(a component unit of the State of Vermont)

Transcription

1 University of V e r m o n t & S tat e A g r i c u lt u r a l C o l l e g e F i n a n c i a l R e p o rt ANNUAL FINANCIAL REPORT University of Vermont & State Agricultural College

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3 University of V e r m o n t & S tat e A g r i c u lt u r a l C o l l e g e F i n a n c i a l R e p o rt ANNUAL FINANCIAL REPORT University of Vermont & State Agricultural College

4 The University of Vermont The Board of Trustees Carl H. Lisman, Ch a i r, Burlington, Vermont (March 2008) Frank J. Cioffi, Vice Chair, St. Albans, Vermont (March 2011) Bill Botzow, Se c r e ta r y, Bennington, Vermont (March 2011) Edwin H. Amidon, Jr., Charlotte, Vermont (March 2009) Claire D. Ayer, Weybridge, Vermont (March 2011) James M. Betts, Oakland, California (March 2010) Ian D. Boyce, Fort Wayne, Indiana, (March 2012) Harry L. Chen, Mendon, Vermont (March 2013) Robert F. Cioffi, Rowayton, Connecticut (March 2008) Jeffrey L. Davis, Burlington, Vermont (March 2013) Johannah Donovan, Burlington, Vermont (March 2011) Martha P. Heath, Westford, Vermont (March 2009) John A. Hilton, Jr., New York, New York (March 2012) Susan Hudson-Wilson, Chebeaque Island, Maine (March 2012) James P. Leddy, South Burlington, Vermont (March 2009) Deborah H. McAneny, Southborough, Massachusetts (March 2010) Raymond C. Pecor, Jr., Shelburne, Vermont (March 2008) Beth H. Rice, Burlington, Vermont (March 2009) John R. Snow, Charlotte, Vermont (March 2010) Donna G. Sweeney, Windsor, Vermont (March 2013) Jeanette White, Putney, Vermont (March 2013) Stirling A. Winder, Burlington, Vermont (March 2008) Robert H. Young, Rutland, Vermont (March 2009) Daniel Mark Fogel, President, ex officio James H. Douglas, Governor, ex officio Administration Daniel Mark Fogel President John M. Hughes Senior Vice President and Provost Francine T. Bazluke Vice President for Legal Affairs and General Counsel Frances E. Carr Vice President for Research and Dean of the Graduate College J. Michael Gower Vice President for Finance and Administration and University Treasurer Thomas J. Gustafson Vice President for Student and Campus Life Marcus M. Diamond Vice President for Development and Alumni Relations Karen N. Meyer Vice President for Federal, State and Community Relations Christopher H. Lucier Vice President for Enrollment Management Donald H. DeHayes Dean, The Rubenstein School of Environment and Natural Resources Rocki-Lee DeWitt Dean, School of Business Administration Frederick C. Morin, III Dean, College of Medicine Domenico Grasso Dean, College of Engineering and Mathematics Rachel K. Johnson Dean, College of Agriculture and Life Sciences Eleanor M. Miller Dean, College of Arts and Sciences David A. Nestor Dean of Students Betty A. Rambur Dean, College of Nursing and Health Sciences Mara R. Saule Dean, University Libraries and Learning Resources Fayneese S. Miller Dean, College of Education and Social Services Abu Rizvi Interim Dean, Honors College Carol M. Vallett and Cynthia L. Belliveau Directors, Continuing Education

5 2007 ANNUAL FINANCIAL REPORT Table of Contents 1 Letter from the President 2 Management s Responsibilit y for the Financial Report 3 Independent Auditors Report 5 Management s Discussion and Analysis 14 Statement of Net Assets 15 Statement of Revenues, Expenses and Changes in Net Assets 16 Statement of Cash Flows 17 Notes to Financial Statements

6 U N I V E R S I T Y O F V E R M O N T Letter from the President Members of the Board of Trustees: It is with great pleasure that I present the Annual Financial Report for the Fiscal Year Ended June 30, 2007 to you and to all of our stakeholders, including our students, faculty and staff, our generous alumni and donors, and the citizens of the State of Vermont. In these financial statements there is clear evidence that we are on track with the invest-and-grow strategy that we have been pursuing for the past five years. Over that time we have laid down, brick by brick, the foundations of enhanced quality and competitiveness at UVM. As we move forward toward our lofty but achievable goal to be among the nation s premier small research universities, a goal which will be the work of decades we do so with a solid financial foundation. The key building blocks are our Strategic Financial Plan and Strategic Capital Plan, along with the engagement of our stakeholder community in supporting those plans and in holding us accountable for their execution. Through this disciplined approach, our invest-and-grow strategy will allow us to continue to grow nationally-recognized academic quality and long-term fiscal strength, and to do so prudently within our means. Indeed, we are doing just that, not merely by building programmatic quality through innovations ranging from the Honors College to the National University Transportation Center to the Vermont Integrated Curriculum in Medicine, not just through growing levels of philanthropic support, but also through cost-effective management of the University. In October 2007, we had the formal dedication of the Dudley H. Davis Center; a Homecoming Weekend with record attendance, highlighted by a gala celebration of our success in The Campaign for the University of Vermont; and recognition of UVM by the Sustainable Endowments Institute as one of only six schools to have earned the highest grade for sustainable institutional practices out of the 200 American colleges and universities with the largest endowments. Then, in November we hosted a press conference here on campus for Governor Douglas, who announced a formal, long-term partnership between the State and the University to address global climate change and the development of a Green Economy for Vermont, precisely the big idea that my administration and members of this Board have been advocating for some years. Emboldened by our success together to date, we are nevertheless intent on pursuing a destiny that requires, for its fulfillment, discipline, focus, and unremitting effort over the long haul. Sincerely, Daniel Mark Fogel President 1

