ARIZONA UNIVERSITY SYSTEM FY 2007 FINANCIAL RATIO ANALYSIS Arizona State University Northern Arizona University The University of Arizona December 18, 2007 This document may be accessed at www.azregents.edu Arizona Board of Regents 2020 North Central Avenue, Suite 230 Phoenix, AZ 85004 - 4593 602-229- 2500 Fax 602 -229- 2555 www.azregents.edu Arizona State University Northern Arizona University University of Arizona MEMORANDUM TO: Members, Arizona Board of Regents FROM: Joel Sideman DATE: December 18, 2007 SUBJECT: University FY 2007 Financial Reports and Ratio Analysis We are pleased to distribute for your information the FY 2007 audited Financial Reports for Arizona State University, Northern Arizona University, and The University of Arizona, along with the University System FY 2007 Financial Ratio Analysis. These items will be discussed during the Audit Committee at its next scheduled meeting in conjunction with the January 2008 Board meeting at The University of Arizona. We would like to encourage the members of the Strategic Planning, Budget and Finance Committee to attend this portion of the Audit Committee meeting. Please contact Kathy Bedard at 602-229-2546 or kbedard@azregents.edu or me at 602-229-2505 if you have questions prior to the meeting. Enclosures cc: Michael Crow John Haeger Robert Shelton Board Members: President Fred T. Boice, Tucson Robert B. Bulla, Scottsdale Ernest Calderón, Phoenix Dennis DeConcini, Tucson Fred P. DuVal, Phoenix Anne L. Mariucci, Phoenix Christina A. Palacios, Phoenix Gary L. Stuart, Phoenix Governor Janet Napolitano Superintendent of Public Instruction Tom Horne Student Regents: Mary Venezia, NAU David Martinez III, UA Executive Director: Joel Sideman ARIZONA UNIVERSITY SYSTEM FY 2007 FINANCIAL RATIO ANALYSIS EXECUTIVE SUMMARY BACKGROUND: Board policy 3-410 requires Arizona State University, Northern Arizona University, and The University of Arizona to provide the Arizona Board of Regents with audited annual financial reports and a ten-year ratio analysis of selected data from the financial reports. With the changes in financial reporting requirements required with the implementation of GASB 34/35 and 39 in 2002 and 2004, respectively, the universities and central office staff developed 10 new ratios. At its December 2005 meeting, the Board’s Audit Committee approved these ratios and requested the universities to report them beginning with FY 2005 financial data, even though implementing the new ratios at that time would result in presentation of only four years of comparative data. Therefore, this FY 2007 annual financial ratio analysis uses data from the universities’ FY 2007 audited financial statements, together with data from five previous annual reports, covering the period July 1, 2001, through June 30, 2007. An additional year of information will be added to this ratio analysis each year until ten years of comparable information is again provided. Each university has presented 10 ratios over the 6-year period. The ratios serve as indicators of the universities’ financial strengths and weaknesses. See pages 5 through 15 for the systemwide ratio analysis and graphs. Ratio formulas are presented on page 16, and ratios are presented by university on pages 17-19. Each university’s detailed analysis is presented behind its tab. ANALYSIS: Ratio 1: State General Fund Appropriations as a percentage of Total Revenue at each university remained relatively stable over the last 4 years, 38% at NAU and 28% at UA, halting the steady decline during the first 3 years of this 6-year reporting period. ASU’s FY 2007 ratio increased slightly, 0.2%, over the prior year but declined 7% over the 6-year reporting period. From FY 2002 through FY 2007, ASU’s ratio declined from 39% to 32%; NAU’s declined from 42% to 38%; and UA’s declined from 33% to 28%. The universities state in their analyses that while they anticipate that State General Fund Appropriations will continue to decline as a percentage of Total Revenue, it is expected that such decline will be caused primarily by an overall increase in the universities’ revenue base. Page 1 of 19 Ratio 2: Net Tuition and Fees Revenue as a percentage of Total Revenue remained relatively stable over the last 4 years at NAU (24%) and at UA (15%), while increasing from 27% to 30% at ASU. Over the 6-year reporting period, this ratio shows an increasing reliance on Net Tuition and Fees as a revenue source at ASU and NAU, while UA’s reliance, historically lower due to higher levels of research funding, has remained relatively constant over the 6-year reporting period. Ratio 3: Gifts, Grants, Contracts, and TRIF Revenue as a percentage of Total Revenue increased slightly from FY 2006 to FY 2007 at NAU (0.3%), and decreased slightly at ASU (-1.8%) and at UA (-2.0%). Over the 6-year period, this ratio has decreased from 26% to 22% at ASU; from 24% to 23% at NAU; and from 40% to 38% at UA. Ratio 4: Other Revenue (auxiliary enterprises revenues, net investment income, and educational department sales and services revenues) as a percentage of Total Revenue fluctuated within a stable range over the 6-year reporting period at all three universities. At ASU this ratio fluctuated from 13-17%; from 13-15% at NAU; and from 13-18% at UA. This fluctuation can be significant from year to year due to land sales, as was the case at ASU in FY 2007 and at UA in FY 2006. Ratio 5: All three universities covered their current year expenses with current year revenue in FY 2007, thus avoiding the need to deplete net assets to operate the universities. Ratio 6: All three universities and their component units (see page 4) showed a continuing increasing ability to operate within current year revenue. Ratios 7 and 8: Ratios 7 and 8 indicate the ability of expendable net assets (those assets available for use for operations) to keep pace with total expenses and the ability of its unrestricted net assets (the subset of expendable net assets that can most quickly be converted to cash) to keep pace with total expenses. ASU’s ratios declined over the 6-year reporting period, indicating declining financial strength and declining ability to respond to emergencies or unforeseen needs. However, this decline is slight—less than 1%— between FY 2006 and FY 2007, indicating stabilization of these ratios. UA’s FY 2007 ratios improved slightly—1%—over the prior year, indicating increasing financial strength. NAU’s FY 2007 ratios increased significantly from the prior year and are at 6year highs, indicating a new level of financial strength. Page 2 of 19 Ratio 9: The universities consistently earn solid investment bond ratings by showing adequate capacity to pay interest and to repay principal on debt. The universities continue to maintain strong ratings for both System Revenue Bonds (SRBs) and Certificates of Participation (COPs) from Moody’s and from Standard & Poor’s. These ratings and outlooks remain unchanged from prior year-end: • ASU and UA maintained an Aa3 rating on SRBs and an A1 rating on COPs from Moody’s; and an AA SRB rating and 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 maintained an A2 SRB rating and an A3 COPs rating from Moody’s; and an A+ SRB rating and an A COPs rating from S&P. The rating outlook for NAU from Moody’s remains positive, and the S&P rating is stable. The most recent Moody’s and Standard & Poor’s analyses are available upon request from the universities. Debt ratios for all three universities have consistently remained in the 3-6.5% range over the 6-year reporting period and remain well within the 10% range recommended by rating agencies. These ratios are expected to increase significantly at all three universities beginning in FY 2008 as debt service payments, funded by HB 2529 research infrastructure State General Fund Appropriations, begin for newly constructed research facilities. Ratio 10: Total financial resources of both the university and its component units (see page 4) as a proportion of the total direct debt of the university and its component units increased significantly over the 4-year period at UA but decreased at both ASU and NAU. However, both ASU’s and NAU’s ratios rebounded in FY 2007 from a continuing decline during the first 3 years of the reporting period. At June 30, 2007, UA had sufficient financial resources to pay 102% of its total debt; ASU and NAU each had sufficient resources to pay 47% of total debt. CONCLUSION: The 30 ratios presented in this analysis point to a university system operating within its available revenues; maintaining acceptable levels of debt and having the capacity for future additional debt financings; and increasing in financial strength and flexibility, as of June 30, 2007. Page 3 of 19 UNIVERSITY COMPONENT UNITS AS DEFINED BY GASB 14 AND GASB 39 Arizona State University: ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ASU Foundation Arizona Capital Facilities Finance Corporation (ACFFC) ASU Alumni Association Collegiate Golf Foundation Mesa Student Housing, LLC Arizona State University Research Park, Inc. Sun Angel Endowment Sun Angel Foundation Northern Arizona University: ƒ Northern Arizona University Foundation, Inc. ƒ Northern Arizona Capital Facilities Finance Corporation (NACFFC) The University of Arizona: ƒ ƒ ƒ ƒ The University of Arizona Foundation, Inc. The University of Arizona Alumni Association Law College Association of The University of Arizona Campus Research Corporation Page 4 of 19 Ratio 1 Description of Ratio State General Fund Appropriations Total Revenue Element definition: State General Fund Appropriations are state of Arizona legislative General Fund appropriations to the universities and do not include university tuition collections remitted to the state by the universities and then appropriated back to the universities. Total Revenue includes operating, nonoperating, and other revenue and gains. FY 2007 RATIOS ASU 32% NAU 38% UA 28% State General Fund Appropriations as a percentage of Total Revenue remained constant at all three universities from FY 2006 to FY 2007. Over the most recent 4 years, NAU’s and UA’s ratios remained constant at 38% and 28%, respectively, while ASU’s ratio decreased from 34% in FY 2004 to 32% in FY 2007. During the 6-year period covered by this analysis, FY 2002-FY 2007, this ratio declined at ASU from 39% to 32%; at NAU from 42% to 38%; and at UA from 33% to 28%. The universities state in their analyses that while they anticipate that State General Fund Appropriations will continue to decline as a percentage of Total Revenue, it is expected that such decline will be caused primarily by an overall increase in the universities’ revenue base. Page 5 of 19 Ratio 2 Description of Ratio Net Tuition & Fees Element definition: Net Tuition and Fees are tuition and fees paid by students and are net of scholarship allowances. Total Revenue includes Total Revenue operating, nonoperating, and other revenue and gains. FY 2007 RATIOS Net Tuition and Fees as a percentage of Total Revenue remains unchanged ASU NAU UA from the prior year at all three universities. Additionally, this ratio has stabilized 30% 24% 15% at NAU and UA at 24% and 15%, respectively, over the last 4 years, while ASU’s ratio has stabilized between 29% and 30% over the last 3 years. The 6-year change at ASU (23% to 30%) and NAU (19% to 