ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS ► Board policy 3-410 requires each university to provide the Board with audited annual financial reports and a ten-year ratio analysis of selected data from the financial reports. ► The annual financial ratio analysis uses data from the audited financial reports together with data from nine previous annual reports. The analysis covers the period July 1, 1993, through June 30, 2003. ► Each university presents seven ratios over a ten-year period. The ratios serve as indicators of the universities’ financial strengths and weaknesses. See pages 3 and 4 for the ratio analysis and pages 5 through 7 for specific university ratios. ► As of June 30, 2003, the universities appear to be fiscally sound: ► Over the 10-year period, a decreasing share of the universities’ costs was borne by state appropriations and, correspondingly, an increasing share of the costs was borne by students and other funding sources. This trend is expected to continue as the universities raise tuition to cover strategic initiatives related to instruction, no longer being funded from state appropriations. The universities also expect an increase in research grants as the result of increased emphasis on improving research infrastructure. ► For every $1.00 of liabilities, the universities have at least $3.16 of assets. ► The universities consistently earn solid investment bond ratings by showing adequate capacity to pay interest and repay principal. In fact, in October 2003 both Arizona State University and the University of Arizona received bond rating upgrades from Moody’s and Standard & Poor’s. Moody’s upgraded its rating on System Revenue Bonds for both ASU and UA to Aa3 from A1 and affirmed A1 ratings on Certificates of Participation (COPs); S&P upgraded its rating on COPs to AA- from A+ and affirmed AA ratings on System Revenue Bonds for both universities. The rating outlook is stable, meaning that a rating is not likely to change over the intermediate term, typically six months to two years. Northern Arizona University has maintained its A2 (Moody’s) and A+ (S&P) ratings on its System Revenue Bonds and has a stable rating outlook. (Moody’s and S&P’s analyses are available upon request from the central office.) ► Fund balances at June 30, 2003, represented approximately 7 to 8 weeks of operating expenditures. This provides the universities with limited financial flexibility to respond to emergencies and other contingencies. 1 ► For the second year, the FY 2003 financial statements were prepared under new Governmental Accounting Standards Board (GASB) Statements 34 and 35 reporting requirements. The purpose of these new requirements is to make annual reports easier to understand and more useful to certain decision makers: governing boards, legislators, creditors, and the public in general. The primary differences between the old and new reporting requirements are elimination of fund group reporting, calculation and reporting of depreciation expense, recording of scholarship allowances, recording of compensated absences, and presentation of the university-prepared Management’s Discussion and Analysis. ► For continuity and consistency in trend analysis, the FY 2003 financial ratios were calculated as in prior years, ignoring newly required items such as depreciation expense. The universities will continue to calculate the ratios in this manner through FY 2006. Once five years of GASB 35 statements have been accumulated, the universities will use that information to prepare GASB 35 financial statement ratio analyses. Initially, a five-year ratio analysis schedule will be prepared, with an additional year of information to be added each year until ten years of information is again provided. ► FY 2004 financial statements will be prepared in accordance with new GASB 39 reporting requirements. GASB 39 requires universities to incorporate into their audited financial statements the audited financial activities of affiliated organizations meeting certain criteria. Appropriate notes from the affiliated organizations must also be included. Dependent upon materiality, the universities’ foundations, alumni associations, research parks, athletic foundations and endowments, and privatized housing projects will likely fall under the new reporting requirements. The university controllers began meeting with staff from the Arizona Office of the Auditor General in late 2002 to work toward the smooth implementation of GASB 39. 