arizona university system fy 2007 …...arizona university system fy 2007 financial ratio analysis...

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

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 Board of Regents 2020 North Central Avenue, Suite 230

Phoenix, AZ 85004-4593 602-229- 2500

Fax 602 -229-2555www.azregents.edu

Arizona State University Northern Arizona University University of Arizona

M E M O R A N D U M 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 [email protected] or me at 602-229-2505 if you have questions prior to the meeting. Enclosures cc: Michael Crow John Haeger

Robert Shelton

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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.

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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 6-year highs, indicating a new level of financial strength.

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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.

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UNIVERSITY COMPONENT UNITS AS DEFINED BY GASB 14 AND GASB 39 Arizona State University:

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:

Northern Arizona University Foundation, Inc. Northern Arizona Capital Facilities Finance Corporation (NACFFC)

The University of Arizona:

The University of Arizona Foundation, Inc. The University of Arizona Alumni Association Law College Association of The University of Arizona Campus Research Corporation

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Ratio 1 Description of Ratio

State General

Fund Appropriations Total Revenue

FY 2007 RATIOS

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. 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.

ASU 32%

NAU 38%

UA 28%

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Net Tuition & Fees

Total Revenue

FY 2007 RATIOS

Element definition: Net Tuition and Fees are tuition and fees paid by students and are net of scholarship allowances. Total Revenue includes operating, nonoperating, and other revenue and gains. Net Tuition and Fees as a percentage of Total Revenue remains unchanged from the prior year at all three universities. Additionally, this ratio has stabilized 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.

ASU 30%

NAU 24%

UA 15%

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Gifts, Grants,

Contracts & TRIF Revenue

Total Revenue

FY 2007 RATIOS

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. 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.

ASU 22%

NAU 23%

UA 38%

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Other Revenue Total Revenue

FY 2007 RATIOS

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. 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.

ASU 17%

NAU 15%

UA 18%

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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.

0%10%20%30%40%50%60%70%80%90%

100%

ASU NAU UA

32% 38% 28%

30% 24%

15%

22% 23%38%

17% 15% 18%

Composition of University Total Revenue Ratios 1, 2, 3, and 4 Combined

State General Fund Appropriations

Net Tuition and Fees

Gifts, Grants, Contracts and TRIF Revenue

Other Revenue

2

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Net Revenue

(University Only) Total Revenue

(University Only)

FY 2007 RATIOS

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. 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. 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 6-year 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.

ASU 4%

NAU 7%

UA 4%

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Net Revenue (University +

Component Units) Total Revenue (University +

Component Units)

FY 2007 RATIOS

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. 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. 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.

ASU 10%

NAU 11%

UA 8%

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Expendable Net

Assets Total Expenses

FY 2007 RATIOS

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. 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.

ASU 18%

NAU 27%

UA 23%

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Unrestricted Net

Assets Total Expenses

FY 2007 RATIOS

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. 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 year-end. 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.

ASU 12%

NAU 21%

UA 13%

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Debt Service

Payments (Interest + Principal)

Total Expenses

FY 2007 RATIOS

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. 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.

ASU 5%

NAU 7%

UA 5%

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Total Financial Resources

(University + Component Units)

Direct Debt (University +

Component Units)

FY 2007 RATIOS

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. This ratio measures coverage of debt by all resources available to the university, including those of its component units. A larger percentage indicates the availability of more resources to cover total university and 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.

ASU 47%

NAU 47%

UA 102%

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d TR

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25

4

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l Rev

enu

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9

35

1,0

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1,1

72

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58

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on

ly.

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ech

nol

ogy

& in

itia

tive

res

earc

h f

un

d. A

SU's

sh

are

of t

he

stat

e ed

uca

tion

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es t

ax.

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ther

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enu

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75

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9

35

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ly

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et R

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(4)

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To

tal R

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8

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et R

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pen

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16

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08

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32

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l exp

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ice

Pay

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& p

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SU o

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Tota

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d co

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IZO

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STA

TE U

NIV

ERSI

TYFi

nan

cial

Rat

ios

for

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ears

: 2

00

2 t

o 2

00

7(d

olla

rs in

mill

ion

s)