7 U N I V E R S I T Y O F V E R M O N T Management s Responsibility for the Financial Report The accompanying financial statements of The University of Vermont and State Agricultural College for the year ended June 30, 2007 are official documents prepared in accordance with U.S. generally accepted accounting principles set forth for public colleges and universities by the Governmental Accounting Standards Board. The management of the University is responsible for the integrity and objectivity of these financial statements, which are accessible to all. The University s system of internal accounting controls is designed to assure that the financial reports and the books of account properly reflect the transactions of the institution, in accordance with established policies and procedures as implemented by qualified personnel. The University Trustees selected the certified public accounting firm of KPMG, LLP to conduct the annual financial audit for fiscal year Periodically throughout the year the Trustee Audit Committee meets with the Institutional Risk and Audit Services Office and the external independent audit firm to review the audit plan and later the report. The Vermont State Auditor is invited to attend those meetings to offer comments and opinions. Both KPMG and the Institutional Risk and Audit Services Office have full access to the University Trustees and the State Auditor throughout the year. J. Michael Gower, Vice President for Finance and Administration and University Treasurer Bonnie Cauthon Associate Vice President for Finance and University Controller 2

8 U N I V E R S I T Y O F V E R M O N T KPMG LLP P.O. Box 564 Suite 400 Burlington, VT Mountain View Drive Colchester, VT To the Honorable Thomas Salmon, Auditor of the Accounts of the State of Vermont and The Board of Trustees The University of Vermont and State Agricultural College: Independent Auditors' Report We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of The University of Vermont and State Agricultural College ("the University ) as of and for the years ended June 30, 2007 and 2006, which collectively comprise the University s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the financial statements of the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinions, insofar as they relate to the amounts included for the discretely presented component unit, are based on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of the University as of June 30, 2007 and 2006, and the respective changes in financial position, and where applicable, cash flows thereof for the years then ended in conformity with U.S. generally accepted accounting principles. KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative. 3

9 U N I V E R S I T Y O F V E R M O N T The Management s Discussion and Analysis (MD&A) is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. December 5, 2007 Vt. Reg. No

10 U N I V E R S I T Y O F V E R M O N T Management s Discussion and Analysis (MD&A) (Unaudited) June 30, 2007 and 2006 Introduction The unaudited Management s Discussion and Analysis (MD&A) is intended to supplement the audited Financial Statements of the University of Vermont and State Agricultural College ( the University ). Discussion and analysis is generally limited to information regarding the basic financial statements and includes management s view of financial highlights and outlook for the future where appropriate and relevant. The University is a public, non-profit, comprehensive research institution of higher education with a fall 2007 enrollment of 11,189 undergraduate, graduate, and medical students. It is located in Burlington, Vermont with satellite instructional and research sites throughout Vermont. It is a component unit of the State of Vermont as it receives an annual appropriation from the State. The financial statements also present information for University Medical Education Associates, Inc. (UMEA). UMEA is a legally separate tax-exempt component unit of the University whose purpose is to support the operations, activities and objectives of the College of Medicine of the University of Vermont. The MD&A discusses the University s financial statements only and not that of its component unit. Financial Highlights and Economic Outlook The University increased its net assets in fiscal 2007, with a total increase of $48.1 million, or 8.63%. The University is engaged in realization of a long-term strategic plan that was incorporated into a financial feasibility study and then into a strategic financial model in The financial model is dynamic and has been updated and rolled forward each year to incorporate actual results. A cornerstone of the strategic plan has been growth in each area of the University s diverse revenue base. Total operating revenues increased in fiscal 2007 by 5.3%, with a 9.6% increase in net student tuition and fees. There was a slight decrease of.3% in federal, state, and private contracts and grants and a 9.7% increase in auxiliary enterprises. Certain important non-operating revenues also increased, including an increase of 11% in state appropriations, a 94.7% increase in investment income and an increase of 10.9% in private gifts. As presented in the chart below, net student fees and grants and contracts comprise the largest sources of revenue. 6% 3% 6% Net Student fees 20% 8% Federal, state and local grants and contracts 3% 14% Non-governmental grants and contracts Sales and services of educational activities and other income Other auxiliary enterprises State Appropriations, general Private gifts 40% Interest and Dividends, net 5

