Point of View: 2012

The Annual Report of Emory University
Finance and administration report

Finance and Administration Report

In many ways FY2012 represented a turning point in the evolution of higher education and health care. The use of technology for instruction and the value of "flipped" classrooms were more broadly embraced by top-tier universities, as Massive Online Open Courses (MOOCs) proliferated, with seemingly everyone seeking to understand new business models.

At the same time, significant health care reform and its market consequences gained permanency. All of this occurred in an environment where traditional financing models, pricing, and cross-subsidization of education, research, and patient care experienced new levels of attention and pressure to change. 


Michael J. Mandl, Executive Vice President for Finance and Administration

Turning points bring challenge and opportunity, and both were present in 2012. Although the new landscape is not fully known, two things are clear: (1) change is under way, and (2) the best universities will adapt meaningfully by accentuating their distinctive character while enhancing their great value to individuals and societies across the globe.  

Even as superior research universities are critically important to the future, they face profound financial stress, and that is especially true for those with major academic medical centers. The outlook for resource growth is challenging: income from tuition rate increases is unlikely to grow as significantly as in the past; the outlook for investment income is lower due to near-zero interest rates and low GDP growth; health care reimbursement rates are declining; and federal budget limitations likely will lead to reductions in research funding.

In developing solutions to these anticipated financial stresses, Emory has been clear that higher education is highly segmented. Emory is thus embarking on a leadership role by systematically assessing and pursuing its opportunities and challenging status quo assumptions for its segment, the highest-quality research university. 

To that end, 2012 was an exciting year of innovation, experimentation, and investment for the future, all geared toward enhancement of value. The university launched Emory Innovations, a wholly owned subsidiary, to oversee new ventures in research, education, and services that cannot easily be positioned for success in the traditional university organization. The first new entity launched under Emory Innovations was Drug Innovation Ventures at Emory, focused on drug development. 

In a similarly innovative move, Emory joined other top universities in exploring the educational benefits and potential business model of MOOCs and other forms of online education. Although online programs challenge some traditional notions of high-quality education, they hold the potential to open broad frontiers as part of an overall strengthening of campus-based educational experiences. 

Expansion of degree programs and course offerings to meet the evolving needs of students also included the Candler School of Theology online-only course in Methodist studies; the School of Nursing’s new Health Systems Leadership graduate degree program; the School of Law’s innovative juris master’s program; and Emory College’s Maymester program, an intense, shortened academic term following the spring semester that allows greater flexibility for summer-based experiences. 

We continue to have confidence in the value that Emory delivers to society and are optimistic about its ability to do so cost-effectively and with excellence in
a changing environment. 

This requires innovation not only in academic programs but in administrative services as well. In this regard, the Business Practice Improvement (BPI) initiative made great progress during the fiscal year. The goal of BPI is to improve significantly the performance, satisfaction, and cost-effectiveness of the services required to support the mission of a research university in the 21st century. In FY2012, BPI focused on identifying specific areas of improvement in both research administration and travel and expense processing. 

In research administration, Emory is implementing a series of initiatives centered on improving support for our faculty and their research, ranging from the reorganization of staff into “pods” or teams; to targeted systems improvements; to the redefinition of roles, responsibilities, training programs, and performance assessments. The leaders who championed these changes were charged with challenging the status quo of our operations and embracing new thinking. The debates were healthy, constructive, and broad based. 

With a primary focus on leading change throughout the fiscal year, Emory continued to make financial progress on several fronts. For the year ending August 31, 2012, the actively managed funds in Emory’s endowment reported an investment return of 7.5 percent (versus the asset allocation composite index benchmark return of 4.9 percent). During that period, the total market value of Emory’s endowment (net of returns, spending, gifts, additions, and withdrawals) increased approximately 3.4 percent from $5.26 billion to $5.44 billion. 

