)

NET PERIODIC BENEFIT EXPENSE $ 313 $ 640 $ 4,703 $ 4,372

Priorservicecostduringperiod $ - $ - $ 3,632 $ -Netactuarialloss(gain)duringperiod 63,109 7,338 9,411 (4,793)Amortizationof:Priorservicecredit - - 973 834Actuarial(loss)gain (97) (36) 1,056 448

TOTAL AMOUNTS RECOGNIZED IN UNRESTRICTED NET ASSETS $ 63,012 $ 7,302 $ 15,072 $ (3,511)

TOTAL AMOUNT RECOGNIZED IN NET PERIODIC BENEFIT EXPENSE AND UNRESTRICTED NET ASSETS $ 63,325 $ 7,942 $ 19,775 $ 861

Thepriorservicecostsandnetactuariallossexpectedtobeamortizedfromchangeinnetassetstonetperiodicbenefitexpenseoverthenextfiscalyearareasfollows,inthousandsofdollars:

POSTRETIREMENT PENSION MEDICAL

Netactuarialloss $ 1,508 $ 105

Priorservicecost $ - $ 574

ACTUARIAL ASSUMPTIONSTheweightedaverageassumptionsusedtodeterminethebenefitobligationsforthePensionandPostRetirementMedicalBenefitplansareshownbelow:


2009 2008 2009 2008

Discountrate 5.93 –6.10% 7.31–7.38% 5.83% 7.12%Coveredpayrollgrowthrate 5.50% 5.50% N/A N/A

TheweightedaverageassumptionsusedtodeterminethenetperiodicbenefitcostforthePensionandPostRetirementMedicalBenefitplansareshownbelow:

PENSION POSTRETIREMENTMEDICAL 2009 2008 2009 2008

Discountrate 7.31–7.38% 6.43-6.47% 7.12% 6.35%Expectedreturnonplanassets 6.25–8.00% 6.25-8.00% N/A N/ACoveredpayrollgrowthrate 5.50% 5.50% N/A N/A

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Todeveloptheexpectedlong-termrateofreturnonassetsassumptions,theHospitalsconsideredthehistoricalreturnsandthefutureexpectationsforreturnsforeachassetclass,aswellasthetargetassetallocationofthepensionportfolio.

TodeterminetheaccumulatedpostretirementmedicalbenefitobligationasofAugust31,2009,a9.5%annualrateofincreaseinthepre-65percapitacosts,a10%annualrateofincreaseinthepost-65prescriptiondrugpercapitacosts,anda7%rateofincreaseinthepost-65percapitacostofallothermedicalbenefitswasassumedfor2009-2010,declininggraduallyto5%by2014forpre-65percapitacosts,2014forthepost-65prescriptiondrugpercapitacostand2011forthepost-65percapitacostsofallothermedicalbenefitsandremainingatthisratethereafter.

Assumedhealthcarecosttrendrateshaveasignificanteffectontheamountsreportedforthehealthcareplans.Increasingthehealthcarecosttrendrateby1%ineachfutureyearwouldincreasetheaccumulatedpostretirementmedicalbenefitobligationby$2,764,000andtheaggregateannualserviceandinterestcostby$251,000.Decreasingthehealthcarecosttrendrateby1%ineachfutureyearwoulddecreasetheaccumulatedpostretirementmedicalbenefitobligationby$2,509,000andtheaggregateannualserviceandinterestcostby$227,000.

PLAN ASSETSAssetallocationsbyassetcategoryatAugust31,2009andJune30,2008areasfollows:

PENSION 2009 2008

ASSETCATEGORYCashequivalents 9% 1%Equitysecurities 42% 66%Fixedincome 42% 21%Realestate 7% 12%

TOTAL PORTFOLIO 100% 100%

Theweighted-averagetargetassetallocationof46%equitysecurities,44%fixedincome,10%realestateandlessthan1%cashandcashequivalentsisselectedtoresultinafavorablelong-termrateofreturnfromadiversifiedportfolio.

EXPECTED CONTRIBUTIONSTheHospitalsexpecttocontribute$14,446,000totheirPensionplanand$4,739,000totheirPostRetirementMedicalBenefitplanduringthefiscalyearendingAugust31,2010.

