A N N U A L F I N A N C I A L R E P O R T. University of Vermont & State Agricultural Coll e g e

Transcription

1 A N N U A L F I N A N C I A L R E P O R T University of Vermont & State Agricultural Coll e g e ( a c o m p o n e n t u n i t o f t h e S t a t e o f V e r m o n t )

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3 A N N U A L F I N A N C I A L R E P O R T U n i v e r s i t y o f V e r m o n t & S t a t e A g r i c u l t u r a l C o l l e g e ( a c o m p o n e n t u n i t o f t h e S t a t e o f V e r m o n t )

4 The University of Vermont The Board of Trustees Ian D. Boyce, Fort Wayne, Indiana (March 2012) Frank J. Cioffi, Vice Chair, St. Albans, Vermont (March 2011) Bill Botzow, Secretary, Bennington, Vermont (March 2011) Claire D. Ayer, Weybridge, Vermont (March 2011) John A. Hilton, Jr., New York. New York (March 2012) Samuel E. Bain, Weston, Massachusetts (March 2014) Susan Hudson-Wilson, Chebeaque Island, Maine (March 2012) James M. Betts, Oakland, California (March 2010) Deborah H. McAneny, Southborough, Massachusetts (March 2010) Carolyn W. Branagan, Georgia, Vermont (March 2015) David E. Potter, North Clarendon, Vermont (March 2015) Christopher A. Bray, New Haven, Vermont (March 2015) Adam S. Roof, South Walpole, Massachusetts (March 2011) Harry L. Chen, Mendon Vermont (March 2013) William F. Ruprecht, New York, New York (March 2014) Robert F. Cioffi, Rowayton, Connecticut (March 2014) John R. Snow, Charlotte, Vermont (March 2010) Jeffrey L. Davis, Burlington, Vermont (March, 2013) Donna G. Sweeney, Windsor, Vermont (March 2013) Jason DePatie, Burlington, Vermont (March 2010) Jeanette White, Putney, Vermont (March 2013) Johannah Donovan, Burlington, Vermont (March 2011) Mark S. Young, Orwell, Vermont (March 2015) Daniel Mark Fogel, President, ex officio James H. Douglas, Governor, ex officio Administration Daniel Mark Fogel Jane E. Knodel Francine T. Bazluke Domenico Grasso Richard H. Cate Thomas J. Gustafson Kathleen Kelleher Karen N. Meyer Christopher H. Lucier Mary C. Watzin Larry E. Shirland Frederick C. Morin, III Barnard F. Cole Thomas C. Vogelmann Eleanor M. Miller David A. Nestor Patricia A. Prelock Mara R. Saule Fayneese S. Miller Abu T. Rizvi Carol M. Vallett President Interim Senior Vice President and Provost Vice President for Legal Affairs and General Counsel Vice President for Research and Dean of the Graduate College Vice President for Finance and Administration and University Treasurer Vice President for Student and Campus Life Interim Vice President for Development and Alumni Relations Vice President for Federal, State and Community Relations Vice President for Enrollment Management Dean, The Rubenstein School of Environment and Natural Resources Interim Dean, School of Business Administration Dean, College of Medicine Interim Dean, College of Engineering and Mathematics Interim Dean, College of Agriculture and Life Sciences Dean, College of Arts and Sciences Dean of Students Dean, College of Nursing and Health Sciences Dean, University Libraries and Learning Resources Dean, College of Education and Social Services Dean, Honors College Dean, Continuing Education

5 A N N U A L F I N A N C I A L R E P O R T Table of Contents 1 Letter from the President 2 Management s Responsibility for the Financial Report 3 Independent Auditors Report 5 Management s Discussion and Analysis 15 Statements of Net Assets 16 Statements of Revenues, Expenses and Changes in Net Assets 17 Statements of Cash Flows 18 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: With continuing pride in Vermont s University, I am pleased to present the Annual Financial Report for the fiscal year ended June 30, 2009 to you and to all of our stakeholders, including our deeply engaged faculty, staff, and students, our committed and generous alumni and friends, and the citizens of the State of Vermont. These financial statements illustrate that the University was affected by the same factors that presented so many challenges across the nation and around the world. They also indicate, however, that UVM has weathered the storm well and that the effects on the University were not as detrimental as originally anticipated. To be sure, net assets did decline in FY 2009: two significant contributors to that decline were the difficulties faced in the financial markets and the recognition of the University s liability for post-retirement medical benefits, precisely the same factors described in last year s report. We must find ways to mitigate the rapid and deep accrual of liability for post-retirement benefits through measures that will ensure the long-term financial strength of the University while continuing to meet faculty and staff benefits needs. In spite of these challenges to our financial condition, other components of our net assets improved over the course of the past fiscal year. When the Annual Financial Report for FY 2008 was finalized a year ago, we had recently learned that we would not have access to most of our operating capital for an extended period of time. We managed our way through this challenge without ever having to draw on available lines of credit to meet our obligations. I am pleased to report that we now have access to 92% of the assets to which access was restricted. Though we still had to manage a general fund structural budget gap, two positive factors helped us to minimize the amount of reserves needed to fund the operating budget: first, we spent less than what was authorized in the FY 2009 general fund budget and, second, revenues exceeded the budgeted amount. In spite of the financial challenges that confront us, we must be intent on sustaining the positive trajectory of the University, focusing on academic quality and distinction. Over the past year, we have demonstrated our ability to do so by achieving a record level of grant and contract awards and by again enrolling this fall record numbers of students at all levels, with a first-year undergraduate class that is our most diverse ever and with the highest number ever of Vermont Green and Gold Scholars and of National Merit Scholars from Vermont and other states. I want to thank all of the members of our University community for their contributions to the success of UVM over the course of this challenging year. I look forward to continuing this important work with you for the benefit of Vermont, the nation, and the world as we maximize the use of our financial resources to support UVM s advance as one of the nation s premier small research universities. 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 2

