Budgeting and Financial Management 101 Overview of the Case Budget

Document Sample
Budgeting and Financial Management 101 Overview of the Case Budget Powered By Docstoc
					Budgeting and Financial Management at Case 101
           Overview of Balance Sheet
            Session 3 – December 7, 2006


Hossein Sadid, Chief Financial and Administrative Officer
          Sally Staley, Chief Investment Officer
     Budget and Financial Management at Case 101
                  Course Objectives


Session I    Understand the alignment between
             academic and financial priorities
             Understand the budget process on a
             university and school level

Session II   Ability to read and understand the
             University’s Budget Book

Session III Become familiar with financial drivers:
            endowments, debt and working capital


2
    Guiding Principles for Financial Management

    • Responsible risk taking guided by strategic
      academic plans and priorities
    • Focus on business plans to support spending
    • First quartile endowment performance
    • Capital investment guided by integrated planning
    • Debt supported by credible business plans
    • Transparency in all activities and
      communications coupled with accountability
    • Focus on optimal maintenance of physical
      assets



3
Balance Sheet - June 30, 2006
Total Assets ($ millions)

                                                        Total Assets - $2,931 million
                    10%         4%
               1%
                                                        Investments: 48%

                                                        Property, Plant and Equipment (Net): 28%
     28%
                                                        Funds Held in Trust: 10%
                                                  48%
                                                        Cash: 4%

                                                        Accounts and Notes Receivable: 4%
               2%
                    4%
                          3%
                                                        Securities Lending Agreements: 3%
           Cash & cash equivalents $112
           Investments $1,396                           Pledges Receivable: 2%
           Securities lending agreements $92
           Accounts & notes receivables $130
           Pledges receivable $67                       Other Assets & Intangible Assets: 1%
           Property & plant (net) $822
           Other assets & intangible assets $17
           Funds held in trust by others $295


4
Balance Sheet– June 30, 2006
Total Liabilities ($ millions)

                                                     Total Liabilities - $882 million
                    3%   3% 1%
               6%

          6%
                                                     Notes and Bonds Payable: 70%

                                                     Payable Under Securities Lending: 11%
    11%

                                                     Accounts Payable & Accrued Expenses: 6%

                                                     Annuities Payable: 6%
                                               70%
                                                     Refundable Loans and Advances: 3%

      Bond & notes payable $619                      Deferred Income & Deposits: 3%
      Payable under securities lending   $94
      Accounts payable & accrued expenses $56        Minimum Pension Liability: 1%
      Annuities payable $52
      Refundable loans & advances $26
      Deferred income & deposits $28
      Minimum pension liability $8


5
Comparative Net Assets ($000s)
                                                                    Total Net Assets - $2,050
Millions                                                            million
    1,400
    1,200
    1,000
     800           2006
     600                                     2006
     400
                                                            2006
     200
                                                     2005
       0
            Unrestricted Tem porarily Perm anently
                          Restricted   Restricted
                                                             2006           2005
     Unrestricted                                    $ 1,202,264       $ 1,127,435      6.6%
     Temporarily Restricted                              46,921            40,284      16.5%
     Permanently Restricted                             800,604           784,528       2.0%

     Total consolidated net assets                   $ 2,049,789       $ 1,952,247      5.0%


6
Definitions of Endowment

What is an “Endowment” and what does it do?

    •   An endowment is a gift of money or other assets received from a donor who
        specifies that the original value of the gift is to be invested and preserved
        and the investment earnings are to be spent for a charitable purpose.
    •   The donor may specify generally or very exactly the definition of “charitable
        purpose.”
    •   The original gift itself is kept in perpetuity.
    •   At CWRU, a gift that creates an endowment must be a minimum of $20,000
        and may be up to $1 or $2 million or more, depending on its purpose
    •   We have received almost 2,300 individual endowed gifts over many years
    •   We “pool” or combine all of these gifts together and manage them for
        investment like a mutual fund.




