financial report - Finance

ThethanBrain
—is
wider
the Sky —
2 0 0 6
FINANCIAL REPORT
ON THE COVER
Buttrick Hall
Built in 1928, in the Collegiate Gothic style, Buttrick Hall was one of three similar Vanderbilt
classroom buildings for which the John D. Rockefeller–funded General Education Board (GEB)
played a major role in funding. The name Buttrick Hall recognizes GEB officer Wallace Buttrick,
who had been a strong advocate for Vanderbilt’s academic and medical developments. After a
renovation and addition that more than doubled its size in 2005, today’s Buttrick Hall includes
classrooms, lecture halls, interdisciplinary program offices, and an atrium for undergraduate
and graduate students. The modernized facility is equipped to support academic conferences,
public lecture series, and the burgeoning activities of Vanderbilt’s transinstitutional centers.
The Vanderbilt University 2006 Financial Report
Mission, Goals, and Values
V
anderbilt University is a center for scholarly research,
informed and creative teaching, and service to the
community and society at large. Vanderbilt will uphold the
highest standards and be a leader in the:
●
●
●
quest for new knowledge through scholarship;
dissemination of knowledge through teaching and outreach; and
creative experimentation of ideas and concepts.
In pursuit of these goals, Vanderbilt values most highly:
●
●
intellectual freedom that supports open inquiry; and
equality, compassion, and excellence in all endeavors.
About the University
V
anderbilt University is a privately endowed, coeducational, not-for-profit, nonsectarian institution
located in Nashville, Tennessee. Founded in 1873,
the university operated under the auspices of the Methodist
Episcopal Church South until 1914. Since that time, it has
been governed by an independent, self-perpetuating Board of
Trust. The university is named for the shipping and railway
magnate Commodore Cornelius Vanderbilt, who gave one
million dollars to build and endow a university that would
“contribute to strengthening the ties which should exist
between all sections of our common country.”
Today, Vanderbilt University is internationally recognized as
one of the premier research and teaching universities.
Vanderbilt’s undergraduate, graduate, and professional programs rank among the finest in the world. The university’s
students—approximately 6,400 undergraduates and 5,100
graduate and professional students—and more than 2,600
full-time faculty and 17,500 staff members work together to support multidisciplinary study, academic research, and
public service. Vanderbilt University also
provides health care services through its
hospitals and clinics, which include
Vanderbilt University Hospital, The
Vanderbilt Clinic, and the Monroe
Carell Jr. Children’s Hospital at
Vanderbilt.
The university maintains state-of-the-art
facilities on its 330-acre campus.
Vanderbilt’s academic enterprise comprises interdisciplinary programs and
centers, as well as 10 schools and colleges—College of Arts and Science,
Graduate School, Blair School of Music,
Divinity School, School of Engineering,
Law School, School of Medicine, School
of Nursing, Owen Graduate School of
Management, and Peabody College of
education and human development.
For more information, please visit the Vanderbilt
University Web site at www.vanderbilt.edu.
A link to Vanderbilt’s Financial Report can be
found at www.vanderbilt.edu/divadm/finrprt.
Table of Contents
Letter from the Chancellor
2
Letter from the Chairman of the Board of Trust
3
The Year at a Glance
4
Vanderbilt University Statistics
14
2006 Financial Report Overview
16
Financial Ratios
34
Endowment Review
36
Consolidated Financial Statements
Independent Auditors’ Report
40
Consolidated Statements of Financial Position
41
Consolidated Statements of Activities
42
Consolidated Statements of Cash Flows
43
Notes to the Consolidated Financial Statements
44
Supplemental Information
Vanderbilt University Hospitals and
Clinics Results of Operations
58
General Officers
59
Board of Trust
60
Letter from the Chancellor
E
very year, Vanderbilt reviews the use of our
resources, in order to see how they have been allocated and distributed, and also to see how they
have enabled us to accomplish and act in
alignment with our institutional goals. As
the fruit of that review, Vanderbilt publishes this Financial Report annually to document the progress in the execution of our
strategic plans.
By any measure, we have been extraordinarily successful. Financial Reports of the
past six years have borne witness to the
steady enhancement of the undergraduate
experience at Vanderbilt, to the refinement
of graduate education here, to the integration of our professional schools with the
greater life of the university, to our increasing mindfulness of our covenant with our
community, and especially to the reconfiguration of our economic model which has
helped enable the realization of our goals.
This year continues that auspicious trend.
Gordon Gee
Chancellor
Our applications have grown more than 40 percent in the
past six years, and the geographic, demographic, and
socioeconomic diversity of our student population has
greatly expanded. Work on The Commons, a community
for first-year students and the next phase in the evolution
of residential life at Vanderbilt, continues apace. Our faculty and administration continue to grow and evolve as we
attract world-renowned scholars, scientists, and adminis-
2
trators to join us, which in turn moves Vanderbilt into the
front ranks of American universities. We are experiencing
enormous success in funding for our research. The continuing and growing support Vanderbilt
receives from private sources, and the success of our Shape the Future campaign,
have enabled us to meet and exceed our
own expectations, particularly in challenging areas such as funding innovative, cutting-edge medical research and providing
scholarship support for students who
would not otherwise be able to afford a
Vanderbilt education.