8 U N I V E R S I T Y O F V E R M O N T 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: 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) (a component unit of the State of Vermont) as of and for the years ended June 30, 2009 and 2008, 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, 2009 and 2008, 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) and the schedules of funding progress and employer contributions are not a required part of the basic financial statements but are 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. October 26, 2009 Vt. Reg. No

10 Introduction 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, 2009 and 2008 The Management s Discussion and Analysis (MD&A) provides a broad overview of the University of Vermont s financial condition as of June 30, 2009 and 2008, the results of its operations for the years then ended and significant changes from the previous years and outlook for the future where appropriate and relevant. Management has prepared the financial statements and related footnote disclosures along with this MD&A. The MD&A should be read in conjunction with the financial statements and related notes. The University is a public, non-profit, comprehensive research institution of higher education established in 1791 as the fifth college in New England. The University consists of seven undergraduate schools and colleges, including the College of Agriculture and Life Sciences, Arts and Sciences, Education and Social Services, Engineering and Mathematical Sciences, Nursing and Health Sciences, the School of Business Administration and the Rubenstein School of Environment and Natural Resources. The University also includes an Honors College, the College of Medicine, the Division of Continuing Education and the Graduate College. The University of Vermont is the only comprehensive research university in Vermont. The University has 10,371 undergraduate students and 2,009 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. For financial reporting purposes the University s reporting entity consist of all sectors of the University and also includes the financial 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 those of its component unit. The focus of the MD&A is on the University s financial information contained in the statement of net assets, the statement of revenues, expenses and changes in net assets and the statement of cash flows. Financial Highlights and Economic Outlook The University s net assets decreased by $115.8 million in fiscal 2009, compared to a decrease in fiscal 2008 of $48.3 million. Two significant contributors to the decrease were the difficult financial markets, resulting in a net loss on the investment portfolio of $ 71.0 million in fiscal 2009 compared with a $4.2 million increase in fiscal 2008 and the recognition of the University s liability for other post retirement benefits. On May 5, 2009 the state of Vermont passed the Uniform Prudent management of Institutional Funds Act (UPMIFA) which enabled institutions to manage overall endowment returns, without specifically isolating those particular endowments that, because of timing of receipt of the gift and market conditions, are deemed underwater. The University adopted underwater guidelines based on this new legislation. Effective for fiscal year beginning July 1, 2007 the University is required to account for its postemployment benefit plan in accordance with GASB Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (OPEB). GASB Statement 45 prescribes a methodology which requires the employer to recognize an expense for the value of benefits earned during the current year by active employees (i.e. the normal cost) plus an amortization of the unfunded portion of the value of the plan benefits earned to date by active and retired employees (i.e., the actuarial accrued liability). The University recognized $36.5 million of OPEB cost in fiscal The actuarial accrued liability at the measurement date of July 1, 2007 was $320.2 million. The University is engaged in implementing 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 2009 by $30.9 million or 7.2%. This included an increase in net student tuition and fees of $23.9 million, or 10.2% and an increase in auxiliary revenues of $2.1 million, or 5.4%. There was an increase of $6.1 million, or 4.3% in federal, state, and private grants and contracts. Certain important non-operating revenues also increased, including a slight increase of less than $1 million, or 1.6% in private gifts. Other critical revenues include state appropriations which decreased by 4.8% in 2009, compared to a 1.8% increase in The decrease in state appropriations is primarily due to a reduction in the general revenue appropriation of $1.5 million. Investment income, as noted above, experienced a significant decrease compared with As presented in the chart below, net student fees and grants and contracts comprise the largest 5

