TAB K FY2015 Q3 Operating Management Report

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FY2015 Q3 Operating Management Report Oregon State University’s FY2015 Third Quarter (Q3) Operating Management Report presents the first nine months of operating results for the three operating fund groups: Education and General, Self-Support, and Restricted funds (see Attachment 1). The quarterly management report is a summary level report that compares:

• Year-to-date actual activity relative to the projected total for the year to the same relationship in prior years or to expected current year totals to provide early warning of unexpected operating trends, and

• The current quarter projection for the year to the prior quarter projection to highlight mid-year changes in expected annual results.

The percentage of year-to-date actual revenue and expenditures to the total projected annual amounts is calculated to help ensure that the Board and management have an early warning regarding unanticipated operating trends in the major categories. This percentage is called the realization rate for revenues and the burn rate for expenditures. The next step is to compare the current year realization/burn rate to the seven-year average of prior years’ actual rates. The seven-year average is used to smooth out one-time operating changes. This method of comparison has proven to be very successful in identifying when the current year actual results are not tracking as expected, allowing management to make any necessary budgetary changes. The low standard deviation of the actual year-to-date results for each quarter over the past seven years provides support for the predictive value of the data. The standard deviation, coupled with the materiality of the amounts, provides a basis upon which tolerance ranges are established and within which the actual results should track. If the actual year-to-date amounts fall outside the established tolerances, the data are flagged for further analysis. This approach is applied with the following tolerance ranges:

• Tuition & Resource Fees, net of waivers – +/- 2% • Enrollment Fees – +/- 2% • Sales & Services – +/- 5% • Other revenue – +/- 7% • Federal restricted – +/- 5% • State restricted – +/- 7% • Other restricted – +/- 6% • Personnel Services – +/- 2% • Supplies & Services & Capital Outlay – +/- 5%

May 28-29, 2015 Board of Trustees Meetings Finance & Administration Committee

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To provide similar precision to the other captions in the report for which actual results do not track similarly from year to year, the expected current year results provide similar predictive value to the report. For these captions, we have established tolerance ranges based upon materiality. This approach is applied with the following tolerance ranges:

• State General Fund – +/- 2% • Transfers – +/- 10%

Accountability for material changes made to the year-end projected amounts for any report caption is provided by highlighting those changes, either plus or minus, that are greater than 1% of total revenues for further analysis and reporting to the Finance & Administration Committee. The breakdown and discussion of the variances in the FY2015 Q3 report for each major operating fund type is as follows: EDUCATION AND GENERAL No items are flagged for Q3. All burn rates, realization rates and changes in projections are within the established tolerances.

The Ending Unrestricted Net Assets balance is projected to be 7.8% of operating revenues. SELF-SUPPORT For the Self-Support Funds, the following items are of note: Revenues

• The Sales & Services realization rate is below the seven-year average due to additional PAC-12 revenue to be received in Q4. Prior to FY2013, the average realization rate was 77%, as a greater portion of the PAC-12 revenues were received in the first three quarters of those earlier fiscal years. In FY2013 and FY2014, a greater portion of PAC-12 revenues were realized in Q4, which resulted in a Q3 average realization rate of 62%, compared to the current year rate of 63%. This indicates that the current year actuals are tracking in line with the projection for the year.

• The Sales & Services revenue projection was increased approximately $3.2M due mainly to:

o An increase of $2.1M for store credit from Nike that is primarily used to acquire practice gear. There is a corresponding increase in Supplies & Services & Capital Outlay, thus resulting in no change to Net from Operations.

o An increase in projected revenue of $450K in PAC-12 revenues to reflect OSU’s expected share of football playoffs incentives.

o An increase of $500K due to the expected receipt of a buyout relating to a former coach’s contract.

• The Other revenue projection was increased approximately $3.5M due mainly to Royalty revenues for license agreement sales of $3.3M.


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Expenditures

• The Supplies & Services & Capital Outlay projection is being increased by $3.9M due primarily to the following:

o Athletics An increase of $2.1M for store credit from Nike that is primarily used

to acquire practice gear as noted above. $700K increase in various categories that include costs associated

with new coaching staff, custodial service levels, marketing costs and home event security expenses.

o Designated Operations $1.4M increase in royalties paid to inventors associated with the

increase in other revenues as noted above. o Reductions in multiple departments totaling approximately $300K, which partially

offset the above increases. Transfers The Transfers Out burn rate as of Q3 is below what was expected. There were delays in various student projects resulting in a shift of $5.3M of the transfers to Q4. The Ending Unrestricted Net Assets balance is projected to be 30% of operating revenues. RESTRICTED In the Restricted Funds area, the following items are of note: Revenues

• The Federal revenue projection is up $7.0M, reflecting increased activity in Federal grants and contracts.

• The State revenues realization rate is higher than the seven-year average. This is mainly due to $2.7M of financial aid revenue received from the Office of Student Access and Completion in March this year. Except for FY2014, this need-based aid had been received in Q4 in the prior seven years.

Expenditures

• The Supplies & Services & Capital Outlay projection increased $6.6M relating to the projected increase in Federal revenue mentioned above.

RECOMMENDATION Staff propose that the Finance & Administration Committee accept the FY2015 Third Quarter Operating Management Report.


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Attachment 1


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TAB K FY2015 Q3 Operating Management Report

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