President Gary Stuart President Elect Chris Palacios Treasurer Robert Bulla Secretary Fred Boice ___________________________________________________________________ ARIZONA UNIVERSITY SYSTEM FY 2004 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 information together with data from nine previous annual reports. This analysis covers the period July 1, 1994, through June 30, 2004. ► 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 through 9 for the ratio analysis and pages 10 through 12 for each university’s ratios. ► As of June 30, 2004, 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 including government and private research grants and private gifts. This trend is expected to continue as state appropriations lag, forcing the universities to implement tuition increases, aggressively compete for research funding, and pursue entrepreneurial activities. ► Arizona State University and the University of Arizona reported decreases in net revenue to total revenues, thus using a larger share of current year revenues to operate than has been the case in the prior year. UA’s ratio of 0.4% is at a 10-year low, indicating the nearly total use of current year revenues to operate the university during FY 2004. ► The universities consistently earn solid investment bond ratings by showing adequate capacity to pay interest and repay principal. The universities continue to maintain strong ratings for both System Revenue Bonds (SRBs) and Certificates of Participation (COPs) from Moody’s and Standard & Poor’s. ASU and UA continue to maintain an Aa3 rating on SRBs along with an A1 rating on COPs from Moody’s, and an AA SRB rating along with an AA- COPs rating from S&P. The rating outlook for ASU and UA remains stable, meaning that based upon present debt levels in relation to net assets, a rating is not likely to change over the intermediate term, typically six months to two years. These ratings are in the upper half of the investment grade rating categories. NAU has maintained an A2 SRB rating along with an A3 COPs rating from Moody’s, and an A+ SRB rating along with an A COPs rating from S&P. The rating outlook for NAU also remains stable. (The most recent Moody’s and S&P’s analyses are available upon request from the universities.) -1- ► Debt ratios, while remaining within the acceptable 10% range required by rating agencies, continue to increase at UA and NAU. ASU’s decrease from the prior year was due to debt refinancing. ► The percentage of university assets that are debt financed at all three universities is the highest in six years. ► For every $1.00 of liabilities, the universities have at least $2.61 of assets. ► Fund balances at June 30, 2004, represented 7-8 weeks of operating expenditures. In absolute dollar amounts, these fund balances have increased significantly over the 10-year period. ► For the third year, the FY 2004 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. ► FY 2004 financial statements were 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 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. While issuance of the FY 2004 financial statements has been delayed due to this significant reporting change, the universities met all reporting requirements to the satisfaction of the Auditor General. ► For continuity and consistency in trend analysis, the FY 2004 financial ratios were calculated as they were prior to implementation of GASB 35, ignoring newly required items such as depreciation expense. The universities will continue to calculate the ratios in this manner through FY 2006. When 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. 1/14/05 -2- ARIZONA UNIVERSITY SYSTEM FY 2004 FINANCIAL RATIO ANALYSIS Ratio 1. Description of Ratio State Appropriations Educational & General Expenditures & Mandatory Transfers1 FY 2004 RATIOS ASU 36.7% NAU 41.6% UA 29.7% 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 FY 1995 ratio of 49.5% declined to 36.7% in FY 2004. NAU declined from 50.1% in FY 1995 to 41.6% in FY 2004. UA declined from 40.0% in FY 1995 to 29.7% in FY 2004. These ratios for all three universities are at 10-year lows. This trend reflects a continuing dramatic shift in responsibility for funding the universities, with decreasing support from the state and heavier reliance on other sources including tuition, government and private research grants, private gifts, and entrepreneurial efforts. 