11 sources of revenue. ($ in thousands) Net Student fees Federal, state and local grants and contracts Non-governmental grants and contracts Sales and services of educational activities and other income Other auxiliary enterprises State Appropriations, general Private gifts Net investment income Other revenues $100,000 -$50,000 $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 The University experienced an increase in operating costs of $17.2 million, or 3.2%, in fiscal Compensation and benefits represents the most significant operating cost, comprising 63.6% and 62.8% of operating costs in 2009 and 2008, respectively. Health care benefits are an increasing portion of compensation and benefits, with increases to the net cost of health plan benefits of 9.8% and 3.9% for 2009 and 2008 respectively. As noted above, recognition of other postretirement benefit costs, primarily for retiree health insurance, was a significant addition to compensation and benefits cost in fiscal In addition, increases in compensation for staff of 3.8% and faculty of 5.0% also contributed to the increase in compensation and benefits. Other significant non-operating expenses include interest which was $15.3 million in 2009 compared to $14.4 million in 2008, reflecting the addition of the Series 2009 general obligation bonds issued April The chart below presents operating and interest and other expenses for fiscal 2009: 28% Compensation and benefits Supplies and services 62% 5% 2% 3% Depreciation 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, and in 2009 reduced that authorization to $50 million. The program was primarily intended to provide temporary financing for capital projects. The commercial paper was secured through the University s internal liquidity and a $50 million revolving credit agreement. In fiscal year 2009 the University ended its commercial paper program, paying off the last of the notes with proceeds from the 2009 general obligation bond. 6

12 On April 16, 2009 the University issued $83.1 million of general obligation bonds for the purpose of refunding outstanding commercial paper notes of the University in the amount of $24.9 million and to finance the cost of construction, acquisition, renovation and equipping of various facilities of the University in the amount of $56.2 million. Projects completed during the current fiscal year included renovations to Terrill Hall, Harris/Millis and the Colchester Research Facility. The University s strategic plan includes a planned increase in undergraduate and graduate enrollment. That plan exceeded expectations in the fall of 2009, with 645 in-state and 1,975 out-of-state first-time, first-year enrollments. In the fall of 2009 the University enrolled 10,371 students in more than 90 undergraduate majors, 1,549 students in graduate and post baccalaureate programs, and 460 students at the College of Medicine. While the University attracts undergraduates from 47 states and many foreign countries, the University is primarily a regional institution, drawing 90.6% of the undergraduates enrolled in the fall of 2009 from New England and the Middle Atlantic States, including 34.4% of its undergraduate students from Vermont. In the fall of % of total students at the University were from Vermont. The tables below present applications, admissions and enrollment for in-state and out-of-state students. Final numbers for the fall of 2009 show that total applications have increased 171% since 2001, with in-state applications increasing 42% and out-of-state applications increasing 131%. Total admissions have increased for that period by 141%, with in-state admissions increasing 21% and out-of-state admissions increasing 171%. Total first-time first year enrollments have increased since 2001 by 42%, with in-state enrollments increasing by 16% and out-of-state enrollments increasing by 53%. Trends in Vermont Applications, Admits, and Enrollments, Fall 2001 to Fall 2009 Trends in Out-of-State Applications, Admits, and Enrollments, Fall 2001 to Fall 2009 VT Applicants VT Admits VT Enrolls OS Applicants OS Admits OS Enrolls 2,500 2,173 2,086 2,107 2,103 22,500 20,000 20,263 2,000 1,500 1, ,652 1,682 1,709 1,486 1,295 1,328 1,323 1, ,842 1,506 1,495 1,521 1,500 1, est. 17,500 15,000 12,500 10,000 7,500 5,000 2,500 18,955 15,558 16,728 14,300 11,173 9,675 11,558 12,151 8,774 8,124 10,035 6,782 8,933 7,373 6,464 5,283 5,760 1,291 1,308 1,376 1,460 1,739 1,587 1,815 1,838 1,975 est. 0 F 2001 F 2002 F 2003 F 2004 F 2005 F 2006 F 2007 F 2008 F F 2001 F 2002 F 2003 F 2004 F 2005 F 2006 F 2007 F 2008 F 2009 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 5.79% and 5.27%, 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 $8,994 $9,636 $10,226 $10,748 $11,324 $12,054 $12, % Out-of-State Tuition and Fees $21,484 $22,688 $23,866 $24,934 $26,308 $27,938 $29, % Room (Double) $4,232 $4,465 $4,710 $4,936 $5,150 $5,426 $5, % Board (Average Meal Plan) $2,146 $2,216 $2,306 $2,396 $2,492 $2,598 $2, % Total, In-State Cost $15,372 $16,317 $17,242 $18,080 $18,966 $20,078 $21,378 Increase Over Previous Year 4.14% 6.15% 5.67% 4.86% 4.90% 5.86% 6.47% 5.44% Total, Out-of-State Cost $27,862 $29,369 $30,882 $32,266 $33,950 $35,962 $38,216 Increase Over Previous Year 3.88% 5.41% 5.15% 4.48% 5.22% 5.93% 6.27% 5.19% 7

