2011 Annual Report - USNH Financial Services - University System ...

Education is the key to New Hampshire’s long-term welfare, economic prosperity, and quality of life. More thanever, the potential for each person to succeed—and to prosper—is determined by his or her ability to think, to reason, and toparticipate fully in all facets of life in a democratic society. Providing these critical educational programs and services throughteaching, research, and public service is at the heart of the mission of the University System of New Hampshire (USNH).The University System of New Hampshire is the state’s primary supplier of highly educated citizens and workers. The fourinstitutions of the University System—the University of New Hampshire, Plymouth State University, Keene State College, andGranite State College—annually enroll more than 31,000 students and graduate more than 6,000 students at the associate,bachelor, master, and doctoral levels. The institutions annually award more than half of the state’s bachelor’s degrees. In addition,approximately 77,000 alumni of University System institutions currently live in New Hampshire, contributing to their communitiesand the economy.FY11 HIGHLIGHTS(fiscal year ending June 30, 2011)• The institutions of USNH worked hard in FY11 to generate additional revenuesand save money where they could so that the reduced state revenues in FY12could be better managed. The $27.1 million FY11 net income before otherchanges in net assets represents 3.4 percent of operating revenues, right in linewith the USNH goal to generate a 3 percent to 5 percent operating margin on anannual basis.• Granite State College inaugurated its fourth president, Dr. Todd J. Leach, atthe Shepard-McAuliffe Discovery Center in Concord. Under his leadership,the college has begun launching a variety of exciting initiatives aimed atadvancing the College’s mission and fueling record growth including a oneyear40 percent increase in applications.• USNH’s three residential institutions are among only 311 institutions nationwidethat earned the Community Engagement Classification by The CarnegieFoundation for the Advancement of Teaching.• The USNH Board of Trustees approved a $970 million “all funds” operating budgetfor FY12 that included significant cuts across the entire system to address a verysubstantial $48.4 million reduction in state support. More than 80 percent of thestate funding cut will be offset through expense reductions, which reduces thedirect impact on the students. Cost of attendance (i.e., the full tuition, fees, roomand board “sticker price” for a typical on-campus student) increases for in-statestudents were held to between 8.7 and 9.7 percent at the residential campuses.• From Moody’s June 8, 2011 rating report: “Moody’s affirmation of USNH’sAa3 rating and stable outlook heavily incorporates our assessment of USNH’sgovernance and management ability to take swift steps to grow privaterevenue streams and contain expenses to balance the FY 2012 budget inresponse to anticipated steep cuts in state funding… Historically, the boardand senior management team’s market-oriented focus has been criticalin light of the System’s high reliance on out-of-state students and modestreliance on state appropriations. The System benefits from a strong financialmanagement team as demonstrated by multi-year operating surpluses.”Granite StateCollegeLebanonGranite StateCollegeClaremontKeene StateCollegeGranite StateCollegeLittletonPlymouth StateUniversityConcordGranite StateCollegeConcordGranite StateCollegeBerlinGranite StateCollegeConwayPlymouth StateUniversity Granite StateCollegeRochesterGraniteState CollegeManchesterUniversity ofNew HampshireManchesterGraniteState CollegePortsmouthUniversity ofNew HampshireDurhamThe 2011 Annual Report is a publication of the University System of New Hampshire. Prior year University System Annual Reports are available online at finadmin.usnh.eduThe cover of this report features Keene State College Commencement 2011 photos. Photography Credits: UNH Photo Services , PSU Office of Public Relations, Mark Corliss, Chris Justice, Michelle Kammerman, Ann Card, Julio DelSesto, and Michael MoorePage 10 photo courtesy Business New Hampshire MagazineThe front section of this report is printed on 80# Chorus Art gloss text (30% post consumer waste and FSC certified) and the back section is printed on 70# Astrolite PC 100 text (100% post consumer waste).University System of New Hampshire, Dunlap Center, 25 Concord Road, Durham, NH 03824, 603-862-0918

USNH 2011 ANNUAL REPORTKeene State’s 170-acre campus, just a few minutes’walk from downtown Keene, has been called a“showplace of higher education.” Appian Way, themain pedestrian thoroughfare, runs through thecenter of campus.Table of ContentsLetter from the Chancellor. 2Report from the University System of New Hampshire. 3Management’s Responsibility for Financial Reportingand Internal Controls. 13Report of Independent Auditors. 14Management’s Discussion and Analysis. 15Financial Statements . 23Notes to the Financial Statements. 26University System of New HampshireBoard of Trustees and Administration .Inside Back Cover1

USNH 2011 ANNUAL REPORTeconomic challenges the nation faces. In 2011, New Hampshire,through an act of its Legislature, became the only state in thecountry to not offer state grants to financially needy studentsthat want to attend its public colleges and universities.The University System will be challenged in the coming yearsto demonstrate and articulate its value to the State of NewHampshire in terms of its role to provide New Hampshire withan educated workforce that serves as a catalyst for innovation,capital investment and economic development. The fiscalchallenges will drive certain changes, as will the emphasis onnew educational delivery models and the use of technology inand out of the classroom. This will be an ongoing effort thatwill be discussed year-round, across the state and outside ofthe annual state budget deliberations, with a goal to enhancerecognition that higher education is a wise investment that willpay dividends to New Hampshire now and in the future.Supporting the USNH Fourfold VisionBeyond economic issues, this annual report cites several otheractions and accomplishments that support the USNH four-foldvision that has been described and referenced in prior annualreports, which is to be:1. Truly student oriented2. Committed to excellence in selected programs and services3. Efficient and effective in the use of resources4. Recognized as the partner of choiceThe FY11 Annual Report looks back over the 2010-11 fiscal year toreview how these accomplishments have impacted the state andprovides an overview of key financial data from this period. Theseaccomplishments are described in the next section of the reportunder each component of this vision.1. New Hampshire’s University System is Student-OrientedWhile the four USNH institutions have distinctive missions, theyfocus on a core commitment to students and student learning.USNH serves the higher educational needs of the people ofNew Hampshire and recognizes its responsibility to regularlyevaluate those needs, institutional offerings, and how and whereprogramming is delivered.Student Excellence at Plymouth State University – Studentexcellence was on display at two April 2011 events at PlymouthState University. First, students participated in researchprojects connected to an IDeA Network of Biomedical ResearchExcellence (INBRE) from the National Institutes of Health. PSUjoined nine other New Hampshire colleges and universities toform NH-INBRE, which has been awarded $15.4 million to fundresearch programs from its member institutions over the nextfive years and to increase opportunities for faculty and studentresearch. In addition to three specific faculty-led projects, PSUstudents also were encouraged to perform original researchinto a variety of topics. Among the research presented duringthe first day was: the expression of toxin-related genes in browntides; a population analysis of the New Hampshire Loon; and thetesting of the reliability of a portable balance-assessment devicePlymouth State University students participate in a research symposium by displaying anddiscussing their original research in the sciences, arts and humanities as part of a national programto increase research opportunities.for use in an older population.The following day students representing more than sixteenacademic departments displayed and demonstrated originalresearch in the sciences, arts and humanities. In addition toposter displays and video presentations, students from theDepartment of Health and Human Performance demonstrated“teaching fitness through games,” incorporating “fun techniques”used in elementary physical education programs.Keene State College Uses Technology to Advance StudentLearning – At Keene State College, student learning comesfirst. To enhance the student experience and strengthen criticalservices, the college continually introduces new technologiesand upgrades its existing infrastructure. In 2010-11, the collegecontinued its four-year initiative to provide wireless Internetaccess across the entire campus. In its second year, this projecthas already introduced wireless access in the college’s library,student center, dining hall, lounges, and classrooms. Oncecompleted, wireless access will be available in the residentialhalls, administrative offices, and outdoor spaces. Keene State isalso implementing a new access control system that will allowmembers of the campus to use a single card to gain entry toresidential, administrative, and academic buildings as well as toconduct financial transactions in the library, laundry facilities,recreational center, dining hall, and on vending machines. Thesecritical new technologies are providing a platform for mobilecomputing, innovative delivery of student services, and newmodes of teaching and learning. They also enhance the safetyand security of the campus community.Granite State College Expands Its North Country Footprint –Granite State College has expanded its presence in Littleton,thanks to new space on Main Street, and has launched outreachprograms in Lancaster and Woodsville, designed to betterreach North Country students. GSC’s new Main Street space5

USNH 2011 ANNUAL REPORTin the heart of downtown Littleton features a computer lab,two classrooms, a student resource room, and office space foradvisors. The campus serves about 100 students, many of whomcome from surrounding towns. The new Littleton campus isstaffed daily and open for advising, classes, and to accommodatevisitors inquiring about earning a college degree. Previously, thecollege occupied a single room at White Mountains CommunityCollege.Meanwhile, in an effort to better serve those students in thesurrounding communities, GSC has launched an outreachprogram whereby an advisor is available for in-person meetingsonce a month at locations in Lancaster and Woodsville. GSC’sdegree programs in Business Management, Early ChildhoodEducation and Behavioral Science are among the most popularin the North Country.University of New Hampshire Academic ProgramsRecognized for Excellence – For the second year running, theMaster of Fine Arts (MFA) in Writing program at the University ofNew Hampshire was ranked one of the top fifty programs in thenation by Poets & Writers Magazine. UNH’s overall program wasranked forty-seventh in the nation. Within the MFA program,the creative nonfiction program was ranked seventh, the poetryprogram was ranked thirty-seventh, and the fiction programearned an honorable mention. There are 148 full-time residencyMFA programs in the United States.UNH’s accounting program was named one of the topaccounting programs in the world by Brigham Young University,which has been ranking university accounting programs basedon classifications of peer-reviewed research articles since1990. UNH was ranked number two in the world in accountinginformation systems and number twelve in the world inexperimental accounting research. UNH’s ranking in accountinginformation systems put it ahead of nearly 200 institutionsworldwide, including top research institutions.Ground breaking ceremonies were held May 3, 2011 for the new Peter T. Paul College of Businessand Ecomomics. Pictured from left are Whittemore School senior Alyssa King, Whittemore SchoolDean Dan Innis, philanthropist and Alumnus Peter T. Paul, and UNH President Mark Huddleston.Wind Research at UNH – The University of New Hampshireis home to the 300-foot long Flow Physics Facility, the largestscientific bondary-layer wind tunnel in the world. It will helpengineers and scientists better understand the dynamics ofturbulent boundary layers, informing the aerodynamics ofsituations such as atmospheric wind over the ocean, the flow ofair over a commercial airplane or of sea water over a submarine.Turbulence is considered to be the last unsolved program inclassical physics and the lack of understanding has many adverseeffects – from its impact on weather prediction to engineeringdesign and practice.2. The University System Delivers Excellence inSelected ProgramsUSNH institutions are distinct, yet complementary in theirmissions, purposes, and offerings. Each institution brings a uniqueset of talents and expertise to its students, the state, and beyond.Together, they meet a full spectrum of higher educational needswhile being recognized individually for excellence in select areasConstruction Begins on New UNH Business School – TheUniversity of New Hampshire broke ground on the Peter T.Paul College of Business and Economics in May, the first stepin constructing the new building that will help transform theuniversity’s graduate and undergraduate business education andreinforce its long proud history of offering first-rate programs.The new college, which is scheduled to open in January 2013, ismade possible by a generous gift of $25 million, the largest in thehistory of UNH, from alumnus, entrepreneur and philanthropistPeter T. Paul. The new building will allow UNH to meet moredemand for its business programs by expanding capacity from1,700 to 2,500 students.NEASC Extends KSC Accreditation – Keene State Collegeis recognized nationally for the quality of its programs andcollections. Attesting to the strength of Keene’s academicprogram, the New England Association of Schools & Colleges(NEASC) voted in May 2011 that the college be continuedin accreditation for ten years. The college has also garneredFlow Physics Facility director Joe Klewicki, professor of mechanicalengineering at the University of New Hampshire, is in front of the two400-horsepower fans that each move 250,000 cubic feet of air per minute.6

USNH 2011 ANNUAL REPORTacknowledgement from First Lady Michelle Obama, whose“Let’s Move!” initiative to end childhood obesity drew nationalattention to Keene’s Early Sprouts program. Early Sprouts is anaward-winning curriculum developed by Keene State educatorsto encourage preschoolers to eat vegetables.KSC to Receive “Granny D” Papers – Already distinguishedfor the depth of its archival resources, Keene State College wasselected to receive a collection of artifacts chronicling the lifeof US political icon Doris “Granny D” Haddock. The collectionconsists of personal papers, correspondence, photographs,scrapbooks, and memorabilia that document Granny D’s work tobring about campaign finance reform, her legendary walk acrossthe country to promote reform, her twenty-two thousand milevoter registration drivefor working women andminorities, and her run forthe United States Senate.The “Granny D” Collectionis a cornerstone of KeeneState’s New HampshireSocial Justice Collection,which documents thehistory of social and civilrights activism in New Hampshire. This world-class collection inthe Mason Library currently consists of archival holdings relatingto the civil rights worker and Episcopal seminarian Jonathan M.Daniels; Christine Sweeney and her landmark civil rights case;New Hampshire Senator Junie Blaisdell; and the work of theAcademy Award winning, socially conscious state filmmakerLouis de Rochemont.New Leader at UNH Law School – After completing a nationalsearch, the University of New Hampshire School of Law namedoutgoing Chief Justice JohnT. Broderick Jr. of the NewHampshire Supreme Court, asits new dean and president.In January 2011 he replacedretiring Dean John D. Hutson,who has led the school since2000. Prior to serving on theSupreme Court, Broderick wasa litigation attorney in theManchester, NH, law firm ofDevine, Millimet & Branch, andwas a founding shareholder ofBroderick & Dean ProfessionalAssociation. He is a graduate,magna cum laude, of theCollege of the Holy Cross andthe University of Virginia School of Law.UNH Law Now Number Four for Intellectual Property Law inNational Rankings – The University of New Hampshire School ofLaw rose to number four in the specialty rankings for intellectualproperty law by U.S. News & World Report in the 2012 editionof America’s Best Graduate Schools. It was also recognized as a“top tier” school in the overall rankings. The UNH School of Lawcontinues the tradition of Franklin Pierce Law Center of beingranked among the nation’s top intellectual property (IP) schoolseach and every year since specialty law school rankings beganin 1992. In this year’s rankings, which are based on a survey ofIP faculty members around the country, only Berkeley, Stanford,and George Washington placed ahead of UNH Law.The school broke ground on an addition to the school that willhouse the new Franklin Pierce Center for Intellectual Propertyand named Mary Wong its inaugural director. Wong is chair ofthe Intellectual Property Graduate Programs and a professor oflaw. The primary mission of the new center will be to promoteglobal economic development by facilitating research andtraining in the protection and use of intellectual property fortechnological innovation.PSU Student Wins National Weather Forescasting Contest– Brian Pevear, a 2010 Plymouth State University graduate,bested more than 1,800 undergraduate and graduate students,professors, and professionals in the Weather Challenge: theNorth American Collegiate Forecasting Contest. Pevear wonby correctly forecasting the weather for two-week periods inten cities over the academic year using his own methodologyto interpret commonly used weather forecasting tools. “I usedknowledge I picked up over the past four years at PSU’s JuddGregg Meteorology Institute, and used meteorological computermodels to calculate my forecasts,” Pevear said. “The faculty hereat Plymouth State is very, very knowledgeable and I have learnedsomething from all of them.”UNH Serves as a National Resource to Assist Gulf of MexicoCleanup Recovery – The University of New Hampshirecontinues to play a major role in the aftermath of the explosionof Deepwater Horizon in the Gulf of Mexico and the resultinglargest oil spill in U.S. history. Nancy Kinner, co-director of theCoastal Response Research Center and professor of civil andBrian Pevear, a 2010 Plymouth StateUniversity graduate,shows off the national WeatherChallenge award he received.7