25%) shows an increasing reliance on Net Tuition and Fees as a revenue source, while UA’s reliance has remained in the 14-15% range. Page 6 of 19 Ratio 3 Description of Ratio Gifts, Grants, Contracts & TRIF Revenue Total Revenue Element definition: Gifts, Grants, and Contracts come from private donors, additions to endowments, and government (primarily federal) and private research grants and contracts. TRIF Revenue is ABOR’s share of state sales tax revenue approved under Proposition 301 (November 2000). Total Revenue includes operating, nonoperating, and other revenue and gains. FY 2007 RATIOS ASU 22% NAU 23% UA 38% Total Gifts, Grants, Contracts, and TRIF Revenue as a percentage of Total Revenue decreased slightly at ASU (-1.8%) and at UA (2%) in FY 2007 from the prior year, while increasing slightly (0.3%) at NAU. Over the 6-year period, this percentage has decreased from 26% to 22% at ASU; from 24% to 23% at NAU; and from 40% to 38% at UA. UA’s greater restricted funding from the federal government and private donors causes its ratio to diverge from ASU’s and NAU’s. As research continues to ramp up in FY 2008 and thereafter in all three universities’ new research buildings, more federal and other research grants and contracts should generate increased funding, and this ratio should increase. Page 7 of 19 Ratio 4 Description of Ratio Other Revenue Total Revenue Element definition: Other Revenue includes auxiliary enterprises revenue, investment income, and all other revenue, both operating and nonoperating, not included in the numerators of Ratios 1, 2, and 3. Total Revenue includes operating, nonoperating, and other revenue and gains. FY 2007 RATIOS ASU 17% NAU 15% UA 18% Other Revenue as a percentage of Total Revenue in FY 2007 increased slightly from FY 2006 at ASU (2%) and at UA (1%) and decreased slightly at NAU (-0.1%). Over the 6-year period, this ratio has fluctuated between 13% and 18% at all three universities. In any given year, this ratio can be significantly impacted by land sales, as is the case in FY 2007 at ASU with an $18.6 million gain on sale of land and $3.8 million conveyance of property. Other Revenue increased significantly in dollar amount at all three universities over the 6-year reporting period, reflecting the universities’ success in maximizing these revenue sources and emphasizing entrepreneurial efforts throughout the universities. Examples include: • • • Auxiliary enterprises revenues increased at all three universities over the 6-year period. ASU’s increased from $86 million in FY 2002 to $118 million in FY 2007, a 37% increase; NAU’s increased from $28 million to $39 million, a 40% increase; and UA’s increased from $96 million to $144 million, a 50% increase. Sales and services of educational departments, including conference and seminar registration fees for university-sponsored events, increased at ASU from $18 million in FY 2002 to $46 million in FY 2007, a 156% increase, and increased at UA from $17 million to $25 million, a 47% increase. NAU’s investment income increased from $1 million in FY 2002 to $9 million in FY 2007, reflecting the increasing financial strength of the university resulting in more available funds to invest. Page 8 of 19 Composition of University Total Revenue Ratios 1, 2, 3, and 4 Combined 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17% 15% 22% 23% 2 18% 38% 24% 30% 15% 38% 32% ASU NAU 28% UA State General Fund Appropriations Net Tuition and Fees Gifts, Grants, Contracts and TRIF Revenue Other Revenue Notes: 1. University totals may not equal 100% due to rounding. 2. Each university presents the above bar chart for all 6 years of this reporting period on page 7 of its graphs located behind its tab. Page 9 of 19 Ratio 5 Description of Ratio Net Revenue (University Only) Total Revenue (University Only) Element definition: Net Revenue equals total revenue less total expenses. Total Revenue includes operating, nonoperating, and other revenue and gains. Both figures are for the university only and do not include component units. FY 2007 RATIOS This ratio indicates whether current year revenues were sufficient to cover current year expenses, thereby avoiding the need to deplete net assets to operate the university. ASU 4% NAU 7% UA 4% This ratio has fluctuated over the 6-year reporting period at all three universities, but all three operated well within their current year revenues in FY 2007. ASU’s FY 2007 ratio increased to 4% from a 6-year low of -0.4% in FY 2005. ASU finished FY 2007 with a $47 million excess of Total Revenue ($1.358 billion) over Total Expenses ($1.311 billion). This is the strongest operating year for ASU since FY 2002. NAU’s FY 2007 ratio increased to 7% from a 6year low of -1.1% in FY 2002. NAU finished FY 2007 with a $26 million excess of Total Revenue ($367 million) over Total Expenses ($341 million). FY 2007 is the second strongest operating year for NAU in the 6-year reporting period, with FY 2006 being slightly stronger. UA’s FY 2007 ratio increased to 4% from a 6-year low of 1% in both FY 2004 and FY 2005. UA finished FY 2007 with a $62 million excess of Total Revenue ($1.385 billion) over Total Expenses ($1.323 billion). FY 2007 is the strongest operating year for UA in the 6-year reporting period. Page 10 of 19 Ratio 6 Description of Ratio Net Revenue (University + Component Units) Total Revenue (University + Component Units) Element definition: Net Revenue equals total revenue less total expenses. Total Revenue includes operating, nonoperating, and other revenue and gains. Both figures are for the university and its component units. Reporting of financial data for component units is required under GASB 39 beginning with FY 2004 financial statements. Each university’s component units are listed on page 4. FY 2007 RATIOS This ratio indicates whether current year revenues of the university and its component units as defined by GASB 14 and 39 were sufficient to cover current year expenses of the university and the component units, thereby avoiding the need to deplete net assets to operate the university and the component units. ASU 10% NAU 11% UA 8% All three universities and their component units met current year expenses with current year revenues in FY 2007, along with increasing net assets. ASU’s ratio over the 4-year reporting period increased from 3% in FY 2004 to 10% in FY 2007; NAU’s increased from 6% to 11%; and UA’s increased from 4% to 8%. These ratios indicate an increasing ability of the universities and their component units to operate within their current year revenues. Page 11 of 19 Ratio 7 Description of Ratio Expendable Net Assets Total Expenses Element definition: Expendable Net Assets are assets available for use for operations. They include both unrestricted and expendable restricted net assets; they exclude endowments and net assets invested in property. Total Expenses include operating, nonoperating, and other expenses and losses. FY 2007 RATIOS ASU 18% NAU 27% UA 23% This ratio measures whether or not expendable net assets have kept pace with total expenses and the financial strength of the universities by indicating the percentage of usable Net Assets at the end of the year to Total Expenses. ASU’s ratio remained constant from FY 2006 to FY 2007 at 18%. However, it declined from 24% in FY 2002 to 18% in FY 2007, indicating that expendable net assets have not kept pace with total current year expenses and that a declining level of resources was available at year-end to operate the university. NAU’s ratio increased significantly from FY 2006 to FY 2007—21% to 27%— and from 17% to 27% over the 6-year reporting period, indicating that NAU’s expendable net assets have kept pace with total current year expenses and that an increasing level of resources is available at year-end to operate the university. UA’s ratio increased from 22% in FY 2006 to 23% in FY 2007, and from 21% to 23% over the 6-year reporting period, also indicating that expendable net assets have kept pace with total current year expenses. Explained differently, at June 30, 2007, ASU had approximately 9 weeks (same as at prior year-end) of annual spending available from year-end expendable net assets. NAU and UA had approximately 14 and 12 weeks, respectively, of annual spending available at year-end, compared to 11 weeks for each at prior year-end. This ratio, as is the case for all ratios in this analysis, is valid as of June 30, 2007, only. The universities are “going concerns” and, therefore, can expect to receive additional revenues in subsequent years. Page 12 of 19 Ratio 8 Description of Ratio Unrestricted Net Assets Total Expenses Element definition: Unrestricted Net Assets are a subset of expendable net assets (see Ratio 7) and represent those net assets that can most quickly be converted to cash. Total Expenses include operating, nonoperating, and other expenses and losses. FY 2007 RATIOS ASU 12% NAU 21% UA 13% This ratio measures the coverage of annual operations by the university’s most liquid assets, those unrestricted net assets than can be the most quickly converted to cash. A higher percentage indicates more operating flexibility by the university. ASU’s ratio of 12% remained constant from FY 2006 to FY 2007, holding in the 15-16% range for the 4 prior years and indicating stabilization in the university’s operating flexibility. NAU’s FY 2002 ratio of 10% increased steadily to 21% in FY 2007, indicating continued increasing operating flexibility, with a significant increase between FY 2006 and FY 2007—15% to 21%. UA’s FY 2002 and FY 2003 ratios of 12% declined to 9% and 8% in FY 2004 and FY 2005, respectively, but rebounded to 12% and 13% in FY 2006 and FY 2007. The FY 2007 ratio is the highest in UA’s 6-year reporting period, indicating increasing operating flexibility. Explained differently, at June 30, 2007, ASU had approximately 6 weeks of spending coverage, the same as at prior year-end. NAU had approximately 11 weeks of spending coverage at June 30, 2007, up from 8 weeks at prior yearend. UA had approximately 6-1/2 weeks of spending coverage at June 30, 2007, up from 6 weeks of coverage at prior year-end. This ratio, as is the case for all ratios in this analysis, is valid as of June 30, 2007, only. The universities are “going concerns” and, therefore, can expect to receive additional revenues in subsequent years. Page 13 of 19 Ratio 9 Description of Ratio Debt Service Payments (Interest + Principal) Total Expenses Element definition: Debt Service Payments include the interest and principal payments for the university’s System Revenue Bonds (SRBs) and Certificates of Participation (COPs). Total Expenses include operating, nonoperating, and other expenses and losses. FY 2007 RATIOS ASU 5% NAU 7% UA 5% This ratio measures the burden of debt service payments relative to, or as a proportion of, overall expenses of the university. This is one of the key ratios considered by rating agencies to determine ratings for SRBs and COPs. Rating agencies generally view 10% or less as a significant indicator of satisfactory creditworthiness, thus allowing debt instruments to be sold at more favorable interest rates. At June 30, 2007, all three universities are well within the acceptable debt ratio range and demonstrate that they have adequate resources to meet existing debt