Financial Review

Fiscal Year 2018

2.23.18

Overview

Governance: Financial statement focus

Prudent planning, financial management and

decision-making ensures EWU’s ability to respond to

a rapidly changing environment

Evaluate EWU’s performance in relation to industry

measures

2

AGENDA

Financial Results & Key Performance Indicators

Resource Sufficiency & Flexibility

Operating Results

Financial Asset Performance

Debt Management

Financial Outlook

3

•Access

•Retention

•Degree completion

•Graduation rates

Student

Success

•High quality

•Program array- students of the future

•Size of the University

•Enrollment levels

Academic Programs

•Ability to respond to changing environment

•Institutional Strategic Plan

•Strategic enrollment Plan

•Campus Master Plan

Strategic Planning

•EWU expands opportunities for personal transformation through excellence in learning.

Mission and Vision

•Future revenue growth

•Contain labor cost

•Use of debt capacity

•Financial flexibility

Sound Financial Position

Achieving the

Goals of the

EWU Board of

Trustees

4

Financial Resource Governance

Biennial Budget

Planning Process

Year 1-ongoing financial

management and internal

reporting

End of Year Reporting

Year 2 Supplemental

budget process

Year 2-financial

management and internal

reporting

Biennial feedback

5

Continuous

cycle of financial

planning,

management,

evaluation, and

reporting

Impacts to Eastern’s Financial Position

FinancesEnrollment Demand

Tuition

State Resources

Capital Planning

Auxiliaries

Financial Aid

Strategic Investments

Debt

6

RESOURCE SUFFICIENCY AND FLEXIBILITY

7

State Funding

Enrollment

Tuition Policy

Capital Funding

To support the University’s mission

Financial Results

Composite Financial

Index

Resource Sufficiency & Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

Performance

Return on Net Assets Ratio

Debt Management

Viability Ratio

Key Performance Indicator

Primary Reserve Ratio

A Changing Financial Environment

8

2015-17 Biennium• Tuition authority restriction

continues to impact future

opportunities

• Slower revenue growth

• Enrollment stability continues

• Campus initiatives provide

future opportunities

2011-13 Biennium• Decreasing funding

• Increasing costs

• $25M decline in State support

• Tuition impact

• Continued budget constraints

and reductions

2013-15 Biennium• Transforming for the future

• Slower revenue growth

• More dependent on tuition

• New Strategic Plan

2009-11 Biennium• Great Recession

• $33.4M reduction of state

support

• Tuition impact

• Internal budget reductions

• Staff reductions & salary freeze

2017-19 Biennium• State Tuition policy provides

minimal revenue growth

• Flat state revenue projection

• Revenue growth at a slower pace

• Goal – stabilize, grow, and

diversify enrollments

Key Funding Sources - State Funds and Student Tuition

$0

$10

$20

$30

$40

$50

$60

$70

2010 2011 2012 2013 2014 2015 2016 2017 2018

Millio

ns

Student Tuition State Funds

62%

38%

52%

48%

9

The College Affordability Act increased the state investment in

higher education beginning in FY16

State tuition policy is at 2.2%

Fund 001, 08A, 149 funding

Enrollment-12 Month

479,269 483,602 473,723 478,626 482,281

42,068 41,093 39,359 39,206 40,042

521,337 524,695 513,082 517,832 522,323

0

100,000

200,000

300,000

400,000

500,000

600,000

AY13-14 AY14-15 AY15-16 AY16-17 AY17-18

Student Credit Hours

Undergraduate SCH Graduate SCH Total

10

Note: SCH totals based on Fall – Summer term grouping

Source: EWU institutional Research Enrollment Reports, 10th day

10,653 10,750 10,555 10,636 10,685

1,195 1,167 1,164 1,139 1,167

11,848 11,917 11,719 11,775 11,852

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2014 2015 2016 2017 2018

IPEDS FTE Enrollment, based on quarter

equivalency

Undergraduate FTE Graduate FTE Total FTE

Source: IPEDS 12-month Enrollment Survey. Time frame: July - June

Index 1 core enrollment, self support and summer

session

Fall Enrollment

11,67812,411

11,300 11,217 11,473

1,1131,042

1,061 1,062 1,134

12,79113,453

12,361 12,27912,607

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2014 2015 2016 2017 2018

Total Fall Head CountState and self support

Undergraduate HC Graduate HC Total HC

11

Source: EWU Institutional Research Enrollment Reports, 10th day

9,428 9,551 9,749 9,733 9,607 9,574

1,105 971 902 900 922 974

10,533 10,522 10,651 10,633 10,529 10,548

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2013 2014 2015 2016 2017 2018Undergraduate HC Graduate HC Total HC

State Support – Average Annual Head Count

Through FY18 enrollment has remained fairly stable.