USNH 2011 ANNUAL REPORTMoody’s Investor Service Maintains“Stable” Outlook for USNH – On June8, 2011, Moody’s affirmed its Aa3 ratingand reported that the outlook remains“stable” for USNH.In the opinion, Moody’s provided thefollowing summary rating rationale:“The System’s rating reflects itsimportant role providing public highereducational alternatives, includingthe state’s land-grant institution,within New Hampshire and a historyof positive operating performance.We expect the System to absorbanticipated steep cuts in statefunding through ongoing expensecontainment, increased fund raising,growth of student charges, and atemporary modest use of unrestrictedreserves to balance the budget in FY2012.”The report also cited stronggovernance and management ascritical credit factors. “The strength ofmanagement and governance at USNHis highlighted by the System’s historyof consistently positive operatingperformance, its ability to produce amulti-year budget forecast that tiesto the audited financial statements(including projected unrestricted netasset balances), and good disclosureincluding unaudited interim financialstatements which also tie to theaudited financials.”environmental engineering, was asked to speak before the National Commission on theBP Deepwater Horizon Oil Spill and Offshore Drilling, established by President BarackObama, about the use of dispersants in the response to the drill. She was sought afterfor her expertise by hundreds of national media outlets and members of Congress. Soonafter, Larry Mayer, director of UNH’s Center for Coastal and Ocean Mapping, was tappedto lead the National Research Council’s committee to study the effects of the spill onecosystem services in the Gulf of Mexico. His center received $35.7 million over five yearsfrom the National Oceanic and Atmospheric Administration (NOAA) in recognition of theimportant work of the Joint Hydrographic Center.GSC Offers its First Master’s Degree – In 2011, Granite State College marked animportant milestone in the evolution of the college: it unveiled its first-ever graduateprogram, a Master of Science Degree in Project Management. The new program isunique and was created based upon a keen evaluation of the needs of New Hampshire’sworkforce and understanding of the marketplace. No other college or university in NewHampshire currently offers a distinct degree devoted purely to project management.The first cohort of Master’s candidates – 50 students total – came together in the fall of2011. The program is designed for individuals who want to make a career change, currentproject managers who want to further develop in their profession, and those in otherdisciplines who want to expand their job opportunities.GSC Introduces Bachelor of Science Degree in Health Care Management –Responding to student interest and employment opportunities within the sector, GraniteState College launched a new Bachelor of Science Degree in Health Care Management.The degree provides graduates with specialized skills that prepare them to coordinatetechnology, people and resources efficiently and creatively in hospitals, nursing homesand health-related organizations. The coursework covers health care administration,policy, emerging trends, financial management and health information systems. Coupledwith GSC’s commitment to providing hands-on, practical experience, the degree offersstudents a competitive edge in the health care management field.3. The University System Directs Its Operations Efficiently andEffectivelyThe New Hampshire State Legislature in 2011 tackled a significant projected budgetshortfall for the coming biennium by cutting the overall budget by 11 percent over theprevious budget. As a result, nearly every entity that received state support saw a reductionin that support. Both the University System and the Community College System of NewHampshire were forced to absorb some of the largest year-over-year cuts in terms ofpercentage nationally. Despite these cuts, the USNH Board of Trustees approved a budgetthat offset more than 80 percent of the funding reductions through spending cutbacks.USNH Student CostsAverageAnnual2008 2009 2010 2011 2012 ChangeTuition, room, board, and mandatory feesNH ResidentUNH $ 19,238 20,352 21,617 22,724 24,702 6.4%PSU 15,574 16,574 17,374 18,566 20,358 6.9%KSC 15,748 16,574 17,508 18,530 20,330 6.6%NonresidentUNH 32,198 33,832 35,587 36,694 38,022 4.2%PSU 23,124 24,424 25,544 26,736 27,818 4.7%KSC 23,298 24,424 25,678 26,700 27,790 4.5%Costs reflect tuition, mandatory fees, double room, and typical meal plan.Average Increase 5.7%8

USNH 2011 ANNUAL REPORTOperating Budget – In June 2011, the USNH Board of Trusteesapproved a $970 million “all funds” operating budget forFY12 that included significant cuts across the entire systemto address very substantial reductions in state support. Thestate appropriations reductions total $48.4 million, of whichmore than 80 percent will be offset through expense savings.Despite the unprecedented budget challenges faced by a 48percent reduction in support in a single year, the overall cost ofattendance (i.e., the “sticker price” for all tuition and fees for atypical student living on campus) increases for in-state studentswere held to 8.7 percent at the University of New Hampshireand 9.7 percent at Plymouth State University and Keene StateCollege. The increase at Granite State College is 5.8 percent. Thebudget includes the elimination of upwards of 200 positions,reductions in employee benefits, hiring and salary freezes, costcutting across the campuses, and modest use of reserves.USNH has a positive long-term outlook, despite its near-termbudget challenges. For this reason, the Board has made strategicbudget decisions that will strengthen USNH and enable it tothrive well beyond FY12. Importantly, the FY12 budget did notreduce its commitment to deferred maintenance of campusfacilities, or to campus presidents’ strategic initiatives. Nor didUSNH increase nonresident tuition to the point USNH will nolonger be competitive, thereby avoiding loss of the net tuitionfrom nonresidents it depends on. Instead, the Board increasedits strategic investment in campus advancement infrastructureto enhance private giving; it invested in new academic programssuch as nursing at PSU and KSC; it invested in strategic buildingprojects such as the Peter T. Paul College of Business at UNH andthe KSC Technology, Design and Safety Center; and it increasedits commitment to need-based financial aid to ensure continuedaccess and affordability.Strategic investment made at a time of financial stress isthe hallmark of a Board that is disciplined in its fiduciaryresponsibility to provide the people of New Hampshire withhigh-quality educational resources over the long-term. USNHis 48 years old this year and is in good financial health. TheBoard of Trustees is charged with making sure USNH staysfinancially healthy for at least another half century. The key toaccomplishing this is to properly balance today’s needs withlong-term needs for reinvestment by generating a sufficientoperating margin, even in the most difficult of times.The USNH budget included a significant increase for financialaid. The neediest New Hampshire students continue to faceescalating challenges to cover the cost of higher education in avery difficult economic climate. More than 30 percent of USNHin-state students are currently eligible for the federal Pell grantsprogram, which is based on family income. In response to theincreased need, USNH will spend more than $130 million forstudent financial aid next year. Over the past ten years, USNHinstitutional grant/scholarship dollars for in-state undergraduatestudents has increased by more than five times.NH Public Television Adjusts to Loss of State Funding – Asa result of losing all its state funding ($2.7 million) as of July 1,2011, New Hampshire Public Broadcasting/New HampshireOn June 13th, Granite State College celebrated the graduation of over 500 studentsfrom its Bachelors and Associates programs at the Capitol Center for the PerformingArts in Concord. GSC also presented an Honorary Doctorate in Humane Letters toWMUR personality Fred Kocher, the Granite State Award to Northeast Delta DentalCEO Tom Raffio, and the 2011 GSC Distinguished Faculty Award to Craig Nevins.NEW HAMPSHIREPUBLIC TELEVISIONPublic Television (NHPB/NHPTV)underwent a major restructuringat the end of FY11 to offset the 30percent reduction in its $8.8 millionannual budget. Under the directionof the USNH Board of Trustees andNHPB Board of Directors, NHPTVeliminated twenty full-time positions,reduced staff salaries and thestation’s 403(b) staff retirement plan contribution, cancelled andrenegotiated dozens of contracts and services to reduce cost,and reduced the station’s educational engagement services.In addition, NH Outlook and Granite State Challenge, two locallyfocused programs produced by NHPTV, were placed on hiatusuntil additional funding can be secured. NHPTV is airing thefull PBS national broadcast schedule, and some locally-focusedprograms. It is offering limited community engagement andonline educational services.Going forward, NHPTV is exploring ways to implement furtheroperational efficiencies. This includes potential collaborationwith other New England public broadcasters to develop astrategic and sustainable model that will allow it to deliverquality PBS national and local programs throughout the region.NHPTV continues to operate from its broadcast center inDurham, as New Hampshire’s only locally owned and operatedstatewide television network.9

USNH 2011 ANNUAL REPORTPlymouth State University President Sara Jayne Steen (bottomleft) is pictured with colleagues as part of the university’srecognition as “a best company to work for.”Granite State College Inaugurates New President On April7, 2011 Granite State College celebrated the inaugurationof its fourth president, Dr. Todd J. Leach, at the McAuliffe-Shepard Discovery Center in Concord. He became presidentof Granite State College on July 1, 2010, succeeding Dr. KarolLaCroix, who retired in 2010.Under the leadership of its new president, Granite StateCollege has begun launching a variety of exciting initiativesaimed at advancing the College’s mission and fueling recordgrowth. Enrollments at GSC are currently among the highestin the College’s history. In his inaugural address, titled“Access Through Innovation,” Dr. Leach discussed GraniteState College’s mission to serve the state’s adult learners andwhat that mission means for the State of New Hampshire.“The mission of connecting adult students with dynamichigher education experiences that prepare and empowerstudents to better their careers and their lives is not onlya compelling one, but one that is a prerequisite to theeconomic health and vitality of New Hampshire,” saidDr. Leach in his address. “Higher education today is nowessential to both career mobility and job stability.”Among those in attendance at Dr. Leach’s inauguration were (L to R) USNH Chancellor EdwardMacKay, USNH Board of Trustees Chairman Edward Dupont, Vice Chairman George Epstein andSecretary Peter Lamb. Over one dozen delegates from other colleges and universities attendedthe celebration.KSC Technology, Design and Safety Center will MaximizeEnergy Efficiency – Effective and efficient stewardship ofresources is central to the Keene State mission. The college hashad great success achieving this aim through environmentallyresponsible initiatives and by encouraging privately driveninvestments that advance the college’s mission. To unifythree of its leading academic programs—Safety Studies,Architecture, and Sustainable Product Design and Innovation(SPDI)—the college has begun construction of a state-of-theartTechnology, Design and Safety Center, which will achievezero net energy performance and LEED Platinum certification.A photovoltaic solar array across the building’s entire roofwill provide approximately 50 percent of the center’s annualenergy demand, controlling the college’s carbon footprint andgenerating significant savings over time. The center will inspire21st century learning and teaching and will expand totalenrollment capacity in Safety Studies, Architecture, and SPDIfrom 340 to 500 majors.By promoting private investment, the college has also securedessential new student housing with minimal expense. With thecollege’s approval, J. Chakalos Investments LLC will constructa four-story, thirty-seven-unit apartment building for KeeneState students at a location near campus. The building willoffer two-, three-, and four-bedroom units and will be able tohouse 135 students. The building will also offer limited parkingfor residents.GSC Applications Up Over 50 Percent – Granite StateCollege’s applications are up more than 50 percent overlast year. Attributable to a number of initiatives includingoverhauling the application, eliminating cumbersomeapplication fees, and streamlining internal processes, thecollege has been able to drastically increase its application rate.Additionally, the rate of conversion from inquiry to enrollmenthas increased significantly, thanks to the efforts to make theapplication and enrollment processes more student-centered,friendly, clear, and accessible.10

USNH 2011 ANNUAL REPORTPSU Named One of the Best Large Companies to Work for –Employee engagement was one of the reasons Business NewHampshire Magazine chose Plymouth State University as oneof the five best large companies to work for in New Hampshire.It is the first time an educational institution was included inthe “Best Large Companies” ranking by the magazine. Thecriteria included employee satisfaction within the workplace,innovative workplace programs and benefits. “The selection ispublic recognition of the high quality of our community, of ourcommitment to our students and our region, of our commitmentto each other,” PSU President Sara Jayne Steen said. “People herework actively to make PSU a good place to live and learn, and I’mpleased that their good work is being acknowledged.”PSU Community Helps Planning and Budgeting DecisionMaking – In this year of financial challenges, the Planning andBudget Leadership Group (PBLG) at Plymouth State Universityhas provided an important campus voice in aligning strategicpriorities with available resources. The PBLG reviewed a numberof cost-saving and revenue-enhancing recommendations thatmaximize the use of available resources in order to achieve themission of the University. These recommendations, based on acampus-wide participatory process, assisted the president andcabinet in making decisions.4. The University System Is Recognized as aPartner of Choice by OthersUSNH recognizes that in order to fulfill its mission, theinstitutions and the system as a whole must be engaged in itscommunities and with its many constituencies to provide thebest service possible.Each institution can cite numerous collaborative effortson the local, state, and even national levels where thesepartnerships create significant benefits to those who are served.From relatively new uses of technology and innovations insustainability, to health care, lifelong learning, and economicdevelopment, these collaborations truly demonstrate whyUSNH and its institutions are partners of choice. All fourUSNH institutions are regularly sought out by businesses forcollaborations. Some recent examples include the following:KSC Sought After as a Critical Partner for Innovation – Agroup of Keene State College faculty has been invited by theAssociation of American Colleges & Universities (AAC&U) topartner with institutions across the country to re-imaginegeneral education. As a part of AAC&U’s Shared Futures: GlobalLearning and Social Responsibility Initiative, these facultymembers will develop a national agenda for global learning. Thecollege is also a partner institution within the New HampshireIDeA Network of Biological Research Excellence (NH-INBRE).Sponsored by the National Center for Research Resources atthe National Institutes of Health, NH-INBRE is a collaborativenetwork of New Hampshire colleges and universities that issupporting advances in scientific discovery and training the nextgeneration of researchers. On the state level, Keene State hasThe David F. Putnam Science Center at Keene State College features state-of-the-art labs andequipment for scientific research.been designated by New Hampshire Governor John Lynch asthe only institution in the state responsible for implementationof the Occupational Safety and Health Administration (OSHA)Consultation Program. OSHA Consultation Centers offer freeand confidential advice to small and medium-sized businessesin all states across the country. Keene State already hosts oneof twenty-five OSHA Training Institute Education Centers in thenation. Keene State’s center is ranked fourth among its peers. Itoffers both bachelor of science and master of science degrees.Carnegie Foundation Recognizes KSC, PSU and UNH –USNH’s three residential institutions are among only 311institutions nationwide that earned the Community EngagementClassification by The Carnegie Foundation for the Advancementof Teaching. The classification recognizes demonstratedcommitment to community partnerships, educational outreach,and service learning. It also shows that teaching, learning,and research are done in collaboration with communities andenhance the well-being of the region through application ofknowledge to economic development.PSU Becomes Even More Welcoming – With the opening of thenew Eugene and Joan Savage Welcome Center and Ice Arena,PSU has additional opportunities to provide sports entertainmentand exercise for central New Hampshire. The Hanaway Rink atthe PSU Ice Arena has become home to a number of communityactivities, from learn-to-skate sessions and family skating events tothe popular weekend “teen nights.” The PSU men’s and women’shockey teams are also enjoying their home ice advantage overvisiting teams in the new arena.The PSU Welcome Center also plays a larger role as a regionalwelcome center. The Center’s lobby now contains banners andinformation promoting the Plymouth Chamber of Commerce andother local business and tourism organizations. Other regionalbusiness and attraction information is available for visitors to theUniversity and others visiting the area.11

USNH 2011 ANNUAL REPORTMurals created by Plymouth State University students adorn a vacant Brown Company building and capture Berlin’s cultural history and heritage.PSU Student Murals Depict Berlin’s Cultural History – The richhistory of the Brown Company in Berlin and the surroundingcommunities is coming to life thanks to a unique partnershipwith the Center for Rural Partnerships at Plymouth StateUniversity, Tri-County Community Action Program (CAP), WhiteMountain Lumber, and the Neil and Louise Tillotson Fund of theNew Hampshire Charitable Foundation. The highlight of thepartnership is a group of twenty-four murals created by PSUstudents displayed on the side of a vacant Brown Companybuilding in Berlin depicting Berlin’s cultural history and heritage.The former research and development building opened in1915, and over the next fifty years the company’s scientistspioneered innovations in the wood pulp and paper industries,transformed the use of forest products, and enhanced the valueand productivity of forests across New England and the world. It islisted on the 2010 “Seven to Save” list as a state threatened historicresource.UNH Expands Global Initiatives to Attract InternationalStudents – The University of New Hampshire advanced its effortsto make the institution more global and diverse with the launch ofthe state’s only Confucius Institute and a new partnership with anAustralian firm that recruits and supports international students.In addition to providing UNH students with access to a completecurriculum in Chinese language and culture, the institute alsoprovides opportunities for cultural learning and exchange forprimary through post-secondary schools in the region.A second effort—the university’s partnership with Navitas—willnot only make UNH a more diverse and international institutionwith the students it brings to campus, but will broaden theuniversity’s revenue stream. The first group of students arrived oncampus in May.GSC Delivering Leadership Training – Granite State Collegeand Bruce Mast & Associates, Inc. (BMA) joined forces to provideempowering hands-on leadership development programs tobusinesses and their employees statewide. Based in Portsmouth,BMA is a human resource firm that focuses on leadership andorganizational development. BMA’s proprietary five-sessionStepping Up To Leadership® program and the ten-sessionLeadership On The Line® program are each custom-tailored to NewHampshire’s business community. The Stepping Up To Leadershipprogram was first offered at GSC campuses, in Rochester, Conwayand Claremont, with additional program expansions planned for2011.Stepping Up To Leadership offers employers and current businessleaders compelling perspectives and insights into the kinds ofleadership roles—and the leaders needed to fill them—necessaryto ensure the further growth and success of their businesses.Meanwhile, individuals identified as emerging leaders garner afundamental understanding of leadership and its impact, bothpersonal and from an organizational perspective, as well as anunderstanding of the basic tools of leadership. GSC and BMAserve a common constituency (the businesses in the State of NewHampshire) and share a common commitment to assist thosebusinesses in building effective leaders.12