2 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS Ratio 1. Description of Ratio State Appropriations Educational & General Expenditures & Mandatory Transfers1 FY 2003 RATIOS ASU 41.1% NAU 44.6% UA 33.4% State appropriations represent state of Arizona legislative appropriations (general fund) for current operations of the universities, less capital outlay. State appropriations as a percentage of expenditures have declined over the past 10 years, indicating that state appropriations have not kept pace proportionally with the increased cost of education, and resulting in greater reliance on tuition and fees and other revenue sources to meet expenditures (see Ratios 2 and 3). This ratio portrays state appropriations as a percentage of expenditures. ASU’s ratio of 49.6% in FY 1994 declined to 41.1% in FY 2003. NAU declined from 50.0% in FY 1994 to 44.6% in FY 2003. UA declined from 40.0% in FY 1994 to 33.4% in FY 2003. Ratios for all three universities are at 10-year lows. This trend reflects a continuing dramatic shift in responsibility for funding the universities, with less support from the state and heavier reliance on other sources including tuition, government and private research grants, and private gifts. 1. Ratio of State Appropriations to Total Educational & General Expenditures & Mandatory Transfers 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 94 95 96 97 98 99 00 Fiscal Year ASU NAU 3 UA 01 02 03 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS Ratio 2. Description of Ratio Tuition and Fees Educational & General Expenditures & Mandatory Transfers1 FY 2003 RATIOS ASU 33.0% NAU 28.5% UA 18.7% Tuition and fees as a percentage of expenditures have increased slightly at ASU, decreased slightly at NAU, and remained steady at UA over the past 10 years, indicating a system effort to minimize tuition and fee increases and maximize other revenue sources (Ratio 3) in order to manage the impact of declining state appropriations (Ratio 1). This ratio portrays tuition and fees as a percentage of expenditures. ASU experienced an increase of 3.5% over the FY 1994 ratio. NAU’s ratio decreased 2.4% since FY 1994, reflecting a flat or declining enrollment resulting in growth in tuition and fees that is not commensurate with growth in expenditures. UA’s ratio has remained relatively flat, increasing only .04% since FY 1994. This ratio at all three universities will likely increase in FY 2004, reflecting the $1,000 tuition increase effective for the 20032004 academic year. 2. Ratio of Tuition and Fees to Total Educational & General Expenditures & Mandatory Transfers 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 94 95 96 97 98 99 00 Fiscal Year ASU NAU 4 UA 01 02 03 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS Ratio 3. Description of Ratio Other Sources Educational & General Expenditures & Mandatory Transfers1 FY 2003 RATIOS ASU NAU UA 30.0% 29.8% 61.0% Other revenue sources as a percentage of expenditures have increased over the past 10 years. Viewed in conjunction with Ratios 1 and 2, the universities have looked increasingly to other revenue sources such as government and private grants and contracts, private gifts, interest, commissions, and facility user fees as state appropriations lagged and tuition increases were minimized. This ratio portrays other revenue sources as a percentage of expenditures. UA’s greater restricted funding from the federal government and private donors causes its ratio to diverge from ASU’s and NAU’s. However, this ratio has increased over the last 10 years at all three universities: 5.0% at ASU, 6.3% at NAU, and 16.9% at UA. UA’s ratio increased 10.4% since FY 2002 alone, reflecting increases in both federal and non-government grants and contract revenues. 