11 In addition to increasing revenues the University strives to control costs. Compensation and benefits represents the most significant operating cost, comprising 61.0% of operating costs in Health care benefits are an increasing portion of compensation and benefits, with increases to the net cost of health plan benefits of 7.4%, 6.0%, and 11.0% for 2007, 2006, and 2005, respectively. The chart below presents operating expenses for fiscal 2007: 4% 2% 2% Compensation and benefits 31% Supplies and services Depreciation 61% Scholarships and fellowships Interest and other The strategic plan includes investment in the physical and technological infrastructure of the University. Financing for this investment has come from a combination of donor generosity and the issuance of debt by the University. In 2005 the University established a commercial paper program with authorization for $100 million. The program is primarily intended to provide temporary financing for capital projects. The commercial paper is secured through the University s internal liquidity and a $50 million revolving credit agreement. On July 11, 2007 the University issued $158.2 million of general obligation bonds for the purpose of refunding outstanding general obligation bonds in the 1998 and 2002 series in the amount of $77.2 million and commercial paper notes of the University in the amount of $44.1 million and to finance the cost of construction, acquisition, renovation and equipping of various facilities of the University in the amount of $36.8 million. Projects completed during the current fiscal year included the South component of the University Heights Residential Learning Complex, with a total of 393 beds plus four apartments. Including the North Complex which was placed in service in fiscal 2006, the entire complex represents a total of 801 new beds and eight apartments. Construction on the Davis Student Center was substantially completed in fiscal 2007 and the center was opened for Fall semester In addition, the University completed its first full year of operations with its new enterprise resource planning system in fiscal Tuition and fees represent, net of scholarships, 40.0% of total revenues for fiscal The University s strategic plan includes a planned increase in undergraduate and graduate enrollment. That plan was on track in the fall of 2007, with 635 in-state and 1,815 out-of-state first-time, first-year enrollments. In the fall of 2007 the University enrolled 9,454 students in more than 80 undergraduate majors, 1,320 students in graduate and post baccalaureate programs, and 415 students at the College of Medicine. While the University attracts students from 48 states and many foreign countries, the University is primarily a regional institution, drawing 89.5% of the undergraduates enrolled in the fall of 2007 from New England and the Middle Atlantic States, including 34.7% of its undergraduate students from Vermont. In the fall of % of total students at the University were from Vermont. The University admissions for the fall of 2007 exceeded targets, putting the University ahead of its schedule for enrollment growth. The tables below present applications, admissions and enrollment for in-state and out-of-state students, with recent trends being positive. Based on preliminary numbers for the fall of 2007, total applications have increased 128% since 2001, with in-state applications increasing 40% and out-of-state applications increasing 147%. Total admissions have increased for that period by 99%, with in-state admissions increasing 17% and out-ofstate admissions increasing 119%. Total enrollments have increased since 2001 by 33%, with in-state enrollments increasing by 14% and out-of-state enrollments increasing by 42%. 6

12 Trends in in Vermont Applications, Admits, and and Enrollments Fall 2001 to to Fall 2007 VT Applicants VT Admits VT Enrolls 2,500 2,173 2,086 2,000 1,500 1,486 1,652 1,682 1,709 1,842 1,506 1,495 1,521 1,000 1,295 1,231 1,328 1, F 2001 F 2002 F 2003 F 2004 F 2005 F 2006 F 2007 Trends in in Out-of-State Applications, Admits, and Enrollments, Fall 2001 to to Fall ,500 15,000 OS Applicants OS Admits OS Enrolls 15,558 16,728 12,500 11,173 10,000 7,500 5,000 6,782 5,283 8,124 5,760 8,774 6,464 9,675 7,373 8,933 10,035 11,558 2, ,291 1,308 1,376 1,460 1,739 1,587 1,815 F 2001 F 2002 F 2003 F 2004 F 2005 F 2006 F

13 The University and its Board of Trustees have made a concerted effort to contain increases in tuition and fees with the average annual increases for in-state and out-of-state fees held to 5.50% and 5.05%, respectively, since The table below presents tuition and fees as well as room and board for that period. In-State & Out-of-State Fees Average Annual % Increase Student Fees In-State Tuition and Fees $8,665 $8,994 $9,636 $10,226 $10,748 $11,324 $12, % Out-of-State Tuition and Fees $20,725 $21,484 $22,688 $23,866 $24,934 $26,308 $27, % Room (Double) $4,040 $4,232 $4,465 $4,710 $4,936 $5,150 $5, % Board (Average Meal Plan) $2,056 $2,146 $2,216 $2,306 $2,396 $2,492 $2, % Total, In-State Cost $14,761 $15,372 $16,317 $17,242 $18,080 $18,966 $20,078 The University Increase and Over its Previous Board of Year Trustees 4.73% have made 4.14% a concerted 6.15% effort to 5.67% contain increases 4.86% in tuition 4.90% and fees 5.86% with the 5.19% average annual increases for in-state and out-of-state fees held to 5.50% and 5.05%, respectively, since The table below presents Total, tuition Out-of-State and fees, Cost as well as room $26,821 and board $27,862 for that $29,369 period. $30,882 $32,266 $33,950 $35,962 Increase Over Previous Year 4.61% 3.88% 5.41% 5.15% 4.48% 5.22% 5.93% 4.95% State of Vermont ( the State ) general appropriations represented 8.0% of the University s total revenues for fiscal year The State provides consistent support in the form of increased appropriations for higher education. Appropriations have increased each of the last three years, with general appropriations of $41.0 million and Maine Access Fees of $.2 million, as well as $2.7 million of one-time appropriations for special scholarships and technology innovation, for a total of $43.9 million in fiscal 2007, compared to $ 39.5 million for 2006 and $38.3 million in State funding represents 8.0% ($42.3 million) of the total fiscal year 2008 operating budget, an increase of 3.5% from the 2007 budget. Grant and contract revenues of $139.8 million represented 20.0% of total revenues for fiscal 2007, and included facility and administrative cost recoveries of $25.5 million. During fiscal 2007, the University was awarded over $107.2 million in sponsored funds, $80.1 million of which was for research activities. Approximately 74.5% of sponsored funds awarded during fiscal 2007 were from federal sources. The University s leading areas of externally sponsored programs are the biomedical sciences, agriculture, the environment, and education. The following chart presents the growth of sponsored programs over the past decade: Sponsored Program Awards By Purpose Awarded Funds (in Millions) Research Instruction Other ** Fiscal Year 8