USNH 2011 ANNUAL REPORTManagement’s Responsibility for FinancialReporting and Internal ControlsThe accompanying financial statements, footnotes,management’s discussion and analysis, and all informationin this Annual Report are the responsibility of management.Management has prepared the financial statements and accompanyingnotes in accordance with generally accepted accounting principles and,in the process, has made judgments and estimates which affect theamounts as reported. Management is responsible for the integrity andobjectivity of all representations in this report.The financial reporting process utilizes an on-line budgeting andaccounting system with spending controls on operating funds andelectronic access and approvals. Managers of all USNH funds havecontinual on-line access to the status of their accounts in order tomeasure operating results against the budget and to assure effectivecustodianship of funds. Transactions as recorded in the accountingsystem are aggregated and reflected in regular monthly reports tomanagement, in periodic interim reports to the Board of Trustees’Financial Affairs Committee, and in the annual audited financialstatements, approved by the full Board.The internal control systems include an organizational structure thatprovides for careful recruitment and training of qualified personnel,proper segregation of financial duties, and a program of regular internalaudits. These controls are designed to provide reasonable assurancethat assets are safeguarded against loss from unauthorized use ordisposition, transactions are executed in accordance with management’sauthorization, and such transactions are recorded properly, resultingin financial statements that are free from material misstatement.Management seeks to continually improve internal controls, given coststhereof and management’s assessment of the probability andpotential consequences of future events. According to the “InternalControl – Integrated Framework” report published by the NationalCommission on Fraudulent Financial Reporting (the TreadwayCommission), internal controls can be judged effective if managementhas “reasonable assurance that (1) they understand the extent to whichthe entity’s operating objectives are being achieved, (2) publishedfinancial statements are being prepared reliably, and (3) applicable lawsand regulations are being complied with.” Based on these requirementsit is management’s opinion that the internal control systems employedby USNH are effective.The Audit Committee of the Board of Trustees is responsible foroverseeing USNH’s financial reporting process and internal controlsystems, as well as recommending and engaging independent publicaccountants for the annual audit. The internal auditors, while employeesof USNH are nevertheless objective in the planning, conducting andreporting of their audits. The Audit Committee, the voting membersof which are solely outside trustees, meets at least three times per yearand at the request of the Director of Internal Audit. Both internal andexternal auditors have unencumbered access to the Audit Committee atall times.PricewaterhouseCoopers LLP, certified public accountants, have issuedtheir unqualified opinion as to the fair presentation of the financialstatements that follow. Thus, for all 48 years of its existence, USNH hasreceived only unqualified opinions from its independent auditors. Aspart of their audit, PricewaterhouseCoopers LLP assessed the accountingprinciples used and significant estimates made by management.Although it is not practical to examine all transactions and accountbalances, the auditors have conducted a study and evaluation of USNHinternal control systems and performed tests of transactions andaccount balances to provide reasonable assurance that the financialstatements are free from material misstatement.The Report of Independent Auditors, which expresses the auditor’sopinion on the 2011 financial statements, is reproduced on the followingpage.Kenneth B. CodyVice Chancellor for Financial Affairsand Treasurer/CFOCarol A. MitchellController13

USNH 2011 ANNUAL REPORTReport of Independent AuditorsTo the Governor, State of New Hampshire;Legislative Fiscal Committee,State of New Hampshire;The Board of Trustees,University System of New Hampshire:In our opinion, the accompanying consolidated statements of net assets and the related consolidatedstatements of revenues, expenses and changes in net assets and cash flows, present fairly, in all materialrespects, the financial position of the University System of New Hampshire (USNH) at June 30, 2011 and2010, and its consolidated revenues, expenses and changes in net assets and cash flows for the yearsthen ended in conformity with accounting principles generally accepted in the United States of America.These financial statements are the responsibility of the USNH’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits. We conducted our audits of thesestatements in accordance with auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.The Management’s Discussion and Analysis on pages 15 through 22 is not a required part of the basicfinancial statements but is supplementary information required by the Governmental AccountingStandards Board. We have applied certain limited procedures, which consist principally of inquiries ofmanagement regarding the presentation of the supplementary information. However, we did not audit theinformation and express no opinion on it.September 23, 201114PricewaterhouseCoopers LLP, 125 High Street, Boston, MA 02110T: (617) 530 5000, F: (617) 530 5001, www.pwc.com/us

USNH 2011 ANNUAL REPORTManagement’s Discussion and AnalysisI. IntroductionThe following unaudited Management’s Discussion and Analysisincludes an analysis of the financial condition and results of activitiesof the University System of New Hampshire (USNH) for the fiscalyear ended June 30, 2011. This analysis provides a comparisonof significant amounts and measures to prior periods and, whereappropriate, presents management’s outlook for the future.USNH is a Section 501(c)(3) corporation organized under the lawsof the State of New Hampshire to serve the people of the stateas the premier public provider of higher education, research andpublic service. USNH accomplishes its mission by operating foureducational institutions that collectively offer a full array of highereducation options for the state. These institutions include theUniversity of New Hampshire, with campuses in Durham (UNH)and Manchester (UNHM); Plymouth State University (PSU); KeeneState College (KSC); and Granite State College (GSC). While USNHperforms public service and conducts scholarly research across theglobe, most of USNH’s activities take place at the three residentialcampuses (UNH, PSU and KSC), the urban campus (UNHM), thenine regional sites of GSC, and the Cooperative Extension andSmall Business Development Centers located throughout thestate. The accompanying financial statements also include theactivities and balances of the state’s only public television station,New Hampshire Public Broadcasting (NHPB); the University of NewHampshire Foundation, Inc. (UNHF); and the Keene EndowmentAssociation (KEA) - three legally separate but affiliated entities.These statements do not include the activities and balances of theUNH School of Law, a legally separate corporate entity for whichUNH is the sole member, since majority control over the operationsdoes not currently reside with UNH.II. Financial Highlights and EconomicOutlookThe state economic environment has been a major concern for USNH,particularly over the past year. State general appropriations haveprovided a small, but stable, revenue stream for the past twenty-five +years. For 2012 and 2013 USNH’s general appropriation will be reducedto $51.7 million and $54.7 million, respectively. USNH has taken anumber of steps to address this unprecedented reduction including(1) modifying fringe benefit programs, (2) offering early retirementincentives, (3) reducing staffing levels, (4) increasing tuition rates forNH residents, and (5) making strategic investments that will enhancerevenue or reduce costs over the long-term.USNH has a positive long-term outlook, despite its near-term budgetchallenges. For this reason, the Board of Trustees has made strategicdecisions that will strengthen USNH and enable it to thrive beyond2012. Importantly, the 2012 budget does not reduce our commitmentto funding deferred maintenance needs in existing facilities, nor does itincrease tuition to levels where we are no longer competitive with othercolleges and universities. Instead, the Board took difficult cost cuttingmeasures while also increasing funding for campus strategic initiativesthat will ultimately strengthen USNH for the long-term. The Board alsoincreased USNH’s commitment to need-based financial aid as well toensure continued access and affordability for our students.The remainder of this report describes the results of financialoperations for the year ended June 30, 2011 as compared to prior years.USNH management and trustees are determined to build on thesesuccesses to address the challenges we face, and to meet our fiduciaryresponsibility to provide the state with high-quality educationalresources.2011 Revenues = $911 Million(not including capital additions/deductions)(shown here at gross amounts, not netted for student financial aid)($ in millions)Chart 1: 2011 Revenues by SourceSales of auxiliary services$192 (21%)Resident tuition$167 (18%)Chart 2: 2011 Revenues by InstitutionPSU$120 (13%)GSC$19 (2%)NHPB and other$17 (2%)Gifts, investmentincome andother revenue$57 (6%)Nonresident tuition$193 (21%)KSC & KEA$130 (14%)General appropriations$100 (11%)Federal PellGrants$24 (3%)Grants andcontracts$147 (16%)Student fees$31 (4%)UNH(includes UNHM & UNHF)$625 (69%)15

USNH 2011 ANNUAL REPORTA. RevenuesChart 1 shows revenue diversification in 2011, and Chart 2 shows these samerevenues broken down by institution.USNH general appropriations for 2011 were 11% of total revenue. The 2012 stateoperating appropriation will decrease by $48.3 million so that state appropriationsare expected to be only 5.7% of total revenue in 2012 (see Chart 3).$450400350300250200150100500Chart 3: Twenty-Five Year Revenue Comparison(not including capital additions/deductions)($ in millions)19881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010*BudgetedGrants and contracts, auxiliary enterprises, gifts, and other incomeTuition and fees (not netted for financial aid)State of NH general appropriations2011*2012Table 1: Full-Time Equivalent (FTE)Credit Enrollment in the Fall of Each Year2006 2007 2008 2009 2010UNH 13,741 13,856 13,925 14,250 14,211PSU 5,322 5,554 5,677 5,400 5,234KSC 4,550 4,815 4,979 5,084 5,096UNHM 848 861 840 889 913GSC 1,038 1,031 1,064 1,220 1,278Total USNH FTEs 25,499 26,117 26,485 26,843 26,732NH Resident 16,059 16,374 16,374 16,747 16,927Nonresident 9,440 9,743 10,111 10,096 9,805Total USNH FTEs 25,499 26,117 26,485 26,843 26,732Table 2: Freshman Applications, Acceptances and Enrollees atUNH at Durham in the Fall of Each Year2006 2007 2008 2009 2010Freshman applications received 13,991 15,122 16,246 16,132 16,545Freshman acceptances as % ofapplications (selectivity ratio) 67% 59% 65% 72% 73%Freshman enrolled as % ofacceptances (matriculation yield) 33% 30% 26% 26% 24%Student tuition and fees accounted for $390.9 million or 43%of USNH revenue in 2011 as enrollments at USNH institutionscontinued to grow. In the past four years, credit enrollmentsat USNH have increased 4.8%, or 1,233 FTE students, includingincreases of 868 resident students and 365 nonresident students(see Table 1).As seen in Table 2, there has been an 18% growth in annualapplications to the flagship campus, UNH at Durham, over thepast four years. During this period of growth USNH institutionshave maintained or improved the quality of their incomingstudents. Approximately 47% of new UNH students in the fallof 2010 ranked in the top 20% of their high school class. Thisis equal to the percentage in 2006. The combined SAT scoresfor new UNH students averaged 1105 in the fall of 2010, nearlyidentical to the 1104 average in the fall of 2006.The growth in enrollments combined with the economicdownturn has resulted in significant increases in need-basedstudent financial aid, particularly in 2010 and 2011. Need-basedawards were up $10.1 million (14.8%) from 2010 to 2011 whileother types of aid remained fairly constant. This compares toan increase of $19.0 million (38.5%) from 2009 to 2010, and anincrease of $38.0 million or 94.2% over the 2007 level.All campuses are working to generate revenues from facilitiesusage over the full year rather than just during the traditionalsemesters. In 2010 UNH added a highly successful shortsemester during the winter break. In addition, each campus isexpanding online as well as summer session courses to increasecapacity for additional enrollments without adding significantcosts. Summer housing opportunities are also being added tocomplement these programs.Auxiliary revenues grew $4.2 million and $11.1 million in2011 and 2010, respectively. The primary components ofthis revenue stream are enrollment-driven including studenthousing, dining, health, recreation and transportation fees. In2011 and 2010 auxiliary revenue also included $1.6 million and$0.9 million, respectively, from renewable energy credit andelectricity sales generated by UNH’s recently completed ECOLinerenewable methane gas pipeline (see the Capital and DebtActivities section for more information on energy infrastructureinitiatives).Grant revenues in 2011 are up $28.3 million or 19.9% over 2010.This compares to an increase of $7.9 million or 5.9% from 2009to 2010. Sponsors of UNH awards include the US government,the state, foundations, non-profits and the commercial sector.The ten-year record of UNH competitively-won awards forresearch and other sponsored programs is shown in Chart4. The large increase in 2011 is due to a single $44.5 million,three-year American Recovery and Reinvestment Acts (ARRA)award to UNH for the Network New Hampshire Now projectto implement high-speed broadband “dark fiber” to all tencounties of the state. Including cost sharing commitments frompublic and private partner organizations, this complex projectis expected to cost $65.9 million and includes 450 miles of fiber.Upon completion in 2013, the benefits will include high-speedinternet access for nearly all major institutions and businesses inNew Hampshire.Facilities and administrative cost recoveries on grants andcontracts totaled approximately $20.6 million in 2011 and $18.4million and $18.5 million in each of 2010 and 2009, respectively.This important unrestricted revenue stream is used to support16

USNH 2011 ANNUAL REPORTinfrastructure at each campus. During 2010, UNH successfully negotiatednew facilities and administrative cost rates for federally-sponsoredprograms for the next four years. The recovery rate for UNH on-campusresearch awards was 46% for 2011 and will increase by one-half percenteach year until reaching 47.5% for 2014 awards.As noted above, the general economy has impacted USNH with decreasedgeneral appropriation revenue and increased student financial aid costs.The economy is also impacting our gift revenue streams. Gift revenues ofall types (noncapital, endowment and plant) totaled $22.2 million in 2011and $21.6 million in 2010, respectively. This is down significantly from the$29.4 million received in 2009. USNH has targeted gift revenues as an areaof focus for future years, and has committed $14.7 million between fiscalyears 2007 and 2014 to supplement ongoing development operatingbudgets. The added investments are designed to improve advancementinfrastructure and fundraising results to help offset the reduced stateappropriation level going forward.B. Investing ActivitiesThe USNH endowment pool generated gains of 18.5% in 2011. Thiscompares to gains of 9.7% in 2010 and a loss of 23.2% in 2009. The largeloss of 2009 was unprecedented and effectively offset all previous gainsat that time. USNH began working with investment consultants, PrimeBuchholz, in late 2009 and with their assistance USNH has completelyrestructured the investment pool and adopted a new investment policy.In addition to reducing general appropriation revenue beginning in 2012,the state also announced that the UNIQUE endowment program wouldno longer be available to fund public institutions in New Hampshire. Thisrevenue stream generated $4.4 million during both 2011 and 2010, andwas an important source of annual additions to the USNH endowment.Chart 5 shows the change in USNH endowment and similar asset balancesover the past ten years. The State of New Hampshire adopted the UniformPrudent Management of Institutional Funds Act (UPMIFA) in 2009. Asa result of this new legislation, both USNH and UNHF updated theirendowment spending policies to allow payout from underwater trueendowment funds beginning in 2010. Management capped the USNHendowment payout-for-purpose in 2011 and 2010 at 85% of the 2009payout-per-unit level to mitigate the impact of the 2009 losses on theinvestment valuations, and will maintain this level for 2012 as well.USNH’s non-endowment operating investments generated positive returnsin 2011. The 2011 earnings of $9.7 million compare to $14.7 million in 2010and a loss of $0.3 million in 2009. USNH revised its operating investmentguidelines and further diversified its operating investments in 2011 toensure preservation of capital and adequate liquidity.C. Cost ContainmentUSNH has a long tradition of efficient operations, tight spending controls,balanced budgets, and now is committed to further reductions. As notedabove, USNH has put several measures in place in response to the dramaticgeneral appropriations decrease beginning in 2012. Employee separationexpenses totaled $6.3 million in 2011. This compares to $0.8 million in2010. The majority of the 2011 costs were for separation incentives offeredby UNH. Targeted staff reductions are being implemented at all campusesin 2012 as well.Medical and dental costs net of employee cost sharing increased a total of7.8% in 2011, in addition to increases of 6.7% in 2010 and 10.1% in 2009.The average annual increase over the past ten years was 7.2% per year. Inresponse to the continued increases in benefit costs, a full review of allsalary and benefit offerings called “Total Rewards” was conducted in 2011including comparison with peer employers in the state and across thecountry. Specific benefit program changes to be implemented in 2012Chart 4: Awards for Competitive Sponsored Programs,UNH Only($ in millions)$180160140120100806040200$400350300250200150100502002 2003 2004 2005 2006 2007 2008 2009 2010 2011Chart 5: Total USNH Endowment & Similar Funds(includes UNHF & KEA)Ten-Year Growth($ in millions)0Accumulated market appreciationBook value of gifts and other additions2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Chart 6: Uses of Total Revenue byFunctional Classification($ in millions)InstructionResearch and public serviceAuxiliary servicesStudent financial aidAcademic and student supportDepreciationOperations and maintenanceInstitutional support2011 = $911 Total2010 = $857 TotalInterest expense2009 = $803 TotalFundraisingVoluntary contribution to stateOperating margin*$0 50 100 150 200 250*Used to pay principal on debt, support plant acquistions/renovations, and supplement net assets.17

