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					Did They Make the Call Correctly?
A Look at Fiscal Year 2010 through the Eyes of the Financial
Statements and the Ratios of the PACCON Large Institutions


                            Saul Rosenbaum
                                   and
                               Fritz Weis

                           December 7, 2010
                            Palm Desert, CA




                                                         PRAGER, SEALY & CO., LLC
Did 2010 Predictions Come True?


    Moody’s Fiscal Year 2009 US Private College and University Medians published
    in July 2010 predicted:

    “…operating cash flow margins…face more considerable stress in FY 2010”
    “…net tuition revenue growth of private colleges and universities to be challenged
    for FY2010…we expect net tuition revenues to show only modest growth”
    “We expect growth in debt issuance to slow for FY 2010”
    “…greater pressure on operating performance”

    A month ago, the New York Times said that:
    “…indicators are that overall giving for Fiscal 2010 may be flat…Harvard down 1 per
    cent…Yale…slight decline…Chicago was up 1 per cent”
    “…people are reluctant to make long-term commitments…”

    How did FY 2010 turn out for PACCON members?


    Just two weeks ago, the Los Angeles Times reported that Moody’s changed their
    ratings outlook for the Los Angeles County Museum of Art from “stable” to “negative”
    and LACMA stopped construction on their expansion until they can raise $63 million
    more to back up their bonds.

    How are our PACCON members holding up?



1                                                                            PRAGER, SEALY & CO., LLC
 Does Size Matter?

   Large vs. Small based on FTE Students reported in 2009 NACUBO Endowment Study
   Moody’s Ratios use 3,000 FTE Students as split between large and small institutions

 Loyola Marymount University                               8,845 University of Puget Sound                                                       2,776
                                                                       Willamette University                                                 2,434
         University of LaVerne                     5,901
                                                                              Linfield College                                           2,191
          Chapman University                       5,791            Mount St. Mary's College                                         1,939
                                                                            Whittier College                                         1,911
        University of Redlands             4,267                          Occidental College                                        1,854
                                                                            Pomona College                                     1,516
      Seattle Pacific University     3,734
                                                                                Reed College                                 1,428
         University of Portland      3,646                                       Mills College                               1,424
                                                                            Whitman College                                  1,423
St. Mary's College of California    3,352                     Claremont Graduate University                                 1,340
                                                                 Claremont McKenna College                                1,211
         Lewis & Clark College     3,224
                                                                                Pitzer College                         992
California Lutheran University     3,062                                      Scripps College                        898
                                                                       Harvey Mudd College                         756
                                                                                                                     5




 Other categories:                                                                                                             3


  Length of MD&As or Treasurer’s Letters                                                2                                2                   2    2

  Pages of footnotes                                                                            1   1    1    1                    1    1              1
  Timeliness of audit
  KBs of .pdf files
                                                                                         14   15     16   17   18    20   21   22   23   24   26   27   28

                                                                                                               Pages of Footnotes




 2                                                                                                                    PRAGER, SEALY & CO., LLC
Does Format Matter?


Statement of Activities
Without a non-operating section, determining endowment spending is problematic at best.
Lewis & Clark and California Lutheran were the most recent institutions to see this wisdom



                                                                                     Whose a pancake
                                                                                      afficionado?
                                                                                         Scripps
                                                                                      Seattle Pacific




    Who else has caught the
    Manifold/Spence fever?
          Occidental
            Pitzer

Balance Sheets
Very consistent – only St. Mary’s has more than one column for each year; and 7 PACCON institutions are
disclosing URNA details on the face! Hoorah!
Statement of Cash Flows
Indirect method dominates – though trendsetter Manifold has been at work.
We now have 5 direct method preparers! HMC, Pitzer, Scripps & SPU
Amazingly, 3 institutions have incorporated Endowment Statements as part of their opined statements.
Scripps, St. Mary’s, and Puget Sound.


3                                                                                     PRAGER, SEALY & CO., LLC
Operating Cash Flow Margins

        Operating Cash Flow Margin (%)
        Indicates the excess margin (or deficit) by which annual revenues cover operating expenses
        The calculation adds back depreciation and interest when calculating net operating cash
        flow.

                        Basis Point Change in Operating Cash Flow Margins
                                                 from FY 2009 to FY 2010


                             Lewis & Clark College                                           499
                            University of Redlands                                           464
                              Chapman University                                            383
                          Seattle Pacific University                            (41)
                     Loyola Marymount University                           (109)
                    California Lutheran University                         (131)
                    St. Mary's College of California                    (344)
                             University of Portland                    (373)
                             University of LaVerne (1,509)

                                                  (2,000) (1,500) (1,000) (500)        0   500     1,000

                                                                                  PACCON Median Large 2009 – 15.0%
Did Moody’s prediction come true or were                                          Moody’s Median Large 2009 – 13.1%
there other factors?                                                              PACCON Median Large 2010 – 13.9%



4                                                                                                      PRAGER, SEALY & CO., LLC
   Primary Revenue Source