13 State of Vermont ( the State ) general appropriations represented 8.0% of the University s total revenues for fiscal year For fiscal year 2009 the state appropriation was adjusted mid-year by a reduction of $2.5 million bringing it to its FY 2007 funding level. The state capital appropriation remained at the FY 2008 level of $1.6 million and appropriations for special scholarships and technology innovations increased by $384 thousand. Grant and contract revenues of $147.7 million represented 27.7% of total revenues for fiscal 2009, and included facility and administrative cost recoveries of $24.9 million. During fiscal 2009, the University was awarded over $133 million in sponsored funds, 79.9% of which were for research activities. Approximately 76.3% of sponsored funds awarded during fiscal 2009 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 Award Ten Year History Research Instruction Other Awarded Funds (in Millions) Fiscal Year Friends of the University continued to provide support in fiscal 2009 with private gifts of $16.9 million and gifts for endowment and capital purposes of $5.6 million. Overview of the Financial Statements The financial statements of the University of Vermont and State Agricultural College (the University ) have been prepared in accordance with U.S. generally accepted accounting principles as prescribed by the GASB. The financial statement presentation consists of comparable statements of net assets, statements of revenues, expenses, and changes in net assets, statements of cash flows and accompanying notes for the June 30, 2009 fiscal year. These statements provide information on the financial position of the University and the financial activity and results of its operations during the years presented. A description of these statements is below. 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. 8

14 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. Assets and liabilities are classified as current or non-current. 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, 2009, with comparative information for June 30, 2008 and 2007 follows: (In thousands) Assets Current assets $168,209 $179,701 $181,417 Non-current assets: Endowment, cash and cash equivalents and investments 261, , ,894 Deposits with Trustees 60,828 40,343 33,561 Capital assets, net 533, , ,114 Other 38,613 39,650 39,514 Total non-current assets 893, , ,083 Total assets 1,061,906 1,088,402 1,061,500 Liabilities Current liabilities 78,546 76,311 75,452 Non-current liabilities 541, , ,249 Total liabilities 620, , ,701 Net assets Invested in capital assets, net of related debt 125, , ,888 Restricted: Nonexpendable 84,006 79,276 72,138 Expendable 186, , ,054 Unrestricted 46,560 85, ,719 Total Net assets $441,762 $557,539 $605,799 Net assets totaled $441.8 million, $557.5 million, and $605.8 million at June 30, 2009, 2008, and 2007 respectively, decreasing by $115.8 million in 2009 and decreasing by $48.3 million in Both 2009 and 2008 were significantly impacted by an unfavorable investment market and the recognition of other post retirement benefits as prescribed by the implementation of GASB 45. Current assets of $168.2 million, $179.7 million, and $181.4 million at June 30, 2009, 2008, and 2007, respectively, consist primarily of cash and cash equivalents, and operating investments, which totaled $111.8 million at June 30, 2009, $110.6 million at June 30, 2008, and $114.5 million at June 30, Cash and cash equivalents and operating investments represents approximately 2.5, 2.6, and 2.9 months of total operating expenses, excluding depreciation, for 2009, 2008, and 2007, respectively. The net decrease to current assets in 2009 of $11.5 million was driven by a $12.9 million decrease in accounts, loans, notes and pledges receivable. The net decrease of current assets in 2008 of $1.7 million included a decrease in cash and cash equivalents and operating investments of $3.9 million and an increase to inventories, prepaid expenses and deferred charges of $2.3 million. Endowment cash, cash equivalents and investments totaled $261.2 million, $325.4 million and $326.9 million at June 30, 2009, 2008, and 2007, respectively, representing a decrease of $64.2 million, or 19.7% in 2009 and a decrease of $1.5 million, or 0.5% in The University s long-term investment pool consists of permanent endowments, term endowments, and funds functioning as endowment, commonly referred to as quasi-endowments. 9