We hope that a perusal of this Financial
Report will reveal how seriously Vanderbilt
University takes its mission, and how seriously we consider the use of our resources
to accomplish the goals we have set for
ourselves. Admittedly, financial reports
seldom inspire their readers to flights of
poetry or imagination! But they are of
great interest as manifests on a journey, as keys of how to
get to where we want to go—and how we have traveled as
far as we have—in a skillful way.
May this Financial Report serve as a document of
Vanderbilt’s increasing skill and efficiency in activating our
resources to facilitate the achievement of our goals. May it
be a document of our wise use. And may future Financial
Reports also, as Vanderbilt evolves, reflect a greater wisdom
and skill of use with every passing year.
Letter from the Chairman of the Board of Trust
W
hen Gordon Gee arrived at Vanderbilt
University in 2000, he challenged the university community with five strategic goals to
guide the institution during his tenure as
Chancellor. Six years later, I can say
beyond question that the goals he set for
us have been met.
I am honored to be the chairman of Vanderbilt’s active
and engaged Board of Trust, and to be a participant with
all my colleagues in the evolution of this amazing and
vibrant university.
For us all it is a source of deep pride to
observe many of the finest students in
the country making Vanderbilt their first
choice for undergraduate and graduate
studies. Faculty members of extraordinary talent continue to choose our university as the place to practice their
important disciplines. Within our gifted
faculty, and between faculty and students, there is at Vanderbilt University an
unprecedented culture of collaboration
and discovery across campus.
The quality of undergraduate education at
Vanderbilt continues to improve, with initiatives in advanced undergraduate-level
research. The eagerly anticipated launch of
the university’s College Halls project will
transform Vanderbilt into a community
where living and learning are inextricable.
The new Program to Enhance Graduate
Education opens doors to increasing competitiveness in recruitment in Vanderbilt’s
graduate programs. Initiatives such as the
I invite you to tour Vanderbilt’s achievegroundbreaking new Ph.D. program in
ments, not only in these pages but also by
Martha R. Ingram
economics and law entwine the activities
visiting the campus in person. I am conChairman, Board of Trust
of our professional schools with one
fident you will observe the hard figures
another, and with the greater life of the campus. And in a
published in this document reflected in real time and space,
most positive way Vanderbilt is engaging with the larger
in the exciting life of this university.
community of Nashville and Middle Tennessee.
3
The Year at a Glance
July 2005
August 2005
The Wallace Foundation awards the Vanderbilt Learning
Sciences Institute (LSI) a grant to develop a tool to assess the
performance of education leaders in the nation’s K–12 public
schools. According to Andrew C. Porter, LSI director and
Patricia and Rodes Hart Chair of Educational Leadership and
Policy, “We will use this grant to develop an assessment system for measuring critical leadership skills of individual principals and groups of educators, especially in urban settings,
with the goal of improving student achievement.”
●
●
Vanderbilt’s freshman class sets records for ethnic diversity,
the highest average SAT scores in the university’s history, and
outstanding accomplishments beyond the classroom. The
incoming freshman class, composed of 22.8 percent minority
students, includes a record-setting 184 National Merit
Scholars, with almost 12 percent of the students finishing
high school as valedictorians or salutatorians. The new class
includes 499 athletic team captains, 48 student body presidents, 95 editors, 130 all-state music participants, 14 composers, and nine songwriters.
▼
Vanderbilt ranks 18th in U.S. News & World Report’s annual
listing of top national universities. Vanderbilt’s most notable
advance in the annual rankings comes in the listing of best
values, which are determined by relating each school’s academic qualities to the net cost of attendance for a student
receiving the average level of need-based financial aid.
●
Joan E. King, associate
professor of nursing and
breast cancer survivor, rides
cross-country with seventime Tour de France winner
Lance Armstrong in the
Bristol-Myers Squibb Tour
of Hope. The Tour of Hope
provides King with an
opportunity to increase the
public’s awareness and
understanding of clinical
trials, as well as to demonstrate to her students the importance of supporting cancer
research.
▼
The Grand Challenges to Global Health Initiative,
launched by the Bill and Melinda Gates Foundation, awards a
substantial grant to a Vanderbilt-led research project to combat the spread of malaria by manipulating the mosquito’s
sense of smell. Laurence J. Zwiebel, professor of biological sci-
ences and the project’s overall director, has led pioneering
efforts to identify mosquito odorant receptors, with the goal
of developing nontoxic chemical compounds to disrupt the
sense of smell that mosquitos use to identify human hosts.
Such compounds would greatly reduce the spread of vectorborne diseases such as malaria, long considered to be one of
the most life-threatening diseases in the world.
●
U.S. News & World Report again names Vanderbilt
University Medical Center (VUMC) among the nation’s elite
in its annual list of the 50 best hospitals. The rankings are
based upon several factors including reputation among
board-certified physicians, nursing care, mortality statistics,
and medical technology. Vanderbilt ranks among the top 50
in seven specialties: kidney disease; ear, nose, and throat;
urology; respiratory disorders; cancer; hormonal disorders;
and gynecology.
4
▼
Vanderbilt faculty members, student leaders, senior administrators, staff, and, for the first time, a Board of Trust member
visit the NASA Marshall Space Flight Center as part of the
fourth annual Roads
Scholars Tour. The
Vanderbilt contingent also
visit the Birmingham Civil
Rights Institute, the Jack
Daniels Distillery, and other
locations as the tour again
reaches beyond Tennessee’s
borders to emphasize the university’s desire to create and
strengthen partnerships in the entire region.