EXPECTED BENEFIT PAYMENTSThefollowingbenefitpayments,whichreflectexpectedfutureservice,areexpectedtobepaidforthefiscalyearsendingAugust31,inthousandsofdollars:

POSTRETIREMENTMEDICAL PENSION EXCLUDING WITHFISCALYEAR PLAN MEDICARESUBSIDY MEDICARESUBSIDY

2010 $ 9,004 $ 5,202 $ 4,7392011 9,707 5,763 5,2322012 10,353 6,284 5,6822013 10,993 6,816 6,1432014 11,729 7,227 6,4852015-2019 67,972 38,040 33,310

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17. Operating Leases TheUniversityandtheHospitalsleasecertainequipmentandfacilitiesunderoperatingleasesexpiringatvariousdates.TotalrentalexpenseundertheseleasesfortheyearsendedAugust31,2009and2008was$32,172,000and$29,612,000,respectively,fortheUniversityand$51,084,000and$47,264,000,respectively,fortheHospitals.

Netminimumfutureoperatingleasepaymentsandrelatedpresentvalue,assuminga5.75%discountrateforperiodssubsequenttoAugust31,2009,inthousandsofdollars,areasfollows:

PRESENTVALUEOF MINIMUMLEASEPAYMENTS MINIMUMLEASEPAYMENTSYEARENDEDAUGUST31 UNIVERSITY HOSPITALS UNIVERSITY HOSPITALS

2010 $ 23,949 $ 37,288 $ 23,220 $ 36,3252011 21,936 28,801 20,111 26,5322012 19,369 25,616 16,793 22,3152013 16,583 24,591 13,595 20,2572014 16,146 19,461 12,517 15,159Thereafter 96,427 114,285 58,756 79,578

TOTAL $ 194,410 $ 250,042 $ 144,992 $ 200,166

18. Related Party TransactionsMembersoftheUniversity’sBoardofTrusteesandseniormanagementmay,fromtimetotime,beassociated,eitherdirectlyorindirectly,withcompaniesdoingbusinesswiththeUniversity.Forseniormanagement,theUniversityrequiresannualdisclosureofsignificantfinancialinterestsin,oremploymentorconsultingrelationshipswith,entitiesdoingbusinesswiththeUniversity.Theseannualdisclosurescoverbothseniormanagementandtheirimmediatefamilymembers.Whensuchrelationshipsexist,measuresaretakentoappropriatelymanagetheactualorperceivedconflictinthebestinterestsoftheUniversity.TheUniversityhasawrittenconflictofinterestpolicythatrequires,amongotherthings,thatnomemberoftheBoardofTrusteescanparticipateinanydecisioninwhichheorshe(oranimmediatefamilymember)hasamaterialfinancialinterest.EachtrusteeisrequiredtocertifycompliancewiththeconflictofinterestpolicyonanannualbasisandindicatewhethertheUniversitydoesbusinesswithanentityinwhichatrusteehasamaterialfinancialinterest.Whensuchrelationshipsexist,measuresaretakentomitigateanyactualorperceivedconflict,includingrequiringthatsuchtransactionsbeconductedatarm’slength,forgoodandsufficientconsideration,basedontermsthatarefairandreasonabletoandforthebenefitoftheUniversity,andinaccordancewithapplicableconflictofinterestlaws.Nosuchassociationsareconsideredtobesignificant.

19. Commitments and Contingencies ManagementisoftheopinionthatnoneofthefollowingcommitmentsandcontingencieswillhaveamaterialadverseeffectontheUniversity’sconsolidatedfinancialposition.

SPONSORED PROJECTS TheUniversityconductssubstantialresearchforthefederalgovernmentpursuanttocontractsandgrantsfromfederalagenciesanddepartments.TheUniversityrecordsreimbursementsofdirectandindirectcosts(facilitiesandadministrativecosts)fromgrantsandcontractsasoperatingrevenues.TheOfficeofNavalResearchistheUniversity’scognizantfederalagencyfordeterminingindirectcostrateschargedtofederallysponsoredagreements.ItissupportedbytheDefenseContractAuditAgency,whichhastheresponsibilityforauditingdirectandindirectchargesunderthoseagreements.CostsrecoveredbytheUniversityinsupportofsponsoredresearcharesubjecttoauditandadjustment.