1. Ratio of State Appropriations to Total Educational & General Expenditures & Mandatory Transfers 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 95 96 97 98 99 00 01 02 03 04 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 selfsupporting services, such as bookstores, intercollegiate athletics, residence halls, and parking services, do not skew the trend analysis for the educational core of the universities. 3 ARIZONA UNIVERSITY SYSTEM FY 2004 FINANCIAL RATIO ANALYSIS Ratio 2. Description of Ratio Tuition and Fees Educational & General Expenditures & Mandatory Transfers1 FY 2004 RATIOS ASU 36.3% NAU UA 34.4% 20.6% Tuition and fees as a percentage of expenditures have increased at all three universities over 1995 levels, with the most significant annual increases occurring over the prior year. While committing to maintaining resident undergraduate tuition levels in the lower one-third of senior public institutions, the Regents increased tuition for 2003-2004 in order to manage the impact of declining state appropriations (Ratio 1). This ratio portrays tuition and fees as a percentage of expenditures. These increases over the prior year of 3% at ASU, 6% at NAU, and 2% at UA reflect the $1,000 tuition increase effective for the 2003-2004 academic year as a result of the Regents’ Changing Directions initiative. 2. Ratio of Tuition and Fees to Total Educational & General Expenditures & Mandatory Transfers 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 95 96 97 98 99 00 01 02 03 04 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 selfsupporting services, such as bookstores, intercollegiate athletics, residence halls, and parking services, do not skew the trend analysis for the educational core of the universities. 4 ARIZONA UNIVERSITY SYSTEM FY 2004 FINANCIAL RATIO ANALYSIS Ratio 3. Description of Ratio Other Sources Educational & General Expenditures & Mandatory Transfers1 FY 2004 RATIOS ASU NAU UA 29.8% 27.9% 48.4% Other revenue sources as a percentage of expenditures have increased slightly over FY 1995 levels at all three universities. Viewed in conjunction with Ratio 1, the universities have looked increasingly to other revenue sources such as government and private research grants and contracts, private gifts, interest, commissions, and facility user fees as state appropriations lagged. 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. As the universities’ new research infrastructure buildings funded by HB 2529 come on line in FY 2005-2007, more research funding should be generated and this ratio is likely to increase at all three universities. This ratio decreased slightly from the prior year at all three universities, likely the result of the revenue generated from the significant tuition increase in academic year 2003-2004. 3. Ratio of Other Sources to Total Educational & General Expenditures & Mandatory Transfers 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 95 96 97 98 99 00 01 02 03 04 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 selfsupporting services, such as bookstores, intercollegiate athletics, residence halls, and parking services, do not skew the trend analysis for the educational core of the universities. 5 ARIZONA UNIVERSITY SYSTEM FY 2004 FINANCIAL RATIO ANALYSIS Ratio 4. Description of Ratio Net Revenues Total Revenues FY 2004 RATIOS ASU 3.9% NAU 4.5% UA 0.4% Net revenues as a percentage of total revenues fluctuate significantly over time but generally remain in the 0-5% range. 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 2004 ratios indicate that all three universities have met and exceeded operational expenditures and mandatory transfers with revenues generated in the same fiscal year. These ratios indicate whether or not fund balances were depleted to operate the universities in FY 2004. NAU reported its highest ratio in 8 years, while UA reported close to a 10-year low. 