3. Ratio of Other Sources to Total Educational & General Expenditures & Mandatory Transfers 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 94 95 96 97 98 99 00 Fiscal Year ASU NAU 5 UA 01 02 03 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS Ratio 4. Description of Ratio Net Revenues Total Revenues FY 2003 RATIOS ASU 5.4% NAU 2.5% UA 2.0% Net revenues as a percentage of total revenues have fluctuated over time but generally trended downward during the first 5 years of the 10-year period and have shown an upward trend in the most recent 5 years. Net revenues are calculated by subtracting current operating expenditures and mandatory transfers from total current operating revenues. This ratio includes auxiliary revenues and expenditures. This ratio reflects net revenues as a percentage of total revenues. FY 2003 ratios indicate that all three universities have met and exceeded operational expenditures and mandatory transfers with revenues generated in the same fiscal year and that fund balances were not depleted to operate the universities. ASU’s ratio increased from 3.2% in FY 2002 to 5.4% in FY 2003, the highest point in 10 years. NAU’s ratio increased from 1.6% in FY 2002 to 2.5% in FY 2003, the highest point in 6 years. UA’s ratio increased from 0.3% in FY 2002 to 2.0% in FY 2003, the highest point in 4 years. 4. Ratio of Net Revenues to Total Revenues 6.5% 5.5% 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% 94 95 96 97 98 99 00 Fiscal Year ASU NAU 6 UA 01 02 03 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS 5. Ratio Description of Ratio Debt Service Unrestricted Current Fund Expenditures & Mandatory Transfers FY 2003 RATIOS ASU 4.6% NAU 5.5% UA 6.5% All three universities consistently earn solid investment bond ratings by showing adequate capacity to pay interest and repay principal through debt service. This ratio reflects debt service as a percentage of expenditures. Debt service is defined as principal and interest payments for bonds and certificates of participation. Expenditures for this ratio include unrestricted current fund expenditures, plus mandatory transfers for debt service. This ratio includes auxiliary revenues and expenditures. All three universities have maintained relatively constant debt service ratios over the last 10 years. This is one of the key ratios considered by bond rating agencies to determine bond ratings. Rating agencies generally view 10 percent or less as a significant indicator of satisfactory creditworthiness, thus allowing bonds to be sold at lower interest rates. All three universities are well within the acceptable range and demonstrate that they have adequate resources to meet debt requirements, as evidenced by October 2003 rating upgrades for ASU and UA, and by NAU’s ability to maintain its current ratings. 5. Ratio of Total Debt Service to Unrestricted Current Fund Expenditures & Mandatory Transfers 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 94 95 96 97 98 99 00 01 Fiscal Year ASU NAU 7 UA 02 03 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS 6. Ratio Description of Ratio Available assets as a percentage of general liabilities have remained within a relatively narrow range at all three universities. For every $1.00 of liabilities, each of the three universities has at least $3.16 of assets. Available Assets General Liabilities FY 2003 RATIOS ASU 3.9 to 1 NAU UA 4.1 to 1 3.2 to 1 This ratio portrays available assets to general liabilities. Available assets are essentially unrestricted cash, investments, receivables, inventories, and physical properties. General liabilities are essentially unrestricted accounts payable, accrued expenses, deferred revenue, bonds payable, lease purchases, and other long-term obligations. Along with Ratio 5, this is an important debt-related ratio. It indicates that 25.4% of ASU’s assets are currently being debt financed; 24.4% of NAU’s; and 31.7% of UA’s. 6. Ratio of Total Available Assets to Total General Liabilities 5.50 5.00 4.50 4.00 3.50 3.00 2.50 94 95 96 97 98 99 00 01 Fiscal Year ASU NAU 8 UA 02 03 ARIZONA UNIVERSITY SYSTEM FY 2003 