7
Endowment Facts
Size of CWRU Combined Endowment
    $1,621,600,000 (as of June 30, 2006)

Size comparison to other schools:
    Harvard ($29 billion) and Yale ($18 billion) are the largest by far
    CWRU is #32 (per NACUBO 2006 Endowment Study)
    Other schools in the $1.6 billion range:
        – NYU, UNC, CalTech, Purdue


Amount of total investment earnings distributed proportionately to each
individual endowment to support the donor’s purpose:
     About $80,000,000 annually

Percentage of University’s revenues generated by endowment
investments:
    About 10%

8
Endowment Assets – June 30, 2006
Pooled Endowment                                                                $1,241.0 million (76%)
     •   Consists of about 2,300 individual endowments
     •   Utilized accounting system operates like a mutual fund:
           each endowment is a unit holder in the Pool
     •   Most new Endowment gifts go into Pool for investment
     •   Investment Committee of Board of Trustees sets investment policy
     •   Investment Staff executes investment policy and day-to-day decisions
     •   Finance Committee of Board of Trustees approves spending policy

Funds Held in Trust by Others (FHBOs or “Outside Trusts”)                       $ 295.4 million (18%)
     •   Nearly 50 individual irrevocable trusts; mostly gifts from the 1920s
     •   Major names: Squire, Vair, Hord, Hanna
     •   CWRU is beneficiary of the trusts
     •   Trustee banks hold and manage the assets
     •   Spending rate is governed by State of Ohio code

Un-Pooled Endowments                                                            $   62.2 million (4%)
     •   Donor-designated gifts (donor chooses investment manager
         and/or investment vehicle and/or spending rate)
     •   Major names: Weatherhead Fund, GAR Foundation,
         Putnam Sculpture Fund

Deferred Gifts (net)                                                            $   23.1 million (2%)

TOTAL                                                                           $1,621.6 million (100%)

9
Breakdown of Endowment by School and by Purpose
as of June 30, 2006

     Endowment Breakdown by School                     Endowment Breakdown by Purpose

              Engineering Dentistry   University    Instructional    Research
                                                                        9%      Professorship
MSASS            13%        1%         General          17%
                                                                                     26%
 5%                                     21%
                                         Nursing   Library
Management                                           2%                           Unrestricted
                                           5%
   6%                                                                                19%

                         Law           Arts &            Scholarships &         Special & Plant
             Medicine
                         6%           Sciences            Fellow ships               8%
              23%
                                        19%                   19%




10
Asset Allocation of Combined Endowment – June 30, 2006
                                              •   Combined Endowment
                                                  holds very diversified
               Fixed                              investments in traditional
              Incom e
                18%
                                                  and alternative assets
                                  US Equity
                                    22%
      Real                                    •   Traditional assets are US
     Assets                                       and foreign public equity
      15%                                         and fixed income

                                              •   Alternative assets are
                                                  private equity, marketable
                                    Foreign
                                                  alternatives (hedge funds),
                                     Equity
                                      21%         and real assets
     Marketable
        Alts            Private
        15%             Equity
                          9%




11
   Endowment Summary
• Long-term, strategic
  diversification into alternative
  investments and away from
                                                                               FY 2002   FY 2003   FY 2004   FY 2005    FY 2006
  public equity and fixed income
  has reduced volatility and         Market Value of Total Endowment ($MM)    $1,347.10 $1,316.00 $1,471.50 $1,547.00 $1,621.60
  supported returns

                                     Return (Total Endowment)                   -3.40%     2.40%    16.80%    13.20%    13.20%
• Excellent performance results
  for Total Endowment in FY04-
  06                                 Market Value of Pooled Endowment ($MM)    $959.00   $949.90 $1,073.10 $1,172.40 $1,241.00
  – Up 16.8%, 13.2% and 13.2%,
    respectively
                                     Return (Pooled Endowment)                  -2.20%     3.00%    17.80%    14.60%    14.30%
• Flexible investment policy of
  Pooled Endowment produced          Payout ($MM)                               $73.60    $78.20    $78.10     $78.60    $80.70
  even stronger returns in FY04-
  06
  – Up 17.8%, 14.6% and 14.3%,       Operating Budget Revenues ($MM)           $516.20   $560.40   $635.60    $719.90   $780.00
    respectively
                                     Endowment Percentage                      14.30%     14.00%    12.30%    10.90%    10.30%
• Excellent “bear” market
  performance for Total
  Endowment and Pool
  – Losing only 5.3% and 3.0%
    respectively in 3-year period
    ended 6/30/03


