Did They Make the Call Correctly?
A Look at Fiscal Year 2010 through the Eyes of the Financial
Statements and the Ratios of the PACCON Large Institutions
Saul Rosenbaum
and
Fritz Weis
December 7, 2010
Palm Desert, CA
PRAGER, SEALY & CO., LLC
Did 2010 Predictions Come True?
Moody’s Fiscal Year 2009 US Private College and University Medians published
in July 2010 predicted:
“…operating cash flow margins…face more considerable stress in FY 2010”
“…net tuition revenue growth of private colleges and universities to be challenged
for FY2010…we expect net tuition revenues to show only modest growth”
“We expect growth in debt issuance to slow for FY 2010”
“…greater pressure on operating performance”
A month ago, the New York Times said that:
“…indicators are that overall giving for Fiscal 2010 may be flat…Harvard down 1 per
cent…Yale…slight decline…Chicago was up 1 per cent”
“…people are reluctant to make long-term commitments…”
How did FY 2010 turn out for PACCON members?
Just two weeks ago, the Los Angeles Times reported that Moody’s changed their
ratings outlook for the Los Angeles County Museum of Art from “stable” to “negative”
and LACMA stopped construction on their expansion until they can raise $63 million
more to back up their bonds.
How are our PACCON members holding up?
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PRAGER, SEALY & CO., LLC
Does Size Matter?
Large vs. Small based on FTE Students reported in 2009 NACUBO Endowment Study
Moody’s Ratios use 3,000 FTE Students as split between large and small institutions
Loyola Marymount University
University of LaVerne
5,901
Chapman University
5,791
University of Redlands
4,267
Seattle Pacific University
3,734
University of Portland
3,646
St. Mary's College of California
3,352
Lewis & Clark College
3,224
California Lutheran University
3,062
8,845 University of Puget Sound
Willamette University
Linfield College
Mount St. Mary's College
Whittier College
Occidental College
Pomona College
Reed College
Mills College
Whitman College
Claremont Graduate University
Claremont McKenna College
Pitzer College
Scripps College
Harvey Mudd College
2,776
2,434
2,191
1,939
1,911
1,854
1,516
1,428
1,424
1,423
1,340
1,211
992
898
756
5
Other categories:
 Length of MD&As or Treasurer’s Letters
 Pages of footnotes
 Timeliness of audit
 KBs of .pdf files
3
2
14
2
1
1
1
1
15
16
17
18
20
21
2
22
1
1
23
24
2
1
26
27
28
Pages of Footnotes
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PRAGER, SEALY & CO., LLC
Does Format Matter?
Statement of Activities
Without a non-operating section, determining endowment spending is problematic at best.
Lewis & Clark and California Lutheran were the most recent institutions to see this wisdom
Whose a pancake
afficionado?
Scripps
Seattle Pacific
Who else has caught the
Manifold/Spence fever?
Occidental
Pitzer
Balance Sheets
Very consistent – only St. Mary’s has more than one column for each year; and 7 PACCON institutions are
disclosing URNA details on the face! Hoorah!
Statement of Cash Flows
Indirect method dominates – though trendsetter Manifold has been at work.
We now have 5 direct method preparers! HMC, Pitzer, Scripps & SPU
Amazingly, 3 institutions have incorporated Endowment Statements as part of their opined statements.
Scripps, St. Mary’s, and Puget Sound.
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PRAGER, SEALY & CO., LLC
Operating Cash Flow Margins
Operating Cash Flow Margin (%)
Indicates the excess margin (or deficit) by which annual revenues cover operating expenses
The calculation adds back depreciation and interest when calculating net operating cash
flow.
Basis Point Change in Operating Cash Flow Margins
from FY 2009 to FY 2010
Lewis & Clark College
499
University of Redlands
464
Chapman University
383
Seattle Pacific University
(41)
Loyola Marymount University
(109)
California Lutheran University
(131)
St. Mary's College of California
(344)
University of Portland
(373)
University of LaVerne (1,509)
(2,000) (1,500) (1,000) (500)
Did Moody’s prediction come true or were
there other factors?