USNH 2011 ANNUAL REPORTinclude reduced employer defined contribution retirement plan rates,self-insuring for medical insurance, unbundling pharmacy and medicalcoverage, increased employee medical premiums, and medical planchanges designed to promote consumerism by covered individuals. Otherchanges will impact new hires only, including reductions in vacation andearned time accrual rates.The residential campuses are engaged in alternative energy initiativesto mitigate the continued escalation of petroleum-based fuel costs andreduce carbon footprints. The UNH ECOLine pipeline is the largest ofthese initiatives. The pipeline transports processed landfill gas to thecogeneration plant on the Durham campus. Now that it has been in placefor a full year, renewable methane gas is the primary source of energy forheating, cooling and electricity on the Durham campus. The reduced utilitycosts are offset, in part, by additional debt service and depreciation relatedto the project, but the net benefits to the campus have been substantial(see Note 8 for additional information).General administrative overhead, reflected in Chart 6 as institutionalsupport, is one of the smallest components of USNH expenses and iswell-controlled. As shown on the previous page, expenses associatedwith instruction, financial aid and services to students have far-outpacedincreases in general overhead expenses over the last several years.USNH made a voluntary contribution of $25 million to the State of NewHampshire during June 2010. The contribution was made to help mitigatefiscal difficulties at the state level and was not a reduction of the generalappropriation revenue base. The operating margin included in Chart 7above represents the Net Income Before Other Changes in Net Assets fromthe Statement of Revenues, Expenses and Changes in Net Assets.D. State Capital SupportIn 2001 the state authorized the first phase ($100 million) of a twophasecapital program to expand and renovate teaching and researchfacilities, primarily for science and engineering. This program, known asthe Knowledge Economy Education Plan for New Hampshire (KEEP-NH),is expected to bolster the state’s high tech job market for years to come.Funding for phase two of KEEP-NH, an additional $109.5 million, wasapproved in June 2005. Spending and commitments against the combinedKEEP-NH appropriation through June 30, 2011 totaled $186.7 million.The remaining $22.8 million will be expended over the next two yearsto renovate and expand Parsons Hall at UNH. (See Note 5 for additionalinformation on KEEP-NH spending to date.)USNH was also authorized $25 million of additional KEEP-NH appropriationsin 2010 for deferred maintenance and other capital projects. Approximately$14.5 million of this third KEEP-NH appropriation has been spent throughJune 30, 2011. The remainder is expected to be spent in 2012. These fundsare being used to support projects smaller than the ground-up renovationsprimarily funded by the original KEEP-NH legislation. (See Table 4 for detailon recent major capital projects.)E. Financial IndicatorsUSNH has adopted 18 key performance indicators, including financialmeasures, for each campus and the University System as a whole. Two ofthe most important financial measures are the operating margin and theunrestricted financial resources (net assets) to total debt (UNA to debt)ratios. Management monitors these ratios carefully and considers themprimary indicators of financial health. In April 2010, Moody’s recalibratedits long term US municipal ratings to its global rating scale and many publicuniversities received higher ratings. This process resulted in a new ratingfor USNH of Aa3 whereas previously USNH had been rated A1. Charts 7 &8 reflect the A1 median for 2007 & 2008 and the Aa3 median beginning in2009.7%6%5%4%3%2%1%0%Chart 7: USNH Annual Operating Margin2007 2008 2009 2010 2011Chart 8: Unrestricted Financial Resources (Net Assets)to Total Debt60%50%40%30%20%10%0%New debt$427 (38%)USNHMoody's MedianUSNHMoody's Median2007 2008 2009 2010 2011Chart 9: Capital Funding Sources, 2001-2013Total = $1.1 Billion($ in millions)Internalborrowings(cash)$85 (7%)State capitalappropriations$235 (21%)Operatingbudget$277 (25%)Gifts, grantsand other$100 (9%)18

USNH 2011 ANNUAL REPORTBeginning in 2010, USNH now includes the impact of postretirement medical obligations inits calculation of operating expenses and unrestricted net assets to ensure consistency of ourcalculations with the related Moody’s medians. Prior year values have not been restated.USNH’s standard targeted annual operating margin ratio is 3% to 5% per year. The 2008 and 2009ratios for USNH were 2.9% and 3.0%, respectively. This compares to a Moody’s A1 median of 1.1% in2008 and an Aa3 median of 0.9% in 2009. The 2010 ratio of 2.3% compares to the Aa3 median of 2.6%.The 2007 ratio was positively impacted by a one-time settlement received from an investment claim.The 2010 ratio was negatively impacted by USNH’s $25 million voluntary contribution to the State ofNew Hampshire, and had this payment not been made, USNH would have had an operating margin of5.7% (see Note 15 for additional information). The 2011 margin of 3.4% was negatively impacted byaccruals attributable to a reduction in the discount rate used for valuing for post-retirement medicalobligations, and plan termination costs for the Health Reimbursement Account employee benefitplan approved by USNH Trustees as part of the Total Rewards initiative. (The 2011 medians are not yetavailable.)USNH’s targeted UNA to debt ratio going forward is 35% or above. Monitoring the UNA to debtlevel is particularly important as USNH nears completion of a 12-year $1+ billion capital facilityimprovement plan, financed through debt, operating surpluses and state KEEP-NH appropriationsas detailed in Chart 9 (see the Capital and Debt Activities section for additional information).Unrestricted net assets were up $59.5 million (39.9%) from June 30, 2010 to June 30, 2011. However,the entire increase related to amounts committed for future uses including separation incentiveofferings ($9.6 million), unspent internal borrowings committed by the System at June 30, 2011 ($41.0million) and unrestricted quasi-endowment funds held for future principal payments due on theSeries 2007 and Series 2009A Bonds bullets ($5.4 million and $3.0 million, respectively). Accordinglymanagement expects the UNA to debt ratio to be 35% to 38% at June 30, 2012. (See notes 11 and 8for further information.)III. Using the Financial StatementsA. Statement of Net AssetsThe Statement of Net Assets depicts the financial position of USNH at one point in time – June 30 –and includes all assets and liabilities of USNH and its component units. The Statement of Net Assetsis the primary statement used to report financial condition. Assets are measured at fair value, exceptTable 3: Summary Information Derived from theStatement of Net Assets as of June 30($ in millions)2007 2008 2009 2010 2011Cash and operating investments $ 226 $ 226 $ 218 $ 262 $ 301Endowment and similar investments 295 312 263 291 368Property and equipment, net 780 852 915 935 931Other assets* 105 87 107 97 110Total assets $1,406 $1,477 $1,503 $1,585 $1,710Postretirement medical benefits $ 52 $ 51 $ 47 $ 47 $ 53Deferred obligations - interest swaps* 19 28 25Long-term debt 419 458 475 464 460Other liabilities 138 135 138 149 162Total liabilities $ 609 $ 644 $ 679 $ 688 $ 700Invested in capital assets, net $ 409 $ 430 $ 476 $ 488 $ 493Restricted 283 278 234 260 308Unrestricted 105 125 114 149 209Total net assets $ 797 $ 833 $ 824 $ 897 $1,010* USNH adopted the provisions of GASB Statement No. 53, Accounting and Financial Reporting for DerivativeInstruments, as of July 1, 2008. This statement requires that derivative assets and liabilities be reported at their fairvalue. Under GASB definitions, USNH’s derivative instruments qualified as effective hedges for both 2010 and 2011.Accordingly, the fair value of USNH’s interest rate swaps outstanding is presented in the Statement of Net Assets as adeferred obligation rather than flowing through the Statement of Revenues, Expenses and Changes in Net Assets. Anoffsetting deferred receivable is included in Other Assets. USNH entered into the swap agreements to reduce effectiveinterest and synthetically fix rates over the term of the respective debt issues. Thus, USNH intends to hold the swapcontracts to maturity. USNH has recorded deferred obligations and offsetting deferred receivables of $25 million and$28 million at June 30, 2011 and 2010, respectively (see Note 9 for additional information).for property and equipment, which are shownat historical cost less accumulated depreciationand other assets. Net assets represent theresidual interest in the University System’sassets after liabilities are deducted. Over time,an increase in net assets is one indicator of aninstitution’s improving financial health. Factorscontributing to future financial health includethe size and quality of student enrollments;quality and distinction of the faculty; growthand diversification of revenue streams;prudent management of costs, financial assetsand facilities; the ability to generate annualoperating surpluses; and the discipline tosave those surpluses for long-term strategicpurposes. Table 3 shows summary informationderived from the Statement of Net Assets atJune 30 for the past five years.Total assets increased by $304 million or 22%over the past four years. The major componentsof assets are cash and operating investments,endowment and similar investments, andproperty and equipment. Other assets includeaccounts and notes receivable, prepaidexpenses, debt proceeds held by others forconstruction purposes, and deferred receivablesrelated to interest rate swaps.Endowment investments were valued at $368million as of June 30, 2011, an increase of$77 million from 2010 and $105 million since2009. These values are reflective of currenteconomic conditions (see the Endowment andSimilar Investments discussion for additionalinformation). The net increase in property andequipment was $151 million over the past fouryears. These increases are primarily a result ofthe KEEP-NH projects and utilization of bondproceeds for construction as described below.Liabilities are primarily comprised of accruedpostretirement medical benefits and long-termdebt. The long-term debt of USNH primarilyconsists of bonds and capital leases payable.Between 2006 and 2011, USNH issued $221million of revenue bonds to finance newconstruction, as described more fully beginningon the following page. Other liabilities includeaccounts payable, deferred revenue, accruedemployee benefits, government advancesrefundable (amounts provided by the USGovernment under the Perkins Loan Programthat would be refundable should USNH ceaseoperating its revolving loan programs), anddeferred obligations related to interest rateswaps.Total USNH net assets have grown from $797million at June 30, 2007 to $1,010 million atJune 30, 2011, an increase of 27% in the pastfour years. Net assets are reported in threenet asset categories. The invested in capitalassets amount is the historical cost of propertyand equipment reduced by total accumulated19

USNH 2011 ANNUAL REPORTTable 4: Major Construction ProjectsTotalProject CostCampus Name of Project Primary Purpose ($ in millions) Primary Sources of FundsFiscal year completed:2008 UNH Kingsbury Hall renovation and expansion Academic & research 56 State appropriations, gifts & cashUNH Southern Underpass Infrastructure 8 State appropriations, grants & cashPSU Mary Lyon Hall renovation Student residential 16 NHHEFA bonds & cash2009 UNH Southeast Residential Community Student residential 51 NHHEFA bondsUNH DeMeritt Hall renovation Academic & research 19 State appropriations & giftsUNH Fairchild Hall renovation Student residential 9 NHHEFA bondsUNH Stillings Hall renovation Student dining 2 CashUNH Chase Hall addition Academic & research 2 GrantsUNH Main Street reconstruction project Infrastructure 2 State and local grants & cashUNH Philbrook Hall expansion Student dining 6 NHHEFA bonds & cashPSU Central Campus Infrastructure improvements Energy & other infrastructure 7 State appropriations & cashKSC Pondside III Apartments Student residential 17 NHHEFA bondsKSC Fiske Hall renovation Student residential & administrative 9 NHHEFA bonds & cash2010 UNH ECOLine Landfill Gas project Energy infrastructure 50 NHHEFA bonds & cashUNH Marine Pier Infrastructure 14 GrantsUNH James Hall renovation Academic & research 33 State appropriations & giftsUNH NH Hall renovation Academic & research 5 CashUNH Residential safety improvements Student residential 1 NHHEFA bonds & cashKSC Central Heating/Cogeneration facility Energy infrastructure 9 State appropriations & cashKSC KSC Huntress Hall renovation Student residential 6 NHHEFA bonds & cash2011 UNH Wind Turbulence facility Academic & research 3 Grants, state appropriations & cashUNH Recreation facilities renovation Student recreation 1 NHHEFA bondsUNH Whittemore Arena renovation Student recreation 2 NHHEFA bondsUNH Main Street West reconstruction Infrastructure 1 Grants & cashUNH Smith Hall renovation Administrative 1 Cash & state appropriationsUNH New England Center West Tower conversion Student residential 2 CashPSU ALLWell Ice Arena Student recreation 16 NHHEFA bonds, grants & cashKSC KSC Alumni Center renovation Administrative 7 Cash & state appropriationsNHPB Digital Transmission conversion Other infrastructure 3 State appropriations and grantsIn progress at June 30, 2011, at budgeted amounts:UNH Parsons Hall renovation Academic & research 59 State appropriations, gifts & cashUNH Peter T. Paul Business Building Academic & research 50 Gifts & cashPSU Museum of the White Mountains Academic & research 2 CashKSC Adams Tech, Design & Safety Building Academic & research 15 Cashdepreciation and the balance of related debt outstanding. Restricted netassets include funds already expended or committed, such as loan fundsand endowments and similar funds, where assets are restricted as topurpose or assets are required to be invested in perpetuity.Net assets that are not subject to externally imposed restrictionsgoverning their use are classified as unrestricted net assets on theStatement of Net Assets. Unrestricted net assets include unrestrictedcurrent fund balances, balances in unrestricted loan funds, unrestrictedfunds functioning as endowment, unexpended plant funds, andunrestricted funds held by affiliated entities. Substantially all unrestrictednet assets are committed for goods and services not yet received, capitalprojects in various stages of planning and completion, normal workingcapital for departmental activities, or designated for specific futurepurposes. (See Note 11 for further details on net asset balances.)Capital and Debt ActivitiesExpenditures for property and equipment are recorded as asset additionson the Statement of Net Assets with the related depreciation recordedon the Statement of Revenues, Expenses and Changes in Net Assets.Interest on the related debt service (net of amounts capitalized duringconstruction and interest income earned on bond proceed accounts)is recorded as nonoperating expense in the Statement of Revenues,Expenses and Changes in Net Assets, whereas required principalpayments are recorded as a reduction of the corresponding liability.(See Notes 5 and 8 for further information on capital and debt activities,respectively.)Academic FacilitiesThe KEEP-NH legislation signed into law in July 2001 resulted in an initial$100 million appropriation from the state to fund the renovation andexpansion of teaching and research facilities at all campuses. The firstKEEP-NH appropriation funded renovation projects completed between2002 and 2007. All the projects using the first phase of funding werecompleted on-time and on-budget.The state approved a second appropriation of $109.5 million to completethe KEEP-NH plan by 2013. Infrastructure projects on the residentialcampuses have been completed along with ground-up renovations ofthe Demeritt and James Hall buildings at UNH. The remaining fundsare being used to provide similar renovations for UNH’s Parsons Hall. All20

USNH 2011 ANNUAL REPORTthree buildings house science instruction andresearch facilities.During 2011 UNH also began constructionon the Peter T. Paul College of Business andEconomics. With $25 million donated byalumnus Peter Paul and matching funds fromUNH, alumni and other supporters, this $50million facility is expected to open in the springof 2013. The new building will accommodatenearly 3,000 students and a 200 seat auditoriumalong with dedicated space for the hospitalitymanagement program, career services andsupport functions to meet the long-termneeds of the school. The facility is expected toshowcase UNH’s commitment to Leadership inEnergy and Environmental Design (LEED), and isdesigned to the LEED Gold standard.Residential Life FacilitiesIn 2005, each of the three residential campuseshoused approximately 55% of their traditionalage undergraduate populations. The longtermstrategic goal of each campus is to houseapproximately 60% of its undergraduates. Tomeet this goal USNH issued an additional $210million in revenue bonds during 2005 and 2006.All projects have been completed includingZorn Dining Hall and the Butler Court, Fiske andPondside III Residence Halls at KSC; the Grafton,Langdon Woods and Mary Lyon ResidenceHalls at PSU; and the Philbrook Dining Hall,Fairchild Residence Hall, Gables Apartments andSoutheast Residential Community at UNH.In 2009 USNH issued $24 million of additionalbonds to finance the construction of theALLWell Arena and Welcome Center at PSU,renovate the Huntress Residence Hall atKSC, and upgrade fire safety systems in UNHdormitories. The ALLWell Arena opened in July,2010 and has been commended as a stateof-the-artfacility. USNH also issued another$6 million of bonds in 2011 to fund smallrenovation projects in student housing, diningand recreation facilities at the three residentialcampuses. These projects are expected to becompleted in 2012.UNH Energy Infrastructure FacilitiesDuring 2004, USNH entered into a constructioncontract for replacement of the centralheating plant at UNH, including an electricitycogeneration facility. The project cost totaled$30 million of which $19 million was financedby a 20-year capital lease, with the balancecoming from USNH funds. The facility wentonline in early fiscal 2008. This facility is ableto burn multiple fuels and has significantlyreduced the risks of volatile utility prices.Building on the success of the cogenerationfacility, the Trustees approved ECOLine, a$50 million project designed to pipe purifiedmethane gas from a landfill in Rochester, NHto the Durham campus. The work includedTable 5: Endowment Activity for the Years Ended June 30($ in millions)CampusesAffiliated EntitiesUNH FoundationKEAPooled Other Pooled Other Other TotalFair value, June 30, 2008 $167) $15) $121) $5) $4 $312)New gifts 12) ) 4) 16)Quasi endowment additions& other changes 16) 16)Total return (loss) (45) (2) (20) (1) (68)Total distribution (6) (1) (6) (13)Fair value, June 30, 2009 144) 12) 99) 4) 4 263)New gifts 5) ) 3) 8)Quasi endowment additions& other changes 4) 4)Total return (loss) 14) 1) 12) 27)Total distribution (5) (1) (6) (12)Fair value, June 30, 2010 162) 12) 108) 4) 4 290)New gifts 5) ) 3) 1 9)Quasi endowment additions )& other changes 22) 22)Total return (loss) 31) 3) 23) 1) 2 60)Total distribution (6) (1) (6) (13)Fair value, June 30, 2011 $214) $14) $128) $5) $7 $368)construction of a methane gas processing plant at the landfill and a 12-mile underground pipelineto transport the processed gas to the cogeneration facility, where an additional turbine was installedto generate electricity. NHHEFA bonds were issued in 2008 to fund the majority of the project. TheECOLine project was successfully completed allowing UNH to derive the majority of its heating,cooling, and electricity from a renewable, carbon-neutral resource, and sell excess electricity to thegrid.Major capital projects for the past four years and construction in progress as of June 30, 2011 are listedin Table 4 on the previous page.Endowment and Similar InvestmentsEndowment gifts are invested in various assets depending on whether the donor contributed toone of the campuses, the UNH Foundation (UNHF), or the Keene Endowment Association (KEA).Most endowments are invested in one of two internally-managed investment pools: the USNHConsolidated Endowment Pool (CEP) for the benefit of several campuses or the UNHF endowmentpool for the benefit of UNH only. The investment pools are managed to provide the highest rateof return over the long term given an acceptable level of risk as determined by the responsiblefiduciaries. The USNH Board of Trustees has fiduciary responsibility for the CEP, whereas the separateboards of UNHF and KEA have their own investment policies and are separately responsible for thoseinvestments. Table 5 shows the summarized endowment investments activity for the years endedJune 30, 2011, 2010 and 2009.USNH is continuing to build the endowment through three strategies: investing endowment assets togenerate improved total returns while managing risk; reducing dependence on endowment returnsused in operations; and working to foster philanthropic interest to support the endowment with newgiving. (See Notes 4 and 12 for further information on endowment and similar investments.)B. Statement of Revenues, Expenses and Changes in Net AssetsThe total change in USNH net assets for the year is reported in the Statement of Revenues, Expensesand Changes in Net Assets. This statement reports total operating revenues, operating expenses,other revenues and expenses, and other changes in net assets, as prescribed and defined by theGovernmental Accounting Standards Board (GASB). Table 6 shows summary information derivedfrom the Statement of Revenues, Expenses and Changes in Net Assets for the five years ended June30, 2011.There are three major components which management considers separately when analyzing thechange in total net assets: net income from recurring activities (also referred to as operating margin);capital appropriations and other plant changes; and endowment gifts and unutilized total returns.21