requirements. Moody’s and Standard & Poor’s bond ratings and outlooks remain unchanged from prior year-end for all three universities. ASU’s FY 2007 debt ratio of 4.5% increased slightly over its 4.2% ratio in FY 2006 and remained in the 3-4% range during this 6-year reporting period. NAU’s FY 2007 debt ratio of 6.5% remains relatively unchanged from its prior year ratio of 6.2% but is at its highest point in this 6-year reporting period. UA’s FY 2007 debt ratio of 5% remained unchanged from the prior year and has remained in the 4-5% range over the 6-year reporting period. All three universities anticipate significant increases in this ratio beginning in FY 2008 when debt service payments, funded by State General Fund Appropriations, begin for newly constructed research facilities. Page 14 of 19 Ratio 10 Description of Ratio Total Financial Resources (University + Component Units) Direct Debt (University + Component Units) Element definition: Total Financial Resources include restricted and unrestricted expendable and nonexpendable net assets of the university, plus permanently and temporarily restricted and unrestricted net assets of the component units, excluding net property and equipment of the component units. Direct Debt is the total outstanding capital debt of the university and its component units. Reporting of financial data for component units is required under GASB 39 beginning with FY 2004 financial statements. FY 2007 RATIOS ASU 47% NAU 47% This ratio measures coverage of debt by all resources available to the university, including those of its component units. A larger percentage UA indicates the availability of more resources to cover total university and 102% component unit debt. ASU’s ratio rebounded to 47% in FY 2007 from a steady decline from 57% to 39% in the first 3 years of this 4-year reporting period, indicating an increase in total resources of the university and its component units to cover total university and component unit debt. NAU’s ratio rebounded to 47% from a steady decline from 66% to 39% in the prior 3 years, also indicating an increase in total resources of the university and its component units to cover total university and component unit debt. UA’s FY 2007 ratio of 102% continued its steady increase from 78% in FY 2004, indicating the increasing availability of university and component unit resources to pay total university and component unit debt. Explained differently, at June 30, 2007, ASU had sufficient financial resources to pay 47% of the total debt of the university and component units, down from 57% at June 30, 2004. NAU had sufficient financial resources to pay 47% of the total debt of the university and component units, down from 66% at June 30, 2004. UA had sufficient financial resources to pay 102% of the total debt of the university and component units, up from 78% at June 30, 2004. These percentages for all three universities indicate an ability to repay all outstanding debt without undue financial hardship. This ratio, as is the case for all ratios in this analysis, is valid as of June 30, 2007, only. The universities are “going concerns” and, therefore, payment of the total direct debt is not required as of June 30, 2007, but will be paid off over time. Page 15 of 19 Page 16 of 19 Total financial resources (unrestricted and restricted - expendable and nonexpendable - net assets of the Univ, plus permanently and temporarily restricted and unrestricted net assets of the component units, less net property and equipment of the component units) Total direct debt (total outstanding capital debt of the Univ and component units) Debt service payments (interest payments per SRECNA and principal payments per cash flow) Total Expenses (operating, nonoperating and other expenses and losses) Ratio 9 University only Ratio 10 University and component units Unrestricted net assets Total Expenses (operating, nonoperating and other expenses and losses) Expendable Net Assets (Unrestricted and expendable restricted net assets) Total Expenses (operating, nonoperating and other expenses and losses) Ratio 8 University only Ratio 7 University only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Auxiliary enterprises revenues, investment income, and all other revenues (operating and nonoperating) not in the other revenue categories. Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 4 University only Ratio 6 University and component units Gifts, additions to endowments, grants, contracts, and state sales tax share (technology and research initiatives funding)- (Operating/Nonoperating/Capital) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 3 University only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Tuition and Fees, net of scholarship allowance Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 2 University only Ratio 5 University only State general fund appropriations Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 1 Univesity only FINANCIAL RATIO FORMULAS Page 17 of 19 846 207 24.3% 206 846 36.9% 312 846 2003 ASU only ASU only ASU only ASU and component units Total financial resources , net Direct debt Debt Service Payments (int & princ) Total Expenses 3.4% 27 789 15.2% 120 789 Total expenses 23.6% 186 789 Unrestricted net assets Expendable Net Assets Total Expenses 4.3% 36 839 15.6% 839 131 21.9% 184 839 56.6% 444 784 3.1% 29 933 16.1% 40.8% 444 1,087 3.1% 33 1,048 15.3% 160 1,048 933 20.6% 216 1,048 3.2% 1,182 38 -0.4% (4) 1,044 14.6% 1,044 152 24.3% 1,044 254 28.9% 302 1,044 32.2% 336 1,044 2005 150 22.8% 213 933 3.1% 32 0.2% 2 935 1,036 0.8% 7 846 16.0% 935 150 Net Revenues 5.3% 44 833 14.3% 846 121 23.4% 935 219 27.1% 253 935 33.5% 313 935 2004 Total Revenues Net Revenues Total Revenues 13.4% Total Revenues ASU and component units ASU only ASU only 112 833 Other Revenues ASU only. 25.5% 24.5% TRIF - Technology & initiative research fund. ASU's share of the state education sales tax. 212 833 Total Revenues 22.6% Gifts, Grants & Contracts, and TRIF Revenue ASU only 188 833 38.5% ASU only. Fiscal 2007 includes $7 million in building renewal (capital) appropriations. Net Tuition and Fees Revenue Total Revenues 321 833 2002 State General Fund Appropriations Total Revenues ASU Financial Services 10 9 8 7 6 5 4 3 2 1 Ratio ARIZONA STATE UNIVERSITY Financial Ratios for Fiscal Years: 2002 to 2007 (dollars in millions) 39.1% 478 1,224 4.2% 49 1,166 12.4% 1,166 145 17.8% 208 1,166 9.4% 1,400 131 0.5% 6 1,172 14.9% 1,172 175 23.8% 1,172 279 29.8% 349 1,172 31.5% 369 1,172 2006 46.5% 600 1,289 4.5% 59 1,311 11.8% 1,311 155 17.7% 232 1,311 9.6% 1,602 153 3.5% 47 1,358 16.9% 1,358 229 22.0% 1,358 299 29.5% 400 1,358 31.7% 430 1,358 2007 12/07/2007 Page 18 of 19 NAU Comptroller 10 9 8 7 6 5 4 3 2 1 271 67 19.6% 53 271 41.0% 111 271 2003 Total financial resources , net Direct debt Debt Service Payments (int & princ) Total Expenses Total expenses Unrestricted net assets NAU and component units NAU only NAU only NAU only Expendable Net Assets Total Expenses 4.1% 11 267 9.7% 267 26 17.2% 46 267 5.2% 14 269 10.8% 269 29 23.0% 62 269 66.0% 95 144 5.4% 15 279 13.3% 279 37 18.6% 52 279 6.2% 19 5.1% 15 294 13.6% 305 0.7% 2 271 14.8% 40 294 Net Revenues -1.1% (3) 264 40 271 24.1% 294 71 24.1% 71 294 38.1% 112 294 2004 Total Revenues Net Revenues Total Revenues 14.0% Total Revenues NAU and component units NAU only NAU only 37 264 Other Revenues NAU only 24.2% 24.8% TRIF - Technology & initiative research fund. NAU's share of the state education sales tax. 64 264 Total Revenues 19.3% Gifts, Grants & Contracts, and TRIF Revenue NAU only 51 264 42.4% NAU only. Fiscal 2007 includes $2.6 million in building renewal (capital) appropriations. Net Tuition and Fees Revenue Total Revenues 112 264 2002 State General Fund Appropriations Total Revenues Ratio NORTHERN ARIZONA UNIVERSITY Financial Ratios for Fiscal Years: 2002 to 2007 (dollars in millions) 49.8% 108 217 6.3% 18 287 15.7% 287 45 22.3% 64 287 8.4% 333 28 7.7% 24 311 12.9% 311 40 24.4% 311 76 23.8% 74 311 37.9% 118 311 2005 38.8% 107 276 6.2% 20 321 14.6% 321 47 20.9% 67 321 4.7% 344 16 3.0% 10 332 15.4% 332 51 22.3% 332 74 24.7% 82 332 37.7% 125 332 2006 46.7% 140 300 6.5% 22 341 20.8% 341 71 26.7% 91 341 11.3% 416 47 7.1% 26 367 15.3% 367 56 22.6% 367 83 24.3% 89 367 38.1% 140 367 2007 12/07/2007 Page 19 of 19 396 997 Total Revenues 14% 140 997 33% 329 997 Gifts, Grants & Contracts, and TRIF Revenue Net Tuition and Fees Revenue Total Revenues State General Fund Appropriations Total Revenues 2002 Total financial resources , net Direct debt Debt Service Payments (int & princ) Total Expenses 978 Total expenses 5% 46 978 12% 120 24% Unrestricted net assets UA and component units UA only UA only UA only 232 978 4% 46 1,049 12% 1,049 121 21% 222 1,049 78% 628 808 4% 48 1,134 9% 1,134 107 18% 204 1,134 4% 49 1% 15 1,149 14% 1,149 166 1,244 3% 34 1,083 13% 1,083 146 43% 1,149 493 15% 173 1,149 28% 317 1,149 2004 Net Revenues 2% 19 997 13% 997 127 43% 1,083 463 14% 150 1,083 30% 324 1,083 2003 Total Revenues Net Revenues Total Revenues Total Revenues Expendable Net Assets Total Expenses UA and component units UA only UA only Other Revenues UA only 40% TRIF - Technology & initiative research funding. UA's share of the state education sales tax. UA only UA only UA Financial Services 10 9 8 7 6 5 4 3 2 1 Ratio THE UNIVERSITY OF ARIZONA Financial Ratios for Fiscal Years: 2002 to 2007 (dollars in millions) 90% 707 789 5% 54 1,190 8% 1,190 101 17% 207 1,190 5% 1,311 66 1% 13 1,204 15% 1,204 177 42% 1,204 511 15% 182 1,204 28% 334 1,204 2005 94% 806 854 5% 58 1,262 12% 1,262 150 22% 272 1,262 5% 1,295 63 2% 32 1,295 17% 1,295 221 40% 1,295 523 15% 193 1,295 28% 358 1,295 2006 102% 896 878 5% 69 1,323 13% 1,323 166 23% 299 1,323 8% 1,385 124 4% 62 1,385 18% 1,385 248 38% 1,385 527 15% 210 1,385 28% 390 1,385 2007 12/07/2007 846 207 24.3% 206 846 36.9% 312 846 2003 ASU only ASU only ASU only ASU and component units Total financial resources , net Direct debt Debt Service Payments (int & princ) Total Expenses 3.4% 27 789 15.2% 120 789 Total expenses 23.6% 186 789 Unrestricted net assets Expendable Net Assets Total Expenses 4.3% 36 839 15.6% 839 131 21.9% 184 839 56.6% 444 784 3.1% 29 933 16.1% 40.8% 444 1,087 3.1% 33 1,048 15.3% 160 1,048 933 20.6% 216 1,048 3.2% 1,182 38 -0.4% (4) 1,044 14.6% 1,044 152 24.3% 1,044 254 28.9% 302 1,044 32.2% 336 1,044 2005 150 22.8% 213 933 3.1% 32 0.2% 2 935 1,036 0.8% 7 846 16.0% 935 150 Net Revenues 5.3% 44 833 14.3% 846 121 23.4% 935 219 27.1% 253 935 33.5% 313 935 2004 Total Revenues Net Revenues Total Revenues 13.4% Total Revenues ASU and component units ASU only ASU only 112 833 Other Revenues ASU only. 25.5% 24.5% TRIF - Technology & initiative research fund. ASU's share of the state education sales tax. 212 833 Total Revenues 22.6% Gifts, Grants & Contracts, and TRIF Revenue ASU only 188 833 38.5% ASU only. Fiscal 2007 includes $7 million in building renewal (capital) appropriations. Net Tuition and Fees Revenue Total Revenues 321 833 2002 State General Fund Appropriations Total Revenues ASU Financial Services 10 9 8 7 6 5 4 3 2 1 Ratio ARIZONA STATE UNIVERSITY Financial Ratios for Fiscal Years: 2002 to 2007 (dollars in millions) 39.1% 478 1,224 4.2% 49 1,166 12.4% 1,166 145 17.8% 208 1,166 9.4% 1,400 131 0.5% 6 1,172 14.9% 1,172 175 23.8% 1,172 279 29.8% 349 1,172 31.5% 369 1,172 2006 46.5% 600 1,289 4.5% 59 1,311 11.8% 1,311 155 17.7% 232 1,311 9.6% 1,602 153 3.5% 47 1,358 16.9% 1,358 229 22.0% 1,358 299 29.5% 400 1,358 31.7% 430 1,358 2007 12/07/2007 ASU Financial Services Ratio 10 Debt service payments (interest payments per SRECNA and principal payments per cash flow) Total Expenses (operating, nonoperating and other expenses and losses) Unrestricted net assets Total Expenses (operating, nonoperating and other expenses and losses) Expendable Net Assets (Unrestricted and expendable restricted net assets) Total Expenses (operating, nonoperating and other expenses and losses) Total financial resources (unrestricted and restricted - expendable and nonexpendable - net assets of the Univ, plus permanently and temporarily restricted and unrestricted net assets of the component units, less net property and equipment of the component units) Total direct debt (total outstanding capital debt of the Univ and component units) Ratio 9 ASU and component units Ratio 8 ASU only Ratio 7 ASU only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Auxiliary enterprises revenues, investment income, and all other revenues (operating and nonoperating) not in the other revenue categories. Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 4 ASU only Ratio 6 ASU and component units Gifts, additions to endowments, grants, contracts, and state sales tax share (technology and research initiatives funding)- (Operating/Nonoperating/Capital) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 3 ASU only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Tuition and Fees, net of scholarship allowance Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 2 ASU only Ratio 5 ASU only State general fund appropriations Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 1 ASU only ARIZONA STATE UNIVERSITY Financial Ratios Formulas 12/07/2007 12/07/2007 ARIZONA STATE UNIVERSITY FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 Issue. The purpose of this analysis is to assist the Arizona Board of Regents (ABOR) in evaluating the financial position of Arizona State University (ASU) as of June 30, 2007. Beginning with fiscal 2002 the three Arizona universities governed by the ABOR adopted the Governmental Accounting Standards Board (GASB) Statement No. 35 financial reporting model, as required by the GASB. The financial ratios that accompany this report were prepared for the six years covered by the GASB 35 reporting model. In fiscal 2004 the Universities adopted GASB No. 39 which required that information regarding each University’s component units be included in the University’s financial report. Therefore, in instances where information from the Universities’ component units is used in a ratio, only four years of financial information is presented. Discussion. The Financial Statement Analysis for ASU addresses the following four questions through the presentation of pertinent financial ratios: 1. How has the composition of ASU’s revenue changed over the period fiscal 2002 through 2007? (Ratios 1 – 4) Graph A shows the overall ASU revenue trends over the last six years. • Ratio 1 – State General Fund Appropriations Revenue as a Percentage of Total Revenues. (Graph B) During this period the percentage of general fund appropriations to total revenues has decreased each year until fiscal 2007. In fiscal 2007, ASU received $6.5 million in state capital (building renewal) appropriations, which are included in Ratio 1, and caused a small increase in state appropriations as a percent of total revenues. If this capital appropriation had not been received in fiscal 2007, then state appropriations would have comprised approximately 31.3% of total revenues, a slight decrease from the fiscal 2006 percentage of 31.5%. If the trend of declining state appropriations as a percent of total revenues continues at its current rate, it is expected general fund appropriations will constitute less than 30% of ASU’s total funding sources within the next few years. During the six year period reported, the percentage of general fund appropriations revenues to total revenues has declined from 38.5% in fiscal 2002 to 31.7% in fiscal 2007. State appropriations dollars have increased by $118 million, or a percentage increase of 38% during this period, from $312 million in fiscal 2003 to $430 million in fiscal 2007. • Ratio 2 – Net Tuition and Fees Revenue as a Percentage of Total Revenues. (Graph C) During this period the percentage of net tuition and fees revenues to total ASU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 1 ASU FINANCIAL SERVICES 12/07/2007 revenues has increased from a low of 22.6% in fiscal 2002 to 29.5% in fiscal 2007. Fiscal 2007 showed a slight decrease from the fiscal 2006 percentage of tuition and fees to total revenues percentage of 29.8%. Although ASU has increased its tuition rate each of these years, those increases have not resulted in a decline in student enrollment. Increases in tuition have allowed the University to enhance instructional programs that have not received incremental increases in state appropriations funding. The University has also used increased tuition and fees revenues to provide increased financial aid programs funding. Total net tuition and fees revenues have increased by $212 million during this period, from $188 million in fiscal 2002 to $400 million in fiscal 2007 resulting in a 113% percentage increase during the six year period being reported. • Ratio 3 – Gifts, Grants, Contracts, and TRIF Revenues as a Percentage of Total Revenues. (Graph D) The percentage reflected by this ratio has shown only a slight fluctuation during the six year reporting period from a high of 25.5% in fiscal 2002 to a low of 22.0% in fiscal 2007. Total gifts, grants, contracts, and TRIF dollars increased during this period by $87 million from $212 million in fiscal 2002 to $299 million in fiscal 2007. There has been a 41% percentage increase in this revenue source during the reporting period. Included in the fiscal 2002 revenues was a $20 million capital gift of historic printing presses to the University. The inclusion of this large gift somewhat skews the percent and dollar increases during this time period. With the completion of several major new research facilities in fiscal 2006, including Biodesign Institute Building B and Interdisciplinary Science and Technology Buildings I, II, and III, ASU anticipates over the long run that the grants and contracts revenue source will noticeably increase, both in total dollars and as a percentage of total revenues. • Ratio 4 – Other Revenues as a Percentage of Total Revenues. (Graph E) Other revenues include auxiliary enterprises revenues, net investment income, and educational department sales and services revenues. This revenue source has remained relatively steady for the time period reported with an overall fluctuation of 3.5% between the low of 13.4% in fiscal 2002 to a high of 16.9% in fiscal 2007. In fiscal 2004 ASU recorded a $9.9 million gain on sale of land which was included in this revenue category causing a slight increase in other revenues as a percentage of total revenues for fiscal 2004. In fiscal 2007 ASU recorded a gain on sale of land of $18.6 million and a $3.8 million conveyance of property, which resulted in a greater fluctuation between years in this category than would have otherwise occurred. In dollar totals, auxiliary enterprises revenues, the largest funding source in this category, have increased from $86 million in fiscal 2002 to $118 million in fiscal 2007, a 37% percentage ASU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 2 ASU FINANCIAL SERVICES 12/07/2007 increase. Sales and services of educational departments, which includes conference and seminar registration fees for ASU sponsored events, have increased from $18 million to $46 million during this reporting period, a reflection of steps taken by many departments to increase their revenue base. • Total Revenue Composition. (Ratios 1 – 4). (Graph F) Over the six year reporting period ASU has experienced a relative decline (on a percentage basis) of the support it receives directly from the State Legislature through general fund appropriations. The percentage of general fund appropriations as a percentage of total revenues has declined from approximately 39% in fiscal 2002 to approximately 32% in fiscal 2007. This decline in state general fund support has been primarily supplemented by increased student tuition and fees, increasing as a percentage of total revenues from 23% in fiscal 2002 to 29% in fiscal 2007. Total University revenues have increased from $833 million in fiscal 2002 to $1,358 million in fiscal 2007, a 63% percentage increase. Although the University anticipates state general fund appropriations will continue to decline as a percentage of total revenues, it is expected in future years this decline will be caused by increased tuition and fees revenues, and grants and contracts activity. 2. Is ASU living within its available resources? (Ratios 5 and 6) (Graphs G and H) The ratio of net revenues to total revenues (Ratio 5) for ASU ranges from a low of negative 0.4% in fiscal 2005 to a high of 5.3% in fiscal 2002. Typically it is desired for this ratio to be positive. Although ASU has not sustained a positive, growing ratio over time, it has been essentially break even during this reporting period, which has been a time of growth for many programs and facilities. This means that ASU has been able, for the most part, to generate sufficient revenues to meet its operational needs on a year to year basis. Between fiscal 2006 and fiscal 2007 this indicator increased from 0.5% to 3.5%, partially due to the land sale proceeds that were received at the end of the fiscal year. Ratio 6 shows this same ratio, but includes the net revenues and total revenues of ASU’s component units, in addition to those of ASU. The trend of this ratio shows very positive results, and in fact shows a positive and increasing ratio for the four years reported. 3. Have expendable net assets kept pace with expenses? (Ratios 7 and 8) (Graphs I and J) The ratio of expendable (restricted and unrestricted) net assets to total expenses over the six years ranges between 23.6% in fiscal year 2002 to 17.7% in fiscal year 2006, with an average of 20.7%. This ratio measures the financial strength ASU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 3 ASU FINANCIAL SERVICES 12/07/2007 of the University by indicating the percentage of useable net assets at the end of the year to total expenses. The percentage of 17.7% indicates the University has approximately nine weeks of annual spending available from end year expendable net assets. This could limit ASU’s ability to respond to any emergencies or unforeseen needs. This ratio is further limited in Ratio 8 by looking at only unrestricted net assets. With this limitation, the University had approximately six weeks of spending coverage at the end of fiscal 2007, down from eight weeks of coverage in fiscal 2005. 