Boston University

THE FINANCIALS

WE HATE TO REPEAT OURSELVES, BUT...

he story out of our financial engine room is that, once again, BU continues to fire on all cylinders, maintaining our momentum, strength, and vision. Thanks to a culture that strives for continuous operational excellence, in FY2018 we saw over $140 million in net operating gain, $487 million in research awards, and our endowment topped $2 billion for the

first time in our history.

Together with the University's operating gain, generous contributions from donors to the University's endowment, continued strong endowment performance, and net assets added as a result of the Wheelock merger, the University's total net assets grew by a historic $517 million this past year.

1,022 1,194 1,191 1,403 1,616 1,644 1,655 1,957 2,179

3,944 4,241 4,343 4,660 4,883 5,047 5,202 5,899 6,400

PERFORMANCE BENCHMARKS Total Assets $ millions

6000 5000 4000 3000 2000 1000

0 '10 '11 '12 '13 '14 '15 '16 '17 '18

Total Endowment Assets $ millions

2000 1600 1200

800 400

0 '10 '11 '12 '13 '14 '15 '16 '17 '18

OPERATING REVENUES & EXPENSES FY2018

Total Revenues: $2.0 billion*

Sales & Services

5.6%

Income from Endowment

3.6%

Auxiliaries, Net

13.6%

Total Expenses: $1.9 billion

Institutional Support 11.1%

Auxiliaries 11.3%

Other 2.1%

Gifts and Contributions

used for operations

2.6%

Other 0.7%

Tuition & Fees, Net

54.6%

Sponsored Programs

13.9%

Instruction & Departmental

Research 51.6%

External Fringe Benefit

Recoveries 1.9% Sponsored Programs-- indirect 4.4%

Sponsored Programs--

direct 13%

Educational Support Activities 10%

*FY2018 operating revenues are net of student aid of which $252.1 million supports undergraduates and $146.8 million supports graduate and other students, for a total of $398.9 million.

SPONSORED PROGRAM AWARDS FY2000--FY2 018* $ millions

500

400 NEIDL Funding

ARRA Funding

$486.8M

300

200

*Excluding Financial Aid. FY2004 includes $128.0 million for the construction of the National Emerging Infectious Diseases Laboratories (NEIDL). Awards in FY2009?FY2011 reflect funding from the American Recovery and Reinvestment Act of 2009 (ARRA).

100 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

36 BOSTON UNIVERSITY

B U . E D U /A R

Numbers to hang our hat on, for sure, but by no means permission to pause. In the spirit of relentless forward motion, we'd like to call out three items from the past year that typify our determination.

THE WHEELOCK COLLEGE MERGER The union between Boston University and Wheelock College not only strengthened the University's programs in education and human development but also provided resources to invest in the Boston University Wheelock College of Education & Human Development.

MOODY'S UPGRADE Validating our culture of operational excellence and continuous improvement in an environment where higher education is under significant stress and scrutiny, Moody's upgraded us in November 2017 to Aa3.

DEVELOPMENT We had another strong year in our comprehensive capital campaign, building a revenue foundation that continues to allow us to invest in capital plans, faculty and research talent, and educational programs.

AUDITED FINANCIAL SUMMARY $ thousands

2014

Operating revenues

Student tuition and fees, net

$ 904,808

Auxiliaries, net

256,572

Sponsored programs-direct

236,952

Sponsored programs-indirect

78,779

External fringe benefit recoveries

44,768

Sales and services

108,528

Endowment spending formula amount & other investment income

44,528

Gifts and contributions used for operations

37,989

Sponsored program income for student aid

14,684

Total operating revenues

$ 1,727,608

Operating expenses

Instruction and departmental research

$ 789,807

Educational support activities

145,757

Sponsored programs

235,702

Auxiliaries

196,514

Institutional support

210,311

Other expenses

37,889

Total operating expenses

$ 1,615,980

Change in net assets from operating activities

$ 111,628

Nonoperating activities

Contributions

$ 40,321

Reinvested endowment and other investment income

19,176

Net realized and unrealized gains (losses) on investment and other assets

204,600

Spending formula amount

(47,979)

Other

(44,204)

Total nonoperating activities

$ 171,914

Change in net assets

$ 283,542

2015

$ 944,832 263,715 224,360 79,763 42,820 96,070

49,251 46,379

14,957 $ 1,762,147

$ 822,314 156,500 224,673 203,038 200,353 35,700

$ 1,642,578

$ 119,569

$ 80,714

19,617

23,153 (51,429) (82,595) $ (10,540) $ 109,029

2016

$ 994,069 263,739 228,327 78,792 42,929 96,621

50,318 47,985

14,589 $ 1,817,369

$ 859,377 163,567 227,349 191,905 209,660 36,956

$ 1,688,814

$ 128,555

$

33,926

22,289

68,846 (55,967) (139,849) $ (70,755) $ 57,800

2017

$ 1,046,018 266,419 234,665 82,737 39,542 105,320

58,226 48,401

13,707 $ 1,895,035

$ 894,771 180,085 235,449 199,267 198,974 36,557

$ 1,745,103

$ 149,932

$ 137,428

34,958

195,396 (64,464) 54,099 $ 357,417 $ 507,349

2018

$ 1,099,682 273,623 263,159 89,070 38,251 114,009

72,671 53,072

14,793 $ 2,018,330

$ 969,220 187,065 260,832 211,052 207,571 38,657

$ 1,874,397

$ 143,933

$

72,724

31,166

150,005 (71,033) 190,610 $ 373,472 $ 517,405

B U . E D U /A R

ANNUAL REPORT 2018 37

DRAFT, November 2, 2018 2:23 PM

Boston University

Consolidated Financial Statements June 30, 2018 and 2017

DRAFT, November 2, 2018 2:23 PM

Letter from the Treasurer--Fiscal Year 2018:

It is my pleasure to present the audited financial statements for the fiscal year ending June 30, 2018. Our fiscal year financial results were among the best the University has achieved in support of our broad academic mission and strategic objectives in teaching and research.