ASU

Fin

anci

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ervi

ces

12/

07/2

007

Page 17 of 19

R

atio

20

02

20

03

20

04

20

05

20

06

20

07

1St

ate

Gen

eral

Fu

nd

App

ropr

iati

ons

11

2

11

1

11

2

11

8

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0

Tota

l Rev

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3

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NA

U o

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. Fi

scal

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incl

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et T

uit

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an

d Fe

es R

even

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53

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U o

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3G

ifts

, Gra

nts

& C

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, an

d TR

IF R

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64

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Tota

l Rev

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94

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3

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7

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TRIF

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& in

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res

earc

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d. N

AU

's s

har

e of

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ate

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on s

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4

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7

NA

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et R

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(3

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Tota

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enu

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4

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2

36

7

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U o

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9

28

1

6

47

To

tal R

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3

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NA

U a

nd

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its

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pen

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To

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Tota

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Serv

ice

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& p

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2

To

tal E

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ses

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7

26

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9

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7

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1

N

AU

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ly4

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Tota

l fin

anci

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et9

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nd

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pon

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its

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NO

RTH

ERN

AR

IZO

NA

UN

IVER

SITY

Fin

anci

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atio

s fo

r Fi

scal

Yea

rs:

20

02

to

20

07

(dol

lars

in m

illio

ns)

NA

U C

ompt

rolle

r 1

2/07

/200

7

Page 18 of 19

Ra

tio20

0220

0320

0420

0520

0620

07

1St

ate

Gen

eral

Fun

d A

ppro

pria

tions

329

324

317

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Tota

l Rev

enue

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1,

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UA o

nly

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2N

et Tu

ition

and

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s Re

venu

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17

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3

21

0

To

tal R

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ues

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1,08

3

1,14

9

1,20

4

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5

1,38

5

UA o

nly

14%

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15%

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3G

ifts,

Gra

nts

& C

ontra

cts,

and

TRIF

Rev

enue

396

463

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523

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Tota

l Rev

enue

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1,

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UA o

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TRIF

- Te

chno

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& in

itiat

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are

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e st

ate

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To

tal R

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5

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5

UA o

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5N

et R

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Tota

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et R

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tal R

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UA a

nd c

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pend

able

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323

UA o

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bt S

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& p

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tal f

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cial

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e t62

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Di

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THE

UNIV

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TY O

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NA

Fi

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2 to

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7(d

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ions

)

UA F

inan

cial

Ser

vice

s 1

2/07

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7

Page 19 of 19

R

atio

20

02

20

03

20

04

20

05

20

06

20

07

1St

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Gen

eral

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Rat

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ASU

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12/

07/2

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12/07/2007

ASU FINANCIAL STATEMENTS ASU FINANCIAL SERVICES ANALYSIS – FISCAL 2007 1

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

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

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

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

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.

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26

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int

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9

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Tota

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NO

RTH

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AR

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UN

IVER

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Fin

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r Fi

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Yea

rs:

20

02

to

20

07

(dol

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in m

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7

NO

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UN

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SITY

Fin

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al R

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rmu

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Rat

io 1

Stat

e ge

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al f

un

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prop

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sN

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on

lyTo

tal R

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(Ope

rati

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atin

g/O

ther

Rev

enu

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nd

Gai

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Rat

io 2

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f sc

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NA

U o

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Tota

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d G

ain

s)

Rat

io 3

Gif

ts, a

ddit

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s to

en

dow

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ran

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acts

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d st

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nu

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inve

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pon

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its

Rat

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Expe

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Net

Ass

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(Un

rest

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d pr

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un

rest

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th

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Rev

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Tota

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s (o

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g, n

onop

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and

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and

loss

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(to

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Tota

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Net

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tota

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g/O

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Rev

enu

es a

nd

Gai

ns)

ASU

Fin

anci

al S

ervi

ces

12/

07/2

007

12/07/2007

NAU FINANCIAL STATEMENTS NAU COMPTROLLER ANALYSIS – FISCAL 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.


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

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

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.

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.

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.

Fina

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(Bas

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38.1

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37.7

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40%

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30%

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2002

2003

2004

2005

2006

2007

12/0

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AU C

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UN

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Gra

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2003

2004

2005

2006

2007

12/0

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UG

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and

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24.2

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22.3

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30%0% 10%

20% 0%

2002

2003

2004

2005

2006

2007

12/0

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AU C

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= T

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40%

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14.0

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13.6

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10%

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2002

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2004

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2006

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2004

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2007

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(incl

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AU C

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2006

2007

12/0

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2005

2006

2007

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info

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dabl

e N

et A

sset

s to

Tot

al E

xpen

ses

(Rat

io 7

) Fi

scal

Year

s20

0220

07

Gra

ph I

Fisc

al Y

ears

200

2 -2

007

(Mea

sure

s w

heth

er e

xpen

dabl

e ne

t ass

ets

have

kep

t pac

e w

ith e

xpen

ses.