14 t f, r e d l g e f l n s e n 5 s t s e s t t, d l s The University completed its comprehensive fundraising campaign during fiscal 2007, coming in at $278.5 million, well above the target of $250 million. Major initiatives of the campaign include: promoting academic excellence -- particularly in the areas of the environmental sciences, health sciences, and liberal arts -- through faculty chairs and professorships, increased merit and need-based scholarship opportunities, and creation of an honors college; building academic community among first-year students; promoting athletic excellence; and advancing diversity. Overview of the Financial Statements The financial statements of the University of Vermont and State Agricultural College (the University ) comprise two primary components: 1) the financial statements and 2) the notes to the financial statements. The financial statements focus on the University as a whole, rather than upon individual funds or activities. University Medical Associates, Inc. (UMEA) is a legally separate tax-exempt component unit of the University of Vermont which issues separate audited financial statements. UMEA is presented as a separate column on the University s Statement of Net Assets and Statement of Revenues, Expenses and Change in Net Assets. The University s financial report includes three financial statements: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows. These financial statements are prepared in accordance with U.S. generally accepted accounting principles, as defined for public colleges and universities by the Governmental Accounting Standards Board (GASB). Statement of Net Assets Net assets, or the difference between total assets and total liabilities, is considered an indicator of the current financial condition of the University. The statement of net assets presents all assets and liabilities of the University as of a specific date, June 30, the final day of the fiscal year. Assets and liabilities are classified as current or noncurrent. Current assets are classified as such if they are available to satisfy current liabilities, which are generally defined as being due within one year of the date of the statement of net assets. Condensed information for Net Assets at June 30, 2007, with comparative information for June 30, 2006 and 2005 follows: (in thousands) Assets Current assets $181,417 $155,958 $147,229 Non-current assets: Endowment, annuities and life income cash and cash equivalents and investments 320, , ,267 Deposits with Trustees 39,461 99,552 38,814 Capital assets, net 480, , ,605 Other 39,514 39,928 40,356 Total non-current assets 880, , ,042 Total assets 1,061, , ,271 Liabilities Current liabilities 75,452 65,161 66,230 Non-current liabilities 380, , ,992 Total liabilities 455, , ,222 Net assets Invested in capital assets, net of related debt 122, , ,575 Restricted: Nonexpendable 72,138 66,190 61,880 Expendable 299, , ,333 Unrestricted 111, , ,261 Total Net assets $605,799 $557,693 $527,049 Net assets totaled $605.8 million, $557.7 million, and $527.0 million at June 30, 2007, 2006, and 2005, respectively, increasing by $48.1 million, or 8.6%, in 2007 and $30.6 million, or 5.8%, in The positive increases in both years were significantly assisted by strong performance of the University s endowment. 9