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% 95 96 97 98 99 00 01 Fiscal Year ASU NAU 6 UA 02 03 04 ARIZONA UNIVERSITY SYSTEM FY 2004 FINANCIAL RATIO ANALYSIS Ratio 5. Description of Ratio Debt Service Unrestricted Current Fund Expenditures & Mandatory Transfers FY 2004 RATIOS ASU 3.5% NAU 6.1% UA 7.0% 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 System Revenue Bonds (SRBs) and certificates of participation (COPs). Expenditures for this ratio include unrestricted current fund expenditures, plus mandatory transfers for debt service. This ratio includes auxiliary revenues and expenditures. This is one of the key ratios considered by rating agencies to determine SRBs and COPs ratings. Rating agencies generally view 10 percent or less as a significant indicator of satisfactory creditworthiness, thus allowing debt instruments to be sold at lower interest rates. All three universities are within the acceptable range and demonstrate that they have adequate resources to meet existing debt requirements. UA’s debt ratio of 7% is at a 10-year high. ASU’s ratio is at a 10-year low and reflects debt alignment strategies initiated by the university for FY 2004. NAU’s debt ratio is the highest in 8 years, but at 6% is within the acceptable range. 5. Ratio of Total Debt Service to Unrestricted Current Fund Expenditures & Mandatory Transfers 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 95 96 97 98 99 00 01 Fiscal Year ASU NAU 7 UA 02 03 04 ARIZONA UNIVERSITY SYSTEM FY 2004 FINANCIAL RATIO ANALYSIS Ratio 6. Description of Ratio Available Assets General Liabilities FY 2004 RATIOS ASU 3.1 to 1 NAU UA 3.8 to 1 2.6 to 1 Available assets as a percentage of general liabilities have remained within a relatively narrow range at all three universities over the last 10 years. For every $1.00 of liabilities, each of the three universities has at least $2.61 of assets at FY 2004 year end. 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 indicator. It indicates that 32% of ASU’s assets are currently being debt financed compared to 25% in FY 2003; 26% of NAU’s compared to 24% in FY 2003; and 38% of UA’s compared to 32% in FY 2003. These are 10-year highs at ASU and UA. 6. Ratio of Total Available Assets to Total General Liabilities 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 95 96 97 98 99 00 01 02 Fiscal Year ASU NAU 8 UA 03 04 ARIZONA UNIVERSITY SYSTEM FY 2004 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 2004 represent 7-8 weeks of available operating expenditures. FY 2004 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. ASU NAU UA 14.4% 14.8% 12.9% These ratios indicate that the cumulative expendable current fund balances have remained fairly constant over the 10-year period as a percentage of total current fund expenditures and mandatory transfers. However, the absolute dollar amounts of the expendable current fund balances have increased 148% at ASU, 104% at NAU, and 58% at UA over the 10-year period. 7. Ratio of Expendable Current Fund Balances to Total Current Fund Expenditures & Mandatory Transfers 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 95 96 97 98 99 00 01 Fiscal Year ASU NAU 9 UA 02 03 04 ARIZONA STATE UNIVERSITY Financial Ratios for Fiscal Years: 1995 to 2004 (dollars in thousands) Ratio 1A. 1995 1996 2003 2004 245,281 256,071 279,145 305,349 315,050 324,416 319,175 311,836 312,594 537,292 584,288 630,960 657,554 706,333 741,205 759,083 852,692 Tuition and Fees Total Educational & General Expenditures & Mandatory Trfs 137,638 470,229 Other Sources Total Educ. & General Expenditures & Mandatory Trfs 113,849 470,229 Net Revenues Total Revenues 21,610 548,972 Total ASU Debt Service Total ASU Unrestricted Current Fund Expenditures & Mandatory Trfs 28,856 447,607 Total ASU Available Assets Total ASU General Liabilities 1,209,076 344,949 3.5 to 1 4. 2002 514,032 6.4% 3B. 2001 232,653 3.9% 3A. 2000 470,229 24.2% 2. 