In FY2012, Emory was awarded $518.6 million in new research funding, the third consecutive year that the university has received greater than half a billion dollars in research awards. Emory University School of Medicine was awarded $331 million, or approximately 64 percent of Emory’s total overall awarded funding, with the National Institutes of Health being the largest funding source.

The university ended FY2012 with $1.48 billion committed toward its $1.6 billion philanthropic campaign, the largest in Emory’s history. Despite a public launch in the midst of the worst financial crisis since the Great Depression, at the campaign close on December 31, 2012, the university had raised $1.69 billion. 

Campaign gifts and external funding enabled several new capital projects to move forward in FY2012, including the site preparations for Emory University Hospital’s new bed tower on Clifton Road. When completed in 2017, the new facility will include 210 new beds, many of which will be for intensive care, and new operating rooms, along with dramatic
improvements to pedestrian and vehicular ingress and egress throughout the health care facilities. 

Construction on two new facilities advanced at the Yerkes National Primate Research Center. They will support Emory’s research in infectious diseases, transplant medicine, and human genetics, and will provide a new home for the Emory Institute for Drug Discovery. 

The full redevelopment of Emory’s first-year residence halls and its “freshman village” continued with the opening of Hamilton Holmes Hall in August 2012. This residence hall was named in honor of the first African American graduate of Emory’s School of Medicine and houses 125 students. The hall supports Emory’s goal of housing all first-year students near the core of campus in residence halls designed for continuous educational experiences via an engaging living and learning environment.

The three key gateways to Emory’s campus saw dramatic improvements in the past year. On the north side of campus, the first phase of Emory Point, a mixed-use development combining retail and residential units, opened in August 2012. The project, located on Clifton Road, was delivered via a partnership whereby Emory leased land to private developers for improved economic value and a venue to extend the university’s intellectual and social vibrancy beyond the core campus. 

On the approach to Emory from the east, a striking new research facility spans Haygood Drive and connects the new health sciences research building with the existing Emory-Children’s Center building. The impressive new facility, developed in partnership with Children’s Healthcare of Atlanta, features Emory’s classic marble exterior and was fully funded through philanthropy.

On the southwest side of campus, outside Emory’s main Haygood-Hopkins gate, road improvements and public amenities in Emory Village were completed by DeKalb County. The aesthetic improvements, a new park, and a vehicular roundabout support the transition of Emory Village as a destination for Emory and the community. 

Emory Healthcare’s annual net revenue totaled $2.4 billion for the fiscal year. With the US Supreme Court upholding key elements of the Patient Protection and Affordable Care Act, health care reform accelerated, and our health system is responding to the market forces in a rapidly changing environment. Care for populations, emphasis on quality over quantity of care, and lower costs are all driving forces behind this change. 

Emory Healthcare continued to expand its clinically integrated network through strategic alliances that benefit broad patient care and improve its competitive position in the metro-Atlanta market. Emory Healthcare and Saint Joseph’s Health System launched a joint operating company that is enabling synergies of strengths and resources to patients in the northern metro region.

Emory Healthcare also developed a nonownership partnership to manage the Southern Regional Health System, strengthening the continuum of care for the southern part of metropolitan Atlanta as well. All these initiatives are geared toward serving the distinctive teaching, learning, research, and innovative role of a top-tier academic medical center, a great challenge in the emerging health care environment. 

Emory continued to maintain a strong balance sheet to support debt, a low-risk adjusted cost of capital, operating and capital formation via investment income, and ample liquidity to manage through uncertain environments. 

Despite the challenging operating environment, Emory is strongly positioned. We continue to be a destination for top students and faculty, for philanthropic support from those who want to make a difference in the world, and for patients who want the very best care. 

In the decade ahead, those institutions will succeed that clearly can demonstrate programmatic value in the market and demonstrate the operational flexibility and motivation to adjust the way they do business, including revenue enhancement and expense containment. Emory demonstrated these characteristics throughout 2012 and is committed to them going forward. 