USNH 2011 ANNUAL REPORTTable 6: Summary Information Derived from theStatement of Revenues, Expenses and Changes in Net Assetsfor the Years Ended June 30($ in millions)2007 2008 2009 2010 2011Operating revenue, net $515) $548) $570) $592) $634)Operating expenses (602) (644) (670) (685) (742)Other revenues (expenses), net 128) 116) 125) 110) 135)Net income fromrecurring activities 41) 20) 25) 17) 27)Capital appropriations andother plant changes, net 14) 29) 37) 31) 30)Endowment gifts and unutilizedtotal returns, net 40) (11) (64) 25) 56)Other changes in net assets (2) (7) )Net increase (decrease) innet assets $ 95) $ 36) $ (9) $ 73) $113)The net income from recurring activities is further broken down into operating revenues, operatingexpenses, and other revenues (expenses).Generally, operating revenues are earned by USNH in exchange for providing goods and services.Operating expenses are defined as expenses incurred in the normal operation of the UniversitySystem, including a provision for estimated depreciation on property and equipment assets. GASBreporting standards require certain significant recurring revenues to be shown as nonoperating,including state general appropriations, Federal Pell grants, noncapital gifts, operating investmentincome, and endowment return used in operations. These diversified revenue streams are criticallyimportant sources of funds used to supplement tuition and fees revenue in the delivery of USNHprograms. In other words, the regular operating expenses of USNH are funded in part by revenues notshown as operating revenues under GASB formats. As a result, operating revenues for 2011 were $119million greater than four years prior whereas operating expenses increased $140 million during thesame period.Other revenues (expenses) for 2011 increased by $7 million over 2007 and include stateappropriations, Federal Pell grants, gifts, operating investment income, other investment income,endowment returns used in operations, other nonoperating revenue (expense), and net interestexpense. Other nonoperating expense for 2010 included a voluntary contribution to the State of NewHampshire to help mitigate fiscal issues at the state level. This was a one-time payment (see Note 15for additional information in this regard). The result was a decline in the operating margin from $25million in 2009 to $17 million in 2010. In 2011, the operating margin rebounded to $27 million.Table 7: Summary Information Derived from theStatement of Cash Flows for the Years Ended June 30($ in millions)2007 2008 2009 2010 2011Cash flows provided by (used in):Operating activities $(48) $(62) $(55) $(46) $(48)Noncapital financing activities 113) 118) 121) 104) 134)Capital financing activities (118) (46) (78) (54) (35)Investing activities 73) 24) 28) 44) 5)Increase in cash and cashequivalents 20) 34) 16) 48 56Increase (decrease) in current andlong-term operating investments 4) (35) (22) (5) (17)Change in cash, cash equivalentsand operating investments $ 24) $ (1) $ (6) $ 43) $ 39)Capital appropriations and other plant changesincreased net assets by $30 million in 2011,primarily due to KEEP-NH as shown in Table 4.Endowment gifts and unutilized return totalof $56 million in 2011 includes new gifts of $9million, investment gains of $60 million, anddistributions totaling $13 million as detailed inTable 5.C. Statement of Cash FlowsThe Statement of Cash Flows summarizestransactions affecting cash and cash equivalentsduring the fiscal period. Table 7 shows summaryinformation derived from the Statement of CashFlows for the five years ended June 30, 2011.Cash flows from operating activities will alwaysbe different from the operating loss on theStatement of Revenues, Expenses and Changesin Net Assets because of noncash items, suchas depreciation expense, and because the latterstatement is prepared on the accrual basis ofaccounting, meaning that it shows revenueswhen earned and expenses as incurred. Thedirect method of the Statement of Cash Flows,on the other hand, shows cash inflows andoutflows. The primary purpose of the Statementof Cash Flows is to provide relevant informationabout the cash receipts and cash payments ofUSNH during the year. In addition, it should helpreaders assess the ability of USNH to generatethe future cash flows necessary to meet itsobligations and evaluate its potential foradditional financing.GASB requires that receipts for state generalappropriations and noncapital gifts be shownas cash flows from noncapital financingactivities. The reduction in cash provided bynoncapital financing activities in 2010 is dueto a $25 million voluntary contribution to theState of New Hampshire to assist with fiscaldifficulties at the state level. This was a one-timepayment and not a reduction of the generalappropriation revenue base (see Note 15 foradditional information in this regard). Includedin cash flows from capital financing activitiesare all plant funds and related long-term debtactivities, as well as gifts to the endowment.This includes KEEP-NH and NHHEFA bondconstruction amounts expended. Cash flowsfrom investing activities show all uses of cashand cash equivalents to purchase investments,and all cash and cash equivalents provided bythe sale of investments and income generatedfrom cash and investments owned. The netcash provided by investing activities is made upof bond investments sold to finance associatedconstruction expenditures and the conversionof short-term investments into cash equivalentsduring the year.22

USNH 2011 ANNUAL REPORTUniversity System of New HampshireStatement of Net Assets($ in thousands)Balance at June 30,2011 2010ASSETSCurrent AssetsCash, cash equivalents, and operating investments $ 294,513 $ 256,293Accounts receivable 31,016 26,427Accounts receivable - State of NH appropriations 14,228 5,947Pledges receivable - current portion 344 583Notes receivable - current portion 3,607 3,378Prepaid expenses and other current assets 6,538 6,315Total Current Assets 350,246 298,943Noncurrent AssetsDebt proceeds held by others for construction purposes 7,608 2,735Long-term operating investments 6,594 5,539Endowment and similar investments - campuses 227,388 173,481Endowment and similar investments - affiliated entities 140,123 117,488Pledges receivable 974 1,169Notes receivable 19,789 19,838Property and equipment, net 930,919 935,493Other assets 26,499 30,334Total Noncurrent Assets 1,359,894 1,286,077TOTAL ASSETS $1,710,140 $1,585,020LIABILITIESCurrent LiabilitiesAccounts payable and accrued expenses $ 49,506 $ 46,601Construction services payable 10,470 6,047Deposits and deferred revenues 42,049 37,489Accrued employee benefits - current portion 8,917 6,012Postretirement medical benefits - current portion 5,236 4,706Long-term debt - current portion 96,370 70,046Total Current Liabilities 212,548 170,901Noncurrent LiabilitiesObligations under life income agreements 2,598 2,593Government advances refundable 16,260 16,339Accrued employee benefits 32,541 33,430Postretirement medical benefits 47,299 42,608Deferred obligations - interest swaps 24,705 27,966Long-term debt 364,102 394,257Total Noncurrent Liabilities 487,505 517,193TOTAL LIABILITIES $ 700,053 $ 688,094NET ASSETS (see Note 11)Invested in capital assets, net of related debt $ 492,675 $ 487,512RestrictedNonexpendable 196,371 187,059Expendable 112,345 73,189Unrestricted 208,696 149,166TOTAL NET ASSETS $1,010,087 $ 896,926The accompanying notes are an integral part of these financial statements.23

USNH 2011 ANNUAL REPORTUniversity System of New HampshireStatement of Revenues, Expenses and Changes in Net Assets($ in thousands)For the year ended June 30,2011 2010OPERATING REVENUESResident tuition $ 167,891) $ 154,239)Nonresident tuition )192,387) 188,032)Student fees revenue 30,639) 26,385)Total tuition and fees 390,917) 368,656)Less: student financial aid - grants and contracts (35,537) (31,349)Less: student financial aid - all other (85,171) (77,923)Net tuition and fees 270,209) 259,384)Grants and contracts - direct revenues 126,346) 103,837)Grants and contracts - facilities & administrative recovery 20,561) 18,687)Sales of auxiliary services 191,753) 187,588)Other operating revenues 25,056) 22,708)Total Operating Revenues 633,925) 592,204)OPERATING EXPENSESEmployee compensation and benefits - grants and contracts 59,783) 56,130)Employee compensation and benefits - all other 405,132) 387,578)Employee separation incentives 6,342) 750)Supplies and services - grants and contracts 51,219) 35,343)Supplies and services - all other 151,331) 138,801)Utilities 17,847) 18,338)Depreciation 50,730) 47,776)Total Operating Expenses 742,384) 684,716)Operating loss (108,459) (92,512)NONOPERATING REVENUES (EXPENSES)State of New Hampshire general appropriations 100,000) 100,000)Federal Pell grants 24,107) 20,159)Gifts 8,998) 8,444)Operating investment income, net 9,726) 14,707)Endowment return used for operations 12,685) 11,811)Interest expense, net (20,426) (20,856)Other nonoperating revenue (expense) (see Note 15) 443) (24,462)NET INCOME BEFORE OTHER CHANGES IN NET ASSETS 27,074) 17,291OTHER CHANGES IN NET ASSETSState of New Hampshire capital appropriations 22,907) 22,135)Plant gifts, grants, and other changes, net 7,022) 8,330)Endowment and similar gifts 9,367) 8,223)Endowment return, net of amount used for operations 46,791) 16,705)Total Other Changes in Net Assets 86,087) 55,393)INCREASE IN NET ASSETS 113,161) 72,684)Net assets at beginning of year 896,926) 824,242)NET ASSETS AT END OF YEAR $1,010,087) $896,926)The accompanying notes are an integral part of these financial statements.24

USNH 2011 ANNUAL REPORTUniversity System of New HampshireStatement of Cash Flows($ in thousands)For the year ended June 30,2011 2010CASH FLOWS FROM OPERATING ACTIVITIESTuition and fees, net $ 272,874) $ 260,473)Grants and contracts - operating 145,189) 116,285)Sales of auxiliary services 191,206) 187,010)Other operating revenues 23,892) 21,833)Payments to employees (336,190) (324,927)Payments for employee benefits (123,134) (115,263)Payments to suppliers and services (221,980) (191,186)Net Cash Used in Operating Activities (48,143) (45,775)CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESState general appropriations 100,000) 100,000)Federal Pell grants 24,107) 20,159)Gifts (noncapital) 9,299) 8,401)Grants and contracts - other nonoperating 443) 538)Other noncapital activity (see Note 15) -) (25,000))Net Cash Provided By Noncapital Financing Activities 133,849) 104,098)CASH FLOWS FROM CAPITAL FINANCING ACTIVITIESState appropriations for plant projects 14,627) 32,989)Plant gifts and grants 8,563) 8,233) )Endowment gifts 9,339) 8,052)Purchases of property, equipment, and construction services (42,728) (71,935)Proceeds from sale of property and equipment -) 233 )))Proceeds from issuance of debt 49,089) 171)))))) Retirement of debt through defeasance (41,513) -)Debt principal payments (10,783) (10,752)Interest expense (21,116) (20,722)Net Cash USED IN Capital Financing Activities (34,522) (53,731)CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of investments 262,101) 265,184)Purchase of investments (271,740) (239,945)Endowment investment yield 4,807) 3,441) )Operating investment income 9,740) 14,731) )Investment income on bond proceeds 232) 53)Net Cash PROVIDED BY investing activities 5,140) 43,464)Increase in cash and cash equivalents 56,324) 48,056)Beginning cash and cash equivalents 216,496) 168,440)ENDING CASH AND CASH EQUIVALENTS $ 272,820) $ 216,496)Ending cash and cash equivalents, as above $ 272,820) $ 216,496)Operating investments 21,693) 39,797)TOTAL CASH, CASH EQUIVALENTS, AND OPERATING INVESTMENTS $294,513) $256,293)RECONCILIATION OF OPERATING LOSS TO NET CASHUSED IN OPERATING ACTIVITIESOperating loss $ (108,459) $ (92,512)Adjustments to reconcile operating loss to net cash used in operating activities:Depreciation and amortization 50,730) 47,776)Changes in current assets and liabilities:Accounts receivable (4,601) (8,457)Notes receivable (259) (119)Prepaid expenses and other current assets (42) (281)Accounts payable and accrued expenses 4,086) 6,910)Deposits and deferred revenues 3,508) 1,973)Accrued employee benefits 6,894) (1,065)NET CASH USED IN OPERATING ACTIVITIES $ (48,143) $ (45,775)The accompanying notes are an integral part of these financial statements.25