Capital Appropriation History

12

$16.3

$10.7

$15.4$12.2

$30.5

$7.6

$15.1

$67.4

$0

$10

$20

$30

$40

$50

$60

$70

2011-13 2013-15 2015-17 2017-19

Millio

ns

Minor Works Major Projects

Includes construction funding for

the Interdisciplinary Science

Center

Source: Appropriation schedule - New appropriations only

State capital funding can fluctuate between biennia

and types of projects funded.

Financial Results and Key Performance Indicators

Financial Results

Composite Financial Index

Resource Sufficiency & Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

Performance

Return on Net Assets Ratio

Debt Management

Viability Ratio

13

Additional performance

indicators are utilized for

budgetary, financial and

enrollment management.

FY 2018 Impacts to Financial Position

2018 change

Total Revenues 237,519,865 0.03%

Operating revenues 148,693,641 0.5%

State operating appropriations 58,531,000 3.6%

Total revenues excluding capital

appropriations 231,932,052 2.2%

Total expenses 244,155,344 7.1%

Total expenses excluding 1x impacts 234,059,048 2.7%

Salaries 111,779,038 3.6%

Benefits 38,181,176 14.7%

19-Feb-1914

Major changes in revenues and expenses

FY 2018 Impacts to Financial Position

• Key Revenue Drivers– Enrollment- core enrollment was relatively flat

– Total revenues essentially flat

– Tuition and fee revenues, increased <1%

– State operating appropriations, increased 3.5%

– Grants and contracts, increased 5.7%

– Auxiliaries, down 5%

• Major Expense Categories– Salaries and wages, increased 3.5%

– Health benefits, increased 14.7%

– Operating expenses, down 4%

– Scholarships and fellowships, flat

15

• One-Time Impacts to Income Statement– Perkins loan program closeout, $3.97M, expense/liability, with future cash impact

– PUB asset value adjustment of $6.09M related to substantial demolition of existing building

(no cash impact)

– GASB 75- Other post employment benefits (OPEB), $70.9M beginning net position

adjustment and long term liability (no cash impact). Similar impact as GASB 68 beginning net

position adjustment in 2015 and GASB 73 impact in FY17

• Overall Income Statement– Before special items and capital appropriations- net loss $2.16M

– Overall decrease in net position $6.64M

– Adjustment to beginning net position $70.9M

16

FY 2018 Impacts to Financial Position

Composite Financial Index

• Overall measure of financial

health

• Combines the four key ratios using

industry standard weighting

• Influenced by enrollment changes, state

operating appropriations and tuition and

fee pricing changes

• Useful in understanding the financial

position of the institution in relation to an

industry standard

• Combined insight into the trends of the

institution’s key financial indicators

• Recommended Level = 3

17

Financial Results

Composite Financial Index

Resource Sufficiency

& Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

PerformanceReturn on Net Assets

Ratio

Debt Management

Viability Ratio

Source: EWU Financial Statements

3.39

2.22

2.732.15

-0.10

-1.0

0.0

1.0

2.0

3.0

4.0

2014 2015 2016 2017 2018

Composite Financial Index

EWU CFI Recommended level

1.90

w/o 1x

impacts

Primary Reserve Ratio

• Are resources sufficient and flexible

enough to support the mission?

• Measures the financial strength by indicating

how long the institution could function without

additional income

• Over time ratio should support reserve levels to

ensure are keeping pace with institutional

growth

• Unrestricted net assets should increase at least

in proportion to the rate of growth in expenses

• Recommended Ratio is > .40

• Ratio components –

– Unrestricted and restricted expendable net

position

– Operating and non-operating expenses

18

Financial Results

Composite Financial Index

Resource Sufficiency

& Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

PerformanceReturn on Net Assets

Ratio

Debt Management

Viability Ratio

0.53

0.400.42 0.42

0.09

0

0.1

0.2

0.3

0.4

0.5

0.6

2014 2015 2016 2017 2018

Primary Reserve Ratio

EWU Base Linew/o 1x

impacts

Source: EWU Financial Statements

.39

Return on Net Position Ratio

• Does financial asset performance

support the strategic mission?