)

%26

.7%

30%

17.2

%

23.0

%18

.6%

22.3

%20

.9%

20%

10% 0%10% 0%

NA

U

2002

2003

2004

2005

2006

2007

12/0

7/20

07N

AU C

ompt

rolle

r10

2002

2003

2004

2005

2006

2007

NA

UU

nres

trict

ed N

et A

sset

s to

Tot

al E

xpen

ses

(Rat

io 8

)

Gra

ph J

Fisc

al Y

ears

200

2 -2

007

(Mea

sure

s co

vera

ge o

f ann

ual o

pera

tions

by

mos

t liq

uid

reso

urce

s.)

157%

20.8

%20

%

97%

10.8

%13

.3%

15.7

%14

.6%

15%

9.7%

10% 0%5% 0%

NA

U20

0220

0320

0420

0520

0620

07

12/0

7/20

07N

AU C

ompt

rolle

r11

NA

UD

ebt S

ervi

ce P

aym

ents

to T

otal

Exp

ense

s (R

atio

9)

Fisc

al Y

ears

200

2 -2

007

Gra

ph K

(Mea

sure

s th

e bu

rden

of d

ebt s

ervi

ce p

aym

ents

(prin

cipa

l and

inte

rest

) rel

ativ

e to

ove

rall

expe

nses

.)

54%

6.3%

6.2%

6.5%

7%

4.1%

5.2%

5.4%

6.2%

5%7% 3% 1%1% -1%

NAU

2002

2003

2004

2005

2006

2007

12/0

7/20

07N

AU C

ompt

rolle

r12

NA

U a

nd N

AU

Com

pone

nt U

nits

(incl

udin

g N

AU

Fou

ndat

ion)

Tota

lFin

anci

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irect

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t(R

atio

10)

Gra

ph L

Tota

l Fin

anci

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to D

irect

Deb

t (R

atio

10)

Fisc

al Y

ears

200

4 -2

007

(Mea

sure

s co

vera

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f deb

t by

all a

vaila

ble

reso

urce

s.)

66.0

%70

%49

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38.8

%46

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50%

60%

70%

30%

40%

50% 0%10%

20% 0%

NAU

& C

ompo

nent

Uni

ts (i

nclu

ding

NAU

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ndat

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12/0

7/20

07N

AU C

ompt

rolle

r13

2004

2005

2006

2007

Onl

y 20

04 2

007

info

rmat

ion

is a

vaila

ble.

Ra

tio20

0220

0320

0420

0520

0620

07

1St

ate

Gen

eral

Fun

d A

ppro

pria

tions

329

324

317

334

358

390

Tota

l Rev

enue

s99

7

1,

083

1,

149

1,

204

1,

295

1,

385

UA o

nly

33%

30%

28%

28%

28%

28%

2N

et Tu

ition

and

Fee

s Re

venu

e14

0

15

0

17

3

18

2

19

3

21

0

To

tal R

even

ues

997

1,08

3

1,14

9

1,20

4

1,29

5

1,38

5

UA o

nly

14%

14%

15%

15%

15%

15%

3G

ifts,

Gra

nts

& C

ontra

cts,

and

TRIF

Rev

enue

396

463

493

511

523

527

Tota

l Rev

enue

s99

7

1,

083

1,

149

1,

204

1,

295

1,

385

UA o

nly

40%

43%

43%

42%

40%

38%

TRIF

- Te

chno

logy

& in

itiat

ive

rese

arch

fund

ing.

UA

's sh

are

of th

e st

ate

educ

atio

n sa

les

tax.

4O

ther

Rev

enue

s12

7

14

6

16

6

17

7

22

1

24

8

To

tal R

even

ues

997

1,08

3

1,14

9

1,20

4

1,29

5

1,38

5

UA o

nly

13%

13%

14%

15%

17%

18%

5N

et R

even

ues

19

34

15

13

32

62

Tota

l Rev

enue

s 99

7

1,

083

1,

149

1,

204

1,

295

1,

385

UA o

nly

2%3%

1%1%

2%4%

6N

et R

even

ues

49

66

63

12

4

To

tal R

even

ues

1,24

4

1,31

1

1,29

5

1,38

5

UA a

nd c

ompo

nent

uni

ts4%

5%5%

8%

7Ex

pend

able

Net

Ass

ets

232

222

204

207

272

299

Tota

l Exp

ense

s97

8

1,

049

1,

134

1,

190

1,

262

1,

323

UA o

nly

24%

21%

18%

17%

22%

23%

8Un

rest

ricte

d ne

t ass

ets

120

121

107

101

150

166

Tota

l exp

ense

s97

8

1,

049

1,

134

1,

190

1,

262

1,

323

UA o

nly

12%

12%

9%8%

12%

13%

9De

bt S

ervi

ce P

aym

ents

(int

& p

rinc)