USNH 2011 ANNUAL REPORTNotes to the Financial StatementsJune 30, 20111. Summary of significant accounting policies andpresentationThe University System of New Hampshire (USNH) is a not-for-profit institution of highereducation created in 1963 as a body politic and corporate under the laws of the State ofNew Hampshire (the state) and tax exempt under Section 501(c)(3) of the Internal RevenueCode. The accompanying financial statements include the accounts of the University of NewHampshire at Durham, the University of New Hampshire at Manchester, Keene State College,Plymouth State University, Granite State College, and all wholly-owned and operated auxiliaryactivities. These organizations are collectively referred to in the accompanying financialstatements as “campuses.”Affiliated entitiesGovernmental Accounting Standards Board (GASB) Statement No. 14, The Financial ReportingEntity, as amended by GASB Statement No. 39, Determining Whether Certain Organizations AreComponent Units, and GASB Statement No. 61, The Financial Reporting Entity: Omnibus requiresthat all component units be evaluated for inclusion in the financial statements of the primarygovernment of the reporting entity. Based on management’s evaluation of the individualfinancial burden or benefit relationships, these financial statements also include the accountsof New Hampshire Public Broadcasting (NHPB), the University of New Hampshire Foundation,Inc. (UNHF) and the Keene Endowment Association (KEA). NHPB, UNHF and KEA are collectivelyreferred to in the accompanying financial statements as “affiliated entities.” In accordance withthe requirements of the authoritative pronouncements noted above, the associated revenues,expenses, assets, liabilities and net assets have been blended with those of the campuses, andall associated intercompany activity has been eliminated. The affiliated entities are furtherdescribed below.The state’s only public television station, New Hampshire Public Broadcasting, was formerly acomponent unit of the University of New Hampshire at Durham and known as New HampshirePublic Television. NHPB underwent a reorganization in 2009 and became a separate, whollyowned501(c)(3) affiliated corporation of USNH. NHPB is governed by its own Board ofDirectors, the membership of which includes the Chancellor of USNH and four USNH Trustees.The University of New Hampshire Foundation, Inc. was incorporated in 1989 as a not-for-profit,tax-exempt organization. Its purpose is to solicit, collect, invest and disburse funds for the solebenefit of the University of New Hampshire. UNHF is governed by its own Board of Directors,the membership of which includes the President of the University of New Hampshire andthree other members of the USNH Board of Trustees. The University of New Hampshire funds aportion of the operating expenses of UNHF.The Keene Endowment Association was organized in 1957 as a separate charitable entity toprovide financial assistance to deserving students at Keene State College. Income is distributedat the discretion of the Trustees of KEA.Basis of accountingThe accompanying financial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America as prescribed by the GASB usingthe “economic resources measurement focus” and the accrual basis of accounting.USNH follows the requirements of the “business-type activities” (BTA) model as defined byGASB Statement No. 35 Basic Financial Statements – and Management’s Discussion and Analysisfor Public Colleges and Universities. BTAs are defined as those that are financed in whole orin part by fees charged to external parties for goods or services. GASB requires that generalpurpose external financial statements be reported on a consolidated basis and that resourcesbe classified into the following net asset categories, as more fully detailed in Note 11:• Invested in capital assets, net of related debt: Property and equipment athistorical cost or fair value on date of gift, net of accumulated depreciationand outstanding principal balances of debt attributable to the acquisition orconstruction of those assets.• Restricted Nonexpendable: Net assets subject to externally imposed stipulationsthat they be maintained permanently by USNH. Such net assets include thehistorical gift value of restricted true endowment funds.• Restricted Expendable: Net assets whose use by USNH is subject to externallyimposed stipulations. Such net assets include the accumulated net gains ontrue endowment funds as well as the fair value of restricted funds functioning asendowment, restricted funds loaned to students, restricted gifts and endowmentincome, and other similarly restricted funds.• Unrestricted: Net assets that are not subject to externally imposed stipulations.Substantially all unrestricted net assets are designated to support academic, research,or auxiliary enterprises; invested to function as endowment; or committed to capitalconstruction projects.The preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reportedamounts of revenues and expenses during the reporting period. Actual results could differfrom these estimates. The most significant areas that require management estimates relateto valuation of certain investments, useful life and related depreciation of capital assets, andaccruals for postretirement medical and other employee-related benefits.Operating revenues include tuition and fees, grants and contracts, sales of auxiliary services,and other operating revenues. Tuition and fee revenues are reported net of student financialaid discounts and allowances. Operating expenses include employee compensation andbenefits, supplies and services, utilities, and depreciation. Operating expenses also include earlyretirement and other separation incentive stipends and benefits promised to certain employeesin exchange for termination of employment. All such termination benefits are accrued as ofthe date the termination agreement is signed, and are presented at net present value at yearend. Nonoperating revenues (expenses) include all other revenues and expenses except certainchanges in long-term plant, endowment and other net assets, which are reported as otherchanges in net assets. Operating revenues are recognized when earned and expenses arerecorded when incurred. Restricted grant revenue is recognized only to the extent of applicableexpenses incurred or, in the case of fixed-price contracts, when the contract terms are met orcompleted.Investments are maintained with established financial institutions whose credit is evaluated bymanagement and the respective governing boards of USNH and its affiliated entities. Highlyliquid investments with a maturity of 90 days or less when purchased are recorded as cashand cash equivalents. Current operating investments have a maturity of more than 90 dayswhen purchased, are highly liquid and are invested for purposes of satisfying current liabilitiesand generating investment income to support operating expenses. Long-term operatinginvestments are unrestricted amounts invested alongside the endowment pool that are notexpected to be liquidated in the next year, but are available for operating purposes if needed.Purchases and sales of investment securities are recorded as of the trade date. Net realized andunrealized gains and losses on endowment investments, as well as interest and dividend yield,are reported as endowment return. Endowment return used for operations per applicationof the endowment spending policy is reported as nonoperating revenue whereas the excess(deficiency) of endowment return over that used for operations is reported as other changes innet assets.In addition to the amounts reported as accounts receivable, USNH had unearned grants andcontracts for services not yet performed of $119,323,000 and $128,207,000 at June 30, 2011and 2010, respectively. This revenue will be reported in subsequent financial statements whenearned. Government grants and contracts also generally provide for reimbursement of facilitiesand administrative costs. Recovery of facilities and administrative costs for the years ended June30, 2011 and 2010 was $20,455,000 and $18,421,000, respectively, and is a component of grantsand contracts revenue.Unconditional pledges of nonendowment gifts are presented net of estimated amountsdeemed uncollectible after discounting to the present value of expected future cash flows.Because of uncertainties with regard to their realization and valuation, bequest intentions andother conditional promises are not recognized as assets until the specified conditions are met. Inaccordance with GASB requirements, endowment pledges totaling $1,839,000 and $2,397,000 atJune 30, 2011 and 2010, respectively, which are expected to be received over the next six years,have not been reported in the accompanying financial statements. USNH determines on a caseby-casebasis whether to first apply restricted resources when an expense is incurred where bothrestricted and unrestricted net assets are available.Property and equipment are recorded at original cost for purchased assets or at fair value on thedate of donation in the case of a gift. Equipment with a unit cost of $5,000 or more is capitalized.Building improvements with a cost of $25,000 or greater are also capitalized. Net interest costsincurred during the construction period for major, debt-funded capital projects are added to thecost of the underlying asset. The value of equipment acquired under capital leases is recorded atthe present value of the minimum lease payments at the inception of the lease. Depreciation ofproperty and equipment is calculated on a straight-line basis over the estimated useful lives ofthe respective assets. The cost of certain research buildings is componentized for the purposeof calculating depreciation. Buildings and improvements are depreciated over useful livesranging from 10 to 50 years. Depreciable lives for equipment range from 3 to 30 years. (SeeNote 5 for additional information on depreciation.) USNH does not record donated works ofart and historical treasures that are held for exhibition, education, research and public service.Library collections are recorded as an expense in the period purchased.26

USNH 2011 ANNUAL REPORTDeferred revenue consists of amounts billed or received in advance of USNH providing goodsor services. Advances from the US Government for Federal Perkins Loans to students arereported as government advances refundable. Future loans to students are made available fromrepayments of outstanding principal amounts plus accumulated interest received thereon.In order to ensure observance of limitations and restrictions placed on the use of resourcesavailable, the accounts of USNH are maintained internally in accordance with the principles offund accounting. This is the procedure by which resources for various purposes are maintainedin separate funds in accordance with activities or objectives specified.Certain amounts previously reported in the 2010 financial statements have been reclassified tobe comparable to the 2011 presentation.New Accounting StandardsThe USNH financial statements and notes for 2011 and 2010 as presented herein include theprovisions of the following GASB pronouncements:USNH adopted GASB Statement No. 60, Accounting and Financial Reporting for Service ConcessionArrangements, as of July 1, 2009. The statement requires that revenue be recognized in asystematic manner over the term of the contracts when applicable. There was no impact on thefinancial statements as a result of this adoption.USNH adopted GASB Statement No. 61, The Financial Reporting Entity: Omnibus, as of July 1,2010. This statement modifies the requirements for the presentation of certain component unitswithin the financial statements of the governmental entity. There was no impact on the financialstatements as a result of this adoption.USNH adopted GASB Statement No. 62, Codification of Accounting and Financial ReportingGuidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, as of July 1, 2010.This statement incorporates historical Financial Accounting Standards Board and AmericanInstitute of Certified Public Accountants guidance into GASB standards. There was no impact onthe financial statements as a result of this adoption.2. Cash, cash equivalents, and operating investmentsCash, cash equivalents, and operating investments are recorded at cost, which approximatesfair value, except where there is a permanent impairment of value. USNH’s investment policyand guidelines specify permitted instruments, durations, required ratings and insurance ofUSNH cash, cash equivalents and operating investments. The investment policy and guidelinesare intended to mitigate credit risk on investments individually and in the aggregate throughrestrictions on investment type, liquidity, custodian, dollar level, maturity, and rating category.Specific provisions require that banks in which USNH holds investments must have FDIC orFSLIC insurance and be rated at least A1/P1 by Standard & Poor’s and Moody’s. Repurchaseagreements must be fully collateralized at 102% of the face value by US Treasuries, or 103% ofthe face value by US Government-backed or guaranteed agencies or government sponsoredenterprises. Money market funds must be rated AAA/Aaa by Standard & Poor’s and Moody’s,Investor Service, and comply with Securities and Exchange Commission Rule 2A-7. Other mutualfunds must be affiliated with the largest national fund managers. In addition, USNH investmentsmay not exceed 5% of any institution’s total deposits or 20% of any institution’s net equity.Cash and cash equivalents:Highly liquid investments with a maturity of 90 days or less when purchased are recorded as cashand cash equivalents. Cash and cash equivalents at June 30 consisted of the following($ in thousands):2011 2010Cash and repurchase agreements $ 8,337 $ 13,741Money market funds 62,228 92,260Other mutual funds 202,255 110,495Total $272,820 $216,496Included in the cash and repurchase agreements balances at June 30, 2011 were $10,137,000in repurchase agreements, $4,601,000 in cash and a net cash overdraft of $6,401,000. Thiscompares to $6,026,000 in repurchase agreements, $12,997,000 in cash and a net cash overdraftof $5,282,000 at June 30, 2010. Repurchase agreements are limited to overnight investmentsonly.Operating investments:Unlike the long-term operating investments discussed in Note 4, operating investments includedin current assets are amounts invested to meet regular operations of USNH and may includeobligations of the US Government, commercial paper, money market and other mutual funds,and the current portion of debt proceeds held by others for construction purposes.Operating investments generally have an original maturity of more than 90 days whenpurchased, are highly liquid and are invested for purposes of satisfying current liabilities andgenerating investment income to support operating expenses.The components of operating investments at June 30 are summarized below ($ in thousands):2011 2010WeightedWeightedAverageAverageBalance Maturity Balance MaturityUS Government obligations $ 2,500 6 years $11,761 6 yearsCorporate bonds and notes Not Applicable 7,255 4 yearsCash and cash equivalents 18,379 Not Applicable 20,054 Not ApplicableMoney market and other mutual funds 754 Not Applicable 693 Not ApplicableOther accounts 60 Not Applicable 34 Not ApplicableTotal $21,693 $39,797Operating investments in mutual funds and commercial paper are uninsured anduncollateralized against custodial credit risk. The investments associated with debt proceedsheld by others for construction purposes are described in detail in Note 4 below.3. Accounts, pledges, and notes receivableAccounts receivable at June 30 consisted of the following ($ in thousands) :2011 2010Grants and contracts $25,152) $ 20,534)Student and general 7,588) 7,834) )State of NH capital projects 14,228) 5,947) )Allowance for doubtful accounts (1,724) (1,941)Total accounts receivable, net $45,244) $ 32,374)Pledges receivable at June 30 consisted entirely of unconditional nonendowment promises to pay as follows($ in thousands) : 2011 2010Pledges receivable $1,468) $1,902)Allowance for doubtful pledges (150) (150)Total pledges receivable, net 1,318) 1,752)Less: noncurrent portion (974) (1,169)Current portion $ 344) $ 583)Notes receivable at June 30 consisted primarily of student loan funds as follows ($ in thousands) :2011) 2010)Perkins loans $23,976) $23,913)Other loans, restricted and unrestricted 1,340) 1,080)Allowance for doubtful loans (1,920) (1,777)Total notes receivable, net 23,396) 23,216)Less: noncurrent portion (19,789) (19,838)Current portion $ 3,607) $ 3,378)4. InvestmentsInvestments include debt proceeds held by others for construction purposes, long-termoperating investments, and endowment and similar investments of the campuses andaffiliated entities. Investments are monitored by management and the respective governingboards of USNH and its affiliated entities. The carrying amount of these financial instrumentsapproximates fair value.Debt proceeds held by others:At June 30, 2011 and 2010, respectively, total debt proceeds held by others included $7,608,000and $2,735,000 of construction proceeds held by the bond trustee (see Note 8 for informationon the debt related to these projects).Debt proceeds held by others for construction purposes consisted of the followinginvestments at June 30 ($ in thousands):2011 2010WeightedWeightedAverageAverageBalance Maturity Balance MaturityCash $7,137) $ 0)Money market funds 471) Not Applicable 2,735) Not ApplicableTotal debt proceeds held by others $7,608) $2,735) )Long-term portion $7,608) $2,735)27

USNH 2011 ANNUAL REPORTLong-term operating investments:Long-term operating investments represent unrestricted amounts invested alongsidethe campuses’ endowment pool which are not expected to be liquidated in the next year,but which are available for operations if needed. The balance of long-term operatinginvestments at June 30, 2011 and 2010 was $6,594,000 and $5,539,000, respectively. Theseamounts consisted of ownership shares of the campuses’ endowment pool and, therefore,the components, credit risk, and all other investment characteristics are identical to thosedescribed below.Endowment and similar investments:Endowment and similar investments are amounts invested primarily for long-termappreciation and consisted of the following as of June 30 ($ in thousands):CampusesAffiliated Entities2011) 2010) 2011 2010Money market funds $ 6,682) $ 1,325) $ 7,885) $ 3,082Mutual funds – bonds 23,082) 18,168) 11,680) 11,743Mutual funds – stocks 36,649) 28,531) 45,518) 38,931US Government obligations 3,565) 5,906Corporate bonds and notes 214) 372Common/preferred stocks 18,095) 17,495) 1,169) 7,090Alternative investments 135,030) 101,373) 65,321) 46,167Investments held by others 14,443) 12,128) 4,771) 4,197Subtotal 233,981) 179,020) 140,123) 117,488Operating amounts invested alongsideendowment pool (6,593) (5,539)Total endowment and similar investments $227,388) $173,481) )$140,123) $117,488Alternative investments include private equity, hedge, natural resource and certain real estatefunds, and are used to improve market returns while managing other portfolio investment riskssuch as inflation and deflation. The estimated fair value of investments is based on quotedmarket prices except for certain alternative investments, for which quoted market prices arenot readily available. The estimated fair value of certain alternative investments is based on5. Property and equipmentvaluations provided by external investment managers and reviewed by management. Becausethese alternative investments may not be readily marketable, their estimated fair values maydiffer from the values that would have been assigned had a ready market for such investmentsexisted, and such differences could be material.Mutual funds, common stocks, and alternative investments are uninsured and uncollateralizedagainst custodial credit risk. The USNH investment policy and guidelines, and the UNHFinvestment policy, mitigate the risk associated with uninsured and uncollateralized investmentscollectively through diversification, target asset allocations, and ongoing investment advisorand investment committee review.The endowment and similar investment components as of June 30 are summarized below($ in thousands):CampusesAffiliated Entities2011) 2010) 2011 2010Pooled endowments:Campuses $212,778 $161,176UNHF $128,813 $108,757KEA 5,644 3,775NHPB 855 749Life income and annuity funds 197 177 4,768 4,166Funds held in trust 14,413 12,128 43 41Total $227,388 $173,481 $140,123 $117,488As of June 30, 2011, USNH has three outstanding investment liquidation requests which havebeen limited by the respective fund managers. Two of the liquidations were requested during2009 and one during 2010. The fair value of these investments at June 30, 2011 is $3,454,000.At June 30, 2010, the fair market value of these investments was $6,354,000. The remainingfunds are expected to be collected by June 30, 2013.Commitments with various private equity and similar alternative investment funds which havenot yet been called totaled $5,641,000 for the campuses and $3,420,000 for UNHF at June30, 2011. This compares to $16,344,000 and $4,374,000, respectively, at June 30, 2010. Thedecrease is related, in part, to USNH’s sale of four private equity investments in fiscal year 2011.These sales reduced USNH’s uncalled commitments by $5,683,000. (See Note 12 for discussionof endowment returns used for operations.)Property and equipment activity for the years ended June 30, 2011 and 2010 is summarized as follows ($ in thousands):2010 2011Balance Additions and 2010 Balance Additions and 2011 BalanceJune 30, 2009 other changes Retirements June 30, 2010 other changes Retirements June 30, 2011Land $ 11,936) $ 276) $ -) $ 12,212) $ 185) $ -) $ 12,397)Buildings and improvements 1,210,979) $118,772) (5,655) 1,324,096) 53,815) (726) 1,377,185)Equipment 126,573) 8,644) (11,448) 123,769) 11,912) (41,048) 94,633)Construction in progress, net 113,129) (57,052) -) 56,077) (18,342) -) 37,735)Total property and equipment 1,462,617) 70,640) (17,103) 1,516,154) 47,570) (41,774) 1,521,950)Less: accumulated depreciation (548,093) (47,744) 15,176) (580,661) (50,730) 40,360) (591,031)Property and equipment, net $ 914,524) $ 22,896) $ (1,927) $ 935,493) $ (3,160) $ (1,414) $ 930,919)The state is providing funding for academic and research facility renovation and expansionprojects under the Knowledge Economy Education Plan for New Hampshire (KEEP-NH).Contractual obligations for construction related to KEEP-NH projects totaled $22,794,000and $9,402,000 at June 30, 2011 and 2010, respectively. The state provides funding toUSNH for all amounts expended under the KEEP-NH program, up to the authorized total of$209,500,000. After expenditures and obligations, no KEEP-NH funds remain as of June 30,2011. Approximately $27,429,000 of KEEP-NH funds were uncommitted as of June 30, 2010.(See Note 8 for further discussion on state-funded plant facilities.)Contractual obligations for construction related to other major projects totaled $35,632,000and $1,490,000 at June 30, 2011 and 2010, respectively. USNH also received an additional$25,000,000 KEEP-NH capital appropriation in fiscal year 2010. This one-time appropriationis for deferred maintenance and other capital projects not completed under the originallegislation. As of June 30, 2011, USNH has incurred $14,511,000 of costs eligible forreimbursement under this appropriation.6. Accrued employee benefitsAccrued employee benefits at June 30 were as follows ($ in thousands):2010 2010 2011 2011Payments to/ Accrued expenses Payments to/ Accrued expensesBalance on behalf of & other Balance on behalf of & other Balance CurrentJune 30, 2009 participants changes June 30, 2010 participants changes June 30, 2011 portionOperating staff retirement plan $ 6,550 $ (714) $ 577) $ 6,413 $ (675) $ 645) $ 6,383 $ 675Additional retirement contribution 2,577 (58) 398) 2,917 (444) (179) 2,294 229Employee separation incentives 4,719 (2,254) 751) 3,216 (3,673) 6,342) 5,885 3,481Long-term disability 3,435 (647) 522) 3,310 (707) 678) 3,281 707Workers’ compensation 1,488 (1,305) 3,319) 3,502 (1,211) 1,211) 3,502 1,211Compensated absences 18,096 (834) 1,774) 19,036 (1,479) 1,165) 18,722 1,705Other 1,647 (1,000) 401) 1,048 -) 343) 1,391 909Total accrued employee benefits $38,512 $(6,812) $7,742) $39,442 $(8,189) $10,205) $41,458 $8,91728