• A positive return indicates the institution is

financially better off than in previous years

by measuring total economic return

• An improving trend is indicative of

increasing net assets that will strengthen

the institution’s financial future

• A decline may be appropriate if it reflects a

strategy to investment in mission fulfillment

• Industry target ratio: 3 – 4%

• Ratio Components –– Change in net position

– Net assets (beginning of year)

19

Financial Results

Composite Financial Index

Resource Sufficiency

& Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

PerformanceReturn on Net Assets

Ratio

Debt Management

Viability Ratio

4.67%

0.54%

2.42%

2.72%

-2.27%

2.48%

2.43%

3.61%

1.69%

-3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00%

2014

2015

2016

2017

2018

Return on Net Position Ratio

Peer Median EWU

1.17%

w/o 1x impacts

Source: EWU Financial Statements Note: 2018 peer data not yet available

Viability Ratio

• Is debt managed strategically to

advance the mission?

• Measures the sufficiency of unrestricted

net position to satisfy debt obligations

• A higher ratio indicates more funds

available to cover debt

• FY17 issued revenue bonds to renovate

the PUB

• Many institutions operate effectively at less

than ratio 1:1 as state operating

appropriations are not included in the

calculation

• Desired ratio is > 1:1

• Ratio Components –– Unrestricted net position

– Long term debt – current and noncurrent

20

1.68

1.37

1.51

0.95

0.11

0.39

0.17

0.18

-0.08

-0.5 0.0 0.5 1.0 1.5 2.0

2014

2015

2016

2017

2018

Viability Ratio

Peer Median EWU w/o 1x

Financial Results

Composite Financial Index

Resource Sufficiency

& Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

PerformanceReturn on Net Assets

Ratio

Debt Management

Viability Ratio

Source: EWU Financial Statements Note: 2018 peer data not yet available

0.97

Net Operating Ratio

• Is the institution living within available

resources on an annual basis?

• Measures net operating revenues in contrast to

total operating revenues

• Measured before state capital appropriations

• Negative ratios indicate a net operating and non

operating deficit which may or may not be a

problem

• A decline in ratio from prior year indicates

operating expenses are increasing at a faster

rate than operating revenues

• Targeted ratio should be between 2% and 4%

• Ratio Components-– Net operating and non-operating income (loss)

– Total operating and non-operating revenue

21

Financial Results

Composite Financial Index

Resource Sufficiency

& Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

PerformanceReturn on Net Assets

Ratio

Debt Management

Viability Ratio

1.59%

-0.67%

1.52%

-0.40%

-2.64%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

2014 2015 2016 2017 2018

Net Operating Ratio

EWU

-0.93%

Source: EWU Financial Statements Note: 2018 peer data not yet available

w/o 1x impacts

OPERATING RESULTS

22

Income Statement

Revenue

Expenses

Net Assets

Do the operating results indicate the

university is managed within

available resources?

Financial Results

Composite Financial

Index

Resource Sufficiency & Flexibility

Primary Reserve Ratio

Operating Results

Net Operating Ratio

Financial Asset

Performance

Return on Net Assets Ratio

Debt Management

Viability Ratio

Key Performance Indicator

Net Operating Ratio

What does the Operating Statement mean?

23

At any level of overall

university assets, Eastern must

live within it’s annual income

over time.

Presents a change in net

financial position over the prior

year

Analysis of performance of the

university across the industry.

Expenditures represent the

cost of providing services in

support of achieving the

institutional mission.

University Revenues, Expenses and

Changes in Net Position

$2

19

.8

$2

22

.4

$2

22

.8

$2

33

.1

$2

37

.4

$2

37

.5

$1

93

.4

$2

05

.7

$2

20

.9

$2

24

.6

$2

27

.9

$2

44

.2

$100

$120

$140

$160

$180

$200

$220

$240

$260

2013 2014 2015 2016 2017 2018

Millio

ns

Revenues

Expenses

24

Total revenues (includes capital appropriations) were essentially flat. Total expenses

increased 7.1%, partly due to one-time impacts such as Perkins loan closeout and loss on

demolition of capital assets. Excluding one time impacts, expenses increased 2.7%.

Source: FY 2013-2018 Financial Reports

University Revenues

25

Source: EWU Office of Controller

2013- 2017 Financial Reports

$89.3 $94.0 $89.6 $85.0 $85.5

$53.4 $41.9 $53.2 $66.9 $64.1

$51.7 $57.2$55.5

$51.9 $54.6

$20.9 $23.1$29.1

$27.5 $26.0$7.0 $6.6

$5.7 $6.2 $7.2 $222.4 $222.8 $233.1 $237.4 $237.5

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

2014 2015 2016 2017 2018

mil

lio

ns

Student Tuition & Fees State Appropriations Grants & Contracts Auxiliaries Other Total

