July 31 2012 1 Finance Update Agenda Financial Position and Treasury Update Endowment and Debt FY 2012 Projection FY 2013 Budget Five Year Financial Plan Other 2 Financial Position ID: 783427
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Slide1
Finance Update
CA Meeting
July
31, 2012
Slide21
Finance Update
Agenda
Financial Position and Treasury UpdateEndowment and DebtFY 2012 ProjectionFY 2013 BudgetFive Year Financial PlanOther
Slide32
Financial Position
Slide43
Treasury Update
College cash flows
Enough cash flows and liquidity to meet our obligationsStudent payments are on target with prior yearTotal of $50 million line of credit in place: 3-year commitment with TD Bank
Slide54
Treasury Update
Slide6Endowment
~$882
College
OperationsComprehensive Fee ($136) Monterey Institute Tuition ($28)Summer Program Fees ($17)Schools Abroad ($9)Annual Fund Gifts/Accumulated Reserves ($23)Sponsored Activities ($9)Other Sources ($12)
Endowment Gifts
($9)
Capital Calls for Private Partnerships
(~$40)
(Total unfunded =
$137)
Other Investments
Spending
($52)
Distributions from Private Partnerships
(~$40)
Redemptions
(~$39)
Instruction and Academic Support ($84)
Financial Aid ($49)
Student Services ($32)
Institutional Support ($30)
Maintenance and Operations ($25)
Debt Service ($16)
Library & Information Services ($16)
Capital
Expenditures ($
14)
Sponsored Activities ($9)
*Other ($11)
Inflows
($234)
Outflows ($
286)
Middlebury
Cash Flows FY
2013 (
in millions)
Unused Line of Credit ($50)
*Other: auxiliary enterprises, initiative, and contingency.
Slide76
Endowment
Endowment value was $882 million as of June 30, 2012
Twelve months ended June 30, 2012 performance was 2.7%As of June 30, 2012: 1 Yr = 2.7%, 3 Yrs = 12.6%, 5 Yrs = 3.5%, 10 Yrs = 8.9%The college assumes a 5% return in its financial plan
Slide87
Endowment
Millions
Total Endowment as of June 30, 2012 = $882 million
Slide98
Endowment Summary
Slide109
Endowment
Endowment Spend Rate … return to 5%by 2015
Slide1110
Challenges
Slide1211
Long-term Debt
The
College’s debt portfolio is as follows:Total debt (par value) = $270MAvg. cost of capital = 4.24% Avg. maturity = 24.5 yearsPrior to the April refinancing:The College’s debt portfolio is as follows:Total debt (par value) = $277MAvg. cost of capital = 4.58% Avg. maturity = 25.0 years
Slide1312
April 2012 Debt Refinancing
Refinanced $64 million of long-term debt
Outcome:Cash flow debt service savings of $22 millionAchieved present value savings of $11 million, which represented 17.3% of refunded par Provided debt service relief of nearly $4.6 million over the next five yearsConverted a $50 million bullet to an amortizing structure, to help create level debt and effectively eliminating the 2033 bulletLocked-in an all-in cost on the Series 2012 Bonds of 3.60%
Slide1413
FY 2012 Projection
Projecting a $3.3mm surplus or unused contingency … which is in line with budget
Student fees below planOther sources above planFinancial aid below planOil costs above planManaging costs – esp. labor costsSome labor cost increases due to job re-pricing projects, esp. in College Advancement and Technology areas.Utility cost increaseAll units positive, except for auxiliary units
Slide1514
FY 2013 Budget
REVENUE (+5%)
Student fee revenue increase of 3.5%Second year of CPI +1Midd comprehensive fee at 4% and MIIS tuition increase at 3.5%Enrollment steady at 2,450 at Midd and MIIS at 750GRASP revenue decreases of 3%Endowment and gift support increase of 9%Unrestricted gifts increase of 2%Increase in the use of accumulated reservesOther increase of 8%
Slide1615
FY 2013 Budget
EXPENSE (+5%)
Instruction and Academic Support (plus LIS) increase of 5%Student Services increase of 6%Financial aid increase of 1%Institutional support and Maintenance and Operations of Plant increase of 9%Capital support reduced by 5%CAPEX no increaseDebt service increase of 9% Other increase of 10%
Slide1716
FY 2013 Budget
RESULTS
All units provide a positive financial contribution … except Auxiliary Enterprises ($550K deficit)Overall contingency of $3.1 million
Slide18Middlebury College Financial
Plan
(ex-MIIS)
* Contingency remaining after allocation for endowment spending reduction.** Includes supplemental endowment draw for debt service and endowment spending reduction.
