By William Hodgkiss
Vice President for Business Affairs and Administration
Like most colleges and universities throughout the country, Lawrence felt the impact of a significant downturn in the market and a resulting drop in dividend and interest income in fiscal 2001-02.
Thanks to successes in admissions and development, both of which produced record years, the college's operating results were consistent with the previous year's strong performance -- in fact, operating revenue increased $2.8 million this past year. At the same time, however, the combination of the drop in dividend and interest income from the endowment and the necessity of funding prior commitments to capital improvements placed strains on our cash flow position that necessitated short-term borrowing through the college's line of credit.
While Lawrence remains a financially strong institution, the college must proceed with caution and restraint in controlling and reducing expenditures while seeking to maximize revenue. Assuredly, and especially in the midst of a period of economic turbulence, the investment and finance committees of the Board of Trustees remain steadfast in their determination to ensure the college's long-term financial health while simultaneously working to generate the level of funding required to conduct its mission.
Operations
Overall net operating revenue increased $2.8 million or seven percent, to a total of $41.8 million in unrestricted revenue. Total operating expenses, however, increased $3.3 million or eight percent, to $44.4 million, producing an operating deficit of $2.6 million. It should be noted that depreciation, a non-cash expenditure, is recorded as an operating expense at $4.9 million. Hence, on a purely cash basis, the college generated a "surplus" of $2.3 million.
It is imperative to understand that covering Lawrence's full depreciation expense remains a long-term goal of our financial planning. Achieving that goal will enable the college to generate the necessary funds for annual capital improvements (thereby avoiding deferred maintenance issues) and to cover debt service expenses related to the bond financing of several major construction projects.
Total operating revenue of $41.8 million is comprised of $21.2 million in net student revenue, an increase of $1 million (accounting for 51 percent of total operating revenue); $8.9 million in endowment distribution, an increase of $800,000; $1.6 million in auxiliary revenue, an increase of $350,000; $1.2 in government grants and other income, a decrease of $72,000; and $8.9 million in gift revenue and net assets released from restrictions designated for operations, an increase of $700,000.
Operating expenses totaled $44.4 million (an 8 percent increase). While administrative and physical plant expenditures remained constant, academic-related expenses totaled $16.9 million, an increase of 11 percent. Student-related expenses and auxiliary expenses grew slightly. Importantly, and as a consequence of our significant recent investments in campus facilities, interest payments and depreciation grew by $732,000, a 12 percent increase, to $6.8 million.
In spite of a $2.6 million operating deficit, there were some notable achievements in the past year's financial results. First, the increased enrollments in the college and conservatory that we have enjoyed in recent years are generating additional revenue; net tuition revenue, the college's principal source of operating revenue, increased for the fifth year in a row, generating an additional $1 million. Second, the investments that we have made in the physical plant through new construction and renovation projects have clearly minimized any deferred maintenance liabilities of the past and will permit the college more flexibility in addressing future capital needs.
Endowment
The endowment, which comprises the vast majority of the college's assets, dropped from $176.2 million on June 30, 2001, to $162.7 million one year later, in spite of the addition of $9.9 million in new gifts designated for the endowment. Overall, the endowment produced a negative return of 8.6 percent.
Compared and contrasted with the experiences of other colleges and universities, Lawrence fared reasonably well, suffering a more modest drop in endowment value than those at a number of our sister institutions. As Lawrence adheres to a policy established by the investment committee that calculates the distribution applied to the college's operations based on a 12-quarter average of its market value, the recent and continuing decline of the endowment's value will undoubtedly constrain the level of endowment income designated for the operating budget in the near future. Nevertheless, the investment committee has reaffirmed our investment strategies, which are obviously predicated on taking a long-term view, and will continue to monitor carefully the endowment's financial performance while maintaining a prudent spending policy.
Physical Plant
In the past year, we completed the renovation of Youngchild Hall, a $10.2 million project. Youngchild was rededicated at the start of the 2001-02 academic year and provides state-of-the-art facilities for the physics and geology departments as well as portions of the biology and psychology programs.
The first floor of the Seeley G. Mudd Library was renovated at a cost of $1.6 million with a refurbished media center, an audio/video editing laboratory, 16 music listening stations, and a laboratory and office for the director of instructional technology.
Additional student residential housing was acquired through the purchase of two apartment buildings on the corner of John and Meade Streets, at a cost, including renovation, of $1.2 million.
Other capital projects included the relocation of the education department and student academic services to the first floor of Briggs Hall, renovation of the development offices in Landis Peabody, a retractable stage extension in the Chapel, and a renovation of Sampson House.
Though not technically included in the 2001-02 fiscal year, it is also worth noting that this past summer we renovated the second floor of Main Hall, completing a multi-year program to update the college's signature building, and created ten new faculty offices and practice rooms for the conservatory in university-owned property at 315 East College Avenue.