discretionary

dedicated

Total revenues were essentially flat over 2017

University Revenues – Five Year Comparison by Source

26

Source: 2014, 2018 Financial Report

Student Tuition &

Fees40%

State Appropriations

24%

Grants & Contracts

23%

Auxiliaries10%

Other3%

2014

Student Tuition &

Fees36%

State Appropriations

27%

Grants & Contracts

23%

Auxiliaries11%

Other3%

2018

University Expenses by Type

27

Source: EWU Office of Controller

2014-2018 Financial Report

$92.7

$100.6

$104.2

$107.9

$111.8

$36.8

$42.2

$39.6

$38.1

$38.1

$28.5

$28.5

$31.8

$33.3

$38.2

$21.9

$22.1

$20.8

$19.6

$19.5

$11.4

$12.1

$12.3

$12.5

$12.4

$4.9

$4.6

$4.4

$4.9

$4.3

$9.6

$10.8

$11.6

$11.6

$9.8 $10.1

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 $220 $240 $260

2014

2015

2016

2017

2018

Millions

Salaries & Wages Supplies& Materials Benefits Scholarships & Fellowships Depreciation Utilities Miscellaneous Other

$220.9M

$205.7M

$244.2M

$224.4M

$227.9M

FY18- ‘Other’ includes 3.9M perkins loan program

closeout expense and 6.1M loss on demo of old PUB

Total expenses grew by 7.1%

Expenses without special items increased 2.7%

Salaries & wages increased 3.6%

Operating Expenses by Function

Instruction32.9%

Aux. Srvc15.7%

Scholarships10.9%

Ops. & Maint -plant9.2%

Student services8.0%

Institutional support7.7%

Academic support7.1%

Depreciation5.6%

Public Srvc & Rsrch3.1%

28

Instruction33.1%

Aux. Srvc15.4%

Scholarships8.6%

Ops. & Maint -plant8.2%

Student services9.1%

Institutional support7.9%

Academic support8.2%

Depreciation5.3%

Public Srvc & Rsrch4.3%

2014 2018

Source: 2014, 2018 Financial Report

BALANCE SHEET AND

INDICATORS

29

Does financial asset

performance support

the strategic mission?

Financial Results

Resource Sufficiency &

Flexibility

OperatingResults

Financial Asset

Performance

Debt Management

What does the Balance Sheet represent?

30

University Assets and

Liabilities at a point in time

A Comprehensive View of all

that Eastern Owns…

and all that Eastern Owes

Peer analysis of Performance

within an industry

Analyze Debt Capacity for

future capital investments

Balance Sheet Overview

31

Source: FY2018 Financial Report

All Funds2017

(millions)

2018(millions)

Total Assets and Deferred Outflows $526.1 $526.5

Total Liabilities and Deferred Inflows $163.2 $241.2

Net Position (at June 30) $362.9 $285.3

Assets- change in cash and investments due to PUB project; increase capital assets due to PUB project

Liabilities- increase Perkins loan program and GASB 75 OPEB liability

Deferred Inflows/Outflows- impacted due to change in pension and OPEB expenses

Net Position- GASB 75 impact and results of annual operations

Key Balance Sheet Indicators

32

Eastern has consistently remained

above the industry baseline with more

than $4 of current assets to cover every

$1 of current liabilities.

Source: EWU Office of Controller

FY 2017 Financial Report

4.033.66

4.924.56

4.26 4.233.99

4.98

4.28

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2010 2011 2012 2013 2014 2015 2016 2017 2018

Current Ratio: Measure of Liquidity

Current Ratio Industry Baseline

33

Is debt managed

strategically to advance

the University’s mission?

Debt Management

Financial Results

Resource Sufficiency &

Flexibility

OperatingResults

Financial Asset

Performance

Debt Management

Debt Management and Oversight

• University Policy

• Debt Issuance approved by Board of Trustees

• Annual Report to Board of Trustees

– Compliance with policy

– Review of existing debt and associated covenants

– Debt capacity analysis

– Long term capital plans that require financing

– Pending debt financed projects

34

Key Balance Sheet Indicators

35

Eastern is managing debt levels in compliance

with the University debt policy.

