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Finance Update CA Meeting July 31, 2012

Finance Update CA Meeting July 31, 2012. Finance Update. Agenda Financial Position and Treasury Update Endowment and Debt FY 2012 Projection FY 2013 Budget Five Year Financial Plan Other. Financial Position. Treasury Update. College cash flows

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Finance Update CA Meeting July 31, 2012

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  1. Finance Update CA Meeting July 31, 2012

  2. Finance Update Agenda • Financial Position and Treasury Update • Endowment and Debt • FY 2012 Projection • FY 2013 Budget • Five Year Financial Plan • Other

  3. Financial Position

  4. Treasury Update College cash flows • Enough cash flows and liquidity to meet our obligations • Student payments are on target with prior year • Total of $50 million line of credit in place: 3-year commitment with TD Bank

  5. Treasury Update

  6. Middlebury Cash Flows FY 2013 (in millions) Outflows ($286) Inflows ($234) College Operations Instruction and Academic Support ($84) Financial Aid ($49) Student Services ($32) Institutional Support ($30) Maintenance and Operations ($25) Debt Service ($16) Library & Information Services ($16) Capital Expenditures ($14) Sponsored Activities ($9) *Other ($11) Comprehensive Fee ($136) Monterey Institute Tuition ($28) Summer Program Fees ($17) Schools Abroad ($9) Annual Fund Gifts/Accumulated Reserves ($23) Sponsored Activities ($9) Other Sources ($12) Spending ($52) Endowment ~$882 Capital Calls for Private Partnerships (~$40) (Total unfunded = $137) Other Investments Endowment Gifts ($9) Distributions from Private Partnerships (~$40) Redemptions (~$39) Unused Line of Credit ($50) *Other: auxiliary enterprises, initiative, and contingency.

  7. Endowment • Endowment value was $882 million as of June 30, 2012 • Twelve months ended June 30, 2012 performance was 2.7% • As of June 30, 2012: 1 Yr = 2.7%, 3 Yrs = 12.6%, 5 Yrs = 3.5%, 10 Yrs = 8.9% • The college assumes a 5% return in its financial plan

  8. Endowment Millions Total Endowment as of June 30, 2012 = $882 million

  9. Endowment Summary

  10. Endowment Endowment Spend Rate … return to 5%by 2015

  11. Challenges

  12. Long-term Debt • The College’s debt portfolio is as follows: • Total debt (par value) = $270M • Avg. cost of capital = 4.24% • Avg. maturity = 24.5 years • Prior to the April refinancing: • The College’s debt portfolio is as follows: • Total debt (par value) = $277M • Avg. cost of capital = 4.58% • Avg. maturity = 25.0 years

  13. April 2012 Debt Refinancing • Refinanced $64 million of long-term debt • Outcome: • Cash flow debt service savings of $22 million • Achieved present value savings of $11 million, which represented 17.3% of refunded par • Provided debt service relief of nearly $4.6 million over the next five years • Converted a $50 million bullet to an amortizing structure, to help create level debt and effectively eliminating the 2033 bullet • Locked-in an all-in cost on the Series 2012 Bonds of 3.60%

  14. FY 2012 Projection • Projecting a $3.3mm surplus or unused contingency … which is in line with budget • Student fees below plan • Other sources above plan • Financial aid below plan • Oil costs above plan • Managing costs – esp. labor costs • Some labor cost increases due to job re-pricing projects, esp. in College Advancement and Technology areas. • Utility cost increase • All units positive, except for auxiliary units

  15. FY 2013 Budget REVENUE (+5%) • Student fee revenue increase of 3.5% • Second year of CPI +1 • Midd comprehensive fee at 4% and MIIS tuition increase at 3.5% • Enrollment steady at 2,450 at Midd and MIIS at 750 • GRASP revenue decreases of 3% • Endowment and gift support increase of 9% • Unrestricted gifts increase of 2% • Increase in the use of accumulated reserves • Other increase of 8%