4
0
500
1,000
PACCON Median Large 2009 – 15.0%
Moody’s Median Large 2009 – 13.1%
PACCON Median Large 2010 – 13.9%
PRAGER, SEALY & CO., LLC
Primary Revenue Source
Percent Change in Net Tuition Revenues
Moody’s 2009 Median Change in Net Tuition per
student was 3.9%
PACCON’s Median Net Change in Net Tuition Revenue
was 2.9%
Chapman University
11%
California Lutheran University
11%
University of Portland
9%
Loyola Marymount University
3%
University of Redlands
3%
Lewis & Clark College
2%
University of LaVerne
2%
Seattle Pacific University
St. Mary's College of California
1%
-6%
Basis Point Change in Tuition Discount
Moody’s 2009 Median Tuition Discount = 27.8%
PACCON’s Median Tuition Discount = 31.7%
University of Portland
(62)
Chapman University
(12)
California Lutheran University
121
University of Redlands
154
Loyola Marymount University
184
Seattle Pacific University
194
Lewis & Clark College
203
University of LaVerne
215
373
St. Mary's College of California
Net Tuition Revenue is a function of:
 Student tuition and fees increases
2010 and 2011 were modest – what next?
 Changes in enrollment
Where has growth been occurring?
 Tuition Discount Rate
Tuition Discount Rate is a function of:
 Institutional policy
 Competition
 Packaging
First-year students and
Returning students both needed more
Will FY 2011 finish on the plus side?
What rate is sustainable?
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PRAGER, SEALY & CO., LLC
What About Auxiliary Enterprises?
Gross Returns on Auxiliary Enterprise Revenues
From the Statement of Activities
Auxiliary Enterprise Revenues less Auxiliary Enterprise Expenses
Chapman University
45%
University of LaVerne
38%
St. Mary's College of California
28%
Loyola Marymount University
21%
University of Redlands
14%
Lewis & Clark College
3%
Seattle Pacific University
-2%
California Lutheran University
University of Portland
-6%
-45%
Let’s hope Chapman and LaVerne
don’t have any accounting majors!
6
PRAGER, SEALY & CO., LLC
Giving Flat? Pledges Down?
Changes in Total Gifts and Grants
Changes in Contributions Receivable
Fiscal 2010 vs. Fiscal 2009
Lewis & Clark College
163% Lewis & Clark College
94%
California Lutheran University
66%
University of Redlands
32%
23%
Seattle Pacific University
16%
16%
University of LaVerne
12%
Loyola Marymount University
5%
St. Mary's College of California
-7%
Chapman University
University of Portland
Fiscal 2010 vs. Fiscal 2009
-16%
-36%
University of Portland
2%
Chapman University
2%
Loyola Marymount University
-28%
Seattle Pacific University
-29%
St. Mary's College of California
-32%
University of Redlands
University of LaVerne
-84%
Fiscal 2010 was not bad – some of the
differences were due to exceptionally
large gifts in the previous year.
California Lutheran University
New York Times probably reported
it correctly: “…people are reluctant
to make long-term commitments…”
What are you experiencing this year?
7
PRAGER, SEALY & CO., LLC
Has Endowment Spending Turned Around?
What’s This?
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PRAGER, SEALY & CO., LLC
Has Endowment Spending Turned Around?
Changes in URNA and TRNA Investment Income
For Operations
Fiscal 2010 vs. Fiscal 2009
Chapman University
64.5%
St. Mary's College of California
24.3%
Loyola Marymount University
6.1%
University of LaVerne
-21.2%
University of Redlands
-33.0%
University of Portland
Seattle Pacific University
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-49.1%
-80.5%
PRAGER, SEALY & CO., LLC
Who still has UPMIFA deficiencies?
Fair Value Less than Gift Value
At 2010 Fiscal Year End
($000)
University of Redlands
6,059
St. Mary's College of California
6,005
Lewis & Clark College
3,102
Loyola Marymount University
2,997
University of LaVerne
1,828
Chapman University
University of Portland
719
California Lutheran University
695
Seattle Pacific University
10
1,321
189
PRAGER, SEALY & CO., LLC
Was Anyone Able To Keep Expenses Down?
Changes in Total Operating Expenses
Fiscal 2010 vs. Fiscal 2009
Chapman University
10.4%
University of Portland
8.8%
University of LaVerne
7.8%
California Lutheran University
6.3%
Seattle Pacific University
3.0%
Loyola Marymount University
2.7%
St. Mary's College of California
University of Redlands
Lewis & Clark College
0.3%
TOTAL EXPENSES
PACCON Median Large 2009 – $100,557,000
Moody’s Median Large 2009 – $214,478,000
PACCON Median Large 2010 – $103,448,000
-0.3%
-2.1%
If you are holding tuition increases to inflation plus, then it’s going
to be hard to justify some of these bigger changes to total expenses.