FINANCIAL RATIO ANALYSIS Ratio 7. Description of Ratio Expendable Current Fund Balance Total Current Fund Expenditures & Mandatory Transfers Fund balances, consisting of cash, investments, accounts receivable, inventories, and supplies, provide the universities with financial stability to respond to emergencies and other contingencies. Fund balances at the close of FY 2003 represent approximately 7 to 8 weeks of available operating expenditures. FY 2003 RATIOS This ratio reflects expendable current fund balances as a percentage of total expenditures. Fund balances are the differences between assets and liabilities at a point in time, usually at year end, and do fluctuate throughout the year. Fund balances can also be thought of as cumulative revenues less expenditures over time. Expenditures for this ratio include current operating funds expenditures, plus mandatory transfers for debt service. In the last 10year period, fund balance ratios have increased from 9.6% to 15.5% at ASU; 11.4% to 12.8% at NAU; and 11.8% to 14.4% at UA. Such trends are likely to be viewed favorably by bond rating agencies. However, fund balances representing only 7-8 weeks of annual spending could limit the universities’ ability to respond to any emergencies or unforeseen needs. ASU 15.5% NAU UA 12.8% 14.4% 7. Ratio to Expendable Current Fund Balances to Current Total Fund Expenditures & Mandatory Transfers 20.0% 15.0% 10.0% 5.0% 0.0% 94 95 96 97 98 99 00 01 02 03 Fiscal Year ASU NAU 1 UA Expenditures for this ratio include educational and general expenditures, plus mandatory transfers for debt service. This ratio excludes auxiliary revenues and expenditures so that changes in funding for essentially self-supporting services, such as bookstores, intercollegiate athletics, residence halls, and parking services, do not skew the trend analysis for the educational core of the universities. 9 ARIZONA STATE UNIVERSITY Financial Ratios for Fiscal Years: 1994 to 2003 (dollars in thousands) Ratio 1 2 3 4 5 6 1995 1996 1997 1998 1999 2000 2001 2002 2003 State Appropriations 213,928 232,653 245,281 256,071 279,145 305,349 315,050 324,416 319,175 311,836 Total Educational & General Expenditures & Mandatory Trfs 431,407 470,229 514,032 537,292 584,288 630,960 657,554 706,333 741,205 759,083 49.6% 49.5% 47.7% 47.7% 47.8% 48.4% 47.9% 45.9% 43.1% 41.1% Tuition and Fees 127,167 137,638 148,124 160,934 175,109 181,326 191,740 207,216 231,286 250,726 Total Educational & General Expenditures & Mandatory Trfs 431,407 470,229 514,032 537,292 584,288 630,960 657,554 706,333 741,205 759,083 29.5% 29.3% 28.8% 30.0% 30.0% 28.7% 29.2% 29.3% 31.2% 33.0% Other Sources 107,658 113,849 128,452 134,162 143,999 161,312 170,983 190,568 205,510 227,811 Total Educ. & General Expenditures & Mandatory Trfs 431,047 470,229 514,032 537,292 584,288 630,960 657,554 706,333 741,205 759,083 25.0% 24.2% 25.0% 25.0% 24.6% 25.6% 26.0% 27.0% 27.7% 30.0% Net Revenues 23,411 21,610 15,412 23,539 25,609 28,172 30,540 22,957 27,517 48,118 Total Revenues 510,982 548,972 591,895 626,793 679,350 733,014 766,766 810,820 854,545 893,475 4.6% 3.9% 2.6% 3.8% 3.8% 3.8% 4.0% 2.8% 3.2% 5.4% Total ASU Debt Service 30,972 28,856 28,793 29,957 28,702 28,573 28,309 38,736 30,365 31,055 Total ASU Unrestricted Current Fund Expenditures & Mandatory Trfs 415,428 447,607 486,630 511,733 553,619 591,088 618,801 660,853 679,496 675,679 7.5% 6.4% 5.9% 5.9% 5.2% 4.8% 4.6% 5.9% 4.5% 4.6% 1,158,612 1,209,076 1,259,251 1,351,625 1,390,610 1,465,082 1,576,636 1,626,044 1,834,305 1,883,960 356,963 344,949 338,443 323,990 313,249 299,416 320,716 309,770 490,182 478,834 3.3 to 1 3.5 to 1 3.7 to 1 4.2 to 1 4.4 to 1 4.9 to 1 4.9 to 1 5.2 to 1 3.7 to 1 3.9 to 1 Total ASU Available Assets Total ASU General Liabilities 7 1994 Expendable Current Fund Balances 46,657 54,805 59,113 68,743 77,255 91,792 104,073 112,527 123,064 130,618 Current Funds Expenditures & Mandatory Transfers 487,571 527,362 576,483 603,254 653,741 704,842 736,226 787,863 827,028 845,357 9.6% 10.4% 10.3% 11.4% 11.8% 13.0% 14.1% 14.3% 14.9% 15.5% ASU Financial Services 10 1/29/2004 NORTHERN ARIZONA UNIVERSITY