Standing by what is good

Annual Report of the President 2013
Business and Administration Report

Business and Administration Report

Value is the new normal.

Michael J. Mandl, Executive Vice President, Business and Administration

The results of FY2013 reflect a year of action and accomplishment aimed at increasing Emory’s impact and value—for the benefit of individuals and society at large. From the liberal arts to our system of innovative health care, programmatic enhancements coupled with courageous approaches to management and financial stewardship continue to strengthen mission-based activities in education, research, and patient care. The value of Emory is growing each year, and 2013 was no exception.

On campus and beyond, Emory provides an environment for rigorous intellectual growth. In a year marked by heightened awareness and national discussion of the cost of higher education, Emory applicant pools increased to even higher levels of volume and quality. This is just one indication of the deepening understanding that Emory is an investment in value—in knowledge and opportunity. The importance and uniqueness of an Emory education resonate globally now more than ever.

Another powerful recognition of Emory’s value came in the form of donor investments. Emory successfully completed its largest multiyear philanthropic campaign by raising $1.7 billion. The campaign, which went public just as the “Great Recession” of 2008 began, demonstrated broad support from alumni, faculty, staff, foundations, corporations, and many other individuals and organizations. These philanthropic contributions and, more importantly, the confidence behind them make a powerful difference at Emory, enabling ongoing strategic investments in student support, faculty, facilities, and programs. There can be no resting on this front. Philanthropy, which builds on the recently completed campaign’s success, will be increasingly critical for Emory to deliver on its mission with extraordinary impact.

Emory’s endowment value grew to $5.8 billion for the year ending August 31, 2013. This 7.2 percent increase for the year reflects the net impact of university spending withdrawals, management and investment fees, donor gifts, and investment gains (rate of return).

The research environment in 2013 was clearly challenged by the federal budget sequester. Resources for research are becoming extraordinarily competitive. Emory’s faculty are actively working to secure infrastructure and funding for groundbreaking research, which contributes to the improvement of the human condition across the globe. Despite significant headwinds, Emory’s faculty again secured more than $500 million in externally sponsored research funding, another tangible recognition of Emory’s value.

Emory Healthcare achieved positive net operating results while making significant advancements toward strengthening its position to compete effectively in the emerging health care environment—one increasingly defined by enhanced quality and lower cost; in short, value over volume. As the only academic medical center in the largest metro area of the Southeast, Emory’s more than $2.5-billion health care delivery system is uniquely positioned to lead and make a difference. A multiyear strategy to further enhance Emory Medicine is under way.

In order to deliver full value in education, research, and innovative patient care, Emory also must deliver full value in academic support, administration, and business services. Accomplishments on this front during FY2013 include the rollout of streamlined processes and new organization in research administration, the leveraging of synergies between library and information services, implementation of rigorous commercial-based real estate and space-management processes, and further reduction in energy use per square foot. Emory is in the midst of a multiyear, multidimensional effort to transform its support services to enhance value and fulfill Emory’s mission more cost-effectively. Competency, consistency, rigor, performance, accountability, teamwork, candor, and respectful communication are the essential characteristics. Though it can sometimes be challenging and difficult, change is carrying the day as we take advantage of new opportunities.

Even as countless successes indicate Emory’s value (its mission activity, for instance, contributes in so many dimensions to positive transformation in the world), one of the most concrete, financially oriented measures of Emory’s value is that of the capital market. Emory accessed the capital markets during FY2013, extending duration modestly while maintaining the university’s aggregate cost of capital. All three external rating agencies reaffirmed Emory University’s ratings (Moody’s, Aa2 stable; S&P, AA stable; Fitch, AA+ stable). The Moody’s report included a statement on the quality of Emory’s leadership, citing it as an institutional strength:

Very strong management and governance structure, with exceptional short-term and long-term planning, active board oversight of monitoring and managing strategy, operations, liquidity and debt. Emory leadership is implementing board-approved initiatives to reshape research and healthcare infrastructure in light of the changing operating and funding landscape for both areas and the resulting impact on future revenue.

From the faculty, students, patients, caregivers, national academies and societies, employers, and communities across the globe to the rating agencies, those whose lives intersect with Emory experience a wonderful strength of resource, intellect, character, heart, and mind.

Emory is indeed a place that matters. At the end of the day, its people deliver its value—its strength and impact. So, I close by expressing my deepest gratitude to all of those who serve Emory through their dedication to its mission.

Michael J. Mandl
Executive Vice President, Business and Administration

Overview of finances

Overview of Finances

Emory’s FY2013 financial report reflects the consolidated results of our primary activities of education, research and scholarship, and health care. Each segment has endured the challenges of constrained resources but has responded with disciplined growth, building a strong foundation on which Emory can focus resources on its highest priorities.

The following table summarizes the key financial results for FY2013 and FY2012.