The inaugural class of the Vanderbilt Health Care MBA
program begins at the Owen Graduate School of
Management. Leveraging a nationally ranked business
school, a top academic medical center, and a large and growing concentration of local entrepreneurial health care companies, the students are afforded opportunities to learn in
close collaboration with innovative health care professionals
representing many perspectives. Students in the program will
earn a traditional MBA and will commit to a rigorous curriculum requiring more health care–specific courses than
any other program of its kind. U.S. Representative Jim
Cooper, considered one of the nation’s foremost leaders on
health care governance, will teach a course in health care
policy as part of the new program.
●
September 2005
▼
The members of Rascal
Flatts, the Country Music
Association Vocal Group of
the Year, make a special
visit to the Monroe Carell
Jr. Children’s Hospital at
Vanderbilt to read stories
to a room filled with
young patients and their
families. Following their
visit, the award-winning group performs a sold-out concert
at Nashville’s Gaylord Entertainment Center benefitting the
Children’s Hospital. The concert raises $350,000 for the hospital, while the group’s record label, Lyric Street Records, and
its parent, the Walt Disney Company, donate an additional
$250,000.
Governor Phil Bredesen names Vanderbilt alumna and
longtime Nashville attorney Cornelia “Connie” Clark to the
Tennessee Supreme Court. Bredesen says that Clark, who
earned her bachelor’s and law degrees at Vanderbilt, “is
knowledgeable of the law, hard working, articulate, and
always conducts herself with the highest of moral standards.”
Clark fills the Tennessee Supreme Court seat vacated by retiring Chief Justice Frank Drowota, who also earned his law
degree at Vanderbilt.
●
Vanderbilt joins forces with others to launch the Health
Care Solutions Group, a unique blend of health care experts,
policy makers, and representatives of various stakeholder
groups that will use their collective experiences to design and
test improvements to the U.S. health care system. The group
will strive to find previously elusive answers to problems such
as the quality, safety, and costs of health care. According to
Harry R. Jacobson, vice chancellor for health affairs at
Vanderbilt, “The goal is to develop real solutions to the problems and to make an impact on the health care system. We
want to drive thought and action.”
●
The federal Administration on Developmental Disabilities
awards the Vanderbilt Kennedy Center for Research on
Human Development a grant and designation as a University
Center for Excellence on Disabilities Education, Research, and
Service. Under the direction of Elisabeth M. Dykens, professor of psychology and the Kennedy Center’s associate director, the grant will be used to improve disability services to
poor and underserved populations across Tennessee, with
four areas of emphasis: education and early intervention;
individual and family-centered support; physical and mental
health; and recreation and the arts.
●
▼
VUMC investigators announce the discovery of a new
weapon in the battle against HIV/AIDS. The researchers
note that frogs, in response to skin injury or alarm, secrete
large amounts of an antimicrobial compound that combats
pathogens such as bacteria, fungi, and viruses. These findings prompt a commitment from the American Foundation
for AIDS Research to fund continuing research and could
eventually lead to a topical treatment for preventing HIV
infection.
5
The Year at a Glance
October 2005
André Lemont Churchwell, assistant clinical professor of
medicine, is named the recipient of the Walter R. Murray Jr.
Distinguished Alumnus Award presented by the Association
of Vanderbilt Black Alumni. The award recognizes lifetime
achievements in personal, professional, and community arenas. Churchwell has been recognized as one of the nation’s
top cardiologists, has served as president of the Nashville
Cardiovascular Society, and has been on the boards for the
Association of Black Cardiologists and the Nashville Heart
Gala. During the presentation, Myria Carpenter, president of
the Association of Vanderbilt Black Alumni, describes him as
“a man who has dedicated his life to helping others.”
●
A group of more than 100 Vanderbilt students spend fall
break assisting Hurricane Katrina survivors in Louisiana and
Mississippi. Each participant makes a contribution to reserve
a space and to help pay for meals and expenses during the
mission. Students, faculty, and staff from Vanderbilt also
organize food and blood drives, a car wash, a concert, and
cookouts to benefit survivors.
●
Forty-nine Vanderbilt physicians are recognized as being in
the top 1 percent of their respective fields in America’s Top
Doctors 2005, a book by Castle Connolly Medical Ltd.
Nominated by their peers, the Vanderbilt physicians constitute nearly two-thirds of all the doctors listed in Tennessee.
To identify the best doctors, a physician’s medical education,
training, hospital appointments, disciplinary history, and
much more are screened by a physician-led research team.
●
▼
Vanderbilt graduate
student Michael Bowers
makes a surprise discovery that could eventually make light bulbs
obsolete. Working in the
laboratory of Sandra J.
Rosenthal, associate
professor of chemistry,
Bowers illuminates a
very small batch of
quantum dots with a
laser beam and is surprised to see a white
glow cover the table.
Going a step further,
Bowers mixes the dots with polyurethane and applies it to a
blue LED (light-emitting diode) light bulb. To his surprise, it
produces a white light similar to a regular light bulb. Bowers’
discovery is momentous, in that LEDs produce twice as much
light as a regular 60-watt light bulb, draw much less current,
and burn for more than 50,000 hours, which could greatly
reduce U.S. energy consumption for lighting.
