University of Rochester

1. University of Rochester Board of Trustees Orientation Financial Overview and Issues October 15, 2008

2. The Stewardship Role “In the context of this dynamic and challenging environment, a governing board’s responsibility is to chart an institution’s course and ensure it [the institution] has the resources it needs to fulfill its mission. ...the board must sustain the institution over the long term…” Source: Association of Governing Boards of Universities and Colleges – Financial Matters .

3. The Stewardship Role “For many reasons, colleges and universities have become subject to intensive scrutiny not only by the public, the press, governmental agencies, and financial institutions but also by alumni, donors, faculty and students.” Source: Association of Governing Boards of Universities and Colleges – Effective Committees

4. How is the Stewardship Role Fulfilled? • Maintaining equity between generations • Monitoring strategic and financial planning • Monitoring risk management • Preserving facilities • Monitoring investments and endowment Source: “Financial Responsibilities of Governing Boards”, by William S. Reed.

5. Key Financial Concepts in Higher Education Intergenerational Equity - maintaining an appropriate balance between the present and the future

6. Key Financial Concepts in Higher Education • Financial equilibrium • Complementary short-term and long-term financial plans • Quality of programs maintained • Physical assets preserved • Endowment purchasing power preserved • Human assets developed and maintained

7. Trustees’ Role and Board Involvement in Financial Matters • Review and approve strategic plans • Annual approval of operating and capital budgets • Approval of major capital projects • Tuition rate approval

8. Trustees’ Role and Board Involvement in Financial Matters • Establishment of endowment investment and spending policies • Review of major benefits program changes (intergenerational emphasis) • Approval of debt issues and overall debt policies • Review of reports on financial position and institutional performance

9. Trustees’ Role and Board Involvement in Financial Matters • Approval of executive compensation • Review of annual financial statements • Assessment of institutional risk and compliance • Appointment of the external auditors • Guidance and participation in the institution’s development efforts

10. Board Participation • Financial Planning Committee • Committee on Audit and Risk Assessment • Personnel Committee • Facilities Committee • Committee on Compliance and Compensation • Strategic Planning Advisory Committee

11. Scale of the Enterprise and the Financial Overview – FY2008 Educational Activities 1% Royalty Income 3% Gifts & Pledges 4% Other 1% Grants & Contracts 15% Auxiliary Enterprises 3% Net Tuition & Fees 7% Long-Term Investment Income 3% Hospital & Faculty Practice Patient Care Activities 63% Operating Revenues $2.4 Billion

12. Scale of the Enterprise and Financial Overview – FY2008 Maintenance & Facilities 4% Business & Professional 9% Depreciation Expense 5% Utilities 2% Interest Expense 2% Other 3% Supplies 13% Total Compensation 62% Operating Expenses $2.3 Billion

13. Key UR Issues • Decentralization • Exposure to Health Care • Institutional Resources • Aggregate Rate of Endowment Use • College Financial Position and Endowment Use • Eastman School of Music and Simon School Financial Position and Revenue Trends • Limited Debt Capacity • Strategic and Campus Master Plan Prioritization • Implication of the Current Economic Crisis

14. Endowment Market Values by Division($ in millions) Other $43.6 (includes University General & Memorial Art Gallery) Nursing $21.7 The College $405.4 Simon $86.0 Medicine & Dentistry/ Health Sciences $683.8 Warner $26.7 Eastman $263.6 Total value as of June 30, 2008 = $1,530.8

15. FY2008 Total Budget – Composition by Divisions Warner 0.4% Simon 1.6% Other 0.3% Eastman 1.7% The College 15.1% Nursing 1.0% Medical Center Faculty Practice/ Eastman Dental Center 16.1% Medicine & Dentistry/ Health Affairs 20.7% Strong Memorial Hospital 43% Medical Center 80.9%

16. FY2009 Divisional Budgets – Core Sources of Funds Gifts/Transfers & All Other 8% Transfers 22% Indirect Cost Recovery 15% Gifts & Other 19% Endowment 19% Indirect Cost Recovery 32% Net Tuition & Fees 58% Endowment 18% Net Tuition & Fees 9% The College School of Medicine & Dentistry

17. FY2009 Divisional Budgets – Core Sources of Funds Gifts & All Others 5% Gifts, Transfers & All Other 10% Indirect Cost Recovery 8% Endowment 7% Endowment 54% Net Tuition & Fees 75% Net Tuition & Fees 41% Eastman School of Music School of Nursing

18. FY2009 Divisional Budgets – Core Sources of Funds Gifts/Transfers & All Other 7% Endowment 15% Endowment 20% Net Tuition & Fees 73% Net Tuition & Fees 85% Simon School Warner School

19. Financial Informational Resources • Audited Consolidated Financial Statements • Operating Budget document (see page 3 for budget entity chart) • Capital Budget document

20. University Financial Administration Ronald J. Paprocki Senior Vice President for Administration & Finance & Chief Financial Officer Salim M. Alani Director, Office of University Audit Holly G. Crawford Associate Vice President for Budgets & Planning & Deputy to the Sr. V.P. for Administration & Finance & CFO Kathy A. King-Griswold Treasury Manager Douglas W. Wylie University Controller

21. Medical Center Financial Administration Michael C. Goonan Medical Center Vice President & Chief Financial Officer Leonard J. Shute Senior Director of Finance & Chief Financial Officer, Strong Memorial Hospital