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Saul Rosenbaum and Fritz Weis December 7, 2010 Palm Desert, CA

Did They Make the Call Correctly? A Look at Fiscal Year 2010 through the Eyes of the Financial Statements and the Ratios of the PACCON Large Institutions. Saul Rosenbaum and Fritz Weis December 7, 2010 Palm Desert, CA. Did 2010 Predictions Come True?.

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Saul Rosenbaum and Fritz Weis December 7, 2010 Palm Desert, CA

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  1. Did They Make the Call Correctly?A Look at Fiscal Year 2010 through the Eyes of the Financial Statements and the Ratios of the PACCON Large Institutions Saul Rosenbaum and Fritz Weis December 7, 2010 Palm Desert, CA

  2. Did 2010 Predictions Come True? • Moody’s Fiscal Year 2009 US Private College and University Medianspublished in July 2010 predicted: • “…operating cash flow margins…face more considerable stress in FY 2010” • “…net tuition revenue growth of private colleges and universities to be challenged for FY2010…we expect net tuition revenues to show only modest growth” • “We expect growth in debt issuance to slow for FY 2010” • “…greater pressure on operating performance” • A month ago, the New York Times said that: • “…indicators are that overall giving for Fiscal 2010 may be flat…Harvard down 1 per cent…Yale…slight decline…Chicago was up 1 per cent” • “…people are reluctant to make long-term commitments…” • How did FY 2010 turn out for PACCON members? • Just two weeks ago, the Los Angeles Times reported that Moody’s changed their ratings outlook for the Los Angeles County Museum of Art from “stable” to “negative” and LACMA stopped construction on their expansion until they can raise $63 million more to back up their bonds. • How are our PACCON members holding up?

  3. Does Size Matter? Large vs. Small based on FTE Students reported in 2009 NACUBO Endowment Study Moody’s Ratios use 3,000 FTE Students as split between large and small institutions • Other categories: • Length of MD&As or Treasurer’s Letters • Pages of footnotes • Timeliness of audit • KBs of .pdf files

  4. Does Format Matter? Statement of Activities Without a non-operating section, determining endowment spending is problematic at best. Lewis & Clark and California Lutheran were the most recent institutions to see this wisdom Whose a pancake afficionado? Scripps Seattle Pacific Who else has caught the Manifold/Spence fever? Occidental Pitzer Balance Sheets Very consistent – only St. Mary’s has more than one column for each year; and 7 PACCON institutions are disclosing URNA details on the face! Hoorah! Statement of Cash Flows Indirect method dominates – though trendsetter Manifold has been at work. We now have 5 direct method preparers! HMC, Pitzer, Scripps & SPU Amazingly, 3 institutions have incorporated Endowment Statements as part of their opined statements. Scripps, St. Mary’s, and Puget Sound.

  5. Operating Cash Flow Margins Operating Cash Flow Margin (%) Indicates the excess margin (or deficit) by which annual revenues cover operating expenses The calculation adds back depreciation and interest when calculating net operating cash flow. Basis Point Change in Operating Cash Flow Margins from FY 2009 to FY 2010 PACCON Median Large 2009 – 15.0% Moody’s Median Large 2009 – 13.1% PACCON Median Large 2010 – 13.9% Did Moody’s prediction come true or were there other factors?

  6. Primary Revenue Source Percent Change in Net Tuition Revenues Moody’s 2009 Median Change in Net Tuition per student was 3.9% PACCON’s Median Net Change in Net Tuition Revenue was 2.9% Basis Point Change in Tuition Discount Moody’s 2009 Median Tuition Discount = 27.8% PACCON’s Median Tuition Discount = 31.7% • Net Tuition Revenue is a function of: • Student tuition and fees increases • 2010 and 2011 were modest – what next? • Changes in enrollment • Where has growth been occurring? • Tuition Discount Rate • Will FY 2011 finish on the plus side? • Tuition Discount Rate is a function of: • Institutional policy • Competition • Packaging • First-year students and • Returning students both needed more • What rate is sustainable?

  7. What About Auxiliary Enterprises? Gross Returns on Auxiliary Enterprise Revenues From the Statement of Activities Auxiliary Enterprise Revenues less Auxiliary Enterprise Expenses Let’s hope Chapman and LaVerne don’t have any accounting majors!

  8. Giving Flat? Pledges Down? Changes in Total Gifts and Grants Fiscal 2010 vs. Fiscal 2009 Changes in Contributions Receivable Fiscal 2010 vs. Fiscal 2009 Fiscal 2010 was not bad – some of the differences were due to exceptionally large gifts in the previous year. New York Times probably reported it correctly: “…people are reluctant to make long-term commitments…” What are you experiencing this year?

  9. Has Endowment Spending Turned Around? What’s This?

  10. Has Endowment Spending Turned Around? Changes in URNA and TRNA Investment Income For Operations Fiscal 2010 vs. Fiscal 2009

  11. Who still has UPMIFA deficiencies? Fair Value Less than Gift Value At 2010 Fiscal Year End ($000)

  12. Was Anyone Able To Keep Expenses Down? Changes in Total Operating Expenses Fiscal 2010 vs. Fiscal 2009 TOTAL EXPENSES PACCON Median Large 2009 – $100,557,000 Moody’s Median Large 2009 – $214,478,000 PACCON Median Large 2010 – $103,448,000 If you are holding tuition increases to inflation plus, then it’s going to be hard to justify some of these bigger changes to total expenses. Let’s see if we can figure out what caused some of them.

  13. “We expect growth in debt issuance to slow for FY 2010” Changes in Total Direct Debt Fiscal 2010 vs. Fiscal 2009 Changes in Interest Paid per SCF Fiscal 2010 vs. Fiscal 2009 DIRECT DEBT MEDIANS PACCON Large 2009 – $83,052,000 Moody’s Large 2009 – $159,720,000 PACCON Large 2010 – $80,971,000 Looks like Moody’s got this one right. Any additional direct debt in the works for FY 2011?

  14. What About CapEx? Capital Spending Ratio (%) Measures the annual investment in capital facilities compared to annual depreciation expense. The calculation divides purchases of property, plant and equipment (from the statement of cash flows) by depreciation expense. Change in Depreciation Expense Fiscal 2010 vs. Fiscal 2009 Capital Spending Ratio (%) Fiscal 2009 and Fiscal 2010 PACCON Median Large 2009 – 349% Moody’s Median Large 2009 – 200% PACCON Median Large 2010 – 150%

  15. What Has Been the Effect on Returns? Return on Financial Resources (%) Return on financial resources is calculated by dividing the net change in financial resources between the current year and the prior year all divided by the financial resources of the prior year. Return on Net Assets (%) Return on net assets is calculated by dividing the net change in total net assets between the current year and the prior year all divided by the total net assets of the prior year. RETURN ON FINANCIAL RESOURCES (%) PACCON Median Large 2009 – -25.4% Moody’s Median Large 2009 – -22.7% PACCON Median Large 2010 – 12.9% RETURN ON NET ASSETS (%) PACCON Median Large 2009 – -11.2% Moody’s Median Large 2009 – -14.6% PACCON Median Large 2010 – 8.3%

  16. Did PACCON Large Beat the Predictions?

  17. Did They Make the Call Correctly?A Look at Fiscal Year 2010 through the Eyes of the Financial Statements and the Ratios of the PACCON Large Institutions Saul Rosenbaum and Fritz Weis December 7, 2010 Palm Desert, CA

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