Emory Financial Trends ($ in thousands)

  2013 2012
Total Assets 11,456,053 10,843,639
Total Liabilities (3,842,693) (3,842,019)
Total Net Assets 7,613,360 7,001,620
Consolidated Operating Revenues 4,028,626 3,755,128
Consolidated Operating Expenses (4,009,093) (3,751,063)
Consolidated Net Operating Revenues 19,533 4,065
Consolidated Nonoperating Results 592,207 336,852
Total Change in Net Assets 611,740 340,917
Change in Net Assets Related to Noncontrolling Interests 2,168 68,495
Change in Net Assets Controlled by Emory 609,572 272,422

Consolidated statement of financial position


Edith C. Murphree, Vice President for Finance

Emory’s total assets increased from $10.8 billion in FY2012 to $11.5 billion in FY2013, primarily as a result of an increase in the market value of investments and additions to the endowment.

Cash and cash equivalents decreased from $510.0 million in FY2012 to $464.1 million in FY2013 primarily due to cash consumption at Emory Healthcare and movement of cash to investments. As part of our risk-management process, we closely monitor Emory’s short-term and long-term liquidity needs and have solid procedures and structures in place to manage both liquidity risks and costs.

For the fiscal year ended August 31, 2013, the investment return on the managed-funds portion of our investment portfolio was 8.5 percent. The net increase in the total investment and perpetual trust portfolio, after accounting for market returns, spending distributions, and donor/internal contributions, was 7.5 percent as investments and perpetual trusts grew from $6.7 billion in FY2012 to $7.2 billion in FY2013. Endowment and trust spending distributions for operations increased 2.2 percent to $179.4 million in FY2013. The chart below reflects the total (operating and nonoperating) dollar amount of annual endowment and trust distributions and related market value for the past five years.

Chart: Endowment and Trust Market Values and Annual Distributions, $ in millions

Patient accounts receivable increased 9.9 percent to $324.3 million due to higher volumes and rates for Emory Healthcare. Net contributions receivable increased by 21.9 percent to $191.0 million, due to a large anonymous pledge offset by pledge payments.

Emory’s total liabilities were $3.8 billion as of August 31, 2013. Although this is the same amount as the prior year-end, fluctuations occurred in specific liability categories. Accrued liabilities for benefit obligations and professional liabilities decreased by $55.3 million in FY2013 to $335.7 million. This decrease primarily resulted from the decrease in the postretirement and pension plan liability due to an increase in the discount rate in FY2013.

Long-term debt increased by $102.3 million, or 5.4 percent, due to incremental new debt primarily from a 2013 bond issue. As a component of the debt portfolio, the university has various interest-rate swap agreements that effectively convert certain variable-rate debt to fixed rate. Fluctuations in the fair value of these exchanges occur as interest rates change. The lower rate environment in FY2012 and FY2013 resulted in a negative position, or mark-to-market liability for Emory. The liability for derivative instruments of $217.6 million in FY2012 decreased to $100.8 million in FY2013 and represents the estimated amount the university would pay if it chose to terminate the exchange agreement as of the last day of the fiscal year.

Consolidated statement of activities

Net operating revenue increased from $4.1 million to $19.5 million, a positive result in light of the continuing economic challenges and revenue price compression during FY2013. Nonoperating activities also increased from the prior year due to the improvement in mark-to-market for derivative instruments and an increase in endowed gifts. These changes resulted in a change in net assets of $609.6 million for FY2013 versus $272.4 million in FY2012.

Chart: FY2013 Total Operating Revenue, in thousands

Chart: FY 2013 Academic and Research Revenue, in thousands

Emory’s operating revenues remained strong during FY2013 as almost all major lines reflected an increase over FY2012. Net tuition revenue increased 8.1 percent to $355.4 million in FY2013. The two key drivers of the tuition increase were increases in rate and enrollment, which reflect the continued competitiveness and desire for an Emory education.

The university’s endowment spending distribution for operations increased by approximately 2 percent to $179.4 million in FY2013. The university targets a 4.75 percent annual distribution from the endowment while prudently protecting donors’ multigenerational support intentions.

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 $407.1 million (FY2009) to $497.9 million (FY2013), representing a 22.3 percent increase during the past five years. However, as a result of reduced government spending, indirect cost recoveries in FY2013 of $118.5 million decreased from $122.7 million in FY2012. During FY2013 Emory received awards totaling $507.1 million (2,852 awards).

Chart: Sponsored Awards Revenue by Source, in thousands

Operating Expenses

Emory’s total operating expenses increased in FY2013 to $4.0 billion, an increase from $3.8 billion in FY2012. Emory Healthcare expansions and depreciation expense from new facilities were principal reasons for the growth in operating expenses. Salaries and fringe benefits increased 6.8 percent to $2.5 billion in FY2013 from $2.3 billion in FY2012, largely associated with the inclusion of Saint Joseph’s Hospital for a full fiscal year, in addition to salary adjustments.

The increase in other operating expenses was 7.7 percent. This reflects support for key activities and the inclusion of St. Joseph’s for the entire 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 and income from investments in excess of spending distributions for current operations of $230.7 million for FY2013 (net of investment management fees). Also reflected in the nonoperating section are gifts and contributions of $143.5 million and a positive change in the fair value of derivative instruments of $116.8 million. Nonoperating revenue was offset by losses on property and equipment disposal and debt defeasance of $10.5 million.


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

Edith C. Murphree
Vice President for Finance