It is Emory’s willingness to challenge historical assumptions and its motivation to adapt to an evolving environment that bode well for its future. I close by celebrating Emory’s faculty, students, and staff for their continued focus on excellence and their dedication to mission, despite the stresses inherent in uncertainty and change. The world is better because of the value provided by those who teach, learn, research, and provide care throughout the Emory community. It is a privilege to be among them.

Michael J. Mandl
Executive Vice President for Finance and Administration

Overview of finances

Overview of Finances

Emory's FY2012 financial report reflects the consolidated results of our primary activities of education, research, scholarship, and health care. Each segment has endured the challenges of constrained resources; however, Emory has responded with disciplined growth, building a strong foundation to focus resources on its highest priorities.

The following table summarizes the key financial results for FY2012 and 2011:

Emory Financial Trends ($ in thousands)

  2012 2011
Total Assets 10,843,639 10,061,834
Total Liabilities (3,842,019) (3,401,131)
Total Net Assets 7,001,620 6,660,703
Consolidated Operating Revenues 3,853,661 3,361,796
Consolidated Operating Expenses (3,849,596) (3,360,135)
Consolidated Net Operating Revenues 4,065 1,661
Consolidated Nonoperating Results 336,852 653,832
Change in Net Assets Related to Noncontrolling Interests (68,495) 4,872
Change in Net Assets Controlled by Emory 272,422 660,365

Consolidated statement of financial position


Edith C. Murphree, Vice President for Finance

Emory’s total net assets increased to $7.0 billion as of August 31, 2012. The majority of this growth is attributable to growth in investments and the acquisition of 51 percent ownership in Saint Joseph’s Hospital in Atlanta.

Cash and cash equivalents increased from $371.1 million in FY2011 to $510.0 million in FY2012 as funds were transferred from investments to operating cash to meet specific September 2013 cash-investment needs. Emory closely monitors its cash position and short-term and long-term liquidity needs as part of Emory’s risk-management process, and solid procedures and structures are in place to manage both liquidity risks and costs.

The investment return on the managed-funds portion of our investment portfolio was 7.5 percent, markedly exceeding the benchmark results of 4.9 percent. The net increase in the total investment portfolio—after accounting for market returns, spending distributions, and donor/internal contributions—was 4.7 percent as investments grew to $6.7 billion as of August 31, 2012. Endowment spending distributions for operations increased by 4.1 percent to $176.5 million in FY2012. The chart below reflects the dollar amount of annual endowment distributions and related endowment market value for the past five years.

Patient accounts receivable increased 17.0 percent to $295.1 million, with the majority due to the acquisition of 51 percent ownership in Saint Joseph’s Hospital in January 2012, which accounted for approximately $42.0 million of the increase. Net contributions receivable decreased by 10.6 percent to $156.6 million, due to the receipt of significant pledge payments associated with the new Health Sciences Research Building.

Chart: Endowment Market Value and Annual Distributions

Emory’s liabilities totaled $3.8 billion as of August 31, 2012. Growth in university research activities and operational reserves, along with the addition of Saint Joseph’s Hospital, led to an increase in accounts payable and accrued liabilities from $358.2 million in FY2011 to $413.3 million in FY2012. Accrued liabilities for benefit obligations and professional liabilities increased by $147.2 million in FY2012 to $391.0 million. This increase primarily resulted from the addition of the Saint Joseph’s System’s pension plan and unfavorable results related to a decrease in the discount rate on pension and postretirement benefit plans.

Long-term debt increased by $102.3 million, or 5.7 percent, due to the absorption of the Saint Joseph’s debt portfolio of $143.0 million, offset by principal payments during the fiscal year. The university has—as a component of the debt portfolio—various interest-rate swap agreements that effectively convert certain variable-rate debt to fixed rate. Fluctuations in the fair value of these exchanges continue as interest rates change, but consistent lower rates in FY2011 and 2012 created a negative position, or mark-to-market liability for Emory. The liability for derivative instruments increased to $217.6 million as of August 31, 2012. As interest rates rise, the liability will decrease. 