15 Permanent endowments are those funds received from donors with the stipulation that the principal 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 for a period of time or 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 for longterm 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. Investments are reported in three categories in the Statement of Net Assets. Investments reported as non-current assets include endowment, annuity, and life income funds. Investments for capital activities reported as current assets are replacement reserves designated for capital renovations. All other investments are reported as operating investments. 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 five-year 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 $14.2 million, $12.1 million, and $10.9 million in fiscal years ended June 30, 2009, 2008, and 2007 respectively. These distributions were 4.3%, 3.6%, and 3.4% of the beginning market value of the endowment for fiscal years 2009, 2008, and 2007, respectively. The increase to Deposits with trustees of $20.5 million was primarily the result of net proceeds from the 2009 Series general obligation bonds issued in April, 2009 of $81.8 million, interest earned on deposits of $214 thousand, offset by draw downs for construction and other capital projects of $32.8 million. The increase in Deposits with trustees of $6.8 million in 2008 was primarily the result of bond proceeds from the 2007 series general obligation bonds issued in July of 2007 of $163.0 million, interest earned on deposits of $1.3 million, offset by draw downs of $29.0 million for construction and other capital projects. The construction fund of the 2009 bonds totaled $34.1 million at June 30, The construction fund of the 2007 bonds totaled $8.3 million at June 30, 2009 and $15.6 million at June 30, The construction fund of the 2005 bond totaled $4.8 million at June 30, 2009, $7.6 million at June 30, 2008, and $13.6 million at June 30, The construction fund of the 2002 bond totaled $.2 million at June 30, 2009, $.6 million at June 30, 2008, and $1.0 million at June 30, Major capital projects funded through the 2009 bond include the construction of a Plant Science Classroom/Laboratory-Jeffords Hall, renovations to the Given courtyard, renovations to Terrill Hall, deferred maintenance projects and energy conservation projects. Capital assets, net of accumulated depreciation, totaled $533.0 million, $503.3 million, and $480.1 million at June 30, 2009, 2008 and 2007, respectively, representing an increase of $29.7 million, or 5.9%, in 2009 and $23.2 million, or 4.8%, in Gross capital additions totaled $56.8 million in 2009, $49.4 million in 2008, and $79.4 million in Capital additions in 2009 included land acquisitions of $.2 million, renovations to residence halls, Given Health Science Complex, Terrill Hall, Williams Hall, and other building of $26.6 million, building components and equipment of $7.0 million and fixed equipment of $1.2 million, software systems of $.4 million and construction in progress of $21.4 million. Capital additions in 2008 included land of $.7 million, renovation of residence halls, Ira Allen Chapel, Terrill Hall, Delahanty Hall, and other buildings of $28.5 million, building components and equipment of $12.1 million, software systems of $2.5 million and construction in progress of $5.6 million. Current liabilities had an increase of $2.2 million in 2009 and $.9 million in The increase in 2009 was comprised of an increase to accounts payable and accrued liabilities of $3.3 million, a decrease to deferred revenue and funds held for others of $1.2 million and an increase to the current portion of bonds payable of $.1 million. The increase in 2008 was primarily due to an increase of $2.2 million in accounts payable and accrued liabilities, a decrease of $2.6 million in deferred revenue, deposits and funds held for others, and an increase to the current portion of bonds payable of $1.3 million. Non-current liabilities increased $87.0 million in 2009 compared to $74.3 million in The increase in 2009 was the result of the recognition of $24.6 million in liability for post retirement benefits and an increase of $64.1 million to bonds and notes payable resulting from the Series 2009 general obligation bonds issued in The increase in 2008 was primarily due to the recognition of post retirement benefits due to the implementation of GASB 45 in the amount of $26.2 million and an increase of $47.9 million to bonds and notes payable resulting from the Series 2007 general obligation bonds issued in July Net assets invested in capital assets, net of related debt, of $125.0 million, $115.6 million, and $122.9 million, at June 30, 2009, 2008, and 2007, respectively, represent the University s capital assets of land, buildings and equipment net of accumulated depreciation and net of outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. The increase of $9.4 million in 2009 was primarily the result of the net effect of additions and disposals to capital assets of $56.8 million, the increase in bonds payable related to those assets 10