6
▼
Team Vanderbilt raises $305,000 in Nashville’s American
Heart Association Heart Walk 2005, making the team the
third-best fundraising entity in the nation. Fred E. DeWeese,
vice president of VUMC facilities planning and development,
raises $170,000—an individual record for the event.
According to DeWeese, “It takes a team to accomplish these
kinds of goals. It wasn’t me at all. It was the willingness of our
vendors, construction companies, architects, and all our partners to participate.”
The Dan Marino Foundation pledges $1.2 million to establish the Marino Autism Research Institute at the University of
Miami and at Vanderbilt Kennedy Center’s Treatment and
Research Institute for Autism Spectrum Disorders. The crossuniversity collaborative will leverage the skills of researchers
in psychology, neuroscience, medicine, and special education
to answer key questions regarding the causes of autism; identify the earliest behavioral and bio-markers of autism; and
develop more creative, evidence-based treatments to improve
the lives of children with autism.
●
● A team of electrical engineers and neuroscientists at
Vanderbilt develops a pilot guidance system that automates
the most difficult part of a medical procedure called DBS, or
Deep Brain Stimulation. The procedure, already proven highly effective in the treatment of movement disorders in
Parkinson’s patients, is improved by the latest development,
which identifies the proper location to insert electrodes.
Previously, surgeons had to sometimes insert the electrodes
multiple times to find the right location, thus affecting both
the length of the operations and the risks of brain damage.
▼
After beginning with an exciting 4-0 start, the Vanderbilt
Commodores football team caps off its season with a
thrilling, come-frombehind victory over the
University of Tennessee
Volunteers, the first in 23
years. The win highlights a
memorable year for Bobby
Johnson, fifth-year head
coach, and senior quarterback Jay Cutler. Cutler is
later voted the Southeastern Conference
Offensive Player of the Year
and is named to the All-SEC squad, where he is joined by
teammates Earl Bennett, Moses Osemwegie, and Dustin
Dunning.
Vanderbilt University ranks among the top five “Best Places
to Work in Academia,” according to a survey of researchers in
life sciences. The ranking, reported in The Scientist magazine,
is based on the responses to a survey sent to 2,600 subscribers, who rated such factors as relationships with peers,
●
sense of accomplishment in their work, and access to research
resources. A total of 135 research institutions were evaluated
to develop the survey results.
December 2005
▼
Reverend James Lawson, a pivotal figure in the civil rights
movement and in Vanderbilt history, is named Vanderbilt’s
2005 Distinguished Alumnus. The award recognizes alumni
who have furthered Vanderbilt’s mission globally through
outstanding achievement and service. Lawson was controversially expelled by the Vanderbilt Board of Trust in 1960 for
his organization of historic sit-ins by black students that
eventually ended the racial segregation of lunch counters in
downtown Nashville. The 1960 expulsion prompted members of the Vanderbilt faculty to resign in protest and was
subsequently rescinded. Chancellor Gordon Gee calls Lawson
“a towering figure in the history of both the civil rights
movement and Vanderbilt.
His words and actions
changed history and continue to resonate.”
Vanderbilt senior and
women’s basketball captain
Erica Grimaldi is named one
of six national collegiate
finalists for the prestigious
Coach Wooden Citizen Cup.
The award, named after legendary basketball coach John
Wooden, recognizes athletes
▼
November 2005
7
The Year at a Glance
who serve as a role model—both as a performer and as a person—exhibiting excellence both on and off the field. For
Grimaldi, a walk-on player her freshman year, the nomination recognizes the dedication, hard work, and service she has
exemplified in her four years at Vanderbilt.
▼ VUMC earns national designation as a primary stroke center—only the second such certification in Tennessee. The designation, awarded by the Joint Commission on Accreditation of
Healthcare Organizations, is only awarded to medical centers
meeting the stringent national guidelines and providing the key
January 2006
▼ Vanderbilt alumnus Charles Davis is one of only six to
receive the NCAA’s 2006 Silver Anniversary Award. The award
recognizes former student-athletes who completed successful
collegiate careers in various sports and went on to excel in
their chosen professions. Davis played basketball at
Vanderbilt, achieving First Team All-SEC honors in 1979, and
then played eight seasons in the National Basketball
Association. In 1982, he created the Charles Davis
Foundation, which provides thousands of Nashville’s innercity youth with tutoring, drug prevention programs, sports
camps and leagues, job placement assistance, computer training, and scholarships. He also serves as president/CEO of
CNT Enterprises, LLC, a real estate development and construction management company.
services necessary for improving the outcomes of strokes,
which are the leading cause of serious long-term disability and
the third leading cause of death in the nation. Howard S.
Kirshner, professor of neurology, states that “having this certification is important because the designation recognizes our
accomplishment of standardized, excellent stroke care.”
●
The Tennessean names Chancellor Gordon Gee and Reverend
Becca Stevens as “Tennesseans of the Year.” Gee is chosen
largely for his leadership in the campaign to integrate college
sports into campus life. The Tennessean notes that in the two
years since restructuring the athletic department, Vanderbilt’s
athletic recruiting is robust, its teams are competitive, and its
athletes are more involved in all aspects of campus life.
Stevens, chaplain at Vanderbilt’s St. Augustine Chapel, is chosen for her founding role in Magdalene House, a residential
rehabilitation community for women with a criminal history
of drug abuse and prostitution. Magdalene women share the
common goals of recovering from substance addiction;
preparing for legal employment at a living wage; healing physically, spiritually, and emotionally; and reuniting with family.