2.1

5%

1.9

5%

2.3

3%

1.5

1%

2.0

2%

2.0

8%

2.0

3%

2.4

8%

2.0

7%

0%

1%

1%

2%

2%

3%

3%

4%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Financial Debt Burden Ratio: Measures dependence on debt as a source of financing the mission

Financial Debt Burden Ratio EWU Policy

Source: EWU Office of Controller

FY 2017 Financial Report

Another Financial Performance View: Moody’s Scorecard

36

Preliminary Scorecard Results

Prepared by PFM Financial Advisors, LLC

Eastern Washington University Scorecard Results - 2018Sub-Factor

WeightsValue Score Indicated Score

Factor 1: Market Profile: (30%)

Scope of Operations (Operating Revenue) ($000) 15% 214,528 5.2 A1

Reputation and Pricing Power (Annual Change in Operating Revenue) (%) 5% 1.9 10.7 Ba1

Strategic Positioning 10% A 6.0 A

Factor 2: Operating Performance: (25%)

Operating Results (Operating Cash Flow Margin) (%) 10% 6.6 6.1 A2

Revenue Diversity (Maximum Single Contribution) (%) 15% 61.1 5.9 A2

Factor 3: Wealth & Liquidity: (25%)

Total Wealth (Total Cash & Investments) ($000) 10% 140,042 4.4 Aa3

Operating Reserve (Spendable Cash & Investments to Operating Expenses) (x) 10% 0.67 3.0 Aa2

Liquidity (Monthly Days Cash on Hand) 5% 258 1.6 Aa1

Factor 4: Leverage: (20%)

Financial Leverage (Spendable Cash & Investments to Total Debt) (x) 10% 1.74 2.8 Aa2

Debt Affordability (Total Debt to Cash Flow) (x) 10% 5.86 2.4 Aa1

Moody’s Scorecard Results

• Results similar to FY17 (score 4.60),

yet weakening due to lack of revenue

growth.– Most notable change was cash flow operating

margin (6.6% vs 10.6% 2017)

– Anticipating continued revenue pressure;

expense containment continues to be critical

• Moody’s may also incorporate

qualitative, state, and industry factors

when determining a rating and

underlying outlook

• EWU’s current rating is A1 with a

stable outlook, September 2016

37

Weighted Score: 4.75

Scorecard Output A1

Existing Rating A1

Weighted Score Legend:

Aaa ≤ 1.5

Aa1 > 1.5, ≤ 2.5

Aa2 > 2.5, ≤ 3.5

Aa3 > 3.5, ≤ 4.5

A1 > 4.5, ≤ 5.5

A2 > 5.5, ≤ 6.5

A3 > 6.5, ≤ 7.5

Baa1 > 7.5, ≤ 8.5

Baa2 > 8.5, ≤ 9.5

Baa3 > 9.5, ≤ 10.5

Ba1 > 10.5, ≤ 11.5

Ba2 > 11.5, ≤ 12.5

Ba3 > 12.5, ≤ 13.5

Below Ba3 > 13.5

Moody’s Higher Education Outlook- December 2018

2019 outlook remains negative with continued low net

tuition growth

• Revenue will be constrained, low tuition revenue growth remains the

most difficult business condition

– Constrained by weak net tuition growth of 1%-3.5%

– 2018 Annual Tuition Survey- public institutions will have the lowest median net

tuition revenue growth in a decade at 1.5%

• Competitive landscape and emphasis on affordability will constrain

net tuition revenue growth

• State support to remain generally stable, with federal research

environment improving

– Anticipating moderate growth for public institutions of 2.5%-3%

19-Feb-1938

Moody’s US Higher Education Outlook – December 2018

• Sector will remain focused on expense containment, providing

longer term challenges related to programmatic and capital

investment

– 3% proxy for inflation

• Sector is adaptable and most universities are adjusting to systemic

changes

– Overall flat number of high school graduates, with declining is some states

– Declining numbers of transfer students, reflecting reduced community college

enrollments

– Some reduction in international students

• Solid financial reserves add a stabilizing element

19-Feb-1939

Overall review and future impacts

• Ensure sustainable financial environment

– Eastern’s market position, enrollment, and financial pressures

closely track the sector outlook

• Key financial drivers, future planning, and impacts

– Overall enrollment trajectory

– Restructure/resize institution

– Tuition revenue

– Other student fee related revenue tied to enrollment

– State funding and tuition policy

– Fundraising

– Cost containment

– Institutional gift aid

– Strategic investments to position for the future

19-Feb-1940

41

42

APPENDIX

Additional Selected

Information

EWU Peers- as established for strategic enrollment

planning process

• Arkansas State University- main

campus

• Central Connecticut State University

• Idaho State University

• Louisiana Tech University

• Murray State University

• Southeast Missouri State University

• Southeastern Louisiana University

• Southern Connecticut State University

• University of Montana

• University of Tennessee-Chattanooga

• University of Central Arkansas

• University of Idaho

• University of Minnesota- Duluth

• University of Northern Colorado

• University of Northern Iowa

• University of Southern Mississippi

• University of Northern Colorado

• University of Northern Iowa

• University of Southern Mississippi

• Western Illinois University

• Western Kentucky University

• Youngstown State University

• Central Washington University

• Western Washington University

43