2010 A-133 Report - Finance - University of Michigan

Financial Highlights
THE UNIVERSITY OF MICHIGAN
Management's Discussion and Analysis (Unaudited)--Continued
The University’s financial position remains strong, with assets of $13.7 billion and liabilities of
$4.3 billion at June 30, 2010, compared to assets of $12.9 billion and liabilities of $4.2 billion
at June 30, 2009. Net assets, which represent the residual interest in the University’s assets
after liabilities are deducted, totalled $9.4 billion at June 30, 2010 as compared to $8.7 billion
at June 30, 2009. Changes in net assets represent the University’s results of operations and are
summarized for the years ended June 30, 2010 and 2009 as follows:
4
2010 2009
(in millions)
Operating revenues and educational appropriations $ 5,010.5 $ 4,687.3
Total operating and net interest expenses 5,306.8 5,119.3
(296.3) (432.0)
Net investment income (loss) 796.4 (1,851.9)
Gifts and other nonoperating revenues, net 198.3 195.5
Increase (decrease) in net assets $ 698.4 $ (2,088.4)
Net assets increased $698 million in fiscal 2010, primarily due to net investment income which
totalled $796 million. Net assets decreased $2.1 billion in fiscal 2009, primarily due to net
investment losses which totalled $1.9 billion.
The results of operations reflect the University’s focus on maintaining its national standards
academically, and in research and health care, while addressing declining base state
appropriations and rising health care, regulatory, and facility costs in a competitive recruitment
environment for faculty and health care professionals. Operating revenues and educational
appropriations increased 7 percent, or $323 million, due primarily to increases in federal grants
and patient care revenues. Total operating and net interest expenses increased 4 percent, or
$188 million, which reflects increases in patient care and sponsored research activities, offset
by aggressive cost cutting and productivity gains.
Net investment income totalled $796 million in 2010, as compared to net investment losses of
$1.9 billion in 2009. The University invests its financial assets in pools with distinct risk and
liquidity characteristics based on its needs, with most of its financial assets invested in two such
pools. The University’s working capital is primarily invested in relatively short duration, liquid
assets, while the University’s endowment is invested in a long-term strategy where a greater
allocation to equity and equity-like investments left it more exposed to the effects of the global
financial crisis in 2009. The impact of endowment investment activities is muted by the
University’s spending policy which seeks to insulate University operations from expected
volatility in the capital markets and provide for a stable and predictable level of spending from
the endowment.