8
Vanderbilt Chancellor Gordon Gee is invited to a meeting
of leaders in Washington, D.C., to discuss issues regarding
international relations and U.S. higher education. Hosted by
Secretary of State Condoleezza Rice and Secretary of
Education Margaret Spellings, the University Presidents
Summit on International Education focuses on invigorating
the U.S. government and higher education partnership for
addressing international higher education issues.
●
Travis Stork, a 33-year-old emergency room physician on
hiatus from his residency at VUMC, is introduced on the
●
▼ Vanderbilt art students collaborate with nationally
renowned guest artists and community artists from Nashville
through a new intensive artists-in-residence course. Famed
artist Judy Chicago and her photographer husband Donald
Woodman lead the multimedia program with Vanderbilt art
history professor Vivien Green Fryd. The artists-in-residence
course further attracts students to Vanderbilt’s new studio arts
major, which is being offered for the first time since the recent
completion of the E. Bronson Ingram Studio Arts Center.
tions. “This is truly an example of the very best that
Vanderbilt has to offer with cutting-edge technology and
high-level academic collaboration,” explains James P.
Greelish, assistant professor of cardiac surgery.
Maya Angelou, one of the
world’s most prolific writers,
shares her experiences during a lecture at Memorial
Gym. Calling Vanderbilt “a
rainbow in a cloud,”
Angelou tells students that
“Vanderbilt offers you a
promise of hope.” Also recognized as an actress, historian, and civil rights activist,
Angelou is the author of such acclaimed works as I Know Why
the Caged Bird Sings, The Heart of a Woman, and All God’s
Children Need Traveling Shoes.
▼
popular TV reality show The Bachelor. Stork, who had no
intention of auditioning for the show, was spotted in
Tennessee by a casting director while out on the town.
Twenty-five women vie for Stork’s heart, including an oncologist from Florida and a kindergarten teacher from Nashville.
Part of the footage is filmed in the VUMC emergency department during one of Stork’s shifts.
▼ The 2006 Dance Marathon, attended by about 500 dancers,
sets a new record by raising more than $112,000 for the
Monroe Carell Jr. Children’s Hospital at Vanderbilt. Vanderbilt
students Lauren Poeling and Nicole Rossi, co-directors of the
event, note that participants are expected to raise at least $200
and stay for the duration of the fun-filled night. Prior to the
event, which is held at the Student Recreation Center, student
participants conducted tours and interacted with families at
the Children’s Hospital.
Following her crowning as Miss Tennessee, Tara Burns, a
senior voice performance major at Vanderbilt’s Blair School of
Music, participates in the Miss America pageant in Las Vegas.
Burns, who originally came to Vanderbilt from Birmingham,
Alabama, also serves as the state’s spokesperson for the
Governor’s Alliance for a Safe and Drug-Free Tennessee.
●
February 2006
VUMC is first in the region to use TandemHeart, a fistsized ventricular assist device that does not require surgery.
The potentially life-saving treatment option allows
Vanderbilt to offer unique care for severe heart failure
patients who may be too sick to undergo surgical interven-
●
W. Anderson Spickard III, assistant professor of medicine, is
chosen by Vanderbilt’s medical students as one of the faculty
to receive the CANDLE (Caring, Advocating, Nurturing,
Determination, Leadership, and Empathy) award. Recipients
are nominated and chosen based upon their positive impact
●
9
The Year at a Glance
on the lives of physicians-in-training, and are recognized by
students as examples of excellence in medical education. One
student describes Dr. Spickard as a teacher who is “knowledgeable, honest, supportive, and encouraging, all in a humble and caring manner.”
across the country to win the Cross Examination Debate
Association’s 2006 Novice National Debate Tournament at
West Virginia University. The title marks Vanderbilt’s first
national debate championship in any category since the
1980s.
Following an overall 15 percent increase in research
awards in the prior year, Vanderbilt reports that eight of its
medical center departments rank in the top 10 for funding
increases from the National Institutes of Health. Jeffrey R.
Balser, James Tayloe Gwathmey Clinician-Scientist Professor
and VUMC’s associate vice chancellor for research, notes
that in the face of flattening federal research budgets
Vanderbilt’s research growth is “a tribute to our highly innovative faculty and the extraordinarily competitive strength
of their proposals.”
●
March 2006
April 2006
David W. Gregory, associate professor
of medicine at Vanderbilt, receives the
2006 American College of Physicians’
(ACP) Oscar E. Edwards Memorial
Award for Volunteerism and
Community Service at the ACP annual
session in Philadelphia. Gregory was
nominated for his vision and dedication
in establishing the Siloam Clinic, a faithbased, volunteer-driven, health care clinic in Nashville that
cares for the uninsured, underinsured, and those who have
difficulty accessing health care due to language barriers.
▼
● A panel of judges selects finalists for the inaugural
Vanderbilt Prize in Biomedical Science established to honor
women from across the U.S. and Canada who have made significant advances in the biological and biomedical sciences.
The new prize offers a cash award to each year’s winner and,
beginning in the fall of 2006, will fund a scholarship in that
person’s name to be awarded to a promising M.D./Ph.D. candidate at Vanderbilt’s School of Medicine. Perhaps most
important, by establishing a mentoring relationship between
the student and the prize winner, the prize will engage more
women in biomedical careers.