Let’s see if we can figure out what caused some of them.
11
PRAGER, SEALY & CO., LLC
“We expect growth in debt issuance to slow for FY 2010”
Changes in Total Direct Debt
Changes in Interest Paid per SCF
Fiscal 2010 vs. Fiscal 2009
Loyola Marymount University
Fiscal 2010 vs. Fiscal 2009
12.1%
University of LaVerne
Lewis & Clark College
-1.0%
University of Redlands
California Lutheran University
-1.2%
Seattle Pacific University
University of LaVerne
-1.7%
California Lutheran University
University of Redlands
-2.3%
St. Mary's College of California
St. Mary's College of California
-2.3%
Chapman University
University of Portland
-2.5%
Lewis & Clark College
Chapman University
Seattle Pacific University
36.4%
30.8%
26.8%
24.4%
6.7%
1.1%
-5.6%
University of Portland
-3.2%
Loyola Marymount University
-8.9%
-15.0%
-65.9%
DIRECT DEBT MEDIANS
PACCON Large 2009 – $83,052,000
Moody’s Large 2009 – $159,720,000
PACCON Large 2010 – $80,971,000
Looks like Moody’s got this one right.
Any additional direct debt in the works for FY 2011?
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PRAGER, SEALY & CO., LLC
What About CapEx?
Capital Spending Ratio (%)
Measures the annual investment in capital facilities compared to annual depreciation
expense. The calculation divides purchases of property, plant and equipment (from the
statement of cash flows) by depreciation expense.
Change in Depreciation Expense
Capital Spending Ratio (%)
Fiscal 2010 vs. Fiscal 2009
Fiscal 2009 and Fiscal 2010
258%
California Lutheran University
University of Portland
1145%
St. Mary's College of California
'09 Median 349%
University of LaVerne
19%
Lewis & Clark College
2010
Seattle Pacific University
2009
11%
University of Redlands
11%
St. Mary's College of California
University of LaVerne
Seattle Pacific University
Lewis & Clark College
400%
800%
12%
California Lutheran University
Loyola Marymount University
0%
16%
Chapman University
'10 Median 150%
83%
20%
Loyola Marymount University
University of Redlands
Chapman University
University of Portland
1200% 1600%
7%
-2%
-4%
-10%
-5%
0%
5%
10%
15%
20%
25%
PACCON Median Large 2009 – 349%
Moody’s Median Large 2009 – 200%
PACCON Median Large 2010 – 150%
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PRAGER, SEALY & CO., LLC
What Has Been the Effect on Returns?
Return on Financial Resources (%)
Return on financial resources is calculated by dividing the net change in financial resources between
the current year and the prior year all divided by the financial resources of the prior year.
Return on Net Assets (%)
Return on net assets is calculated by dividing the net change in total net assets between the current
year and the prior year all divided by the total net assets of the prior year.
California Lutheran University
Chapman University
Loyola Marymount University
University of Portland
Lewis & Clark College
Seattle Pacific University
University of LaVerne
University of Redlands
St. Mary's College of California
Return on Net Assets
Return on Financial
Resources
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
RETURN ON FINANCIAL RESOURCES (%)
PACCON Median Large 2009 – -25.4%
Moody’s Median Large 2009 – -22.7%
PACCON Median Large 2010 – 12.9%
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RETURN ON NET ASSETS (%)
PACCON Median Large 2009 – -11.2%
Moody’s Median Large 2009 – -14.6%
PACCON Median Large 2010 – 8.3%
PRAGER, SEALY & CO., LLC
Did PACCON Large Beat the Predictions?
Variable
Prediction
Result
"…challenged..."
Met prediction
"…modest growth…"
About as expected
Debt Issuance
"…slowed…"
Met prediction
Overall Giving
"…flat…"
Very strong with few
exceptions
Operating Cash Flow Margin (%)
Net tuition revenues ($)
Operating performance:
Total expenses
Investment income
Interest paid
Return on Financial Resources (%)
15
"…pressure…"
Felt the pressure
Overall flat
Building pressure
Exceeded expectations
PRAGER, SEALY & CO., LLC
Did They Make the Call Correctly?
A Look at Fiscal Year 2010 through the Eyes of the Financial
Statements and the Ratios of the PACCON Large Institutions
Saul Rosenbaum
and
Fritz Weis
December 7, 2010
Palm Desert, CA
PRAGER, SEALY & CO., LLC