46

46

48

54

58

69

Tota

l Exp

ense

s97

8

1,

049

1,

134

1,

190

1,

262

1,

323

UA o

nly

5%4%

4%5%

5%5%

10To

tal f

inan

cial

reso

urce

s , n

e t62

8

70

7

80

6

89

6

Di

rect

deb

t 80

8

78

9

85

4

87

8

UA a

nd c

ompo

nent

uni

ts78

%90

%94

%10

2%

THE

UNIV

ERSI

TY O

F A

RIZO

NA

Fi

nanc

ial R

atio

s fo

r Fisc

al Y

ears

: 200

2 to

200

7(d

olla

rs in

mill

ions

)

UA F

inan

cial

Ser

vice

sPr

epar

ed:

Oct

ober

200

7 1

2/07

/200

7

THE

UNIV

ERSI

TY O

F A

RIZO

NA

UN

IVER

SITY

Fina

ncia

l Rat

ios

Form

ula s

Ratio

1St

ate

gene

ral f

und

appr

opria

tions

UA o

nly

Tota

l Rev

enue

(Ope

ratin

g/N

onop

erat

ing/

Oth

er R

even

ues

and

Gai

ns)

Ratio

2Tu

ition

and

Fee

s, n

et o

f sch

olar

ship

allo

wan

ceUA

onl

yTo

tal R

even

ue (O

pera

ting/

Non

oper

atin

g/O

ther

Rev

enue

s an

d G

ains

)

Ratio

3G

ifts,

add

ition

s to

end

owm

ents

, gra

nts,

con

tract

s, a

nd s

tate

sal

es ta

x sh

are

(tech

nolo

gyUA

onl

yan

d re

sear

ch in

itiat

ives

fund

ing)

- (O

pera

ting/

Non

oper

atin

g/C

apita

l)To

tal R

even

ue (

Ope

ratin

g/N

onop

erat

ing/

Oth

er R

even

ues

and

Gai

ns)

Ratio

4A

uxili

ary

ente

rpris

es re

venu

es,

inve

stm

ent i

ncom

e, a

nd a

ll ot

her

UA o

nly

reve

nues

(ope

ratin

g an

d no

nope

ratin

g) n

ot in

the

othe

r rev

enue

cat

egor

ies.

Tota

l Rev

enue

(Ope

ratin

g/N

onop

erat

ing/

Oth

er R

even

ues

and

Gai

ns)

Ratio

5UA

onl

y

Ratio

6UA

and

com

pone

nt u

nit s

Ratio

7UA

onl

yEx

pend

able

Net

Ass

ets

(Unr

estri

cted

and

exp

enda

ble

rest

ricte

d ne

t ass

ets)

Ratio

8Un

rest

ricte

d ne

t ass

ets

UA o

nly

Ratio

9De

bt s

ervi

ce p

aym

ents

(int

eres

t pay

men

ts p

er S

REC

NA

and

prin

cipa

l pay

men

ts p

er c

ash

flow

)UA

and

com

pone

nt u

nits

Ratio

10

Tota

l fin

anci

al re

sour

ces

(unr

estri

cted

and

rest

ricte

d - e

xpen

dabl

e an

d no

nexp

enda

ble

- net

ass

ets

of th

e Un

iv, p

lus

perm

anen

tly a

nd te

mpo

raril

y re

stric

ted

and

unre

stric

ted

net a

sset

s of

the

com

pone

nt u

nits

, les

sne

t pro

perty

and

equ

ipm

ent o

f the

com

pone

nt u

nits

Net

reve

nues

(Tot

al re

venu

es l

ess

tota

l exp

ense

s)To

tal R

even

ue (O

pera

ting/

Non

oper

atin

g/O

ther

Rev

enue

s an

d G

ains

)

Tota

l Exp

ense

s (o

pera

ting,

non

oper

atin

g an

d ot

her e

xpen

ses

and

loss

es)

Tota

l dire

ct d

ebt (

tota

l out

stan

ding

cap

ital d

ebt o

f the

Uni

v an

d co

mpo

nent

uni

ts)