▼
For the seventh consecutive year, Vanderbilt ranks among
the top 100 hospitals in the country in a study by Solucient
Institute, a leading health care information company. The
study scores each hospital in clinical excellence, operating
Vanderbilt’s Peabody College of education and human
development ranks fifth in the nation for the second consecutive year in the U.S. News & World Report annual ranking of
leading graduate and professional schools. Peabody’s special
education program ranks first in the nation for the fourth
straight year, and overall the school sees seven of its programs rank in the top 10. Meanwhile, Vanderbilt’s Law
School and School of Medicine each rank 17th while the
School of Engineering and the Owen Graduate School of
Management earn national rankings in the top 50 for their
respective disciplines.
●
efficiency, financial health, and responsiveness to the community. According to Solucient, hospitals on the list “have higher
survival rates, keep more patients complication-free, and
attract more patients—all while maintaining higher profits.”
Vanderbilt juniors Courtney Gould and Russell Ross beat
more than 80 debate teams from colleges and universities
●
10
The National Bar Association presents the 2006 Presidential
Achievement Award for scholarship and teaching to Vanderbilt
●
law professor Robert Belton. A leading scholar and teacher of
employment law and civil rights, Belton served in the 1960s as
assistant counsel for the NAACP Legal Defense and
Educational Fund, Inc., where he led a national litigation project to enforce laws prohibiting discrimination in employment.
Belton joined the faculty of Vanderbilt Law School in 1975 and
became the school’s first tenured African American professor.
He teaches courses on race and the law, the law of work,
employment discrimination law, and constitutional torts.
Vanderbilt’s College of Arts and Science attracts five prominent literature scholars in a blockbuster recruiting coup that
advances the university’s efforts to be a major player in the
study of African American literature and to deepen the scholarship of Southern and American literature. Houston Baker,
Ifeoma Nwankwo, Charlotte Pierce-Baker, Alice Randall, and
Hortense Spillers all agree to begin work at Vanderbilt during
the fall 2006 semester. The new hires will be tapped by
Vanderbilt to be leaders in continuing efforts to pursue interdisciplinary studies, train minority scholars, and reach out to
historically black colleges.
●
First Lady Laura Bush
addresses Vanderbilt seniors
gathered as part of Senior
Day, stressing that dedication
to serving others is the key to
happiness, and recommending that they volunteer on
the Gulf Coast or elsewhere
in the world before starting
their careers. On behalf of
disaster relief workers
around the world, Mrs. Bush
accepts the first NicholsChancellor’s Medal, which was created and endowed by
Vanderbilt Law School graduate Ed Nichols and his wife,
Janice, in honor of Edward Carmack and Lucile Hamby
Nichols to recognize those persons who exemplify the best
qualities of the human spirit. The award comes with a cash
prize of $100,000, which will be used in its first year to create
the Nichols Humanitarian Fund to cover travel and living
expenses for Vanderbilt students and faculty who volunteer
for disaster relief assignments.
▼
▼ VUMC LifeFlight becomes the first air ambulance program
in Tennessee to receive accreditation from the Commission
on Accreditation of Medical Transport Systems. The accreditation focuses on the delivery of high-quality patient care and
safety in the transport environment. In VUMC LifeFlight’s
21-year history, the program has maintained an accident-free
safety record while transporting more than 25,000 patients to
hospitals in Nashville and surrounding areas.
Peabody College presents its Distinguished Alumnus Award
to Chris Barbic of Houston, Texas, founder and head of YES
College Preparatory Schools and the youngest-ever award
recipient. The annual award recognizes Vanderbilt alumni for
significant career and community achievements, as well as a
reputation of excellent character and a respected and ethical
work record. In 1998, Barbic sought and was granted one of
Texas’ first school charters to establish the YES College
Preparatory School. The school has since grown to three campuses in the Houston area enrolling nearly 1,200 students
from sixth through 12th grades.
●
May 2006
Vanderbilt names Douglas L. Christiansen from Purdue
University as the new associate provost for enrollment management and dean of admissions. In this newly established
position designed to enhance the coordination of Vanderbilt’s
admissions and financial aid efforts, Christiansen will oversee
both the offices of undergraduate admissions and financial
aid. Nicholas S. Zeppos, provost and vice chancellor for academic affairs, describes Christiansen as “a brilliant, thoughtful, analytical, and creative leader who will help us build on
Vanderbilt’s tremendous success in recent years.”
●
11
The Year at a Glance
June 2006
Staff of Vanderbilt’s Jean and Alexander Heard Library
organize a book drive to benefit the New Orleans Public
Library, a casualty of Hurricane Katrina. More than 1,500
books are collected at book drops across the university and
then sold at the downtown Nashville Public Library to benefit
libraries in New Orleans.
●
The Vanderbilt Travel Program offers a unique trip to the
Amazon region. Led by Jane Landers, associate professor of
history, Vanderbilt alumni and other participants experience
the Amazon rainforest via a 19th-century-style expedition
ship, while viewing rare wildlife such as monk sakis, squirrel
monkeys, and about 100 varieties of birds.
●
▼ About 20 Vanderbilt students travel to Uganda as part of
the Kampala Project on Global Citizenship, a partnership of
the university’s Office of Active Citizenship and Service, the
School of Medicine’s Institute for Global Health, and the university’s Center for Medicine, Health, and Society. The students work a full month with various nongovernmental
organizations in Kampala, Uganda, to assist in testing for
HIV/AIDS and to help those infected with and orphaned by
the disease.