From an operating perspective, Boston University ended the fiscal year with a change in net assets from operating activities of $143.9 million, reflective of the continued successful efforts to moderate expense growth and create operational efficiencies. These resources represent one source of necessary capital for the continued reinvestment in the University's academic and other strategic priorities as well as for capital renewal and replacement.

In an environment of constrained external research support, new research awards for Boston University in Fiscal Year 2018 grew by 21% to $486.8 million for investments in areas of inquiry where Boston University expects to make substantial contributions.

Boston University's fundraising efforts continue to demonstrate increasing success--raising $252.8 million in gifts and pledges during Fiscal Year 2018. Gifts from alumni and friends have provided generous support for undergraduate financial aid, allowing for greater substitution of grants for loans. In addition, this support has helped transform our campus physical landscape, including the Joan & Edgar Booth Theatre and College of Fine Arts Production Center, the BUild Lab, the Dahod Family Alumni Center, and the renovation and expansion of Myles Standish Hall and the Henry M. Goldman School of Dental Medicine.

The University's endowment assets experienced another year of significant growth, ending the year at $2.2 billion, representing an 11.4% year-over-year increase, including a portfolio investment return of 9.8% as well as other additions during the year.

Boston University's net assets increased again by more than $500 million for the fiscal year, resulting in an aggregate increase of $1.025 billion or 35% over the past two fiscal years. In addition to the impact from Fiscal Year 2018 operating results, the University benefited from strong endowment growth, philanthropic support, and the consolidation of net assets from the Wheelock College merger.

The University has made significant progress in building balance sheet strength, growing net assets at a compound annual growth rate of 9.9% over the past five years driven in large part by strong operating results and endowment growth offset by very modest increases in debt over the same time period.

These financial results are supportive of and consistent with the upgrade in the University's credit rating from A1 to Aa3 by Moody's Investors Service in November 2017. In reporting this change, Moody's noted the University's record of continuous improvement, careful fiscal management, strong operating cash flow, and thorough strategic planning.

As Boston University begins a yearlong process of examination and revision to our strategic plan, our ability to finance the plan requires our continued fiscal success. While challenges for colleges and universities remain ahead, the University's strong balance sheet and continued support from operations are expected to provide much of the necessary ongoing capital support for our strategic aspirations.

Best regards,

Martin J. Howard Senior Vice President, CFO and Treasurer

DRAFT, November 2, 2018 2:23 PM BOSTON UNIVERSITY ? C ONSOLIDATED FINANCIAL STATEMENTS 2018 AND 2017

KPMG LLP Two Financial Center 60 South Street Boston, MA 02111

The Board of Trustees Boston University:

Independent Auditors' Report

We have audited the accompanying consolidated financial statements of Boston University and its subsidiaries, which comprise the consolidated statements of financial position as of June 30, 2018 and 2017, the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the organization's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the organization's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boston University and its subsidiaries as of June 30, 2018 and 2017, and the changes in their net assets and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

September 13, 2018

KPMG LLP is a Delaware limited liability partnership and the U.S. member

firm of the KPMG network of independent member firms affiliated with

1

KPMG International Cooperative ("KPMG International"), a Swiss entity.

DRAFT, November 2, 2018 2:23 PM

BOSTON UNIVERSITY ? C ONSOLIDATED STATEMENTS OF FINANCIAL POSITION

June 30, 2018 and 2017 ($000)

2018

2017

ASSETS

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

148,749

$

198,959

Cash and cash equivalents-restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

130,913

268,426

Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748,869 520,393

Accounts and loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,626 185,067

Pledges receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,920 210,954

Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,580 27,990

Investment in residual asset note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,212 42,685

Long-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,226,940 2,034,697

Property, plant, and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,612,480 2,410,125

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,400,289

$ 5,899,296

LIABILITIES AND NET ASSETS Liabilities:

Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Student deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of interest rate exchange agreements. . . . . . . . . . . . . . . . . . . . Residual asset note obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred ground lease revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds and notes payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

121,769

$

117,780

120,485118,405

63,068 65,324

113,931102,125

269,626318,200

36,212 42,685

81,921 82,414

141,883142,151

98,715 99,877

1,429,9211,404,982

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net assets:

Unrestricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Temporarily restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permanently restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,477,531 2,493,943

2,247,701 1,996,102 879,307 685,808 795,750 723,443

Total net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,922,758 3,405,353

Total liabilities and net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,400,289

$ 5,899,296

See accompanying notes to consolidated financial statements. 3

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