Consolidated statement of activities

Net operating revenue increased from $1.7 million to $4.1 million as Emory maintained positive net operations in the midst of the continued economic challenges during FY2012. Nonoperating activities also were positive in FY2012, but declined from the prior year due to lower investment returns in FY2012. The operating and nonoperating changes resulted in a difference in Emory-controlled net assets of $272.4 million for FY2012 versus $660.4 million in FY2011.

Operating revenues

Emory’s operating revenues remained strong during FY2012 as most major revenue lines reflected an increase over FY2011. Net tuition revenue increased by 4 percent to $328.9 million in FY2012 due to increases in tuition and enrollments. Financial aid continued to increase at a higher rate than tuition—by 10 percent in FY2012. 

The university’s endowment spending distribution increased by approximately 4 percent to $176.5 million in FY2012. The university targets a 4.75 percent annual spending distribution from the endowment while exercising prudence to protect future purchasing power. Operating spending distributions from the endowment portfolio declined slightly, but were offset by higher dividends received from a major trust not subject to the spending formula. 

During the past five years, Emory’s total sponsored revenue—including indirect cost recoveries as well as government and other grants and contracts—has grown from $391.5 million (FY2008) to $505.1 million (FY2012), representing a 29.0 percent increase during the past five years. Indirect cost recoveries in FY2012 of $122.7 million were relatively unchanged from FY2011. During FY2012 Emory received awards totaling $520.3 million (4,005 awards). 

Chart: Sponsored Awards Revenue by Source

The School of Medicine continues to drive research activity with 64 percent of total research awards during FY2012. Yerkes National Primate Research Center accounted for approximately 13 percent of total award funds, and the Rollins School of Public Health represented 14 percent, with the remainder driven by the College of Arts and Sciences, the Nell Hodgson Woodruff School of Nursing, and other activities.

Net patient revenue grew 21 percent, or $418.5 million, in FY2012 to a total of $2.4 billion, with $327.7 million attributable to the full inclusion of Emory Johns Creek Hospital and Saint Joseph’s Hospital operations in FY2012. In February 2011, the remaining 50 percent of the joint venture with HCA Holdings was acquired by Emory Healthcare. As a result, Emory Johns Creek Hospital positively impacted net-patient revenue for a portion of FY2011 and all of FY2012. On December 31, 2011, Emory Healthcare closed on its partnership with Saint Joseph’s Health System, giving Emory a 51 percent ownership interest in Saint Joseph’s Hospital. As a result, Emory formed a joint operating company with Saint Joseph’s Hospital and Johns Creek Hospital, in which it has a 51 percent ownership.

Operating expenses

Emory’s total operating expenses increased in FY2012 to $3.8 billion, an increase from $3.4 billion in FY2011. Emory Healthcare expansions and research growth support were principal reasons for growth in operating expenses. Salaries and fringe benefits increased 13 percent to $2.3 billion in FY2012 from $2.0 billion in FY2011, largely associated with the Saint Joseph’s and Johns Creek effort noted above.

The increase in other operating expenses was 18 percent. This reflects support for key activities and the inclusion of Saint Joseph’s and Johns Creek for the full fiscal year. We continue to focus on ways to reduce and constrain growth in expenses so that resources can remain committed to our core mission.

Nonoperating Revenue/(Expenses)

Investment portfolio growth included net unrealized gains on investments of $108.8 million and investment income and gains in excess of spending distribution for current operations of $194.5 million for FY2012.

Also reflected in the nonoperating section are gifts and contributions of $103.1 million. Nonoperating revenue was offset by losses on property and equipment disposal, debt defeasance, and a negative change in the fair value of derivative instruments of $104.0 million.


We are pleased to report another year of solid operating performance and growth in net assets at Emory. This strong financial foundation continues to position Emory to invest in its highest priorities and face the environmental challenges of the future.

Edith C. Murphree
Vice President for Finance