Tota

l Exp

ense

s (o

pera

ting,

non

oper

atin

g an

d ot

her e

xpen

ses

and

loss

es)

Tota

l Exp

ense

s (o

pera

ting,

non

oper

atin

g an

d ot

her e

xpen

ses

and

loss

es)

Net

reve

nues

(Tot

al re

venu

es l

ess

tota

l exp

ense

s)To

tal R

even

ue (O

pera

ting/

Non

oper

atin

g/O

ther

Rev

enue

s an

d G

ains

)

UA F

inan

cial

Ser

vice

sPr

epar

ed:

Oct

ober

200

7

12/

07/2

007

12/07/2007

UA FINANCIAL STATEMENTS UA FINANCIAL SERVICES ANALYSIS – FISCAL 2007 1

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.


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

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

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

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

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.

Fina

ncia

l Gra

phs

(Bas

ed o

n Fi

nanc

ial R

atio

s P

rese

nted

to th

e A

rizon

a B

oard

of R

egen

ts)

Fisc

alY

ears

2002

-200

7Fi

scal

Yea

rs 2

002

2007

UA

RE

VE

NU

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RE

ND

S

(Dol

lars

in M

illion

s)

Gra

ph A

$100

0

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$

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$1,0

00Tu

ition

& F

ees

Gran

ts &

Gift

sOt

her

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0220

0320

0420

0520

0620

07

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r

33%

13%

Stat

eA

pprn

28%

18%

Stat

e Ap

prn

Fisc

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007

Fisc

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002

40%

Stat

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Fee

s

Gra

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15%

ppTu

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14%

15%

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The

Uni

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f Ariz

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Sta

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Rev

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Gra

ph 1

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te G

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App

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even

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as a

Per

cent

age

of T

otal

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s (R

atio

1)

Fisc

al Y

ears

200

2 -2

007

330%

40%

50%

33.0

%29

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27.6

%27

.7%

27.6

%28

.2%

20%

30%

10%

20% 0%

2002

2003

2004

2005

2006

2007

12/0

7/20

07U

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The

Uni

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Net

Tuiti

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Gra

ph 2

Net

Tui

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and

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as

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Tot

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io 2

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scal

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002

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7

40%

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30%

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14.0

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15.1

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14.9

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2002

2003

2004

2005

2006

2007

12/0

7/20

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Gra

ph 3

The

Uni

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Gift

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rant

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even

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Gift

s, G

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s &

Con

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RIF

Rev

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ntag

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even

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scal

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rs 2

002

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7

39.7

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42.9

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40.4

%38

.1%

40%

50%

30%0% 10%

20% 0%

2002

2003

2004

2005

2006

2007

12/0

7/20

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A F

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TRIF

= T

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Initi

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UA’

s sh

are

of th

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ph 4

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Oth

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ues

as a

Per

cent

age

of T

otal

Rev

enue

s (R

atio

4)

Fisc

al Y

ears

200

2 -2

007

40%

50%

30%

40%

12.7

%13

.5%

14.4

%14

.7%

17.1

%17

.9%

10%

20% 0%

2002

2003

2004

2005

2006

2007

12/0

7/20

07U

A F

inan

cial

Ser

vice

s6

Oth

er re

venu

es p

rimar

ily in

clud

e au

xilia

ry e

nter

pris

es re

venu

es a

nd n

et in

vest

men

t inc

ome.

The

Uni

vers

ity o

f Ariz

ona

Uni

vers

ity T

otal

Rev

enue

Com

posi

tion

(Rat

ios

1 - 4

)Fi

l200

220

07

Gra

ph B

13%

14%

14%

1%

100%

Fisc

al 2

002

- 200

7

40%

13%

43%

14%

43%

14%

42%

15%

40%

17%

38%

18%

60%

80%

100%

14%

14%

15%

15%

15%

40%

15%

38%

40%

60%

33%

30%

28%

28%

28%

28%

0%20%

2002

2003

2004

2005

2006

2007

2002

2003

2004

2005

2006

2007

Oth

er R

even

ueG

ifts,

Gra

nts

& C

ontr

acts

, and

TR

IF R

even

ueNe

t Tui

tion

and

Fees

Rev

enue

Stat

e G

ener

al F

und

App

ropr

iatio

n12

/07/

2007

7U

A F

inan

cial

Ser

vice

s

The

Uni

vers

ity o

f Ariz

ona

Net

Rev

enue

s to

Tot

al R

even

ues

(Rat

io 5

)

Gra

ph 5

Fisc

al Y

ears

200

2 -2

007

(Mea

sure

s th

e ex

cess

mar

gin

(or d

efic

it) b

y w

hich

ann

ual r

even

ues

cove

r exp

ense

s.)