California-based painter Albert Contreras, an artist of international renown, bequeaths to Vanderbilt 24 works of art,
which the university hangs in a single installation at the
School of Engineering’s Featheringill Hall. The art is another
step towards the vision to transform Vanderbilt into a place as
conducive to artistic pursuits as it currently is to scientific
study and research.
●
12
13
Vanderbilt University Statistics
2005/2006
2004/2005
2003/2004
2002/2003
2001/2002
6,402
5,079
__________
6,272
5,022
__________
6,283
4,809
__________
6,319
4,566
__________
6,235
4,261
__________
Total fall enrollment
11,481
11,294
11,092
10,885
10,496
Undergraduate admissions
Applied
Accepted
Enrolled
11,663
4,115
1,620
11,170
4,279
1,601
10,960
4,405
1,545
9,838
4,550
1,579
9,754
4,528
1,556
35.3%
39.4%
38.3%
37.4%
40.2%
35.1%
46.2%
34.7%
46.4%
34.4%
1,499
1,030
111
455
__________
1,519
1,011
90
416
__________
1,514
1,017
107
383
__________
1,552
893
93
372
__________
1,393
849
104
380
__________
3,095
3,036
3,021
2,910
2,726
89.3%
88.0%
86.0%
82.8%
84.1%
STUDENTS
Undergraduate
Graduate and professional
Selectivity
Yield
Degrees conferred
Baccalaureate
Master's
M.D.
Other doctoral
Total degrees conferred
Undergraduate graduation rates
Undergraduate tuition rate
% increase over prior year
HOSPITALS AND CLINICS
Licensed beds
Surgical operations
Hospital discharges
Hospital patient days
Average daily census
Average length of stay (days)
Clinic outpatient visits
Emergency room visits
LifeFlight (helicopter) missions
$
30,920
5.7%
$
29,240
5.5%
$
27,720
5.0%
$
26,400
4.8%
$
25,190
4.6%
832
38,647
46,785
254,396
697
5.4
1,019,715
90,870
2,842
832
35,022
42,599
238,266
653
5.6
940,018
82,051
2,667
800
30,803
39,640
219,518
600
5.5
824,103
76,831
2,384
746
28,896
37,855
208,361
571
5.5
698,960
71,402
1,794
746
27,678
36,391
200,434
549
5.5
688,884
70,098
1,803
Full-time faculty
Full-time staff
Part-time faculty
Part-time staff
2,689
15,613
315
1,954
__________
2,527
15,066
334
1,776
__________
2,379
14,052
383
1,653
__________
2,253
13,365
338
1,679
__________
2,066
12,496
329
1,744
__________
Total headcount
20,571
19,703
18,467
17,635
16,635
$ 221,995
70,223
95,639
__________
$ 210,533
65,009
89,053
__________
$ 195,582
58,000
84,151
__________
$ 162,930
57,972
73,051
__________
$ 124,384
48,410
58,506
__________
Total research expenditures
$ 387,857
$ 364,595
$ 337,733
$ 293,953
$ 231,300
MANAGED ENDOWMENT
Market value (in thousands)
Endowment per student
Total return on endowment
$2,915,620
$ 253,952
14.0%
$2,598,227
$ 230,054
17.8%
$2,264,845
$ 204,187
16.9%
$1,987,810
$ 182,619
3.8%
$1,989,692
$ 189,567
-5.8%
3.7%
0.5%
__________
3.9%
0.8%
__________
4.5%
0.6%
__________
5.0%
1.1%
__________
4.6%
—
__________
4.2%
4.7%
5.1%
6.1%
4.6%
FACULTY AND STAFF
RESEARCH EXPENDITURES (in thousands)
Federal
Non-federal
Facilities and administrative costs recovery
Endowment utilized per payout policy
Endowment utilized for strategic initiatives
Total endowment utilized
14
Students
Faculty and Staff
In 2006, Newsweek magazine named Vanderbilt University as
one of the nation’s “25 Hot Schools,” praising the university’s
cohesive student community. Such recognition manifests
itself in applications for undergraduate admissions, which
reached an all-time high of 11,663 students in the fall of
2005. The degree of selectivity exercised by Vanderbilt also
increased as only 35.3% of freshman applicants were accepted. Recognition as a “hot school” is also reflected in the yield
rate, which continued its positive trend as 39.4% of accepted
freshman applicants chose to enroll at Vanderbilt.
Vanderbilt employed 20,571 regular and temporary faculty
and staff in 2006, including those employed in wholly owned
affiliated entities. This figure does not take into account
approximately 1,300 clinical and adjunct faculty who are
affiliated with Vanderbilt but are not paid directly by the
university. In fiscal 2006, headcount increases occurred in
Vanderbilt’s transinstitutional centers, the university’s
research areas, and, particularly, in the medical center to
meet increased patient care volumes.
Research Expenditures
12,000
10,000
8,000
6,000
4,000
(58.0%)
(35.3%)
2,000
(29.8%)
0
Fall 1995
■ Applied
■ Accepted (Selectivity)
(39.4%)
Fall 2005
■ Enrolled (Yield)
$450
$400
$350
$300
(in millions)
Undergraduate Admissions
To illustrate the remarkable trends in Vanderbilt’s selectivity
and yield rates, undergraduate admissions data from last
year and ten years prior are shown below:
Expenditures for externally funded sponsored research and
separately budgeted university research increased by 6.4%
from the prior year to total $387.9 million in fiscal 2006.