 Percent Change in Net Tuition Revenues                         Basis Point Change in Tuition Discount
  Moody’s 2009 Median Change in Net Tuition per                  Moody’s 2009 Median Tuition Discount = 27.8%
               student was 3.9%                                   PACCON’s Median Tuition Discount = 31.7%
PACCON’s Median Net Change in Net Tuition Revenue
                   was 2.9%

           Chapman University                            11%   (62)                                   University of Portland

California Lutheran University                           11%          (12)                            Chapman University

          University of Portland                    9%                            121                 California Lutheran University

 Loyola Marymount University                   3%                                   154               University of Redlands

         University of Redlands            3%                                           184           Loyola Marymount University

          Lewis & Clark College            2%                                           194           Seattle Pacific University

          University of LaVerne            2%                                             203         Lewis & Clark College

       Seattle Pacific University         1%                                              215         University of LaVerne

St. Mary's College of California    -6%                                                         373   St. Mary's College of California



     Net Tuition Revenue is a function of:                               Tuition Discount Rate is a function of:
      Student tuition and fees increases                                 Institutional policy
          2010 and 2011 were modest – what next?                         Competition
      Changes in enrollment                                              Packaging
          Where has growth been occurring?                                    First-year students and
      Tuition Discount Rate                                                   Returning students both needed more

     Will FY 2011 finish on the plus side?                               What rate is sustainable?


   5                                                                                             PRAGER, SEALY & CO., LLC
What About Auxiliary Enterprises?

                  Gross Returns on Auxiliary Enterprise Revenues
                                From the Statement of Activities
                Auxiliary Enterprise Revenues less Auxiliary Enterprise Expenses




                     Chapman University                                            45%

                    University of LaVerne                                      38%

           St. Mary's College of California                                  28%

            Loyola Marymount University                                 21%

                   University of Redlands                              14%

                    Lewis & Clark College                         3%

                 Seattle Pacific University              -2%

            California Lutheran University              -6%

                    University of Portland    -45%


                                                              Let’s hope Chapman and LaVerne
                                                              don’t have any accounting majors!



6                                                                                    PRAGER, SEALY & CO., LLC
   Giving Flat? Pledges Down?

           Changes in Total Gifts and Grants                                       Changes in Contributions Receivable
                      Fiscal 2010 vs. Fiscal 2009                                           Fiscal 2010 vs. Fiscal 2009



          Lewis & Clark College                                       94%                                    163% Lewis & Clark College

California Lutheran University                                  66%                              32%               California Lutheran University

         University of Redlands                           23%                                 16%                  University of Portland

       Seattle Pacific University                        16%                                2%                     Chapman University

          University of LaVerne                      12%                                    2%                     Loyola Marymount University

 Loyola Marymount University                        5%                             -28%                            Seattle Pacific University

St. Mary's College of California              -7%                                  -29%                            St. Mary's College of California

           Chapman University              -16%                                    -32%                            University of Redlands

          University of Portland    -36%                                    -84%                                   University of LaVerne




            Fiscal 2010 was not bad – some of the                                         New York Times probably reported
            differences were due to exceptionally                                         it correctly: “…people are reluctant
            large gifts in the previous year.                                             to make long-term commitments…”


                                                    What are you experiencing this year?



   7                                                                                                          PRAGER, SEALY & CO., LLC
Has Endowment Spending Turned Around?



                    What’s This?




8                                       PRAGER, SEALY & CO., LLC
Has Endowment Spending Turned Around?

                  Changes in URNA and TRNA Investment Income
                                  For Operations
                            Fiscal 2010 vs. Fiscal 2009




                  Chapman University                                          64.5%

        St. Mary's College of California                             24.3%

         Loyola Marymount University                              6.1%

                 University of LaVerne                   -21.2%

                University of Redlands                 -33.0%

                 University of Portland             -49.1%

              Seattle Pacific University   -80.5%




9                                                                            PRAGER, SEALY & CO., LLC
Who still has UPMIFA deficiencies?

                               Fair Value Less than Gift Value
                                   At 2010 Fiscal Year End
                                           ($000)



                 University of Redlands                             6,059

         St. Mary's College of California                           6,005

                  Lewis & Clark College                     3,102

          Loyola Marymount University                       2,997

                  University of LaVerne             1,828

                   Chapman University             1,321

                  University of Portland      719

         California Lutheran University       695

               Seattle Pacific University   189




10                                                                          PRAGER, SEALY & CO., LLC
Was Anyone Able To Keep Expenses Down?

                           Changes in Total Operating Expenses
                               Fiscal 2010 vs. Fiscal 2009


               Chapman University                                          10.4%

              University of Portland                                     8.8%

              University of LaVerne                                 7.8%

     California Lutheran University                               6.3%

           Seattle Pacific University                      3.0%

      Loyola Marymount University                       2.7%                   TOTAL EXPENSES
                                                                   PACCON Median Large 2009 – $100,557,000
     St. Mary's College of California               0.3%           Moody’s Median Large 2009 – $214,478,000
                                                                   PACCON Median Large 2010 – $103,448,000
             University of Redlands         -0.3%

              Lewis & Clark College     -2.1%



             If you are holding tuition increases to inflation plus, then it’s going
            to be hard to justify some of these bigger changes to total expenses.
                  Let’s see if we can figure out what caused some of them.