6%

31%

4.50

%

4%

1.9%

3.1%

13%

2.5%

2%4%

1.3%

1.1%

2% 0%U

A20

0220

0320

0420

0520

0620

07

12/0

7/20

07U

A F

inan

cial

Ser

vice

s8

UA

& U

A C

ompo

nent

Uni

ts

(incl

udin

g U

A F

ound

atio

n)

Net

Rev

enue

sto

Tota

lRev

enue

s(R

atio

6)

Gra

ph 6

Net

Rev

enue

s to

Tot

al R

even

ues

(Rat

io 6

)Fi

scal

Yea

rs 2

004

-200

7(M

easu

res

the

exce

ss m

argi

n (o

r def

icit)

by

whi

ch a

nnua

l rev

enue

s co

ver e

xpen

ses.

)

10%

50%

49%

8.00

%

8%10%

3.9%

5.0%

4.9%

4%6% 0%2%

UA

& U

A C

ompo

nent

Uni

ts (i

nclu

ding

UA

Fou

ndat

ion)

2004

2005

2006

2007

12/0

7/20

07U

A F

inan

cial

Ser

vice

s9

Onl

y 20

04, 2

005,

200

6 an

d 20

07 in

form

atio

n is

ava

ilabl

e.

The

Uni

vers

ity o

f Ariz

ona

Exp

enda

ble

Net

Ass

ets

to T

otal

Exp

ense

s (R

atio

7)

Fisc

alY

ears

2002

2007

Gra

ph 7

Fisc

al Y

ears

200

2 -2

007

(Mea

sure

s w

heth

er e

xpen

dabl

e ne

t ass

ets

have

kep

t pac

e w

ith e

xpen

ses.

)

23.7

%30

%23

.7%

21.2

%18

.0%

17.4

%21

.6%

22.6

0%

20%

10% 0%0%

UA

2002

2003

2004

2005

2006

2007

12/0

7/20

07U

A F

inan

cial

Ser

vice

s10

The

Uni

vers

ity o

f Ariz

ona

Unr

estri

cted

Net

Ass

ets

to T

otal

Exp

ense

s (R

atio

8)

Gra

ph 8

Fisc

al Y

ears

200

2 -2

007

(Mea

sure

s co

vera

ge o

f ann

ual o

pera

tions

by

mos

t liq

uid

reso

urce

s.)

20%

12.3

%11

.5%

11.9

%12

.50%

15%

9.4%

8.5%

10% 0%5% 0%

UA

2002

2003

2004

2005

2006

2007

12/0

7/20

07U

A F

inan

cial

Ser

vice

s11

The

Uni

vers

ity o

f Ariz

ona

Deb

t Ser

vice

Pay

men

ts to

Tot

al E

xpen

ses

(Rat

io 9

)Fi

scal

Yea

rs20

0220

07

Gra

ph 9

Fisc

al Y

ears

200

2 -2

007

(Mea

sure

s th

e bu

rden

of d

ebt s

ervi

ce p

aym

ents

(prin

cipa

l and

inte

rest

) rel

ativ

e to

ove

rall

expe

nses

.)

6%4.

7%4.

4%4.

2%4.

5%4.

6%5.

20%

4%6% 2%4% 2% 0%U

A20

0220

0320

0420

0520

0620

07

12/0

7/20

07U

A F

inan

cial

Ser

vice

s12

UA

& U

A C

ompo

nent

Uni

ts(in

clud

ing

UA

Fou

ndat

ion)

Tota

lFin

anci

alR

esou

rces

toD

irect

Deb

t(R

atio

10)

Gra

ph 1

0

Tota

l Fin

anci

al R

esou

rces

to D

irect

Deb

t (R

atio

10)

Fisc

al Y

ears

200

4 -2

007

(Mea

sure

s co

vera

ge o

f deb

t by

all a

vaila

ble

reso

urce

s.)

944%

102.

00%

77.7

%89

.6%

94.4

%

75%

100% 50%

75% 0%25%

UA

& U

A C

ompo

nent

Uni

ts (i

nclu

ding

UA

Fou

ndat

ion)

12/0

7/20

07U

A F

inan

cial

Ser

vice

s13

2004

2005

2006

2007

Onl

y 20

04 ,

2005

, 200

6 an

d 20

07 in

form

atio

n is

ava

ilabl

e.

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