Slide1918
Other
Slide2019
Financial Position
The college’s financial position is strong … Aa2 (Moody’s) and AA (S & P)
Slide2120
Credit Strengths
Excellent student market position
as a nationally prominent liberal arts college located in west-central Vermont, with reputational strength in languages, international studies, and literature. There is strong demand with 8,533 applications for FY 2011-12.Middlebury is highly selective, with a 18% freshmen selectivity ratio in fall 2011 and 38% matriculation ratio (accepted applicants who chose to enroll). Management is focused on program and revenue diversification, as highlighted by the recent full merger with the Monterey Institute of International Studies in California, summer programs, and the launch of Middlebury Interactive Languages LLC, a language learning company geared for pre-college students, featuring both an on-line language learning program and residential, language immersion summer academies located in various states.
Slide2221
FY 2013 Budget: Middlebury College Units
Slide2322
Credit Strengths
Management actions to reduce operating expenses
in light of investment losses and forward budget planning likely to help mitigate impact of reduced availability of spending from endowment, including voluntary separation programs, salary freezes, and other budget reductions.Although fundraising has experienced some pressure recently in light of the economic climate, strong gift revenue remains a key credit strength of the College.
Slide2423
Credit Challenges
Higher leverage
than most similar-sized Aa rated private colleges due to the College's significant investment in its facilities and its decision historically to use debt rather than gifts or reserves to finance several large capital programs. Further, the College has made extensive use of debt (approximately $279 million of pro-forma debt), some of which has been structured as bullet maturities with principal payments scheduled for later years. This concern is partly mitigated by the College's lack of near-term additional borrowing plans and healthy balance sheet.Although the College employs a 5% endowment spending policy, it also draws from the endowment to support debt service payments. Thus endowment draws are typically higher than the 5% draw that Moody's includes for all universities.
Slide2524
What’s Ahead?
Stick to plan
Staffing Resources Committee to manage staff FTE count and staff salary increase programEnsure linkage between student revenue and major expense drivers (compensation and financial aid)Continue to evaluate non-salary spendingContinue to manage auxiliary operations to at least break-even
Slide2625
Opportunities
Keep perfecting the things we do well:
Language Schools Schools AbroadThe Monterey Institute of International Studies
Slide2726
Opportunities
New Ventures
Middlebury Interactive LanguagesCommercial venturesMergers/Acquisitions
Slide2827
Opportunities
Hybrid
Online learning Study away at other locationsLeverage relationships/networks
Slide29CA Meeting
Middlebury Interactive Languages
July 31, 2012
Slide30Middlebury Interactive Languages
Purpose
The Company
Finance29
Slide31Purpose
Middlebury College and K-12 will collaborate to provide world class, industry leading on-line foreign language instruction for elementary and secondary schools.
An additional and related line of business is to further develop the Middlebury-Monterey summer language academies featuring language immersion experiences for secondary and middle school students. In addition, the venture may expand to international markets and include services and products for college level classes, adult self-paced language instruction, English as a second language, and K-5 students. 30
Slide32The Company
Limited Liability Corporation (LLC)
Middlebury College is a 40% owner
Operational May 1, 2010Standalone companyCEO Jane SwiftTechnical employees located in Provo, UtahRemaining employees based in Middlebury, VermontEnhancing the existing infrastructure which is separate and apart from both K12 and Middlebury31
Slide33Finance
32