15 Current assets of $181.4, $156.0, and $147.2 million at June 30, 2007, 2006, and 2005, respectively, consist primarily of cash and cash equivalents, and operating investments, which totaled $114.5 million at June 30, 2007, $106.9 million at June 30, 2006, and $100.5 million at June 30, Cash and cash equivalents represents approximately 2.9, 3.0, and 3.0 months of total operating expenses, excluding depreciation, for 2007, 2006, and 2005, respectively. The net increase to current assets in 2007 of $25.5 million was primarily due to a $16.8 million increase in accounts receivable, an increase in cash and cash equivalents of $2.1 million, an increase in operating investments of $5.5 million, an increase in investments for capital activities of $.7 million, and an increase of $.3 million in inventories, prepaid expenses and deferred charges. The net increase to current assets in 2006 of $8.7 million was comprised primarily of an increase to cash and cash equivalents and operating investments of $6.4 million and an increase in accounts, loans, notes and pledges receivable of $1.6 million. Endowment cash, cash equivalents and investments totaled $321.0 million, $267.8 million, and $244.3 million, at June 30, 2007, 2006, and 2005, respectively, representing an increase of $53.2 million, or 19.9%, in 2007 and $23.5 million, or 9.6%, in The University s longterm investment pool consists of permanent endowments, term endowments, and funds functioning as endowment, commonly referred to as quasi-endowments. Permanent endowments are those funds received from donors with the stipulation that the principal remain inviolate and be invested in perpetuity to produce income to be expended for the purposes specified by the donor. Term endowments are those funds received from donors that function as endowment until a specific event occurs, such as reaching a certain balance. Funds functioning as endowment consist of restricted gifts and unrestricted funds that have been designated by the University s Board of Trustees for long-term investment purposes. These funds are not subject to donor restrictions requiring the University to preserve the principal in perpetuity. Programs supported by the endowment include scholarships, fellowships, professorships, research efforts and other programs and activities related to the University s mission. The University s investment objective for endowment growth is to obtain an average real annual rate of return (net of investment fees) over the long-term, using a fiveyear moving average, of at least 5% over inflation, as measured by the Consumer Price Index. The current annual spending allocation is at a budgeted rate of 4.5% of the previous 13 quarters average market value of the long-term investment pool. The spending distributions from the total endowment were $10.9 million, $9.5 million, and $8.8 million, in fiscal years ended June 30, 2007, 2006, and 2005, respectively. These distributions were 3.4%, 3.8%, and 3.9%, of the beginning market value of the endowment for fiscal years 2007, 2006, and 2005, respectively. The decrease in Deposits with trustees of $60.1 million in 2007 was primarily due to draw downs of $61.6 for construction and other capital projects offset by interest earned on deposits of $1.5 million. The increase in Deposits with trustees of $60.7 million in 2006 was primarily the result of bond proceeds of $156.8 million from the 2005 Series general obligation bonds issued in September 2005, net of draw downs and interest earned for the 2005 and 2002 Series general obligation bonds in the net amount of $95.7 million. The construction fund of the 2005 bond totaled $13.6 million at June 30, 2007 and $74.3 million at June 30, The construction fund of the 2002 bond totaled $1.0 million, $2.7 million, and $6.0 million, at June 30, 2007, 2006, and 2005, respectively. Major capital projects funded through the 2005 bond issue include residential life facilities and the continuing construction costs for the Davis Student Center. Major capital projects funded through the 2002 bond issue included new research facilities, residential life facilities, a parking facility, life safety system modifications to existing residential life buildings, and heat line replacement. Capital assets, net of accumulated depreciation, totaled $480.1 million, $422.4 million, and $323.6 million, at June 30, 2007, 2006, and 2005, respectively, representing an increase of $57.7 million, or 13.7%, in 2007 and $98.8 million, or 30.5%, in Gross capital additions totaled $122.8 million in 2007 and $129.8 million in Capital additions in 2007 included land of $1.9 million, a new student center, residence halls and other buildings of $72.9 million, building components and equipment of $3.4 million, software systems of $11.8 million, and construction in progress of $32.8 million. Capital additions in 2006 included land of $1.2 million, new residence halls and academic buildings of $76.1 million, building components and equipment of $12.3 million, software systems of $11.6 million and construction in progress of $28.6 million. Current liabilities had an increase of $10.3 million in 2007 compared to a decrease of $1.1 million in The significant increase in 2007 was primarily due to an increase of $8.9 million in accounts payable and accrued liabilities, resulting from year-end efforts at June 30, 2006 to minimize accounts payable as part of the transition to the new enterprise resource planning system implemented in July 2007, and an increase of $1.2 million in deferred revenue, deposits and funds held for others. Non-current liabilities increased $17.5 million in 2007 compared to $161.8 million in The significant increase in 2006 was primarily the result of the 2005 general obligation bonds issued in September The increase in 2007 was primarily due to the issuance of commercial paper notes in the amount of $20.1 million, offset by payments of bond principal of $4.4 million, and increases in other accrued liabilities of $.9 million in Net assets invested in capital assets, net of related debt, of $122.9, $125.6, and $131.6, at June 30, 2007, 2006, and 2005, respectively, represent the University s capital assets of land, buildings and equipment net of accumulated 10

16 depreciation and net of outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. The decrease of $2.7 million in 2007 is primarily due to the net effect of additions to capital assets of $79.4 million, the increase in bonds payable related to those assets of $60.4 million, depreciation expense of $20.4 million and loss on disposal of $1.2 million. The decrease of $6.0 million in 2006 was primarily due to the net effect of additions to capital assets of $116.5 million, the increase in bonds payable related to those assets of $104.7 million, and depreciation expense of $16.8 million. Restricted nonexpendable net assets totaling $72.1 million, $66.2 million, and $61.9 million, at June 30, 2007, 2006, and 2005, respectively, consist entirely of the University s permanent endowment funds. The corpus of nonexpendable restricted resources is only available for investment purposes. The increase of $5.9 million, or 9.0%, in 2007 was due to gifts of $5.9 million. The increase of $4.3 million, or 7.1%, in 2006, included gifts of $4.2 million. Restricted expendable net assets are subject to externally imposed restrictions governing their use. Restricted expendable net assets totaled $299.1 million, $240.0 million, and $228.3 million, as of June 30, 2007, 2006, and 2005, respectively. Unrestricted net assets are not subject to externally imposed stipulations. However, substantially all of the University s unrestricted net assets have been designated for various academic and research programs and initiatives, as well as capital projects. Unrestricted net assets totaled $111.7 million, $126.0 million, and $105.3 million, for June 30, 2007, 2006, and 2005, respectively. Statement of Revenues, Expenses and Changes in Net Assets The components of the change in net assets are presented in the statement of revenues, expenses and changes in net assets. This statement displays the revenues earned by the University, the expenses incurred by the University and the resulting increase or decrease in net assets. Revenues and expenses are categorized as either operating or nonoperating and net operating income or loss is displayed. Operating revenues generally are those earned through providing services or goods to the University s customers. Operating expenses are incurred in providing those services and goods. Significant recurring sources of the University s revenues, including state appropriations and gifts and investment income or loss are considered non-operating. Condensed information for the year ended June 30, 2007, with comparative totals for the years ended June 30, 2006 and 2005, follows: (in thousands) Operating revenues $402,180 $382,034 $353,912 Operating expenses 493, , ,406 Operating income (loss) (90,982) (62,230) (61,594) Net non-operating revenues (expenses) 123,530 84,640 78,463 Income before capital and endowment additions 32,548 22,410 16,869 State capital appropriations 1,800 1,700 2,600 Capital and endowment gifts and grants 13,758 6,534 10,034 Total other revenues 15,558 8,234 12,634 Increase in net assets 48,106 30,644 29,503 Net assets, beginning of year 557, , ,546 Net assets, end of year $605,799 $557,693 $527,049 Net assets increased by $48.1 million in 2007 compared to increases of $30.6 million in 2006 and $29.5 million in Significant contributors to the 2007 increase were an increase of $35.6 million in investment income, an increase in state appropriations of $4.4 million, an increase in capital gifts and grants of $5.5 million and an increase of gifts for endowment of $1.7 million. Operating revenues include the following: Student Tuition and Residential Life Fees, net of scholarship allowances, are the largest component of operating revenues and the primary source of funding 11 for the University s academic programs. Net Student Fees increased by $19.0 million in 2007, comprised of an increase to tuition and fees of $18.9 million, or 9.2%, and residential life of $3.6 million, or 10.7%, offset by an increase in scholarship allowances of $3.6 million, or 8.8%. Net Student Fees increased by $24.5 million in 2006, comprised of an increase in tuition and fees of $23.4 million, or 12.8%, and residential life fees of $4.8 million, or 16.7%, offset by an increase in scholarship allowances of $3.8 million, or 10.2%. Scholarship and fellowship awards applied to student accounts are presented as a reduction of student tuition and fee and residential life