  16. FY 2013 Budget EXPENSE (+5%) • Instruction and Academic Support (plus LIS) increase of 5% • Student Services increase of 6% • Financial aid increase of 1% • Institutional support and Maintenance and Operations of Plant increase of 9% • Capital support reduced by 5% • CAPEX no increase • Debt service increase of 9% • Other increase of 10%

  17. FY 2013 Budget RESULTS • All units provide a positive financial contribution … except Auxiliary Enterprises ($550K deficit) • Overall contingency of $3.1 million

  18. Middlebury College Financial Plan (ex-MIIS) • * Contingency remaining after allocation for endowment spending reduction. • ** Includes supplemental endowment draw for debt service and endowment spending reduction.

  19. Other

  20. Financial Position The college’s financial position is strong … Aa2 (Moody’s) and AA (S & P)

  21. Credit Strengths • Excellent student market position as a nationally prominent liberal arts college located in west-central Vermont, with reputational strength in languages, international studies, and literature. There is strong demand with 8,533 applications for FY 2011-12. • Middlebury is highly selective, with a 18% freshmen selectivity ratio in fall 2011 and 38% matriculation ratio (accepted applicants who chose to enroll). • Management is focused on program and revenue diversification, as highlighted by the recent full merger with the Monterey Institute of International Studies in California, summer programs, and the launch of Middlebury Interactive Languages LLC, a language learning company geared for pre-college students, featuring both an on-line language learning program and residential, language immersion summer academies located in various states.

  22. FY 2013 Budget: Middlebury College Units

  23. Credit Strengths • Management actions to reduce operating expenses in light of investment losses and forward budget planning likely to help mitigate impact of reduced availability of spending from endowment, including voluntary separation programs, salary freezes, and other budget reductions. • Although fundraising has experienced some pressure recently in light of the economic climate, strong gift revenue remains a key credit strength of the College.

  24. Credit Challenges • Higher leverage than most similar-sized Aa rated private colleges due to the College's significant investment in its facilities and its decision historically to use debt rather than gifts or reserves to finance several large capital programs. • Further, the College has made extensive use of debt (approximately $279 million of pro-forma debt), some of which has been structured as bullet maturities with principal payments scheduled for later years. This concern is partly mitigated by the College's lack of near-term additional borrowing plans and healthy balance sheet. • Although the College employs a 5% endowment spending policy, it also draws from the endowment to support debt service payments. Thus endowment draws are typically higher than the 5% draw that Moody's includes for all universities.

  25. What’s Ahead? • Stick to plan • Staffing Resources Committee to manage staff FTE count and staff salary increase program • Ensure linkage between student revenue and major expense drivers (compensation and financial aid) • Continue to evaluate non-salary spending • Continue to manage auxiliary operations to at least break-even

  26. Opportunities Keep perfecting the things we do well: • Language Schools • Schools Abroad • The Monterey Institute of International Studies

  27. Opportunities New Ventures • Middlebury Interactive Languages • Commercial ventures • Mergers/Acquisitions

  28. Opportunities Hybrid • Online learning • Study away at other locations • Leverage relationships/networks

  29. CA Meeting Middlebury Interactive Languages July 31, 2012

  30. Middlebury Interactive Languages Purpose The Company Finance

  31. Purpose Middlebury College and K-12 will collaborate to provide world class, industry leading on-line foreign language instruction for elementary and secondary schools. An additional and related line of business is to further develop the Middlebury-Monterey summer language academies featuring language immersion experiences for secondary and middle school students. In addition, the venture may expand to international markets and include services and products for college level classes, adult self-paced language instruction, English as a second language, and K-5 students.

  32. The Company • Limited Liability Corporation (LLC) • Middlebury College is a 40% owner • Operational May 1, 2010 • Standalone company • CEO Jane Swift • Technical employees located in Provo, Utah • Remaining employees based in Middlebury, Vermont • Enhancing the existing infrastructure which is separate and apart from both K12 and Middlebury

  33. Finance

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