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HEALTH CARECostreportsfiledundertheMedicareprogramforservicesbaseduponcostreimbursementforfiscalyears2001through2009aresubjecttoaudit.Theestimatedamountsduetoorfromtheprogramarereviewedandadjustedannuallybaseduponthestatusofsuchauditsandsubsequentappeals.Thehealthcareindustryissubjecttonumerouslawsandregulationsoffederal,stateandlocalgovernments.Compliancewiththeselawsandregulationscanbesubjecttofuturegovernmentreviewandinterpretation,aswellasregulatoryactionsunknownorunassertedatthistime.Recently,governmentactivityhasincreasedwithrespecttoinvestigationsandallegationsconcerningpossibleviolationsbyhealthcareproviders.Theseinvestigationscouldresultintheimpositionofsignificantfinesandpenalties,aswellassignificantrepaymentsforpatientservicespreviouslybilled.TheHospitalsaresubjecttosimilarregulatoryreviews,andwhilesuchreviewsmayresultinrepaymentsand/orcivilremediesthatcouldhaveamaterialeffectontheHospitals’resultsofoperationsinagivenperiod,managementbelievesthatsuchrepaymentsand/orcivilremedieswouldnothaveamaterialadverseeffectontheHospitals’financialposition.

TheStateofCaliforniahasclassifiedasubstantialportionofSHC’sfacilitiesascompliantwithseismicsafetystructuralstandardsuntil2030andbeyond.However,someacutecareactivitiesarelocatedinfacilitiesthatcurrentlawrequirestobemadecompliantortobetakenoutofserviceby2013or,underprescribedcircumstances,by2015.SHCplanstoconstructanewhospitalfacilitytoaddressseismicsafetyrequirementsandotherneeds.Applicationsforstateandlocalapprovalsarepending.SHCalsoisseekingpassageoflegislationtoextenddeadlinesandrequirements.Inlightofuncertaintiesinthetimingofapprovalsandinthedurationofconstructionofthenewhospital,andconsideringeconomicconditionsandotherfactorsthatwilllikelyextendcompletionofreplacementfacilitiesbeyondcurrentlyapplicabledeadlines,SHChasalsodevelopedpreliminarycontingencyplanstoretrofitportionsofnoncompliantfacilitiesinordertoreducethedurationofservicedisruptionsandclosuresofbedunitsshouldsuchactionberequired.Ifundertaken,thepreliminaryestimatedconstructioncostofsuchretrofittingcurrentlyrangesbetween$200,000,000and$300,000,000.

LABOR AGREEMENTSApproximately9%oftheUniversity’s,38%ofSHC’sand51%ofLPCH’semployeesarecoveredunderunioncontractarrangementsandare,therefore,subjecttolaborstoppageswhencontractsexpire.TherearenoexpiredagreementsatAugust31,2009.

LITIGATIONTheUniversityandtheHospitalsaredefendantsinanumberoflegalactions.Whilethefinaloutcomecannotbedeterminedatthistime,managementisoftheopinionthattheliability,ifany,resultingfromtheselegalactionswillnothaveamaterialadverseeffectontheUniversity’sconsolidatedfinancialposition.

CONTRACTUAL COMMITMENTSAtAugust31,2009,theUniversityhadcontractualobligationsofapproximately$507,288,000inconnectionwithmajorconstructionprojects.Remainingexpendituresonconstructioninprogressareestimatedtobe$819,272,000,whichwillbefinancedwithcertainunexpendedplantfunds,giftsanddebt.

CommitmentsoncontractsfortheconstructionandremodelingofHospitalfacilitieswereapproximately$141,031,000atAugust31,2009.

TheUniversityhascommittedtoinvestinnumerousinvestmentpartnershipsoveraperiodofyearspursuanttoprovisionsoftheindividualpartnershipagreements.AsofAugust31,2009,theaggregatedamountofsuchunfundedcommitmentswas$5,068,997,000.

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GUARANTEES AND INDEMNIFICATIONSTheUniversityandtheHospitalsenterintomutualindemnificationagreementswiththirdpartiesinthenormalcourseofbusiness.Theimpactoftheseagreementsisnotexpectedtobematerial.Asaresult,noliabilitiesrelatedtoguaranteesandindemnificationshavebeenrecordedasofAugust31,2009.