4. Can ASU repay its incurred debt? (Ratios 9 and 10) (Graphs K and L) The ratio of debt service payments to total expenses is useful in determining possible future bond ratings. A ratio of debt service payments to expenses of no more than 10% is desirable. The fiscal 2007 debt service ratio for ASU was 4.5%, well within the acceptable range. This percentage is, however, expected to increase in future years as debt service payments begin to increase. Given the current structure of existing and planned debt service payments, this expected increase will be noticeable in fiscal 2008, when the research infrastructure debt service payments, funded by state appropriations, will begin. Total financial resources to direct debt for ASU and its component units (Ratio 10) is a broader measure of the ability of ASU and its component units to cover debt as of the end of the fiscal year. Although the ratio has declined over the four year period reported, the fiscal 2007 ratio of 46.5% shows a marked increase from the fiscal 2006 ratio of 39.1%, and reflects the ability of ASU and its component units to repay all outstanding debt without undue financial hardship. Summary. The analysis of ASU’s financial position shows: • There is the continued trend at ASU towards an increasing reliance on revenue sources other than state general fund appropriations. State appropriations have not kept pace proportionally with overall University revenues. State general fund appropriations revenues as a percentage of total revenues have declined over the six year period covered by these ratios. In the years reported on this schedule, this decline in state support has been offset by increases in net tuition and fees. In looking to the future, the University anticipates grants and contracts revenues to become a more significant revenue source due to new research facilities recently opened, and other commitments being made in the research area. • ASU generated relatively small or essentially break-even net revenues each year. Although ASU’s total revenues increased by approximately $525 million ASU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 4 ASU FINANCIAL SERVICES 12/07/2007 between fiscal 2002 and fiscal 2007, its net revenues over this period have varied from a low of negative $4 million to a high of $47 million. However, when the net revenues of the components units are included, there has been noticeable growth in net revenues over the reporting period. • Given its relatively small net revenues in any given year, the University has a more limited ability to react to emergencies or unforeseen needs. • Based on the debt ratios reported, ASU, as well as its component units, can repay current levels of debt and has the capacity for future additional debt financings. ASU anticipates issuing approximately $136 million in new debt during fiscal 2008. In addition, approximately $160 million of debt has been issued or is planned to be issued by the component units during fiscal 2008. Conclusion. As the trend toward reduced state appropriations continues, the University must have additional resources to meet their ongoing operational and capital needs. These additional resources for the years reported on were primarily tuition and fees generated from increases in undergraduate and graduate, resident and non resident tuition and fees, and to a lesser extent enrollment increases. ASU’s financial position has remained essentially the same during the last six years, having neither significantly worsened nor improved. The debt capacity ratio (Ratio 9) as reported is not indicative of the long-term since it does not include principal payments on recently issued debt financings or capital leases, since those payments are structured to begin in future years, most noticeably in fiscal 2008. ASU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 5 ASU FINANCIAL SERVICES Fiscal Years 2002 - 2007 (Based on Financial Ratios Presented to the Arizona Board of Regents) Financial Graphs 12/07/2007 25% $ $- $500 $1 000 $1,000 $1,500 13% 2002 23% 2003 39% 2005 Other 22% 2006 ASU Financial Services Grants & Gifts Tuition & Fees St t A State Apprn Fiscal 2002 2004 ((Dollars in Millions)) 2007 17% Fiscal Years 2002 - 2007 ASU REVENUE TRENDS 29% 32% Other 2 Grants & Gifts Tuition & Fees State Apprn Fiscal 2007 State Apprn Tuition & Fees Grants & Gifts Other Graph A 12/07/2007 0% 10% 20% 30% 40% 50% 2002 38.5% 2003 36.9% 32.2% 2005 ASU Financial Services 2004 33.5% Fiscal Years 2002 - 2007 2006 31.5% State General Fund Appropriations Revenue as a Percentage of Total Revenues (Ratio 1) ASU 2007 31.7% 3 Graph B 12/07/2007 0% 10% 20% 30% 40% 50% 2002 22.6% 2003 24.3% 2005 ASU Financial Services 2004 27.1% 28.9% Fiscal Years 2002 - 2007 2006 29.8% Net Tuition and Fees Revenue as a Percentage of Total Revenues (Ratio 2) ASU 2007 29.5% 4 Graph C 2002 25.5% 2003 24.5% 2004 23.4% 2005 24.3% 2006 23.8% 2007 22.0% 12/07/2007 ASU Financial Services 5 TRIF = Technology and Research Initiative Fund, and is ASU’s share of the state education sales tax. 0% 10% 20% 30% 40% 0% 50% Fiscal Years 2002 - 2007 Gifts, Grants & Contracts Gifts Contracts, and TRIF Revenues as a Percentage of Total Revenues (Ratio 3) ASU Graph D 2002 13 4% 13.4% 2003 14.3% 2004 16.0% 2005 14.6% 2006 14.9% 2007 16.9% 12/07/2007 ASU Financial Services 6 Other revenues primarily include auxiliary enterprises revenues, sales and services revenues of academic p , and net investment income. departments, 0% 10% 20% 30% 40% 50% Fiscal Years 2002 - 2007 Other Revenues as a Percentage of Total Revenues (Ratio 4) ASU Graph E 12/07/2007 0% 20% 40% 60% 80% 100% 37% 24% 25% 14% 34% 27% 23% 16% 32% 29% 24% 15% 31% 30% 24% 15% 32% 29% 22% 17% ASU Financial Services Other Revenues Gifts, Grants & Contracts, and TRIF Revenues Net Tuition and Fees Revenues S State General G Fund Appropriations Revenues 2002 2003 2004 2005 2006 2007 39% 23% 25% 13% Fiscal 2002 - 2007 ASU Total Revenue Composition (Ratios 1 - 4) 7 Graph F 12/07/2007 -2% 0% 2% 4% 6% 2002 2003 5.3% 0.8% ASU Financial Services 2004 2005 -0.4% ASU 0.2% 0.5% Fiscal Years 2002 - 2007 2006 3.5% Net Revenues to Total Revenues (Ratio 5) ASU 2007 8 Graph G 2004 3.2% 9 4% 9.4% 9.6% ASU Financial Services 2005 2006 ASU & ASU Component Units (including ASU Foundation) 3.1% 12/07/2007 Only 2004, 2005, and 2006 information is available. 0% 2% 4% 6% 8% 10% 12% Fiscal Years 2004 - 2007 2007 Net Revenues to Total Revenues (Ratio 6) (including ASU Foundation) ASU & ASU Component Units 9 Graph H 12/07/2007 0% 10% 20% 30% 2002 2004 ASU 22 8% 22.8% 2005 20.6% ASU Financial Services 21.9% 2003 23.6% 17.8% 2006 17.7% (Measures whether expendable net assets have kept pace with expenses.) Fiscal Years 2002 - 2007 Expendable Net Assets to Total Expenses (Ratio 7) ASU 2007 10 Graph I 12/07/2007 0% 5% 10% 15% 20% 2002 2003 15.2% 2004 ASU 16.1% 2005 15.3% ASU Financial Services 15 6% 15.6% 11.8% 2006 12.4% (Measures coverage of annual operations by most liquid resources.) Fiscal Years 2002 – 2007 Unrestricted Net Assets to Total Expenses (Ratio 8) ASU 2007 11 Graph J Graph K 12/07/2007 0% 2% 4% 6% 2002 2003 3 4% 3.4% 4.3% 2005 ASU Financial Services 2004 ASU 3.1% 3.1% 4.2% 2006 4.5% 2007 12 (Measures the burden of debt service payments (principal and interest) relative to overall expenses.) Fiscal Years 2002 – 2007 Debt Service Payments to Total Expenses (Ratio 9) ASU 40.8% 39.1% 46.5% 2004 ASU Financial Services 2005 2006 ASU & ASU Component Units (including ASU Foundation) 56 6% 56.6% 12/07/2007 Only 2004 , 2005, and 2006 information is available. 70% 60% 50% 40% 30% 20% 10% 0% (Measures coverage of debt by all available resources.) Fiscal Years 2004 - 2007 2007 Total Financial Resources to Direct Debt (Ratio 10) (including ASU Foundation) ASU and ASU Component Units 13 Graph L NAU Comptroller 10 9 8 7 6 5 4 3 2 1 271 67 19.6% 53 271 41.0% 111 271 2003 Total financial resources , net Direct debt Debt Service Payments (int & princ) Total Expenses Total expenses Unrestricted net assets NAU and component units NAU only NAU only NAU only Expendable Net Assets Total Expenses 4.1% 11 267 9.7% 267 26 17.2% 46 267 5.2% 14 269 10.8% 269 29 23.0% 62 269 66.0% 95 144 5.4% 15 279 13.3% 279 37 18.6% 52 279 6.2% 19 5.1% 15 294 13.6% 305 0.7% 2 271 14.8% 40 294 Net Revenues -1.1% (3) 264 40 271 24.1% 294 71 24.1% 71 294 38.1% 112 294 2004 Total Revenues Net Revenues Total Revenues 14.0% Total Revenues NAU and component units NAU only NAU only 37 264 Other Revenues NAU only 24.2% 24.8% TRIF - Technology & initiative research fund. NAU's share of the state education sales tax. 64 264 Total Revenues 19.3% Gifts, Grants & Contracts, and TRIF Revenue NAU only 51 264 42.4% NAU only. Fiscal 2007 includes $2.6 million in building renewal (capital) appropriations. Net Tuition and Fees Revenue Total Revenues 112 264 2002 State General Fund Appropriations Total Revenues Ratio NORTHERN ARIZONA UNIVERSITY Financial Ratios for Fiscal Years: 2002 to 2007 (dollars in millions) 49.8% 108 217 6.3% 18 287 15.7% 287 45 22.3% 64 287 8.4% 333 28 7.7% 24 311 12.9% 311 40 24.4% 311 76 23.8% 74 311 37.9% 118 311 2005 38.8% 107 276 6.2% 20 321 14.6% 321 47 20.9% 67 321 4.7% 344 16 3.0% 10 332 15.4% 332 51 22.3% 332 74 24.7% 82 332 37.7% 125 332 2006 46.7% 140 300 6.5% 22 341 20.8% 341 71 26.7% 91 341 11.3% 416 47 7.1% 26 367 15.3% 367 56 22.6% 367 83 24.3% 89 367 38.1% 140 367 2007 12/07/2007 ASU Financial Services Ratio 10 Debt service payments (interest payments per SRECNA and principal payments per cash flow) Total Expenses (operating, nonoperating and other expenses and losses) Unrestricted net assets Total Expenses (operating, nonoperating and other expenses and losses) Expendable Net Assets (Unrestricted and expendable restricted net assets) Total Expenses (operating, nonoperating and other expenses and losses) Total financial resources (unrestricted and restricted - expendable and nonexpendable - net assets of the Univ, plus permanently and temporarily restricted and unrestricted net assets of the component units, less net property and equipment of the component units) Total direct debt (total outstanding capital debt of the Univ and component units) Ratio 9 NAU and component units Ratio 8 NAU only Ratio 7 NAU only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Auxiliary enterprises revenues, investment income, and all other revenues (operating and nonoperating) not in the other revenue categories. Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 4 NAU only Ratio 6 NAU and component units Gifts, additions to endowments, grants, contracts, and state sales tax share (technology and research initiatives funding)- (Operating/Nonoperating/Capital) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 3 NAU only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Tuition and Fees, net of scholarship allowance Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 2 NAU only Ratio 5 NAU only State general fund appropriations Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 1 NAU only NORTHERN ARIZONA UNIVERSITY Financial Ratios Formulas 12/07/2007 12/07/2007 NORTHERN ARIZONA UNIVERSITY FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 Issue. The purpose of this analysis is to assist the Arizona Board of Regents (ABOR) in evaluating the financial position of Northern Arizona University (NAU) as of June 30, 2007. Beginning with fiscal 2002 the three Arizona universities governed by the ABOR adopted the Governmental Accounting Standards Board (GASB) Statement No. 35 financial reporting model, as required by the GASB. The financial ratios that accompany this report were prepared for the six years covered by the GASB 35 reporting model. In fiscal 2004 the Universities adopted GASB No. 39 which required that information regarding each University’s component units be included in the University’s financial report. Therefore, in instances where information from the Universities’ component units is used in a ratio, only four years of financial information is presented. Discussion. The Financial Statement Analysis for NAU addresses the following four questions through the presentation of pertinent financial ratios: 1. How has the composition of NAU’s revenue changed over the period fiscal 2002 through 2007? (Ratios 1 – 4) Graph A shows the overall NAU revenue trends over the last six years. • Ratio 1 – State General Fund Appropriations Revenue as a Percentage of Total Revenues. (Graph B) During the six year period reported, the percentage of general fund appropriations revenues to total revenues declined from 42.4% in fiscal 2002 to 37.7% in fiscal 2006, but rose slightly in fiscal 2007 to 38.1%. The ratio would have dropped very slightly to 37.5% in fiscal 2007 had the University not received a $2.6 million capital (building renewal) appropriation. State appropriations dollars have increased by $28 million, or a percentage increase of 25% during this period, from $112 million in fiscal 2002 to $140 million in fiscal 2007. • Ratio 2 – Net Tuition and Fees Revenue as a Percentage of Total Revenues. (Graph C) During this period the percentage of net tuition and fees revenues to total revenues has increased from a low of 19.3% in fiscal 2002 to 24.3% in fiscal 2007, with increases occurring each year being reported. Although NAU has increased its tuition rate each of these years, NAU has maintained a stable student enrollment. Increases in tuition have allowed the University to enhance instructional programs that have not received incremental increases in state appropriations funding. The University has also used increased NAU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 NAU COMPTROLLER 12/07/2007 tuition and fees revenues to provide increased financial aid programs funding. Total net tuition and fees revenues have increased by $38 million during this period, from $51 million in fiscal 2002 to $89 million in fiscal 2007 resulting in a percentage increase of 75% during the six year period being reported. • Ratio 3 – Gifts, Grants, Contracts, and TRIF revenues as a Percentage of Total Revenues. (Graph D) The percentage reflected by this ratio has shown only a slight fluctuation during the six year reporting period from a high of 24.2% in fiscal 2002 to 22.6% in fiscal 2007. Total gifts, grants, contracts, and Technology and Research Initiative Fund (TRIF) dollars increased during this period by $19 million from $64 million in fiscal 2002 to $83 million in fiscal 2007. This was a 30% increase in this revenue source during the reporting period. With the completion of several major new research facilities in fiscal 2007, including the Applied Research and Development Building, College of Engineering expansion, and new laboratory Buildings, NAU anticipates the grants and contracts revenue source to continue to increase over the next few years, both in total dollars and as a percentage of total revenues. • Ratio 4 – Other Revenues as a Percentage of Total Revenues. (Graph E) Other revenues include auxiliary enterprises revenues, net investment income, and educational department sales and services revenues. This revenue source has fluxuated over the time period reported in dollar amounts between $37 million in 2002 to $56 million in 2007. The percentage change varied from 14.0% in 2002 to 15.3% of total revenues in fiscal 2007. In dollar totals, auxiliary enterprises revenues accounted for a large amount of the increase from a total of $28 million in fiscal 2002 to $39 million in fiscal 2007, a 40% percentage increase over the six year period. Another significant portion of other revenues is investment income which increased from $1 million in 2002 to almost $9 million in 2007. Investment income has increased as the University has become more fiscally strong in the past 5 years resulting in more available dollars to invest. • Total Revenue Composition. (Ratios 1 – 4). (Graph F) Although the percentage has leveled off in fiscal 2007 at 38.1%, over the six year reporting period NAU has experienced a steady decline (on a percentage basis) of the support it receives directly from the State Legislature through general fund appropriations. The percentage of general fund appropriations as a percentage of NAU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 NAU COMPTROLLER 12/07/2007 total revenues declined from approximately 42.4% in fiscal 2002 to approximately 38% in fiscal 2007. This decline in state general fund support has been primarily supplemented by increased student tuition and fees, increasing as a percentage of total revenues from 19.3% in fiscal 2002 to 24.3% in fiscal 2007. Total University revenues have increased from $264 million in fiscal 2002 to $367 million in fiscal 2007, a 39% increase. Although the University anticipates state general fund appropriations will continue to decline as a percentage of total revenues, it is expected in future years this decline will be caused by an overall increase in the University’s revenue base. The increase in the overall revenue base is expected to include increased grants and contracts activity, auxiliary revenues, and tuition. 2. Is NAU living within its available resources? (Ratios 5 and 6) (Graphs G and H) The ratio of net revenues to total revenues (Ratio 5) for NAU ranges from a negative 1.1% in fiscal 2002 to 7.1% in fiscal 2007. NAU has sustained a positive, growing ratio over this period with increasing revenues and balanced budgets. NAU generated significant overall net asset increases of $15 million in 2004, $24 million in 2005, $10.0 in 2006, and an increase of $26 million in 2007. This ratio demonstrates NAU’s commitment to a balanced budget and to building reserves. A significant portion of these monies will be used to address outfitting and operating all of the new buildings on campus including the research infrastructure buildings. Ratio 6 shows this same ratio, but includes the net revenues and total revenues of NAU’s component units, in addition to those of NAU. The trend of this ratio fluxuates over time but continues to be positive. 3. Have expendable net assets kept pace with expenses? (Ratios 7 and 8) (Graphs I and J) The ratio of expendable (restricted and unrestricted) net assets to total expenses over the six years ranges between 17.2% in fiscal year 2002 to 26.7% in fiscal year 2007, with an average of 21%. This ratio measures the financial strength of the University by indicating the percentage of useable net assets at the end of the year to total expenses. The percentage of 26.7% indicates the University has approximately fourteen (14) weeks of annual spending available from year end expendable net assets. This is up from eleven (11) weeks reported at the end of fiscal 2006. This quantifies NAU’s ability to respond to any emergencies or unforeseen needs. NAU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 NAU COMPTROLLER 12/07/2007 This ratio is further limited in Ratio 8 by looking at only unrestricted net assets. With this limitation, the University had approximately eleven (11) weeks of spending coverage at the end of fiscal 2007 an increase from the eight (8) weeks reported in fiscal 2006. 4. Can NAU repay its incurred debt? (Ratios 9 and 10) (Graphs K and L) The ratio of debt service payments to total expenses is useful in determining possible future bond ratings. A ratio of debt service payments to expenses of no more than 10% is desirable. The fiscal 2007 debt service ratio for NAU was 6.5%, well within the acceptable range. This percentage is, however, expected to increase in future years as debt service payments begin to increase. Given the current structure of existing and planned debt service payments, this expected increase will be noticeable in fiscal 2008. Total financial resources to direct debt for NAU and its component units (Ratio 10) is a broader measure of the ability of NAU and its component units to cover debt as of the end of the fiscal year. Although the ratio has declined over the three year period from 2004 to 2006, the ratio increased in fiscal 2007 to 46.7%. This ratio reflects the ability of NAU and its component units to repay all outstanding debt without undue financial hardship. Summary. The analysis of NAU’s financial position shows: • There is the continued trend at NAU towards an increasing reliance on revenue sources other than state general fund appropriations. State appropriations have not kept pace proportionally with overall University revenues. State general fund appropriations revenues as a percentage of total revenues have declined five of the six years included in these ratios. In the years reported on this schedule, this decline in state support has been offset by increases in net tuition and fees and other revenues. In looking to the future, the University anticipates grants and contracts revenues to become a more significant revenue source due to new research facilities recently opened. The University also expects auxiliary revenues and tuition to increase as planned enrollment grows. The University experienced its highest level of enrollment in the fall 2007 semester following a record breaking fall 2006 and is working to continue that trend. The University has opened student housing that is in high demand, construction of a new student housing facility has begun, and expansion of dining facilities is underway. All of these factors are expected to impact revenue trends in a positive way. NAU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 NAU COMPTROLLER 12/07/2007 • NAU has generated increasing net revenues over the past few years. NAU total revenues increased by approximately $103 million between fiscal 2002 and fiscal 2007. Over the same period, the University has controlled expenditures and balanced its budget each year resulting in increased financial stability. • NAU enrollment continues to improve with positive trends. • Due to its increases in net revenues in the past few years, the University has a stable ability to react to emergencies or unforeseen needs. • Based on the debt ratios reported, NAU, as well as its component units, can repay current levels of debt and has the capacity for future additional debt financings. NAU anticipates issuing approximately $67 million of new debt during fiscal 2008 Conclusion. As the trend toward reduced state appropriations continues, the University must have additional resources to meet their ongoing operational and capital needs. These additional resources for the years reported were primarily tuition and fees generated from increases in undergraduate and graduate, resident and non resident tuition and fees. NAU’s financial position has vastly improved over the last six years. NAU has delayed principal payments on recent debt issues in order to better match its debt service obligations with related revenues to be generated. The debt capacity ratio (Ratio 9) as reported is not indicative of the long term since it does not include