17 revenues, while payments directly made to students are presented as scholarship and fellowship expenses. Total scholarships and fellowships of $57.5 million, $53.2 million, and $50.2 million were awarded to students in 2007, 2006, and 2005, respectively. This represents a total increase of $4.5 million, or 8.5%, for 2007 as compared to $3.0 million, or 6.0%, for Revenues for sponsored programs, of $139.8 million in 2007, $140.2 million in 2006, and $138.0 million in 2005, include federal appropriations, grants and contracts, as well as state and non-governmental grants and contracts that normally provide for the recovery of direct and indirect costs, or expenses. The decrease of $.4 million in 2007and increase of $2.2 million in 2006 are primarily the result of an increase of $.2 million in federal appropriations, grants and contracts and a decrease of $.6 million in private grants for 2007 and an increase in private grants of $2.7 million in Revenues for sponsored programs are recognized as expenses are incurred on grants and contracts that have been previously awarded. The revenues for sponsored programs include recovery of indirect costs, referred to as facilities and administrative costs, of $25.5, $26.3 million, and $25.0 million, in 2007, 2006, and 2005, respectively. Auxiliary enterprise and educational activities revenues totaled $35.1 million, $33.9 million, and $32.2 million, in 2007, 2006, and 2005, respectively. Auxiliary enterprises include business type enterprises such as the bookstore, printing and mail services and continuing education that provide support to the University s primary missions of education, research and public service. Student loan interest and other operating revenues were $9.7 million, $9.4 million, and $9.6 million, in 2007, 2006, and 2005, respectively. Significant components of operating expenses include the following: Compensation and benefits of $303.9 million, $275.0 million, and $248.8 million in 2007, 2006, and 2005, respectively, comprise the most significant portion of total expenses. Compensation and benefits increased by $28.9 million, or 10.5%, in 2007 and $26.2 million, or 10.5%, in These increases reflected budgeted increases of 4.5% in 2007 and 4.5 % in 2006 in the non-represented staff salary pool, as well as budgeted increases of 6% in 2007 and 4.5% in 2006 to faculty salaries subsequent to the bargained agreement reached in In addition, health plan benefit costs increased by $2.4 million, or 7.4%, in 2007 and $1.8 million, or 6.0% in Supplies and services expenses increased by $15.7 million, or 11.2%, in 2007 and decreased $.5 million, or.3%, in This classification encompasses the many and varied non-compensation expenses that are required for the operation of the university, including utilities, professional services, noncapitalized equipment, and minor renovations. Depreciation expense increased by $3.6 million, or 21.1%, in 2007 and $3.9 million, or 29.9%, in 2006 resulting from the increase in capital assets as significant projects were completed. Scholarships and fellowships of $12.6 million in 2007 and $11.8 million in 2006 are comprised of direct payments to students. As noted above, in addition to the amounts reflected in scholarships and fellowships expense, financial aid is applied to tuition and residential life fees and amounts applied to each are reflected in the financial statements as a reduction of those revenues. Net non-operating revenue is comprised of several revenue and expense categories that are not considered to be operating or exchange transactions. Net nonoperating revenues totaled $123.5 million, $84.6 million, and $78.5 million, in 2007, 2006, and 2005, respectively, resulting in an increase of $38.9 million in 2007 and $6.1 million in The increase in 2007 is primarily due to an increase in investment income of $35.6 million, an increase in private gifts of $1.4 million and an increase in state appropriations of $4.4 million, offset by an increase in interest on indebtedness of $3.4 million. The increase in 2006 is primarily due to a $2.8 million increase in gifts and a $2.9 million increase in net investment income. Net non-operating revenue includes various non-operating revenues and expenses that are grouped together on the statement of revenues, expenses and changes in net assets and include the following: State appropriations, which represent funding provided by the State of Vermont, increased by $4.4 million, or 11.0%, in 2007 and $1.2 million, or 3.2%, in Private gifts and UMEA Grants to the UVM College of Medicine totaled $18.8 million, $16.5 million, and $13.4 million in 2007, 2006, and Net investment income was $73.1 million, $37.5 million, and $34.6 million in 2007, 2006, and 2005 respectively. Net investment income includes both realized investment income and the change in the unrealized appreciation or depreciation of investments. The change in unrealized appreciation included in net investment income was $46.4 in 2007, $1.2 million in 2006, and $15.1 million in Realized gains and other income included in net investment income totaled $26.7, $36.4 million, and $19.6 million, in 2007, 2006, and 2005 respectively. Interest on indebtedness totaled $10.1 million in 2007, $6.7 million in 2006, and $5.9 million in Interest on indebtedness represents interest on notes and bonds net of capitalized interest. 12