  12
  Current Debt Profile – June 30, 2006
                        Series by Series Review
• Diversified debt                                             Outstanding Par ($MM)     Maturity Range                          Interest Rate
  portfolio; contains   Series 1988                                        $22.309   1
                                                                                            2009-2013                           7.85 – 7.90%
  multiple types of                                                                  1
                        Series 1990                                         $9.007          2007-2020                           6.50 – 7.15%
  variable rate debt
  as well as swaps-     Series 1994                                         $20.000         2014-2018                           6.00 – 6.25%
  to-fixed              Series 1997A & B                                     $7.245         2007-2018                           4.70 – 4.80%
                        Series 1997C                                        $15.245         2007-2017                           5.00 – 5.50%
• Opportunistic use     Series 1997D                                         $8.920         2009-2014                           4.90 – 6.25%
  of swaps including    Series 2001                                         $16.200         2007-2022                  variable swap-to-fixed
  hedging new           Series 2002A                                        $64.875         2023-2031      $30 million variable swap-to-fixed
  issues to lower       Series 2002B                                        $35.125         2019-2022                           5.00 – 5.50%
  cost of financing -
                        Series 2004A                                      $103.930          2007-2034                           2.00 – 5.00%
  not for speculation
  or leverage           Series 2004B                                      $177.826          2008-2044     $135 million variable swap-to-fixed
                        U.S. Housing Bonds
                        Series 1966                                           1.275         2006-2016                           3.00 – 3.50%
                        Series 1971                                           1.235         2006-2016                                  3.00%
                        OHEFC – Commercial Paper                             63.000         2021-2030                               Variable
                        HUD – Bonds for Triangle Project                     13.079         2006-2041                                  4.96%
                                                                              4.481         2006-2041                                  5.33%
                        KeyBank Line of Credit                               30.000               N/A                         LIBOR + .30%
                        National City Bank – Commercial Note                 13.417               N/A                         LIBOR + .25%
                        Compass Group USA Note                                1.200         2006-2014                                     n/a
                                                     TOTAL                  $608.37


 13
  Projected Debt Service – FY 2007 – FY 2045
                                Projected Debt Service After Refunding/Restructuring
• Before refunding and
  restructuring:               40,000,000                                                         40,000,000

  – Average Coupon: 4.45%
  – Average Life: 20.42 yrs.   35,000,000                                                         35,000,000



• After refunding and          30,000,000                                                         30,000,000
  restructuring:
  – Average Coupon: 4.48%
                               25,000,000                                                         25,000,000
  – Average Life: 22.49 yrs.

                               20,000,000                                                         20,000,000




                               15,000,000                                                         15,000,000




                               10,000,000                                                         10,000,000




                                5,000,000                                                         5,000,000




                                       0                                                          0
                                       20 7
                                       20 8
                                       20 9
                                       20 0
                                       20 1
                                       20 2
                                       20 3
                                       20 4
                                       20 5
                                       20 6
                                       20 7
                                       20 8
                                       20 9
                                       20 0
                                       20 1
                                       20 2
                                       20 3
                                       20 4
                                       20 5
                                       20 6
                                       20 7
                                       20 8
                                       20 9
                                       20 0
                                       20 1
                                       20 2
                                       20 3
                                       20 4
                                       20 5
                                       20 6
                                       20 7
                                       20 8
                                       20 9
                                       20 0
                                       20 1
                                       20 2
                                       20 3
                                       20 4
                                          45
                                          0
                                          0
                                          0
                                          1
                                          1
                                          1
                                          1
                                          1
                                          1
                                          1
                                          1
                                          1
                                          1
                                          2
                                          2
                                          2
                                          2
                                          2
                                          2
                                          2
                                          2
                                          2
                                          2
                                          3
                                          3
                                          3
                                          3
                                          3
                                          3
                                          3
                                          3
                                          3
                                          3
                                          4
                                          4
                                          4
                                          4
                                          4
                                       20




                                            Prior Principal   Prior Interest   New Aggregate DS



 14
 Planned Future Projects

• Completion of the                 • Over the next five years Capital Projects will be
  University’s first integrated
  campus master plan in 2005          only funded through fundraising
  provides a comprehensive
  blueprint to ensure that the
  integrity of the campus
                                    • Several Projects remain on the drawing board
  physical environment will be        including:
  preserved for decades to
  come. It also lays the
  groundwork for our capital
                                     – Campus Center
  investment and future
  campaign priorities.               – West Quad
• Significant initiatives
  undertaken to curb energy          – College Town
  costs and to expand the
  commitment to sustainability
  resulted in a major reduction      – Capital Renewals and Replacements of Academic
  in campus-wide energy
  consumption, virtually
                                       Facilities
  offsetting the significant rise
  in energy costs.




15
     Guiding Principles for Financial Management

     • Responsible risk taking guided by strategic
       academic plans and priorities
     • Focus on business plans to support spending
     • First quartile endowment performance
     • Capital investment guided by integrated planning
     • Debt supported by credible business plans
     • Transparency in all activities and
       communications coupled with accountability
     • Focus on optimal maintenance of physical
       assets



16

				
DOCUMENT INFO