principal payments on recently issued debt financings or capital leases, since those payments are structured to begin in future years, most noticeably in fiscal 2008 when the University begins receiving the $5.9 million appropriation for research infrastructure projects. NAU FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 NAU COMPTROLLER 12/07/2007 NAU Comptroller Fiscal Years 2002 - 2007 (Based on Financial Ratios Presented to the Arizona Board of Regents) Financial Graphs 1 14% 2002 12/07/2007 24% $- $100 $200 $300 $400 19% 2003 43% Other Grants & Gifts 23% 2006 NAU Comptroller 2005 Tuition & Fees State Apprn Fiscal 2002 2004 24% 2007 15% Fiscal Years 2002 - 2007 (Dollars in Millions) NAU REVENUE TRENDS 38% Other 2 Grants & Gifts Tuition & Fees State Apprn Fiscal 2007 State Apprn Tuition & Fees Grants & Gifts Other Graph A 12/07/2007 0% 10% 20% 30% 40% 50% 2002 42.4% 2003 41.0% NAU Comptroller 2004 38.1% 2005 37.9% Fiscal Years 2002 - 2007 2006 37.7% State General Fund Appropriations Revenue as a Percentage of Total Revenues (Ratio 1) NAU 2007 38.1% 3 Graph B 12/07/2007 0% 10% 20% 30% 40% 50% 2002 19.3% 2003 19.6% NAU Comptroller 2004 24.1% 2005 23.8% Fiscal Years 2002 - 2007 2006 24.7% Net Tuition and Fees Revenue as a Percentage of Total Revenues (Ratio 2) NAU 2007 24.3% 4 Graph C 2002 24.2% 2003 24.8% 2004 24.1% 2005 24.4% 2006 22.3% 2007 22.6% 12/07/2007 NAU Comptroller 5 TRIF = Technology and Research Initiative Funding, and is NAU’s share of the state education sales tax. 0% 10% 20% 30% 40% 0% 50% Fiscal Years 2002 - 2007 Gifts, Grants & Contracts Gifts Contracts, and TRIF Revenues as a Percentage of Total Revenues (Ratio 3) NAU Graph D 2002 14.0% 2003 14.8% 2004 13.6% 2005 12.9% 2006 15.4% 2007 15.3% 12/07/2007 NAU Comptroller 6 Other revenues primarily include auxiliary enterprises revenues, sales and services revenues of academic departments and net investment income. 0% 10% 20% 30% 40% 50% Fiscal Years 2002 - 2007 Other Revenues as a Percentage of Total Revenues (Ratio 4) NAU Graph E 12/07/2007 0% % 20% 40% 60% 80% 100% 41% 19% 25% 15% 38% 24% 24% 14% 38% 24% 25% 13% 38% 25% 22% 15% 38% 24% 23% 15% NAU Comptroller Other Revenue Gifts, Grants & Contracts, and TRIF Revenue N tT Net Tuition iti and dF Fees Revenue R State General Fund Appropriations Revenues 2002 2003 2004 2005 2006 2007 43% 19% 24% 14% Fiscal 2002 - 2007 NAU University Total Revenue Composition (Ratios 1 - 4) 7 Graph F 12/07/2007 -2% 2% 1% 3% 5% 7% 9% 2002 -1.1% 2003 0 7% 0.7% NAU Comptroller 2004 NAU 5.1% 2005 7.7% 3.0% Fiscal Years 2002 - 2007 2006 7.1% Net Revenues to Total Revenues (Ratio 5) NAU 2007 8 Graph G 6.2% 8 4% 8.4% 4 7% 4.7% 11.3% 2004 2005 NAU Comptroller 2006 NAU Component Units (including NAU Foundation) 12/07/2007 Only 2004-2007 information is available. 0% 2% 4% 6% 8% 10% Fiscal Years 2004 - 2007 2007 Net Revenues to Total Revenues (Ratio 6) (including NAU Foundation) NAU Component Units 9 Graph H 12/07/2007 0% 10% 20% 30% 2002 17.2% 2003 2004 NAU 18.6% NAU Comptroller 23.0% % 2005 22.3% 20.9% 2006 26.7% (Measures whether expendable net assets have kept pace with expenses.) Fiscal Years 2002 - 2007 Expendable Net Assets to Total Expenses (Ratio 7) NAU 2007 10 Graph I 12/07/2007 0% 5% 10% 15% 20% 2002 2003 9 7% 9.7% 10.8% NAU Comptroller 2004 NAU 13.3% 2005 15 7% 15.7% 2006 14.6% 20.8% (Measures coverage of annual operations by most liquid resources.) Fiscal Years 2002 - 2007 Unrestricted Net Assets to Total Expenses (Ratio 8) NAU 2007 11 Graph J 12/07/2007 -1% 1% 1% 3% 5% 7% 2002 2003 4.1% 5.2% NAU Comptroller 2004 2005 6.3% NAU 5 4% 5.4% 6.2% 2006 6.5% 2007 12 Graph K (Measures the burden of debt service payments (principal and interest) relative to overall expenses.) Fiscal Years 2002 - 2007 Debt Service Payments to Total Expenses (Ratio 9) NAU 66.0% 49.8% 38.8% 46.7% 2004 NAU Comptroller 2005 2006 NAU & Component Units (including NAU Foundation) 12/07/2007 Only 2004 2007 information is available. 70% 60% 50% 40% 30% 20% 10% 0% (Measures coverage of debt by all available resources.) Fiscal Years 2004 - 2007 2007 Total Financial Resources to Direct Debt (Ratio 10) (including NAU Foundation) NAU and NAU Component Units 13 Graph L 396 997 Total Revenues 14% 140 997 33% 329 997 Gifts, Grants & Contracts, and TRIF Revenue Net Tuition and Fees Revenue Total Revenues State General Fund Appropriations Total Revenues 2002 Total financial resources , net Direct debt Debt Service Payments (int & princ) Total Expenses 978 Total expenses 5% 46 978 12% 120 24% Unrestricted net assets UA and component units UA only UA only UA only 232 978 4% 46 1,049 12% 1,049 121 21% 222 1,049 78% 628 808 4% 48 1,134 9% 1,134 107 18% 204 1,134 4% 49 1% 15 1,149 1,244 3% 34 1,083 14% 1,149 166 43% 1,149 493 15% 173 1,149 28% 317 1,149 2004 Net Revenues 2% 19 997 13% 1,083 146 43% 1,083 463 14% 150 1,083 30% 324 1,083 2003 Total Revenues Net Revenues Total Revenues 13% 997 Total Revenues Expendable Net Assets Total Expenses UA and component units UA only UA only 127 Other Revenues UA only 40% TRIF - Technology & initiative research funding. UA's share of the state education sales tax. UA only UA only UA Financial Services Prepared: October 2007 10 9 8 7 6 5 4 3 2 1 Ratio THE UNIVERSITY OF ARIZONA Financial Ratios for Fiscal Years: 2002 to 2007 (dollars in millions) 90% 707 789 5% 54 1,190 8% 1,190 101 17% 207 1,190 5% 1,311 66 1% 13 1,204 15% 1,204 177 42% 1,204 511 15% 182 1,204 28% 334 1,204 2005 94% 806 854 5% 58 1,262 12% 1,262 150 22% 272 1,262 5% 1,295 63 2% 32 1,295 17% 1,295 221 40% 1,295 523 15% 193 1,295 28% 358 1,295 2006 102% 896 878 5% 69 1,323 13% 1,323 166 23% 299 1,323 8% 1,385 124 4% 62 1,385 18% 1,385 248 38% 1,385 527 15% 210 1,385 28% 390 1,385 2007 12/07/2007 UA Financial Services Prepared: October 2007 Ratio 10 Debt service payments (interest payments per SRECNA and principal payments per cash flow) Total Expenses (operating, nonoperating and other expenses and losses) Unrestricted net assets Total Expenses (operating, nonoperating and other expenses and losses) Expendable Net Assets (Unrestricted and expendable restricted net assets) Total Expenses (operating, nonoperating and other expenses and losses) Total financial resources (unrestricted and restricted - expendable and nonexpendable - net assets of the Univ, plus permanently and temporarily restricted and unrestricted net assets of the component units, less net property and equipment of the component units Total direct debt (total outstanding capital debt of the Univ and component units) Ratio 9 UA and component units Ratio 8 UA only Ratio 7 UA only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Auxiliary enterprises revenues, investment income, and all other revenues (operating and nonoperating) not in the other revenue categories. Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 4 UA only Ratio 6 UA and component units Gifts, additions to endowments, grants, contracts, and state sales tax share (technology and research initiatives funding)- (Operating/Nonoperating/Capital) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 3 UA only Net revenues (Total revenues less total expenses) Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Tuition and Fees, net of scholarship allowance Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 2 UA only Ratio 5 UA only State general fund appropriations Total Revenue (Operating/Nonoperating/Other Revenues and Gains) Ratio 1 UA only THE UNIVERSITY OF ARIZONA UNIVERSITY Financial Ratios Formulas 12/07/2007 12/07/2007 THE UNIVERSITY OF ARIZONA FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 Issue. The purpose of this analysis is to assist the Arizona Board of Regents (ABOR) in evaluating the financial position of The University of Arizona (UA) as of June 30, 2007. Beginning with fiscal 2002 the three Arizona universities governed by the ABOR adopted the Governmental Accounting Standards Board (GASB) Statement No. 35 financial reporting model, as required by the GASB. The financial ratios that accompany this report were prepared for the six years covered by the GASB 35 reporting model. In fiscal 2004 the Universities adopted GASB No. 39 which required that information regarding each University’s component units be included in the University’s financial report. Therefore, in instances where information from the Universities’ component units is used in a ratio, only four years of financial information is presented. Discussion. The Financial Statement Analysis for UA addresses the following four questions through the presentation of pertinent financial ratios: 1. How has the composition of UA’s revenue changed over the period fiscal 2002 through 2007? (Ratios 1 – 4) Graph A shows the overall UA revenue trends over the last six years. • Ratio 1 – State General Fund Appropriations Revenue as a Percentage of Total Revenues. (Graph 1) During this period the percentage of general fund appropriations to total revenues has decreased each year. During the six year period reported, the percentage of general fund appropriations revenues to total revenues has declined from 33.0% in fiscal 2002 to 28.2% in fiscal 2007. State appropriations dollars have increased by $61 million, or a percentage increase of 18.5% during this period, from $329 million in fiscal 2002 to $390 million in fiscal 2007. • Ratio 2 – Net Tuition and Fees Revenue as a Percentage of Total Revenues. (Graph 2) During this period the percentage of net tuition and fees revenues to total revenues has increased from 14.0% in fiscal 2002 to 15.2% in fiscal 2007, with increases occurring in four of the six years being reported Although UA has increased its tuition rate each of these years, those increases have not resulted in a decline in student enrollment. Increases in tuition have allowed the University to enhance instructional programs that have not received incremental increases in state appropriations funding. The University has also used increased tuition and fees revenues to provide UA FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 UA FINANCIAL SERVICES 1 12/07/2007 increased financial aid programs funding. Total net tuition and fees revenues have increased by $69 million during this period, from $140 million in fiscal 2002 to $209 million in fiscal 2007 resulting in a percentage increase of 49.5% during the six year period being reported. • Ratio 3 – Gifts, Grants, Contracts, and TRIF revenues as a Percentage of Total Revenues. (Graph 3) The percentage reflected by this ratio has shown only a slight fluctuation during the six year reporting period from a high of 42.9% in fiscal 2004 to a low of 38.1% in fiscal 2007. Total gifts, grants, contracts, and TRIF dollars increased during this period by $131 million from $396 million in fiscal 2002 to $527 million in fiscal 2007. This was a 33% increase in this revenue source during the reporting period. With the completion of several major new research facilities in fiscal 2007, including Medical Research Building, Meinel Optical Science Center, Chemistry Building, and the Agriculture Research Complex Shell Space project, UA anticipates the grants and contracts revenue source to increase over the next few years, both in total dollars and as a percentage of total revenues. • Ratio 4 – Other Revenues as a Percentage of Total Revenues. (Graph 4) Other