I am pleased to report that FY 2011 ended with a healthy operating margin and comfortable liquidity, allowing the university to enter into favorable financial terms with counterparties and to retain its A3 bond rating. The dire predictions of declining enrollment have not yet materialized and the endowment has experienced substantial growth (but still far below its 2007 peak).
Reviewing the Numbers
Statement of Activities
Bentley ended FY 2011 reporting an operating margin of $5.7 million (3 percent). Operating performance included a 4.2 percent ($6.6 million) increase in net tuition, room, board and fees, as compared to a 2.7 percent increase in 2010. The increase in net tuition was driven by a 3.5 percent tuition increase (4 percent in 2010) and higher than expected enrollment.
Undergraduate enrollment increased to 4,136 from 4,079 in 2010, and graduate registrations increased to 7,413 from 7,271 in 2010. This was offset by a reduction in endowment distribution; increases in financial aid, which rose $3.7 million or 6.7 percent; and reductions in net assets released. Total operating expenses increased 3 percent to $177.7 million from $172.6 million in 2010, due to increases in interest expense and in salaries and fringe benefit costs, utilities, international program expenses, library book purchases, and meal plan costs.
Statement of Financial Position
The yearend endowment market value increased by $34.3 million, from $173.6 million in 2010 to $207.8 million, with a net return of 19.1 percent in 2011. This increase, net of distributions for operations, was the result of excellent performance combined with the university transferring $10 million in operating cash into the endowment (62 percent of the endowment is the result of transfers from operations over the years).
Cash ended the year at $15.2 million, after the $10 million transfer to the endowment. Net property, plant and equipment decreased by $10.3 million, the third straight year that it has declined as a result of depreciation expense exceeding capital investments due to the completion of planned capital projects and the absence of major new construction. The “mark to market” value of interest rate swaps declined from $22.9 million in 2010 to $18.7 million in 2011 as long-term interest rates rose.
During the summer of 2011, the university entered into an agreement with JPMorgan to extend the letter of credit (a form of bond insurance) on its variable rate debt. This extension, which included very favorable rates, is in force until 2017. In addition, JPMorgan committed a $25 million line of credit for three years. These extensions will likely allow the university to avoid accessing credit markets until at least May 2014.
In Summary
Bentley continues to defy the marketplace signals by producing excellent financial results. The worldwide financial crisis is far from over, however, putting even more pressure on families. The danger lying ahead includes the continued weak economy and a significant demographic decline that will likely increase financial aid. This comes at a time when the university is implementing a strategic plan that will increase expenses while the ability to raise tuition is limited.
Looking forward, the success of the university’s strategic initiatives will need to rely on the ability to increase revenue through fundraising that focuses on unrestricted annual giving and growing the endowment. The generosity of Bentley alumni and friends is needed more than ever, so the university can finance a new strategic plan while continuing the positive trajectory.