16 of $26.1 million, and depreciation expense of $27.1 million. The decrease of $7.3 million in 2008 is primarily due to the net effect of additions to capital assets of $49.4 million, the increase in bonds payable related to those assets of $34.9 million, and depreciation expense of $26.1 million. million, $85.1 million, and $111.7 million for June 30, 2009, 2008, and 2007, respectively. The decreases of $38.5 million in 2009 and $26.6 million in 2008 are primarily due to the accrual of expense for post retirement benefits of $24.5 million in 2009 and $26.3 million in Restricted nonexpendable net assets totaling $84.0 million, $79.2 million, and $72.1 million at June 30, 2009, 2008, and 2007, respectively, consist entirely of the University s permanent endowment funds. The corpus of restricted nonexpendable resources is only available for investment purposes. The increase of $4.7 million, or 5.9%, in 2009, resulted from gifts of $4.7 million. The increase of $7.1 million, or 9.9%, in 2008 was due to gifts of $7.1 million. Restricted expendable net assets are subject to externally imposed restrictions governing their use. Restricted expendable net assets totaled $186.2 million, $277.6 million, $299.0 million, as of June 30, 2009, 2008, and 2007, 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 $46.6 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, 2009, with comparative totals for the years ended June 30, 2008 and June 30, 2007, follows: (In thousands) Operating revenues $462,594 $431,688 $402,180 Operating expenses 561, , ,162 Operating loss (98,461 ) (112,135 ) (90,982 ) Net non-operating revenues (expenses) (24,556 ) 53, ,530 Revenue (loss) before capital And endowment additions (123,017 ) (58,372 ) 32,548 State capital appropriations 1,600 1,600 1,800 Capital and endowment gifts and grants 5,640 8,512 13,758 Total other revenues 7,240 10,112 15,558 Increase (decrease) in net assets (115,777 ) (48,260 ) 48,106 Net assets, beginning of year 557, , ,693 Net assets, end of year $441,762 $557,539 $605,799 Net assets decreased by $115.8 million in 2009 compared to a decrease of $48.3 million in 2008 and an increase of $48.1 million in Contributors to the decrease in 2009 include an increase in operating expenses of $17.2 million which includes an increase in compensation and benefit expense of $15.4 million. Other operating expense categories such as supplies and services and depreciation remain relatively unchanged from the 2008 spending levels while scholarships and fellowships expense increased by $1.3 million in A decrease in investment income of $75.1 million was partially offset by an increase in operating revenues of $30.9 million. Significant contributors to the decrease in 2008 include an increase in compensation and benefit expense of $37.7 million. A decrease of $68.9 million in 2008 investment income was partially offset by an increase in operating revenues of $29.5 million. 11

17 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 for the University s academic programs. Net Student Fees increased by $23.9 million in 2009, comprised of an increase to tuition and fees of $28.7 million, or 11.8%, and residential life of $2.9 million, or 6.8%, offset by an increase in scholarship allowances of $7.6 million, or 14.8%. Net Student Fees increased by $16.9 million in 2008, comprised of an increase to tuition and fees of $19.1 million, or 8.5%, and residential life of $4.3 million, or 11.4%, offset by an increase in scholarship allowances of $6.5 million, or 14.5%. Scholarship and fellowship awards applied to student accounts are presented as a reduction of student tuition and fee and residential life revenues, while payments directly made to students are presented as scholarship and fellowship expenses. Total scholarships and fellowships of $73.0 million, $64.0 million, and $57.5 million, were awarded to students in 2009, 2008, and 2007, respectively. This represents a total increase of $9.0 million, or 14.0%, for 2009 as compared to $6.5 million, or 11.3% for Revenues for sponsored programs, of $147.7 million in 2009, $141.6 million in 2008, and $139.8 million in 2007, 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 increase of $6.1 million in 2009 is the result of an increase of $5.3 million in federal and private grants and an increase $.8 million in state grants. The increase of $1.8 million in 2008 is primarily the result of an increase of $2.4 million in federal appropriations, grants and contracts and a decrease of $.6 million in private grants. Revenues for sponsored programs are generally recognized as expenses are incurred or when significant milestones have been met under the terms of the award. The revenues for sponsored programs include recovery of indirect costs, referred to as facilities and administrative costs, of $24.9 million, $25.8 million, and $25.5 million in 2009, 2008, and 2007, respectively. Auxiliary enterprise and educational activities revenues totaled $46.4 million, $44.0 million, and $35.1 million, in 2009, 2008, and 2007, respectively. Auxiliary enterprises include business type enterprises such as the bookstore, printing, mail services and conferences and events that provide support to the University s primary missions of education, research and public service. The $2.4 million increase in 2009 and $8.9 million increase in 2008 are primarily due to increased activity related to Conferences and Events Services and activity in the Davis Center. Student loan interest and other operating revenues were $10.1 million, $11.7 million, and $9.7 million in 2009, 2008, and 2007, respectively. Significant components of operating expenses include the following: Compensation and benefits of $356.9 million, $341.6 million, and $303.9 million in 2009, 2008, and 2007, respectively, comprise the most significant portion of total expenses. Compensation and benefits increased by $15.3 million, or 4.5%, in 2009 and $37.7 million, or 12.4%, in These increases reflected budgeted increases of 3.8% in 2009 and 4.5% in 2008 in the non-represented staff salary pool, as well as budgeted increases of 5.0% in 2009 and 5.75% in 2008 to faculty salaries subsequent to the bargained agreement reached in In addition, health plan benefit costs increased by $3.8 million, or 9.8%, in 2009 and $1.5 million, or 3.9%, in In 2009 the increase to compensation and benefits also includes $26.3 million accrued for post retirement benefits. Supplies and services expenses decreased slightly by $.4 million, or by less than 1%, in 2009 and increased by $7.3 million, or 4.7%, in This classification encompasses the many and varied non-compensation expenses that are required for the operation of the university, including utilities, professional services, non-capitalized equipment, and minor renovations. Depreciation expense increased by $1.0 million, or 3.8%, in 2009 and $5.7 million, or 27.7%, in 2008, resulting from the increase in capital assets as projects were completed. In 2008 the increase also included $1.3 million as a result of the componentization of nine additional buildings. Scholarships and fellowships of $13.9 million in 2009 and $12.6 million in 2008 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 non-operating revenues totaled $(24.6) million, $53.8 million, and $123.5 million, in 2009, 2008, and 2007, respectively, resulting in a decrease of $78.4 million in 2009 and $69.7 million in Net non-operating revenues reflected a loss of $24.6 million in 2009 primarily due to a net investment loss of $71.0 million. The decrease of $78.4 million in 2009 is primarily the result of a decrease to investment income of $75.1 million, and a decrease to state appropriations of $2.1 million. The decrease of $69.7 million in 2008 is primarily the result of a decrease to investment income 12