11                                                                                  PRAGER, SEALY & CO., LLC
  “We expect growth in debt issuance to slow for FY 2010”

              Changes in Total Direct Debt                                          Changes in Interest Paid per SCF
                    Fiscal 2010 vs. Fiscal 2009                                                Fiscal 2010 vs. Fiscal 2009



 Loyola Marymount University                                      12.1%            University of LaVerne                                     36.4%

          Lewis & Clark College               -1.0%                               University of Redlands                                   30.8%

California Lutheran University                -1.2%                             Seattle Pacific University                                26.8%

          University of LaVerne              -1.7%                        California Lutheran University                                  24.4%

         University of Redlands              -2.3%                        St. Mary's College of California                         6.7%

St. Mary's College of California             -2.3%                                  Chapman University                            1.1%

          University of Portland            -2.5%                                  Lewis & Clark College                  -5.6%

           Chapman University               -3.2%                                  University of Portland              -15.0%

       Seattle Pacific University   -8.9%                                  Loyola Marymount University       -65.9%




                   DIRECT DEBT MEDIANS
              PACCON Large 2009 – $83,052,000
              Moody’s Large 2009 – $159,720,000
              PACCON Large 2010 – $80,971,000


                                                      Looks like Moody’s got this one right.
                                                      Any additional direct debt in the works for FY 2011?



  12                                                                                                                  PRAGER, SEALY & CO., LLC
 What About CapEx?

             Capital Spending Ratio (%)
             Measures the annual investment in capital facilities compared to annual depreciation
             expense. The calculation divides purchases of property, plant and equipment (from the
             statement of cash flows) by depreciation expense.

             Capital Spending Ratio (%)                                                Change in Depreciation Expense
                                                                                                Fiscal 2010 vs. Fiscal 2009
                Fiscal 2009 and Fiscal 2010


                                          258%
California Lutheran University
                                                                                   University of Portland                                             20%
         University of Portland                                   1145%
                                                                                   University of LaVerne                                              19%
St. Mary's College of California              '09 Median 349%
                                                                           Loyola Marymount University                                          16%
        University of Redlands
                                                                                    Chapman University                                    12%
                                         '10 Median 150%
          Chapman University
                                                                          California Lutheran University                                  11%
 Loyola Marymount University
                                                                                  University of Redlands                                  11%
         Lewis & Clark College                                  2010
                                                                          St. Mary's College of California                          7%
      Seattle Pacific University        83%                     2009
                                                                                Seattle Pacific University         -2%
         University of LaVerne                                                     Lewis & Clark College          -4%

                                   0%     400%      800%        1200% 1600%                                -10%    -5%   0%    5%   10%   15%    20%    25%


      PACCON Median Large 2009 – 349%
      Moody’s Median Large 2009 – 200%
      PACCON Median Large 2010 – 150%



 13                                                                                                                           PRAGER, SEALY & CO., LLC
What Has Been the Effect on Returns?

     Return on Financial Resources (%)
     Return on financial resources is calculated by dividing the net change in financial resources between
     the current year and the prior year all divided by the financial resources of the prior year.
     Return on Net Assets (%)
     Return on net assets is calculated by dividing the net change in total net assets between the current
     year and the prior year all divided by the total net assets of the prior year.


                      California Lutheran University
                                Chapman University
                       Loyola Marymount University
                               University of Portland
                               Lewis & Clark College
                            Seattle Pacific University
                               University of LaVerne                            Return on Net Assets

                              University of Redlands                            Return on Financial
                      St. Mary's College of California                          Resources

                                                     -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

 RETURN ON FINANCIAL RESOURCES (%)                                                  RETURN ON NET ASSETS (%)
  PACCON Median Large 2009 – -25.4%                                              PACCON Median Large 2009 – -11.2%
  Moody’s Median Large 2009 – -22.7%                                             Moody’s Median Large 2009 – -14.6%
   PACCON Median Large 2010 – 12.9%                                               PACCON Median Large 2010 – 8.3%


14                                                                                                PRAGER, SEALY & CO., LLC
Did PACCON Large Beat the Predictions?




     Variable                                  Prediction             Result

     Operating Cash Flow Margin (%)          "…challenged..."      Met prediction

     Net tuition revenues ($)               "…modest growth…"    About as expected

     Debt Issuance                             "…slowed…"          Met prediction
                                                                Very strong with few
     Overall Giving                             "…flat…"
                                                                     exceptions
     Operating performance:                   "…pressure…"

        Total expenses                                            Felt the pressure

        Investment income                                            Overall flat

        Interest paid                                             Building pressure

        Return on Financial Resources (%)                       Exceeded expectations




15                                                                       PRAGER, SEALY & CO., LLC
Did They Make the Call Correctly?
A Look at Fiscal Year 2010 through the Eyes of the Financial
Statements and the Ratios of the PACCON Large Institutions


                            Saul Rosenbaum
                                   and
                               Fritz Weis

                           December 7, 2010
                            Palm Desert, CA




                                                         PRAGER, SEALY & CO., LLC

				
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