revenues include auxiliary enterprises revenues, net investment income, and educational department sales and services revenues. This revenue source has grown tremendously for the time period reported with an overall increase of 95% in dollars between fiscal 2002 and fiscal 2007. In dollar totals, auxiliary enterprises revenues have increased from $96 million in fiscal 2002 to $144 million in fiscal 2007, a 50% increase. Sales and services of educational departments, which includes conference and seminar registration fees for UA sponsored events, have increased from $17 million to $24.5 million. • Total Revenue Composition. (Ratios 1 – 4). (Graph B) Over the six year reporting period UA has experienced a relative decline (on a percentage basis) of the support it receives directly from the State Legislature through general fund appropriations. The percentage of general fund appropriations as a percentage of total revenues has declined from approximately 33% in fiscal 2002 to approximately 28% in fiscal 2007. This decline in state general fund support has been primarily supplemented by increased student tuition and fees, increasing as a percentage of total revenues from 14% in fiscal 2002 to 15% in fiscal 2007. Total University revenues have increased from $997 million in fiscal 2002 to $1,385 UA FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 UA FINANCIAL SERVICES 2 12/07/2007 million in fiscal 2007, a 38.9% increase. Although the University anticipates state general fund appropriations will continue to decline as a percentage of total revenues, it is expected in future years this decline will be caused by increased grants and contracts activity, the result of the emphasis recently being placed on improving the University’s research infrastructure, and the opening of two research buildings in fiscal 2006. 2. Is UA living within its available resources? (Ratios 5 and 6) (Graphs 5 and 6) The ratio of net revenues to total revenues (Ratio 5) for UA ranges from a low of 1.1% in fiscal 2005 to a high of 4.5% in fiscal 2007. Typically it is desired for this ratio to be positive. The UA has maintained positive growth over the past six year period. While it is not a very large percentage increase, it has been positive none-the-less, even during a period of reduced State support and a time of growth for many programs and facilities. This means that UA has been able, to generate sufficient revenues to meet its operational needs on a year to year basis. Ratio 6 shows this same ratio, but for a four year period and includes the net revenues and total revenues of UA’s component units, in addition to those of UA. The trend of this ratio shows positive results. 3. Have expendable net assets kept pace with expenses? (Ratios 7 and 8) (Graphs 7 and 8) The ratio of expendable (restricted and unrestricted) net assets to total expenses over the six years ranges between 17.4% in fiscal year 2005 to 23.7% in fiscal year 2002, with an average of 20.75%. This ratio measures the financial strength of the University by indicating the percentage of useable net assets at the end of the year to total expenses. The percentage of 22.6% indicates the University has nearly twelve weeks of annual spending available from end of year expendable net assets. This could possibly limit UA’s ability to respond to any emergencies or unforeseen needs. This ratio is further limited in Ratio 8 by looking at only unrestricted net assets. With this unrestricted net asset limitation, the University had approximately six and a half weeks of spending coverage at the end of fiscal 2007, up from six weeks of coverage in fiscal 2006. 4. Can UA repay its incurred debt? (Ratios 9 and 10) (Graphs 9 and 10) The ratio of debt service payments to total expenses is useful in determining possible future bond ratings. A ratio of debt service UA FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 UA FINANCIAL SERVICES 3 12/07/2007 payments to expenses of no more than 10% is desirable. The fiscal 2007 debt service ratio for UA was 5.2%, well within the acceptable range. This percentage is, however, expected to increase in future years as debt service payments begin to increase. Given the current structure of existing and planned debt service payments, this expected increase will be noticeable in fiscal 2008. Total financial resources to direct debt for UA and its component units (Ratio 10) is a broader measure of the ability of UA and its component units to cover debt as of the end of the fiscal year. The ratio has increased over the four year period reported, the fiscal 2007 ratio of 102% reflects the ability of UA and its component units to repay all outstanding debt without undue financial hardship. Summary. The analysis of UA’s financial position shows: • There is a continued trend at UA towards an increasing reliance on revenue sources other than state general fund appropriations. State appropriations have not kept pace proportionally with overall University revenues. State general fund appropriations revenues as a percentage of total revenues have declined each of the six years included in these ratios. In the years reported on this schedule, this decline in state support has been offset by increases in net tuition and fees and other revenues. In looking to the future, the University anticipates grants and contracts revenues to continue as a significant revenue source due to new research facilities recently opened, and other commitments being made in the research area. • UA generated relatively small positive net revenues each year. Although UA’s total revenues increased by approximately $388 million between fiscal 2002 and fiscal 2007, its net revenues for the last six years have been no greater than $62 million, just four and a half percent of total revenues. • Given its relatively small net revenues in any given year, the University has a more limited ability to react to emergencies or unforeseen needs. • Based on the debt ratios reported, UA, as well as its component units, can repay current levels of debt and have the capacity for future additional debt financings. Conclusion. As the trend toward declining percentages of State appropriations to total revenues continues, the University must have additional resources to meet their ongoing operational and capital needs. These additional resources UA FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 UA FINANCIAL SERVICES 4 12/07/2007 for the years reported on were primarily tuition and fees generated from increases in undergraduate and graduate, resident and non resident tuition and fees. UA’s financial position has remained essentially the same during the last six years, having neither significantly worsened nor improved. The debt capacity ratio (Ratio 9) as reported is not indicative of the long-term since it does not include principal payments on recently issued debt realignment, since those payments are structured to begin in future years, most noticeably in fiscal 2008. UA FINANCIAL STATEMENTS ANALYSIS – FISCAL 2007 UA FINANCIAL SERVICES 5 Fiscal Years 2002 - 2007 (Based on Financial Ratios Presented to the Arizona Board of Regents) Financial Graphs 12/07/2007 40% $ $- $500 $1 000 $1,000 $1,500 13% 2002 14% 2003 33% 2005 Other 18% 39% 2006 UA Financial Services Grants & Gifts Tuition & Fees State Apprn Fiscal 2002 2004 (Dollars in Millions) 2007 UA REVENUE TRENDS 15% 28% Other Grants & Gifts Tuition & Fees State Apprn pp Fiscal 2007 State Apprn Tuition & Fees Grants & Gifts Other Graph A 2 12/07/2007 0% 10% 20% 30% 40% 50% 2002 33 0% 33.0% 2003 29.9% UA Financial Services 2004 27.6% 2005 27.7% Fiscal Years 2002 - 2007 2006 27.6% State General Fund Appropriations Revenue as a Percentage of Total Revenues (Ratio 1) The University of Arizona 2007 28.2% 3 Graph 1 12/07/2007 0% 10% 20% 30% 40% 50% 2002 14.0% 2003 13.9% 15.1% 2005 UA Financial Services 2004 15.1% Fiscal Years 2002 - 2007 2006 14.9% 15.2% 2007 Net Tuition and Fees Revenue as a Percentage of Total Revenues (Ratio 2) The University of Arizona 4 Graph 2 2002 39.7% 2003 42.8% 2004 42.9% 2005 42.4% 2006 40.4% 2007 38.1% 12/07/2007 UA Financial Services 5 TRIF = Technology and Research Initiative Funding, and is UA’s share of the state education sales tax. 0% 10% 20% 30% 40% 0% 50% Fiscal Years 2002 - 2007 Gifts, Grants & Contracts Gifts Contracts, and TRIF Revenues as a Percentage of Total Revenues (Ratio 3) The University of Arizona Graph 3 2002 12.7% 2003 13.5% 2004 14.4% 2005 14.7% 2006 17.1% 2007 17.9% 12/07/2007 UA Financial Services Other revenues primarily include auxiliary enterprises revenues and net investment income. 0% 10% 20% 30% 40% 50% Fiscal Years 2002 - 2007 Other Revenues as a Percentage of Total Revenues (Ratio 4) The University of Arizona 6 Graph 4 12/07/2007 30% 14% 43% 14% 28% 15% 43% 14% 28% 15% 42% 1 % 15% 28% 15% 40% 17% 28% 15% 38% 18% UA Financial Services Other Revenue Gifts, Grants & Contracts, and TRIF Revenue Net Tuition and Fees Revenue State General Fund Appropriation 2002 2003 2004 2005 2006 2007 33% 20% 0% 14% 40% 13% 40% 60% 80% 100% Fi Fiscal l 2002 - 2007 Graph B The University of Arizona University Total Revenue Composition (Ratios 1 - 4) 7 12/07/2007 0% 2% 4% 6% 2002 1.9% 2003 3 1% 3.1% UA Financial Services 2004 UA 2005 1 3% 1.1% 1.3% 2.5% 2006 4.50% 2007 (Measures the excess margin (or deficit) by which annual revenues cover expenses.) Fiscal Years 2002 - 2007 Net Revenues to Total Revenues (Ratio 5) The University of Arizona 8 Graph 5 5 0% 5.0% 4 9% 4.9% 8.00% 2004 UA Financial Services 2005 2006 2007 UA & UA Component Units (including UA Foundation) 3.9% 12/07/2007 Only 2004, 2005, 2006 and 2007 information is available. 0% 2% 4% 6% 8% 10% (Measures the excess margin (or deficit) by which annual revenues cover expenses.) Fiscal Years 2004 - 2007 Net Revenues to Total Revenues (Ratio 6) (including UA Foundation) UA & UA Component Units 9 Graph 6 12/07/2007 0% 10% 20% 30% 2002 2004 UA 18.0% 21.6% 2005 17.4% UA Financial Services 21.2% 2003 23.7% 2006 22.60% (Measures whether expendable net assets have kept pace with expenses.) Fiscal Years 2002 - 2007 Expendable Net Assets to Total Expenses (Ratio 7) The University of Arizona 2007 10 Graph 7 12/07/2007 0% 5% 10% 15% 20% 2002 2003 12.3% 2004 UA 9.4% UA Financial Services 11.5% 2005 8.5% 12.50% 2006 11.9% (Measures coverage of annual operations by most liquid resources.) Fiscal Years 2002 - 2007 Unrestricted Net Assets to Total Expenses (Ratio 8) The University of Arizona 2007 11 Graph 8 Graph 9 12/07/2007 0% 2% 4% 6% 2002 4.4% 2003 4.7% UA Financial Services 2004 UA 4.2% 4.6% 2005 4.5% 2006 5.20% 2007 12 (Measures the burden of debt service payments (principal and interest) relative to overall expenses.) Fiscal Years 2002 - 2007 Debt Service Payments to Total Expenses (Ratio 9) The University of Arizona 77.7% 89.6% 102.00% 12/07/2007 Only 2004 , 2005, 2006 and 2007 information is available. UA Financial Services 2005 2006 UA & UA Component Units (including UA Foundation) 2004 0% 25% 50% 75% 100% 94 4% 94.4% (Measures coverage of debt by all available resources.) Fiscal Years 2004 - 2007 2007 Total Financial Resources to Direct Debt (Ratio 10) (including UA Foundation) UA & UA Component Units 13 Graph 10 Arizona Board of Regents 2020 North Central Avenue, Suite 230 Phoenix, AZ 85004 602-229-2500 www.azregents.edu