18 of $68.9 million, and also includes an increase in private gifts revenue of $2.3 million, and increase to interest on indebtedness of $4.3 million which reflects additional debt assumed in July 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, were $42.4 million, $44.6 million, and $43.9 million in 2009, 2008, and 2007, respectively, decreasing 4.8% in 2009 and increasing 1.8% in Private gifts and UMEA Grants to the UVM College of Medicine totaled $20.3 million, $21.1 million, and $18.8 million in 2009, 2008, and 2007, respectively. Net investment income/(loss) was $(71.0) million, $4.2 million and $73.1 million in 2009, 2008, and 2007, respectively. Net investment income includes realized investment income/ (loss) and the change in the unrealized appreciation or depreciation of investments. The change in unrealized appreciation/ (depreciation) included in net investment income was $(68.4) million in 2009, $(34.0) million in 2008, and $46.4 million in Realized gains/ (losses) and other income included in net investment income totaled $(2.6) million, $38.2 million, and $26.7 million in 2009, 2008, and 2007, respectively. Interest on indebtedness totaled $15.3 million in 2009, $14.4 million in 2008, and $10.1 million in Interest on indebtedness represents interest on notes and bonds net of capitalized interest. The increases are primarily due to the increases in debt outstanding. Other financial resources presented after Revenue (Loss) before capital and endowment additions include the following: State capital appropriations were consistent at $1.6 million in both 2009 and in 2008 respectively. For fiscal year 2007 state appropriations were $1.8 million. Capital and endowment gifts and grants were $5.6 million, $8.5 million, and $13.8 million in 2009, 2008, and 2007, respectively. Expenses are presented in the financial statements by natural classification, according to the type of expense, such as compensation and benefits. In addition, expenses may be aggregated by the functions that they support. Total expenses increased by $17.4 million, or 3.2% in 2009 and $54.6 million, or 10.8%, in With the exception of scholarships and fellowships, depreciation, and interest expense, the increases in each of the functional categories reflect the increases in compensation and benefits and supplies and services discussed above. The chart below presents total expenses by function for 2009, 2008, and 2007: Operating Expenses by Functional Classifications ($ in thousands) Instruction Research Public service Academic support Student services Institutional support Operations and maintenance of Plant Scholarships and fellowships Auxiliary enterprises Depreciation ,000 40,000 60,000 80, , , , ,000 13

19 The following chart presents total expenses by natural classification (object) for 2009, 2008, and 2007: Operating Expenses by Natural Classifications ($ in thousands) Compensation and benefits Supplies and services Depreciation Scholarships and fellowships Interest and other , , , , , , , ,000 14

20 Statements of Net Assets as of June 30, 2009 and 2008 (dollars in thousands) UMEA UMEA ASSETS Current Assets: Cash and cash equivalents $ 75,701 $ 4,589 $ 3,902 $ 1,337 Operating investments 36, ,970 6,246 8,128 Investments for capital activities 5,926 6, Accounts, loans, notes and pledges receivable, net 39,295 52,173 3,028 2,453 Inventories, prepaid expenses and deferred charges 11,173 10, Total current assets 168, ,701 13,186 11,929 Non-current assets: Endowment cash, cash equivalents and investments 261, , Student loans, notes, and pledges receivable, net 32,716 33, Deposits with Trustees 60,828 40, Prepaid expenses, deferred charges and other assets 5,897 6, Capital assets, net 533, , Total non-current assets 893, , Total Assets 1,061,906 1,088,402 13,260 12,043 LIABILITIES Current Liabilities: Accounts payable and accrued liabilities 57,224 53, Deferred revenue, deposits, and funds held for others 15,416 16, Bonds and notes payable 5,906 5, Total current liabilities 78,546 76, Non-current liabilities: Accrued liabilities 13,760 15, Post retirement benefits 50,841 26,292 Bonds and notes payable 476, , Total non-current liabilities 541, , Total Liabilities 620, , NET ASSETS Invested in capital assets net of related debt 125, , Restricted: Non-Expendable 84,006 79, Expendable 186, , Unrestricted 46,560 85,082 12,507 11,155 Total Net Assets $ 441,762 $ 557,539 $ 12,838 $ 11,489 The accompanying notes are an integral part of the financial statement. 15