1999 State Appropriations 29.3% 1C. 1998 Total Educational & General Expenditures & Mandatory Trfs 49.5% 1B. 1997 Expendable Current Fund Balances Current Funds Expenditures & Mandatory Transfers 54,805 527,362 10.4% ASU Financial Services 47.7% 148,124 514,032 28.8% 128,452 514,032 25.0% 15,412 591,895 2.6% 28,793 486,630 5.9% 1,259,251 338,443 3.7 to 1 59,113 576,483 10.3% 47.7% 160,934 537,292 30.0% 134,162 537,292 25.0% 23,539 626,793 3.8% 29,957 511,733 5.9% 1,351,625 323,990 4.2 to 1 68,743 603,254 11.4% 47.8% 175,109 584,288 30.0% 143,999 584,288 24.6% 25,609 679,350 3.8% 28,702 553,619 5.2% 1,390,610 313,249 4.4 to 1 77,255 653,741 11.8% -10- 48.4% 181,326 630,960 28.7% 161,312 630,960 25.6% 28,172 733,014 3.8% 28,573 591,088 4.8% 47.9% 191,740 657,554 29.2% 170,983 657,554 26.0% 30,540 766,766 4.0% 28,309 618,801 4.6% 45.9% 207,216 706,333 29.3% 190,568 706,333 27.0% 22,957 810,820 2.8% 38,736 660,853 5.9% 43.1% 231,286 741,205 31.2% 205,510 741,205 27.7% 27,517 854,545 3.2% 30,365 679,496 4.5% 41.1% 36.7% 250,726 759,083 309,559 852,692 33.0% 36.3% 227,811 759,083 253,997 852,692 30.0% 29.8% 48,118 893,475 38,500 984,438 5.4% 3.9% 31,055 675,679 26,687 771,366 4.6% 3.5% 1,465,082 299,416 1,576,636 320,716 1,626,044 309,770 1,834,305 490,182 1,883,960 478,834 2,025,094 647,645 4.9 to 1 4.9 to 1 5.2 to 1 3.7 to 1 3.9 to 1 3.1 to 1 91,792 704,842 104,073 736,226 112,527 787,863 123,064 827,028 130,618 845,357 135,981 945,938 13.0% 14.1% 14.3% 14.9% 15.5% 1/19/2005 14.4% NORTHERN ARIZONA UNIVERSITY FINANCIAL RATIOS FOR FY 1995-FY 2004 (in thousands of dollars) Ratio State Approp/ Total E&G Exp and Mandatory Transfers Tuition and Fees/ Total E&G Exp and Mandatory Transfers Other Sources/ Total E&G Exp and Mandatory Transfers Net Revenues/ Total Revenues Total Debt Svc/ Unres CF Exp+MT Avail Assets/ Genl Liabilities Exp CF Balances Total Exp+MT FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 81,699 162,973 86,626 174,373 91,082 183,986 98,310 201,687 103,513 208,658 108,634 215,744 112,704 228,243 112,190 250,118 111,187 249,325 111,643 268,498 50.13% 49.68% 49.50% 48.74% 49.61% 50.35% 49.38% 44.85% 44.60% 41.58% 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 92,230 268,498 30.87% 32.00% 31.46% 29.75% 29.83% 29.93% 28.39% 27.70% 28.47% 34.35% 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 74,912 268,498 24.08% 24.62% 22.78% 21.28% 21.15% 22.26% 24.46% 28.49% 29.77% 27.90% 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 14,275 317,556 3.50% 5.88% 2.87% -1.19% 0.27% 2.42% 1.97% 1.57% 2.53% 4.50% 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 14,709 239,732 6.41% 6.25% 5.84% 5.88% 5.79% 5.52% 5.26% 4.83% 5.46% 6.10% 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 95,824 499,785 121,830 543,739 141,809 3.46 3.78 3.37 3.61 3.84 4.19 4.51 4.83 4.1 3.8 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 44,995 303,282 11.63% 13.26% 11.74% 8.38% 7.66% 9.08% 10.50% 11.62% 12.81% 14.84% -11- UNIVERSITY OF ARIZONA SELECTED FINANCIAL RATIOS FY1994-95 THROUGH FY2003-04 DESCRIPTION 1.STATE APPROPRIATIONS/ TOTAL EDU. & GEN. EXP. AND MANDATORY TRANS FY1994-95 261,051 652,324 40.02% 2. TUITION & FEE REVENUE/ TOTAL EDU. & GEN. EXP. AND MANDATORY TRANS 118,748 652,324 18.20% 3. OTHER REVENUES/ TOTAL EDU. & GEN. EXP. AND MANDATORY TRANS 291,441 652,324 44.68% 4. NET OPER. REVENUE/ TOTAL OPER. REVENUE 25,485 761,057 3.35% 5. TOTAL DEBT SERVICE/ UNRESTRICTED CURR EXP & MANDATORY TRANSFERS 30,609 512,406 5.97% 6. AVAILABLE ASSETS/ GENERAL LIABILITIES 1,356,399 456,621 2.97 7. TOTAL CURR OPER FND BAL./ TOTAL CURRENT OPER. EXP. AND MANDATORY TRANS. 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% 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% -12- FY1998-99 FY1999-00 FY2000-01 FY2001-02 FY2002-03 FY2003-04 314,081 772,696 320,912 824,920 329,204 869,072 329,275 906,214 323,795 970,003 317,250 1,066,801 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% 482,395 970,003 49.73% 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% 29.74% 220,094 1,066,801 20.63% 516,767 1,066,801 48.44% 4,348 1,175,491 0.37% 54,603 775,816 7.04% 2,363,701 904,795 2.61 151,597 1,174,518 12.91%