18 Loss on disposal of capital assets was $1.2 million in 2007, $.8 million in 2006, and $.3 million in Net other non-operating expenses totaled $1.0 million, $1.3 million, and $1.6 million in 2007, 2006, and 2005, respectively. Other financial resources presented after Income (Loss) before capital and endowment additions include the following: State capital appropriations increased by $.1 million in 2007 and decreased by $.9 million in Capital and endowment gifts and grants increased by $7.2 million, or 110.0%, in 2007 and decreased by $3.5 million, or 34.8%, in Expenses are presented in the financial statements by natural classification, according to the type of expense, such as compensation. In addition, expenses may be aggregated by the functions that they support. Total expenses increased by $52.3 million, or 11.5%, in 2007 compared to $29.8 million, or 7.0%, in With the exception of scholarships and fellowships, depreciation, and interest expense, the increases in each of the functional categories reflect the increases in compensation and benefits and supplies and services discussed above. Operations and maintenance of plant includes un-capitalized costs for projects including selection and training cost for the University s new resource planning system. The chart below presents total expenses by function for 2007, 2006, and 2005: Operating Expenses by Functional Classifications ($ in thousands) Instruction Research Public service Academic support Student services Institutional support Operations and maintenance of Plant Scholarships and fellow ships Auxiliary enterprises Depreciation The following chart presents total expenses by natural classification (object) for 2007, 2006 and 2005: Operating Expenses by Natural Classifications ($ in thousands) Compensation and benefits Supplies and services Depreciation Scholarships and fellow ships 2007 Interest and other

19 Statement of Net Assets as of June 30, 2007 and 2006 (dollars in thousands) UMEA 2007 UMEA 2006 ASSETS Current Assets: Cash and cash equivalents $ 25,067 $ 22,962 $ 819 $ 2,424 Operating investments 89,447 83,945 8,504 7,574 Investments for capital activities 5,707 4, Accounts, loans, notes and pledges receivable, net 52,650 35,862 1,855 1,354 Inventories, prepaid expenses and deferred charges 8,546 8, Total current assets 181, ,958 11,181 11,363 Non-current assets: Endowment cash, cash equivalents and investments 320, , Student loans, notes, and pledges receivable, net 35,729 36, Deposits with Trustees 39,461 99, Prepaid expenses, deferred charges and other assets 3,785 3, Capital assets, net 480, , Total non-current assets 880, , Total Assets 1,061, ,609 11,335 11,557 LIABILITIES Current Liabilities: Accounts payable and accrued liabilities 51,652 42, ,089 Deferred revenue, deposits, and funds held for others 19,235 18, Bonds and notes payable 4,565 4, Total current liabilities 75,452 65, ,089 Non-current liabilities: Obligations under deferred giving arrangements 2,791 2, Bonds and notes payable 364, , Accrued liabilities 12,477 11, Total non-current liabilities 380, , Total Liabilities 455, , ,089 NET ASSETS Invested in capital assets net of related debt 122, , Restricted: Non-Expendable 72,138 66, Expendable 299, , Unrestricted 111, ,975 10,038 9,901 Total Net Assets $ 605,799 $ 557,693 $ 10,372 $ 10,468 The accompanying notes are an integral part of the financial statement. 14

20 Statement of Revenues, Expenses and Changes in Net Assets for the years ended June 30, 2007 and 2006 (dollars in thousands) UMEA 2007 UMEA 2006 Operating Revenues Tuition and fees $224,756 $205,774 $ - $ - Residential Life 37,730 34, Less scholarship allowances (44,966) (41,329) - - Net student fees 217, , Federal, state, and private grants and contracts 139, , Sales and services of educational activities 4,414 5, Other Auxiliary Enterprises 30,678 27, Student loan interest and other operating revenues 9,730 9, Total operating revenues 402, , Operating expenses Compensation and benefits (303,877) (274,990) (216) (241) Supplies and services (156,276) (140,576) - - Depreciation (20,439) (16,873) - - Scholarships and fellowships (12,570) (11,825) - - Total operating expenses (493,162) (444,264) (216) (241) Operating loss (90,982 ) (62,230 ) (25 ) (27 ) Non-operating revenues (expenses) State appropriations 43,855 39, Private gifts 14,626 13,192 5,366 4,252 Net investment income 73,089 37,533 1, Interest on indebtedness (10,059) (6,697) - - Loss on disposal of capital assets (1,196) (838) - - Net other non-operating expense (986) (1,328) - - UMEA Grants to UVM College of Medicine & others 4,201 3,280 (6,523) (4,351) Net non-operating revenues 123,530 84,640 (71) 489 Income before capital and endowment additions 32,548 22,410 (96) 462 State capital appropriations 1,800 1, Capital gifts and grants 7,842 2, Gifts for endowment purposes 5,916 4, Total other revenues 15,558 8, Increase in net assets 48,106 30,644 (96) 462 Net Assets, Beginning of Year 557, ,049 10,468 10,006 Net Assets, End of Year $605,799 $557,693 $10,372 $10,468 The accompanying notes are an integral part of the financial statement. 15