21 Operating revenues Statements of Revenues, Expenses and Changes in Net Assets for the years ended June 30, 2009 and 2008 (in thousands) UMEA UMEA Tuition and fees $ 272,659 $ 243,936 $ - $ - Residential Life 44,827 41, Less scholarship allowances (59,138) (51,492) - - Net student fees 258, , Federal, state, and private grants and contracts 147, , Sales and services of educational activities 5,407 5, Other Auxiliary Enterprises 41,039 38, Student loan interest and other operating revenues 10,123 11, Total operating revenues 462, , Operating expenses Compensation and benefits (356,943) (341,589) (397) (289) Supplies and services (163,164) (163,589) - - Depreciation (27,081) (26,094) - - Scholarships and fellowships (13,867) (12,551) - - Total operating expenses (561,055) (543,823) (397) (289) Operating loss (98,461) (112,135) (171) (79) Non-operating revenues (expenses) State appropriations 42,477 44, Private gifts 16,861 16,598 8,392 6,650 Net investment income/(loss) (70,983) 4,154 (2,001) 312 Interest on indebtedness (15,316) (14,414) - - Gain (loss) on disposal of capital assets 78 (39) - - Net other non-operating expense (1,064) (1,685) - - UMEA Grants to UVM College of Medicine & others 3,391 4,526 (4,871) (5,766) Net non-operating revenues (expenses) (24,556) 53,763 1,520 1,196 Revenue (loss) before capital and endowment additions (123,017) (58,372) 1,349 1,117 State capital appropriations 1,600 1, Capital gifts and grants 985 1, Gifts for endowment purposes 4,655 7, Total capital and endowment additions 7,240 10, Increase (decrease) in net assets (115,777) (48,260) 1,349 1,117 Net Assets, Beginning of Year 557, ,799 11,489 10,372 Net Assets, End of Year $ 441,762 $ 557,539 $ 12,838 $ 11,489 The accompanying notes are an integral part of the financial statement. 16

22 Statements of Cash Flows for the years ended June 30, 2009 and 2008 (dollars in thousands) Cash Flows From Operating Activities Tuition and fees $ 223,672 $ 201,572 Grants and contracts 156, ,968 Sales & services of educational activities 5,407 5,053 Sales and services of auxiliary enterprises: Residential Life fees 36,477 34,426 Other 41,039 38,949 Payments to employees and benefit providers (333,007) (314,554) Payments to vendors (160,934) (164,680) Payments for scholarships and fellowships (13,867) (12,551) Student loans issued (4,704) (4,354) Student loans collected, interest and other revenue 4,137 4,137 Other receipts, net 9,254 10,703 Net cash used in operating activities (36,418) (63,331) Cash Flows From Noncapital Financing Activities State general appropriation 42,477 44,623 Private gifts for other than capital purposes 25,047 26,406 Deposits of affiliates and life income payments (704) (1,679) Net cash provided by non-capital financing activities 66,820 69,350 Cash Flows From Capital Financing Activities Proceeds from capital debt 94, ,714 State capital appropriation 1,600 1,600 Capital grants, gifts and other income 1,348 1,946 Purchases and construction of capital assets (56,519) (51,642) Principal and interest paid on capital debt (44,571) (135,248) Changes in deposits with trustees, net (23,578) (9,406) Net cash used in capital financing activities (27,467) (22,036) Cash Flows From Investing Activities Proceeds from sales and maturities of investments 160, ,301 Purchase of investments (103,469) (538,323) Interest and dividends on investments, net 10,680 18,801 Net cash provided by investing activities 67,443 13,779 Net Increase/(Decrease) in Cash and Cash Equivalents 70,378 (2,238) Cash and cash equivalents - beginning of year 8,262 10,500 Cash and Cash Equivalents - End of Year * $ 78,640 $ 8,262 Reconciliation of Operating Loss To Cash Used by Operating Activities Operating loss $ (98,461) $ (112,135) Adjustments to reconcile net income to net cash used in Operating Activities: Depreciation expense 27,081 26,094 Changes in assets and liabilities: Accounts receivable and loan receivables, net 11,309 (704) Inventories and prepaid expense (352) (2,276) Accounts payable (746) 125 Deferred revenue, deposits and accrued liabilities 24,751 25,565 Net cash used in operating activities $ (36,418) $ (63,331) * of total cash and cash equivalents for 2009, $75,701 is current and $2,939 is non-current endowment and for 2008, $4,589 is current and $3,673 is non-current endowment The accompanying notes are an integral part of the financial statement. 17