FINANCIAL RATIOS FOR FY 1994 - FY 2003 (dollars in thousands) Ratio 1 State Approp/ Total E&G Exp and Mandatory Transfers 2 Tuition and Fees/ Total E&G Exp and Mandatory Transfers 3 Other Sources/ Total E&G Exp and Mandatory Transfers 4 Net Revenues/ Total Revenues 5 Total Debt Svc/ Unres CF Exp+MT 6 Avail Assets/ Genl Liabilities 7 Exp CF Balances Total Exp+MT FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 75,637 151,192 81,699 162,973 86,626 174,373 91,082 183,986 98,310 201,687 103,513 208,658 108,634 215,744 112,704 228,243 112,190 250,118 111,187 249,325 50.03% 50.13% 49.68% 49.50% 48.74% 49.61% 50.35% 49.38% 44.85% 44.60% 46,645 151,192 50,307 162,973 55,807 174,373 57,874 183,986 60,012 201,687 62,244 208,658 64,563 215,744 64,788 228,243 69,272 250,118 70,985 249,325 30.85% 30.87% 32.00% 31.46% 29.75% 29.83% 29.93% 28.39% 27.70% 28.47% 35,579 151,192 39,242 162,973 42,937 174,373 41,916 183,896 42,925 201,687 44,130 208,658 48,020 215,744 55,822 228,243 71,253 250,118 74,220 249,325 23.53% 24.08% 24.62% 22.78% 21.28% 21.15% 22.26% 24.46% 28.49% 29.77% 9,042 183,447 6,891 197,038 12,535 213,332 6,273 218,703 -2,729 229,236 635 238,289 6,104 251,780 5,202 264,097 4,420 281,691 7,385 291,936 4.93% 3.50% 5.88% 2.87% -1.19% 0.27% 2.42% 1.97% 1.57% 2.53% 9,922 147,633 10,316 160,869 10,579 169,367 10,744 183,844 11,888 202,254 11,885 205,365 11,608 210,465 11,460 218,043 10,959 226,766 12,403 227,117 6.72% 6.41% 6.25% 5.84% 5.88% 5.79% 5.52% 5.26% 4.83% 5.46% 341,873 106,444 356,864 103,077 380,469 100,539 424,706 125,882 435,187 120,646 451,004 117,505 456,999 109,071 466,988 103,525 463,001 95,824 499,785 121,830 3.21 3.46 3.78 3.37 3.61 3.84 4.19 4.51 4.83 4.1 19,801 174,405 22,104 190,147 26,619 200,797 24,935 212,430 19,442 231,965 18,196 237,655 22,306 245,676 27,179 258,895 32,720 281,691 36,449 284,550 11.35% 11.63% 13.26% 11.74% 8.38% 7.66% 9.08% 10.50% 11.62% 12.81% 11 UNIVERSITY OF ARIZONA SELECTED FINANCIAL RATIOS FY 1993-94 THROUGH FY 2002-03 (dollars in thousands) 12/18/2003 DESCRIPTION 1.STATE APPROPRIATIONS/ TOTAL EDU. & GEN. EXP. AND MANDATORY TRANS FY1993-94 FY1994-95 245,016 614,201 261,051 652,324 39.89% 2. TUITION & FEE REVENUE/ TOTAL EDU. & GEN. EXP. AND MANDATORY TRANS 114,702 614,201 18.67% 3. OTHER REVENUES/ TOTAL EDU. & GEN. EXP. AND MANDATORY TRANS 270,925 614,201 44.11% 4. NET OPER. REVENUE/ TOTAL OPER. REVENUE 21,776 717,885 3.03% 5. TOTAL DEBT SERVICE/ UNRESTRICTED CURR EXP & MANDATORY TRANSFERS 25,199 489,539 5.15% 6. AVAILABLE ASSETS/ GENERAL LIABILITIES 1,173,059 336,783 3.48 7. TOTAL CURR OPER FND BAL./ TOTAL CURRENT OPER. EXP. AND MANDATORY TRANS. 82,038 696,109 11.79% 40.02% 118,748 652,324 18.20% 291,441 652,324 44.68% 25,485 761,057 3.35% 30,609 512,406 5.97% 1,356,399 456,621 2.97 95,974 735,572 13.05% FY1995-96 272,320 665,928 40.89% 123,223 665,928 18.50% 282,134 665,928 42.37% 16,643 772,226 2.16% 31,844 546,980 5.82% 1,405,709 440,876 3.19 104,922 755,583 13.89% FY1996-97 282,203 685,721 41.15% 129,805 685,721 18.93% 283,983 685,721 41.41% 12,838 786,529 1.63% 32,157 564,574 5.70% 1,446,094 425,659 3.40 104,361 773,691 13.49% 12 FY1997-98 297,798 727,297 40.95% 135,766 727,297 18.67% 307,728 727,297 42.31% 15,075 833,209 1.81% 33,080 590,122 5.61% 1,524,973 442,664 3.44 115,789 818,134 14.15% FY1998-99 FY1999-00 FY2000-01 FY2001-02 FY2002-03 314,081 772,696 320,912 824,920 329,204 869,072 329,275 906,214 323,795 970,003 40.65% 144,747 772,696 18.73% 346,728 772,696 44.87% 38,306 900,381 4.25% 34,723 611,895 5.67% 1,590,036 426,151 3.73 145,438 862,075 16.87% 38.90% 154,639 824,920 18.75% 360,756 824,920 43.73% 13,981 938,502 1.49% 38,010 660,349 5.76% 1,736,655 509,138 3.41 152,529 924,521 16.50% 37.88% 163,767 869,072 18.84% 385,140 869,072 44.32% 13,162 989,403 1.33% 42,101 697,262 6.04% 1,875,485 576,323 3.25 131,631 976,241 13.48% 36.34% 182,487 906,214 20.14% 458,317 906,214 50.57% 2,540 1,016,592 0.25% 47,835 719,017 6.65% 2,051,387 650,593 3.15 144,598 1,014,052 14.26% 33.38% 181,473 970,003 18.71% 591,187 970,003 60.95% 21,706 1,103,811 1.97% 46,794 718,134 6.52% 2,029,194 643,100 3.16 155,614 1,082,264 14.38%