USNH 2011 ANNUAL REPORTThe operating staff retirement plan is a defined benefit plan closed to new participants since1987. At June 30, 2011 there were approximately 223 current annuitants and 81 participantswith deferred benefits, all fully vested. This compares to 221 current annuitants and 104participants as of June 30, 2010 with deferred benefits, all fully vested. USNH has cash andunrestricted funds functioning as endowment assets of $7,091,000 and $6,553,000 at June30, 2011 and 2010, respectively, designated to fund the third-party actuarially determinedobligations of the plan.The calculations for the operating staff retirement plan are based on the benefits providedby the plan at the time of the last biennial plan valuation, July 1, 2011. The investment returnassumption (discount rate) used in determining the accrued pension benefit obligation was8.5% for both years.The accumulated operating staff retirement plan benefit obligation and funded status atJune 30 consisted of the following ($ in thousands):2011 2010Retired participants and beneficiaries $4,682) $4,361)Active participants 945) 1,144)Other participants 756) 908)Accrued pension benefit obligation 6,383) 6,413)Less: funds functioning as endowment assets available for benefits (7,089) (6,551)(Over) funded plan balance $ (706) $ (138)USNH’s additional retirement contribution program is mandatory for all newly-hired employeesbut was optional for employees hired before July 1, 1994. Employees covered under this planhave an additional 1% of their salary contributed to their defined contribution retirementplan (see below) by USNH in lieu of postretirement medical benefits. In addition, employeesmeeting certain service guidelines prior to July 1, 1994 are eligible for a guaranteed minimumretirement contribution. There were 696 and 762 employees meeting these requirementsas of June 30, 2011 and 2010, respectively. Based on third-party actuarial calculations, USNHhas accrued $2,294,000 and $2,917,000 at June 30, 2011 and 2010, respectively, for therelated obligations. USNH had designated cash assets of $2,888,000 and $2,917,000 for theseobligations as of June 30, 2011 and 2010, respectively, fully funding the plan.The calculations for the additional retirement contribution program are based on the benefitsprovided by the plan at the time of the last biennial plan valuation, July 1, 2011, and weredeveloped using the Projected Unit Credit Cost Method. The discount rate used in determiningthe accrued additional retirement contribution was 8.5% for both 2011 and 2010.Early retirement and employee separation incentive programs were provided to various facultyand staff during 2011 and 2010. Incentives include stipends, as well as medical, educationaland other termination benefits. The net present value of future costs associated with theseincentive options is accrued as of the date of acceptance into the program. The balances atJune 30, 2011 and 2010 represent accruals for 112 and 117 participants, respectively.USNH sponsors other benefit programs for its employees, including long-term disability,workers’ compensation, and compensated absences. Long-term disability payments areprovided through an independent insurer; the associated medical benefits are accrued andpaid by USNH until age 65, at which point the postretirement medical plan takes over, ifapplicable. Workers’ compensation accruals include amounts for medical costs and annualstipends. A small number of chronic workers’ compensation cases will require stipends andregular employee medical benefits for life. Coverage for such claims is provided throughan independent insurer. USNH also accrues amounts for compensated absences as earned.These accrued balances at June 30 represent vacation and earned time amounts payable toemployees upon termination of employment.In addition, eligible employees may elect to participate in defined contribution retirementplans administered by others. Contributions by USNH under these plans in 2011 and 2010amounted to $22,943,000 and $22,947,000, respectively.7. Postretirement medical benefitsThe primary defined benefit postretirement medical plan, the University System of NewHampshire Medicare Complementary Plan, was optional for all full-time status employees hiredbefore July 1, 1994. At June 30, 2011 and 2010, there were approximately 419 and 452 activeemployees who, along with their dependents, may eventually be eligible to receive benefitsunder this program. The eligibility requirements state that retired employees must havecompleted at least 10 years of service after age 52, participated in the active retirement plansduring their last 10 years of service, and participated in USNH’s active medical plan at the timeof retirement. Retired employees are not required to contribute to the plan.For measurement purposes, annual rates of increase of 8.25% to 8.50% in the per capita costof covered healthcare services, and 10% for prescriptions are assumed for 2011 for the primaryplan. These rates are assumed to decrease gradually to 5.5% by 2017 and remain at that levelthereafter. The healthcare cost trend and discount rate assumption have a significant effect onthe amounts reported. The discount rate used in determining the accumulated postretirementobligation was 7.5% for 2011 and 8.5% for 2010.Third party actuaries are used to determine the postretirement benefit obligation and annualexpense amounts. The actuarially determined postretirement benefit expense for the primaryplan was $10,113,000 for 2011 and $5,113,000 for 2010. The primary plan is a single-employerplan administered by USNH. The plan is funded on a pay-as-you-go basis with benefitspaid when due. Actuarial calculations reflect a long-term perspective. By definition suchcalculations involve estimates and, accordingly, are subject to revision. These calculations arebased on the benefits provided by the plan at the time of the last biennial plan valuation, June30, 2011, and were developed using the Projected Unit Credit Cost Method.Total annual other postemployment benefit (OPEB) cost for the primary post-retirementmedical plan for the years ended June 30, 2011 and 2010, and the liability as of June 30, 2011and 2010 included the following components ($ in thousands):2011 2010Annual required contribution $ 7,168) $ 6,810)Interest on net OPEB obligation 4,394) 4,012)Adjustment to annual required contribution (1,449) (5,709)Annual OPEB cost 10,113) 5,113)Contributions made (4,789) (4,999)(Decrease) increase in net OPEB obligation 5,324) 114)Net OPEB obligation at beginning of year 46,759) 46,645)Net OPEB obligation at end of year $52,083) $46,759)Current portion $ 5,208) $ 4,678)Additional postretirement medical plans are maintained by NHPB and the State of NewHampshire Police which covers safety officers at UNH and PSU. These plans are separate fromthe primary plan. The postretirement obligation for the NHPB plan was $104,000 as of June 30,2011, and $208,000 as of June 30, 2010. In addition, USNH has accrued $348,000 as of June 30,2011 and 2010 for potential obligations under the State of New Hampshire Police Plan.8. Long-term debtLong-term debt activity for the years ended June 30, 2011 and 2010 was as follows ($ in thousands):2010 2011Balance Additions and 2010 Balance Additions and 2011 Balance CurrentJune 30, 2009 other changes Retirements June 30, 2010 other changes Retirements June 30, 2011 portionNHHEFA bondsSeries 2001 1 $ 55,535 $ 34 $ (3,855) $ 51,714 $ - $(45,473) $ 6,241 $ 4,030Series 2002 34,050 - (2,116) 31,934 - (2,231) 29,703 2,310Series 2005A 62,014 9 (1,451) 60,572 9 (1,300) 59,281 1,500Series 2005B 87,058 410 (950) 86,518 410 (980) 85,948 85,948Series 2006B-2 62,253 - (1,240) 61,013 - (1,289) 59,724 1,200Series 2007 46,434 16 -) 46,450 16 -) 46,466 -Series 2009A 108,493 - (207) 108,286 - (207) 108,079 -Series 2011A - - -) -) 6,815 -) 6,815 -Series 2011B - - -) -) 42,570 (881) 41,689 -Capital leases 19,041 - (1,225) 17,816 - (1,290) 16,526 1,382Total bonds and leases $474,878 $469 $(11,044) $464,303 $49,820 $(53,651) $460,472 $96,3701includes interest swaption described in Note 929

USNH 2011 ANNUAL REPORTNew Hampshire Health and Education Facilities Authority (NHHEFA)BondsNHHEFA is a public body corporate and an agency of the State of New Hampshire whoseprimary purpose is to assist New Hampshire not-for-profit educational and health careinstitutions in the construction and financing (or refinancing) of related facilities. NHHEFAachieves this purpose primarily through the issuance of bonds. Since 1989 all USNH bondshave been issued through NHHEFA. None of USNH’s NHHEFA bonds provide for a lien ormortgage on any property. USNH is obligated under the terms of the NHHEFA bonds to makepayments from revenues received from certain housing, dining, union, recreational, and otherrelated revenue generating facilities. The state is not liable for the payment of principal orinterest on the NHHEFA bonds, nor is the state directly, indirectly or contingently obligatedto levy or pledge any form of taxation whatsoever or to make any appropriation for theirpayment. USNH is in compliance with all covenants specified in the NHHEFA bonds, the mostrestrictive of which is maintenance of a debt-service coverage ratio, as defined, of at least 1.1to 1. A description of each NHHEFA bond issuance follows:Series 2001 BondsOn March 1, 2001 NHHEFA issued $151,210,000 of Revenue Bonds, University System of NewHampshire Issue, Series 2001 (2001 Bonds). A portion of the 2001 Bonds was refunded by theSeries 2005B Bonds described below. The remainder of the Series 2001 Bonds ($41,395,000)that was current was refunded on June 23, 2011, by the Series 2011B Bonds described below,and was fully redeemed as of July 25, 2011.Series 2002 BondsOn April 2, 2002 NHHEFA issued $42,715,000 of Refunding Revenue Bonds, University Systemof New Hampshire Issue, Series 2002 (2002 Bonds), shown above net of unamortized originalissue premium. Proceeds from the 2002 Bonds were used to complete an advance refundingin the form of an “in-substance defeasance” of bonds originally issued in 1992. Interest is duesemi-annually at fixed effective rates of 5.1% to 5.3%. Principal is due annually through July 1,2020. The bonds are callable on July 1, 2012.Series 2005A BondsOn January 20, 2005 NHHEFA issued $65,000,000 of Revenue Bonds, University System ofNew Hampshire Issue, Series 2005A (2005A Bonds), shown above net of unamortized originalissue discount. Proceeds from the 2005A Bonds were used to partially finance constructionof student fee-supported facilities on USNH campuses at Durham, Keene and Plymouth. The2005A Bonds are multi-modal, were initially issued in 35 day variable auction rate mode, wereconverted to seven day variable auction rate mode in January 2006, were converted again todaily variable rate demand bonds in March 2008, and subsequently remarketed as two issues(Series 2005A-1 and 2005A-2) in March 2009 with no change in terms. Between March 2009and February 2011 USNH provided daily self-liquidity coverage for the Series 2005A Bonds. Atthat time the entire outstanding principal was classified as a current liability in accordance withGASB Interpretation No. 1, Demand Bonds Issued by State and Local Governmental Entities. InMarch 2011, USNH entered into a five-year standby bond purchase agreement (SBPA) relatedto this issue. At that time, the future years portion of principal payments due were reclassifiedto long-term debt. The SBPA requires a debt coverage ratio of 1:1 along with continuingdisclosures. The agreement also provides for escalating fees in the event of a downgradebelow A+/A1 and mandatory default for a downgrade below Baa3/BBB-. Principal paymentsare due annually through July 1, 2035. The associated variable interest rates at June 30, 2011and 2010 were 0.04% and 0.20%, respectively.Series 2005B BondsOn August 1, 2005 NHHEFA issued $97,360,000 of Refunding Revenue Bonds, University Systemof New Hampshire Issue, Series 2005B (2005B Bonds), shown above net of unamortized originalissue discount. Proceeds from the 2005B Bonds were used to complete an advance refundingin the form of an “in-substance defeasance” of $87,480,000 of the 2001 Bonds. The proceedsof the 2005B Bonds were placed in an escrow fund and invested in government obligationswith scheduled maturities which, when combined with interest thereon, will be used to makerequired interest and principal payments until the redemption date of the refinanced bondson July 1, 2011. The 2005B Bonds are multi-modal, were initially issued as seven day variablerate demand bonds, and were subsequently converted to daily variable rate demand bonds inApril 2008. A two-year standby bond purchase agreement is currently in place through March2012. The SBPA requires a debt coverage ratio of 1:1 along with continuing disclosures. Theagreement also provides for escalating fees in the event of a downgrade below A+/A1 andmandatory default for a downgrade below Baa3/BBB-. Because the current SBPA expires inless than one year, the total outstanding principal is classified as a current liability as of June30, 2011 in accordance with GASB Interpretation No. 1, Demand Bonds Issued by State and LocalGovernmental Entities. The associated variable interest rates at June 30, 2011 and 2010 were0.04% and 0.20%, respectively. Principal is due annually through July 1, 2033.Series 2006B-2 BondsOn January 26, 2007 NHHEFA remarketed $60,000,000 of University System of New HampshireIssue, Series 2006B Bonds as the University System of New Hampshire Issue, Series 2006B-2Bonds (2006B-2 Bonds), changing the variable rate to an all-in fixed rate of 4.1%. Theremarketing generated a premium of $4,046,000, which will be amortized to interest incomeover the remaining term of the bonds. Principal is due annually through July 1, 2036, with a calldate of July 1, 2016.Series 2007 BondsOn February 6, 2008 NHHEFA issued $46,570,000 of Taxable Revenue Bonds, University Systemof New Hampshire, Series 2007 (2007 Bonds), shown above net of original issue discount.Proceeds from the 2007 Bonds were used to finance ECOLine, the landfill gas pipeline projectdesigned to provide up to 85% of the UNH Durham campus’ heating, cooling and electricityneeds with renewable energy. Interest is due semi-annually at a fixed rate of approximately5.0%. All principal is due upon expiration of the bonds on July 1, 2018.Series 2009A BondsOn March 25, 2009, NHHEFA issued $105,650,000 of Revenue Bonds, University System ofNew Hampshire Series 2009A (2009A Bonds), net of premium. The majority of the proceedsof the 2009A Bonds were used to fully refund the USNH Series 2006A and 2006B-1 Bonds. Theremaining funds, $24,444,000, are being used to finance the construction and renovation ofstudent-related, revenue-producing projects at the three residential campuses. The 2009ABonds were issued in four “bullet” maturities at fixed coupon rates ranging from 4.0% to 5.5%.A portion of the coupons mature in 2014, 2016, and 2020, with the remainder maturing on July1, 2023. Interest is due semi-annually, and principal is due at the maturity date of each bullet.Series 2011A BondsOn June 23, 2011, NHHEFA issued $6,000,000 of Revenue Bonds, University System of NewHampshire Series 2011A (2011A Bonds), shown above net of unamortized original issuepremium. The funds are being used to finance student housing, dining and recreation facilityrenovation projects at the three residential campuses. Interest on the 2011A Bonds is duesemi-annually at a fixed rate of approximately 5.0%. All principal is due upon expiration of theBonds on July 1, 2021.Series 2011B BondsOn June 23, 2011, NHHEFA issued $42,570,000 of Revenue Bonds, University System of NewHampshire Series 2011B (2011B Bonds) in variable rate demand mode, to current refund thefixed rate 2001 Bonds shown above, net of deferred loss. The refunding followed the exerciseof the Series 2001 interest rate swaption (described in Note 9). The net proceeds of the 2011BBonds were placed in an escrow fund and held in cash to be used to make required interestand principal payments until July 25, 2011, the redemption date of the defeased 2001 Bonds.The 2011B Bonds are multi-modal, and were issued as daily variable rate demand bonds. Afive-year standby bond purchase agreement is currently in place through June 2014. The SBPArequires a debt coverage ratio of 1:1 along with continuing disclosures. The agreement alsoprovides for escalating fees in the event of a downgrade below A+/A1 and mandatory defaultfor a downgrade below Baa3/BBB-. The associated variable interest rate at June 30, 2011 was0.08%. Principal is due annually beginning July 1, 2012 through July 1, 2033.Capital leasesOn April 30, 2004, USNH entered into a capital lease agreement to finance $18,387,000 ofequipment for UNH’s utility cogeneration facility. The related lease principal and interestpayments are due quarterly through June 2025 at a fixed interest rate of 4.5%. Other leasesrelate to various property and capital equipment acquisitions. Terms range from monthly toannual payments over 3 to 20 years, with fixed interest rates between 4.0% and 7.0%.Long-term debt obligations are scheduled to mature as follows using the associated fixed,estimated synthetic fixed, and expected variable rates in effect as of June 30, 2011 over theremaining term of individual issuances ($ in thousands):Fiscal Year Principal) Interest Total)2012 $ 96,370) $ 20,386 $ 116,756)2013 8,188) 19,785 27,973)2014 7,973) 19,410 27,383)2015 29,752) 18,716 48,468)2016 8,708) 17,141 25,849)2017-2021 150,279) 68,341 218,620)2022-2026 74,219) 33,618 107,837)2027-2031 34,850) 17,787 52,637)2032-2036 38,690) 6,655 45,345)2037-2041 3,525) 176 3,701)Plus: recognized deferred lossand unamortized discounts/premium, net452,554)7,918)222,015-674,569)7,918)Total $460,472) $222,015 $682,487)30