21 Statement of Cash Flows for the years ended June 30, 2007 and 2006 (dollars in thousands) Cash Flows From Operating Activities Tuition and fees $188,853 $169,611 Grants and contracts 121, ,566 Sales & services of educational activities 4,414 5,908 Sales and services of auxiliary enterprises: Residential Life fees 31,216 28,212 Other 30,678 27,977 Payments to employees and benefit providers (295,914) (265,101) Payments to vendors (154,054) (150,839) Payments for scholarships and fellowships (12,570) (11,825) Student loans issued (4,494) (3,696) Student loans collected, interest and other revenue 6,083 6,015 Other receipts, net 8,762 8,391 Net cash used in operating activities (75,439) (44,781) Cash Flows From Noncapital Financing Activities State general appropriation 43,855 39,498 Private gifts for other than capital purposes 21,279 17,818 Deposits of affiliates, student organizations and others (706) 191 Amounts paid to life income participants and related expenses (628) (1,478) Net cash provided by non-capital financing activities 63,800 56,029 Cash Flows From Capital Financing Activities Proceeds from capital debt 181, ,164 State capital appropriation 1,800 1,700 Capital grants, gifts and other income 5,875 1,294 Purchases and construction of capital assets (79,700) (120,663) Disposal of capital assets Principal and interest paid on capital debt (175,095) (103,416) Changes in deposits with trustees, net 61,973 (60,953) Net cash used in capital financing activities (4,092) (21,874) Cash Flows From Investing Activities Proceeds from sales and maturities of investments 250, ,901 Purchase of investments (275,841) (299,675) Interest and dividends on investments, net 26,986 36,207 Net cash provided by investing activities 1,919 20,434 Net Increase/(Decrease) in Cash and Cash Equivalents (13,812) 9,808 Cash and cash equivalents - beginning of year 47,160 37,352 Cash and Cash Equivalents - End of Year * $33,348 $47,160 Reconciliation of Operating Loss To Cash Used by Operating Activities Operating loss $(90,982 ) $(62,230 ) Adjustments to reconcile net income to net cash used in Operating Activities: Depreciation expense 20,439 16,873 Changes in assets and liabilities: Accounts receivable and loan receivables, net (16,169) 34 Inventories and prepaid expense (291) 276 Accounts payable 3,284 (2,857) Deferred revenue, deposits and accrued liabilities 8,280 3,123 Net cash used in operating activities $(75,439 ) $(44,781 ) * of total cash and cash equivalents for 2007, $25,067 is current and $8,281 is non-current endowment and for 2006, $22,962 is current and $24,198 is non-current endowment The accompanying notes are an integral part of the financial statement. 16

22 (dollars in thousands) Notes To Financial Statements for the years ended June 30, 2007 nd 2006 (dollars in thousands) A. Summary of Significant Accounting Policies 1. Organization and Presentation The University of Vermont and State Agricultural College is a public, non-profit, comprehensive research institution of higher education with an enrollment of approximately 11,000 undergraduate, graduate, and medical students. It is located in Burlington, Vermont with satellite instructional and research sites throughout the State. The University of Vermont and State Agricultural College is a component unit of the State of Vermont as it receives an annual appropriation from the State. University Medical Education Associates, Inc. (UMEA) is a legally separate tax-exempt component unit of the University of Vermont. UMEA is governed by a minimum nine-member board; six members are named as a result of their positions at the University of Vermont and the remaining are elected by the other members. UMEA s purpose is to support the operations, activities and objectives of the College of Medicine of the University of Vermont. UMEA is a public non-profit organization that reports under GASB Standards. UMEA issues separate audited financial statements, which may be obtained by contacting the Dean s Office, College of Medicine. In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units (an amendment of GASB 14), UMEA is discretely presented on the University s Statement of Net Assets and Statement of Revenues, Expenses, and Changes in Net Assets. The University has received a letter from the Internal Revenue Service recognizing the University as an organization that is tax-exempt on related income under Section 501(a) of the Internal Revenue Code. The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with U.S. generally accepted accounting principles as defined for public colleges and universities by the Governmental Accounting Standards Board (GASB). The University has elected not to adopt statements issued by the Financial Accounting Standards Board (FASB) after November 30, Net assets are categorized as follows: Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Such assets include the University s physical plant. Restricted: Non-Expendable - Net assets subject to externally imposed stipulations that they be maintained permanently by the University. Such assets include the corpus of the University s true endowment funds. Expendable - Net assets whose use by the University is subject to externally imposed stipulations that can be fulfilled by actions of the University to meet those stipulations or that expire through the passage of time. Such assets include restricted gifts, grants and contracts. Unrestricted: Net assets that are not subject to externally imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of management or the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. The University s policy for defining operating activities as reported on the Statement of Revenues, Expenses, and Changes in Net Assets are those that generally result from exchange transactions such as payments received for providing services and payments made for services or goods received. Non-exchange transactions such as gifts, investment income, state appropriations and interest on indebtedness are reported as non-operating revenues and expenses. When both restricted and unrestricted net assets are available and appropriate to fund an expense, the University s practice is to allow the budget manager to determine which to use in each instance. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The most significant areas that require management estimates relate to valuation of certain investments, allowance on accounts and loans receivable, depreciation, and certain accruals. Certain prior year balances have been reclassified to conform to the current year presentation. 17