TheUniversityguaranteescertainrecourseloansinconnectionwithitspartnershipinvestments.AtAugust31,2009,theseguaranteestotaled$58,000,000.AsofAugust31,2009,itisnotlikelythattheUniversitywillberequiredtoprovidefundingfortheseloans.

20. Subsequent Events TheUniversityandtheHospitalshaveevaluatedsubsequenteventsfortheperiodfromAugust31,2009throughDecember14,2009,thedatethefinancialstatementswereavailabletobeissued.

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MANAGEMENTRESPONSIBILITYFORFINANCIALSTATEMENTS

TheUniversityisthesolememberofStanfordHospitalandClinicsandLucilePackardChildren’sHospital;however,eachoftheHospitalshasitsownseparatemanagementwithresponsibilityforitsownfinancialreporting.

ManagementoftheUniversityandtheHospitalsisresponsiblefortheintegrityandobjectivityoftheirrespectiveportionsofthesefinancialstatements.TheUniversityoverseestheprocessofconsolidatingtheHospitals’informationintotheconsolidatedfinancialstatements.Managementofeachentityrepresentsthat,withrespecttoitsfinancialinformation,theconsolidatedfinancialstatementsinthisannualreporthavebeenpreparedinconformitywithgenerallyacceptedaccountingprinciples.

Inaccumulatingandcontrollingfinancialdata,managementoftheUniversityandtheHospitalsmaintainsseparatesystemsofinternalaccountingcontrols.Managementoftherespectiveentitiesbelievesthateffectiveinternalcontrolsaremaintainedandcommunicationofaccountingandbusinesspolicies,byselectionandtrainingofqualifiedpersonnelandbyprogramsofinternalaudits,givereasonableassurance,atreasonablecost,thatassetsareprotectedandthattransactionsandeventsarerecordedproperly.

TheaccompanyingconsolidatedfinancialstatementshavebeenauditedbytheUniversity’sandHospitals’independentauditors,PricewaterhouseCoopersLLP.Theirreportexpressesaninformedjudgmentastowhethertheconsolidatedfinancialstatements,consideredintheirentirety,presentfairly,inconformitywithgenerallyacceptedaccountingprinciples,theconsolidatedfinancialpositionandchangesinnetassetsandcashflows.Theindependentauditors’opinionisbasedonauditproceduresdescribedintheirreport,whichincludeobtaininganunderstandingofsystems,proceduresandinternalaccountingcontrols,andperformingtestsandotherauditprocedurestoprovidereasonableassurancethatthefinancialstatementsareneithermateriallymisleadingnorcontainmaterialerrors.Whiletheindependentauditorstestproceduresandcontrols,itisneitherpracticalnornecessaryforthemtoscrutinizealargeportionoftransactions.

TheBoardofTrusteesoftheUniversityandtheseparateBoardsofDirectorsoftheHospitals,throughtheirrespectiveAuditCommittees,comprisedoftrusteesanddirectorsnotemployedbytheUniversityortheHospitals,areresponsibleforengagingtheindependentauditorsandmeetingwithmanagement,internalauditorsandtheindependentauditorstoindependentlyassesswhethereachiscarryingoutitsresponsibilityandtodiscussauditing,internalcontrolandfinancialreportingmatters.BoththeinternalauditorsandtheindependentauditorshavefullandfreeaccesstotherespectiveAuditCommittees.BothmeetwiththerespectiveAuditCommitteesatleastannually,withandwithouteachother,andwithoutthepresenceofmanagementrepresentatives.

RandallS.Livingston AllisonBaird-JamesVicePresidentforBusinessAffairsand ControllerChiefFinancialOfficer StanfordUniversityStanfordUniversity

DanielJ.Morissette TimothyW.CarmackChiefFinancialOfficer ChiefFinancialOfficerStanfordHospitalandClinics LucileSalterPackardChildren’sHospital

Documents

DATED FEBRUARY 23, 2010 FISCAL YEAR ENDED AUGUST 31, …bondholder-information.stanford.edu/pdf/AnnualDisclosure_2009.pdf · International Union, and 26 were police officers represented