USNH 2011 ANNUAL REPORTState of NH general obligation bondsThe state, through acts of its legislature, provides funding for certain major plant facilitieson USNH campuses. The state obtains its funds for these construction projects from generalobligation bonds, which it issues from time to time. Debt service is funded by the generalfund of the state, which is in the custody of the State Treasurer. The state is responsible forall repayments of these bonds in accordance with bond indentures. USNH facilities are notpledged as collateral for these bonds and creditors have no recourse to USNH. Accordingly,the state’s debt obligation attributable to USNH’s educational and general facilities is notreported as debt of USNH. As construction expenditures are incurred by USNH on state-fundededucational and general facilities, amounts are billed to the state and recorded as State of NewHampshire capital appropriations.9. Deferred obligations - interest rate swapsUSNH has entered into interest rate swap and swaption transactions in conjunction withselected debt issues previously discussed in Note 8.Series 2005B swapIn conjunction with the issuance of the Series 2005B Bonds, USNH entered into a floating-tofixedinterest rate swap agreement. The notional amount of the swap is tied to the outstandingbalance of the bonds. The purpose of the swap agreement is to synthetically fix the all-ininterest rate on the underlying debt. Under the terms of the swap USNH makes fixed rateinterest payments to the swap counterparty and receives a variable rate payment based on63% of one month LIBOR plus 29 basis points. The inception-to-date average all-in rate was3.8% and 3.9% as of June 30, 2011 and 2010, respectively. USNH intends to hold the swapcontract to maturity. The all-in synthetically fixed rate is expected to be approximately 3.8%over the life of the debt.Series 2011B swapIn conjunction with the issuance of the Series 2011B Bonds and the exercise of the Series 2001swaption, USNH entered into a floating-to-fixed interest rate swap agreement. The notionalamount of the Series 2011B floating-to-fixed rate swap is tied to the outstanding balance ofthe 2011B Bonds. The purpose of the swap agreement is to synthetically fix the all-in interestrate on the underlying debt. Under the terms of the swap, USNH will make fixed rate interestpayments to the swap counterparty and receive a variable rate payment based on 67% of onemonth LIBOR. USNH intends to hold the swap contract to maturity. The all-in syntheticallyfixed rate is expected to be approximately 4.92% over the life of the debt.The related activity for the years ended June 30, 2011 and 2010 was as follows ($ in thousands):2010 2010 2011 2011Balance Additions Change in Balance Additions Change in BalanceJune 30, 2009 (Retirements) Fair Value June 30, 2010 (Retirements) Fair Value June 30, 2011Series 2001 swaption $ (5,445) $ - $ $ (2,741) $ (8,186) $ 7,934) $ 252 $ -)Series 2005A swap (7,696) - (2,750) (10,446) - 1,868 (8,578)Series 2005B swap (5,460) - (3,874) (9,334) -) 1,869 (7,465)Series 2011B swap -) - - -) (8,893) 231 (8,662)Total deferred obligations $(18,601) $ - $ (9,365) $(27,966) $ (959) $ 4,220 $(24,705)All of the above derivative instruments meet the criteria established by GASB Statement No.53 for effective hedges as of June 30, 2011 and 2010. Accordingly, the related obligations arecarried as deferrals in the statement of net assets. Offsetting deferred receivable balancesrelated to the swaps are included in other assets. The balances above represent the amountUSNH would be required to pay to terminate the swaps using the associated notional amountsand closing interest rates as of June 30, 2011 and 2010. The specific objectives and terms ofeach derivative are described below.Series 2001 swaptionUSNH entered into a swaption agreement on December 15, 2006 that gave the counterparty,Morgan Stanley, the option to require USNH to enter into a swap agreement at the call dateof the 2001 Bonds, July 1, 2011. The swaption was exercised by the counterparty and the newswap agreement (Series 2011B swap) became effective July 1, 2011 as described below. Theobjective of the swaption was to reduce USNH’s effective interest rate on the related Series2001 debt. The remaining swaption liability ($2,211,000) is a component of long-term debt andis being amortized to interest income over the remaining term of the 2011B Bonds.Series 2005A swapIn conjunction with the issuance of the Series 2005A Bonds, USNH entered into a floating-tofixedinterest rate swap agreement. The notional amount of the swap is tied to the outstandingbalance of the 2005A Bonds. The purpose of the swap agreement is to convert the floatingvariable rate on the 2005A Bonds to a synthetic fixed rate. Under the terms of the swap, USNHmakes fixed rate interest payments to the swap counterparty and receives a variable ratepayment based on 67% of one month LIBOR. The inception-to-date average all-in fixed ratewas 3.9% as of June 30, 2011 and 2010. USNH intends to hold the swap contract to maturity.When combined with the self-liquidity commitment for the bonds described above, the all-insynthetically fixed rate is expected to be approximately 3.9% over the life of the debt.10. Commitments and contingenciesUSNH is self-insured for a portion of certain risks, including workers’ compensation, employeelong-term disability, and certain student health insurance claims. The related liabilitiesrecorded in the financial statements are developed by management based upon historicalclaim data, and in the opinion of management are expected to be sufficient to cover the actualclaims incurred. General liability insurance, property insurance, and other insurance coveragesprovide for large claims incurred. Settlements below the relevant deductible amounts arefunded from unrestricted net assets.USNH makes expenditures in connection with restricted government grants and contracts,which are subject to final audit by government agencies. Management is of the opinion thatthe amount of disallowances, if any, sustained through such audits would not materially affectthe financial position, results of operations, or cash flows of USNH.USNH is a defendant in various legal actions arising out of the normal course of its operations.Although the final outcome of such actions cannot presently be determined, management is ofthe opinion that the eventual liability, if any, will not have a material effect on USNH’s financialposition, results of operations or cash flows.During 2010, USNH was providing self-liquidity for the 2005A Bonds as discussed in Note 8.USNH was required to maintain 1.5 times coverage of the bonds outstanding in same-dayliquid investments ($91,200,000 at June 30, 2010) to insure payment to bondholders in theevent the bonds are not successfully remarketed. A standby bond purchase agreement wasput in place in 2011 as described in Note 8 which removed this requirement.31

USNH 2011 ANNUAL REPORT11. Net AssetsThe table below details USNH net assets as of June 30, 2011 and 2010 ($ in thousands):2011 2010Invested in capital assets, net of related debt $ 492,675) $487,512)RestrictedNonexpendableHistoric gift value of endowment-campuses 85,626) 80,653)Historic gift value of endowment-affiliated entities 110,745) 106,406)Total restricted nonexpendable net assetsExpendable196,371) 187,059)Held by campuses:Accumulated net gains (losses) on endowment 34,791) 19,936)Fair value of funds functioning as endowment 12,208) 10,752)Gifts, grants and contracts 24,511) 21,100)Life income and annuity funds 101) 73)Loan funds 6,451) 6,452)Held by affiliated entities:Accumulated net gains (losses) on endowment 21,039) 3,942)Other 13,244) 10,934)UnrestrictedTotal restricted expendable net assets 112,345) 73,189)Held by campuses:Educational and general reserves 23,164) 32,365)Auxiliary enterprises 28,878) 27,552)Internally designated 31,186) 50,323)Unrestricted loan funds 1,305) 1,327)Unexpended plant funds 46,497) 44,400)Fair value of unrestricted funds functioning as endowment 39,920) 25,879)Subtotal 170,950) 181,846)Unrestricted balances approved for spending infollowing fiscal year 85,259) 10,315)Unfunded postretirement medical liability (52,083) (46,758)Total unrestricted net assets held by campuses 204,126) 145,403)Held by affiliated entities:Fair value of unrestricted funds functioning as endowment 1,121) 928)Other 3,449) 2,835)Total unrestricted net assets 208,696 149,166)Total net assets $1,010,087) $896,926)Unrestricted balances approved for spending in the following fiscal year include unspentproceeds from internal borrowings, unrestricted quasi-endowment funds created to supportdebt service requirements of the Series 2007 and Series 2009A Bonds, campus balancesapproved for support of major construction projects, and amounts approved to supportseparation incentive offerings and other strategic initiatives.)12. Endowment return used for operationsThe majority of endowment funds are invested in one of two investment pools using the unitshare method. The 2011 endowment distribution rate per unit as a percentage of the average13. Operating expenses by functionmarket value per unit for the twelve quarters from which it was derived was 4.2% for the USNHendowment pool and 5.2% for the UNHF endowment pool. This compares to 3.8% for theUSNH endowment pool and 4.8% for the UNHF endowment pool in 2010.The annual spending formula for endowment return used for operations is designed toprovide sustainable continued future support for ongoing programs at current levels assumingmoderate inflation. To the extent that endowment yield is insufficient in any one year to meetthe required spending distribution, accumulated net gains are utilized to fund the distribution.The components of endowment return used for operations for 2011 and 2010 are summarizedbelow ($ in thousands):2011 2010Pooled endowment yield - campuses $ 2,014 $ 1,252Pooled endowment yield - affiliates 2,558 1,902Trusts, life income and annuities yield 300 288Gains utilized to fund distribution 7,813 8,369Endowment return used for operations $12,685 $11,81114. Pass-through grantsUSNH began participating in the U.S. Department of Education Federal Direct Lending programduring fiscal year 2010. USNH distributed $185,733,000 and $39,691,000 of student loansthrough this program during 2011 and 2010, respectively. These distributions and relatedfunding sources are not included as expenses and revenues, or as cash disbursements andcash receipts, in the accompanying financial statements. The statement of net assets includesreceivables of $369,000 and $373,000 as of June 30, 2011 and 2010, respectively, for directloans disbursed in excess of U.S. Department of Education receipts.15. Other nonoperating revenue (expense)On June 24, 2010 the USNH Board of Trustees approved a $25,000,000 voluntary contributionto the State of New Hampshire. This payment was made on June 28, 2010 to help mitigatefiscal difficulties at the state level. This is a one-time payment to the state and is not a reductionof general appropriation funds received. No contributions to the State were made in 2011.16. Related Party – UNH School of LawOn August 31, 2010 UNH and Franklin Pierce Law Center Corporation (FPLC) officially affiliatedand the FPLC became known as the UNH School of Law. The affiliation is expected to enhancethe academic diversity and missions of the respective institutions. UNH is now the sole memberof the UNH School of Law and holds limited reserved powers as the primary institution.However, the majority of the financial burden and administrative control resides with the UNHSchool of Law Board of Trustees and will remain there until that Board votes to approve a merger,change the terms of the affiliation, or dissolve the affiliation. The UNH School of Law maintainsits financial records in accordance with generally accepted accounting principles prescribed bythe Financial Accounting Standards Board rather than GASB. No balances of the UNH Schoolof Law are included in these financial statements. A copy of the complete annual report for theUNH School of Law can be obtained by contacting the Business Office at (603) 513-5121.17. Subsequent eventThe State of New Hampshire budget as enacted in July 2011 reduces general appropriationfunding for USNH to $51,650,000 and $54,650,000 for fiscal years 2012 and 2013, respectively.This compares to $100,000,000 of funding received in 2011. To offset this significant decreasein revenue, USNH intends to limit expenses, increase tuition rates, and utilize a modest amountof unrestricted net assets.The following table details USNH operating expenses by functional classification ($ in thousands):Supplies Internal 2011 2010Compensation and services Utilities allocations Depreciation Total TotalCampuses – current fundsInstruction $199,503) $ 23,255 $ 74 $ 1,242) $ -) 99$224,074 $206,264Research & sponsored programs 72,645) 52,800 88 -) -) 125,533 103,159Public service 7,516) 1,298 6 1,627) -) 10,447 9,601Academic support 42,096) 15,627 12 314) -) 58,049 55,408Student services 22,839) 10,916 11 5,225) -) 38,991 38,653Fundraising 6,750) 1,773 - (3,115) -) 5,408 3,726Other Institutional support 35,964) 11,882 27 (14,998) -) 32,875 31,361Operations & maintenance 26,449) 8,122 15,223 (23,767) -) 26,027 23,263Auxiliary student services 49,895) 57,740 2,146 33,449) -) 143,230 141,083Subtotal-current funds 463,657) 183,413 17,587 (23) - 664,634 612,518Campuses – other funds 186) 13,851 29 -) 49,847 63,913 57,783Affiliated entities 7,414) 5,287 230 23) 883 13,837 14,415Total $471,257) $202,551 $17,846 $ -) $50,730 $742,384 $684,71632

University System of New HampshireAs of September 2011BOARD OF TRUSTEESMembers of the Board:Edward C. Dupont (2003-2013)Chair - Durham, NHRichard E. Galway (2009-2013)Vice Chair - Bedford, NHElizabeth K. Hoadley (2006-2014)Secretary - Concord, NHWilliam F. J. Ardinger (2008-2015)Liaison to the General Counsel - Concord, NHRobert A. Baines (2011-2015)Manchester, NHVirginia M. Barry, ex officioCommissioner of Education, Concord, NHJudith E. Blake (2008-2012)Portsmouth, NHJohn D. Crosier, Sr. (1998-2014)Dover, NHFrederick C. Dey (2011-2015)Portland, MEPamela Diamantis (2008-2012)Greenland, NHKurt D. Eddins (2010-2012)Durham, NHGeorge Epstein (2002-2014)Silver Lake, NHHelen F. Giles-Gee, ex officioPresident, KSC, Keene, NHChester E. Homer III (2008-2012)Portsmouth, NHMark W. Huddleston, ex officioPresident, UNH, Durham, NHTodd J. Leach, ex officioPresident, GSC, Concord, NHThe Honorable John H. Lynch, ex officioGovernor, State of New Hampshire, Concord, NHEdward R. MacKay, ex officioChancellor, USNH, Durham, NHLorraine Stuart Merrill, ex officioCommissioner of Agriculture, Concord, NHCarol S. Perkins (2008-2013)Plymouth, NHTimothy M. Riley (2009-2013)Bedford, NHJohn W. Small (2010-2015)New Castle, NHHenry B. Stebbins (2006-2012)Portsmouth, NHSara Jayne Steen, ex officioPresident, PSU, Plymouth, NHWallace R. Stevens (2011-2015)Hampton Falls, NHElizabeth M. Tamposi (2005-2011)Gilford, NHADMINISTRATIONMembers of the Administrative Board:Edward R. MacKay (Chair)Chancellor, University System of New HampshireMark W. HuddlestonPresident, University of New HampshireSara Jayne SteenPresident, Plymouth State UniversityHelen F. Giles-GeePresident, Keene State CollegeTodd J. LeachPresident, Granite State CollegeMembers of the Financial Policies andPlanning Council:Kenneth B. Cody (Chair)Vice Chancellor and Treasurer/CFO, USNHRichard J. CannonVice President for Finance and Administration,UNHStephen J. TaksarVice President for Finance and Administration, PSUJay V. KahnVice President for Finance and Planning, KSCLisa L. ShawneyDean of Finance and Administration, GSCCarol A. MitchellController, USNHOTHER OFFICERS:University System OfficesTom FrankeInterim Associate Vice Chancellor for Academicand Student AffairsRonald F. RodgersGeneral Counsel and Secretary of USNHKathleen K. SalisburyAssociate Vice Chancellor for Government AffairsJoan M. TamblingDirector of Human Resource ServicesUniversity of New HampshireJohn D. AberProvost and Vice President for Academic AffairsJane A. NisbetSenior Vice Provost for ResearchMark RubinsteinVice President for Student and AcademicServicesPeter B. WeilerFoundation President and Vice President forAdvancementPlymouth State UniversityJulie N. BernierProvost and Vice President for Academic AffairsStephen P. BarbaExecutive Director of University RelationsSally C. HollandVice President for University AdvancementVacantVice President for Enrollment Management andStudent AffairsKeene State CollegeEmile C. Netzhammer IIIProvost and Vice President for Academic AffairsMaryann LaCroix LindbergVice President for AdvancementAndrew P. RobinsonVice President for Student AffairsGranite State CollegeSheila D. Taylor-KingDean of Academic AffairsMB LufkinDean of Enrollment ManagementMission StatementThe mission of the University System of New Hampshire is to serve the higher educational needs of the people of New Hampshire. TheUniversity System strives to ensure the availability of appropriate higher educational opportunities to all New Hampshire people; seeksto enroll a diverse population to enhance educational experiences; and provides programs and activities based on a commitment toexcellence. Through its institutions, the University System engages in research, which contributes to the welfare of humanity; and provideseducational resources and professional expertise, which benefits the state and its people, the region, and the nation.