Sponsored research and project awards, which include multiple-year grants and contracts, totaled $448.3 million in fiscal
2006 and $443.7 million in fiscal 2005. Included within those
awards, in addition to current and future funding for
research activities, are external grants and contracts for
instruction, public service, and other activities.
Research Expenditures
Vanderbilt’s student enrollment for the 2005/2006 academic
year totaled 11,481 students, about 95% of whom were fulltime students. Positive trends for applications, selectivity, and
yield rates, as well as for retention and graduation rates, continued into the fall of the 2006/2007 academic year, for
which the university implemented an undergraduate tuition
rate of $32,620.
$250
$200
$150
$100
$50
$0
2001/2002
■ Federal
2002/2003
■ Non-federal
2003/2004
2004/2005
2005/2006
■ Facilities and administrative costs recovery
Hospitals and Clinics
Managed Endowment
Vanderbilt has established itself as the health care provider of
choice in Middle Tennessee. In fiscal 2006, an increase in the
utilization of staffed beds and the addition of new operating
room suites allowed Vanderbilt to admit and discharge
increasing numbers of patients. Increases in surgical operations, emergency room visits, and hospital patient days
occurred in both the adult and pediatric areas. Further,
Vanderbilt experienced an 8.5% increase in clinic outpatient
visits, many of which occurred in Vanderbilt’s expanding
network of clinics in Williamson County. Outpatient visits
increased in all of the primary care practices, with particularly large increases in the specialty practices of pediatrics,
cancer, diabetes, and obstetrics and gynecology.
The market value of Vanderbilt’s endowment totaled $2.92 billion as of June 30, 2006. Strategic endowment management
resulted in a positive return of 14.0% for fiscal 2006, with particularly strong returns in emerging markets and other industrialized international markets. Endowment utilization per the
payout policy is calculated using 4.5% of the previous three
years’ average market values. Additional endowment distributions commenced in fiscal 2003 to support transinstitutional
initiatives through the Academic Venture Capital Fund. In fiscal 2006, these factors resulted in the combined utilization of
4.2% of the current year’s average market value to fund scholarships, faculty chairs, research, operating activities, and strategic investments in transinstitutional initiatives.
15
2006 Financial Report Overview
M
omentum. As we reflect on Vanderbilt’s
achievements and the financial performance
for fiscal 2006, one cannot help but notice the
potential for the future. This institution’s leadership has set
ambitious goals challenging the university community to
strive for excellence in the mission-driven areas of education, research, patient care, and public service. Vanderbilt’s
faculty, students, and staff demonstrate the drive and determination necessary to reach these goals and to raise the bar
of expectations even higher.
A focus on transinstitutional initiatives continues to promote
cross-campus collaborations that place Vanderbilt on the cutting-edge of developments in academics and research. The
keystone of Vanderbilt is its integrated community, where
16
students have ample opportunity to develop not only as
scholars, but also as well-rounded individuals. The value of
this is evidenced by our many unique program offerings that
enjoy stronger than ever student demand. During the past
year, significant progress was made toward the launching of
College Halls at Vanderbilt—the transformative residential
life program that will provide an even greater living and
learning environment for students.
Vanderbilt’s goals and aspirations would not be possible without the support of a solid financial foundation. Hence, this
Financial Report exemplifies our commitment not only to
provide for current operations and activities in support of
Vanderbilt’s mission, but also to provide the firm footing
needed to foster outstanding achievements for years to come.
Vanderbilt’s Financial Position
Summary of Changes in Net Assets
In fiscal 2006, Vanderbilt’s net assets reached an all-time
high—in excess of $4 billion—following another year of
strong operating results and a third consecutive year of double-digit returns on endowment assets.
Total Net Assets
As of June 30, 2006, Vanderbilt’s financial position consisted
of total assets of $6,042.6 million and total liabilities of
$1,716.9 million—resulting in net assets of $4,325.7 million.
Total Net Assets
(in millions)
$5,000
As summarized in the table below, the university’s net assets
increased by $438.3 million in fiscal 2006 and $328.0 million
in fiscal 2005. Unrestricted operating results, which are discussed further on the next page, totaled $54.0 million and
$31.3 million in fiscal 2006 and 2005, respectively.
$4,000
$3,000
$2,000
Other net assets
Plant equity
Managed endowment
$1,000
Summary of Changes in Net Assets
(in millions)
2006
54.0
Unrestricted operating results
Non-operating endowment and
investment activity, net
Non-operating gifts and pledges
for plant, endowment, and
temporarily restricted purposes
Other non-operating results, net
$
56.6
40.3
_________
26.7
(52.0)
_________
Total increase in net assets
$_________
438.3
_________
$_________
328.0
_________
Ending balance of net assets
$_________
4,325.7
_________
$
3,887.4
_________
_________
287.4
$
2005
31.3
$0
2005
2006
322.0
Endowment distributions and investment returns on nonendowed assets were recognized as operating revenue in the
unrestricted operating results noted above. In addition to
those amounts, non-operating changes in the value of our
investments totaled $287.4 million in fiscal 2006, due especially to a 14.0% return on the endowment.
Also contributing to the fiscal 2006 increase in net assets were
$56.6 million of new gifts and pledges for plant, endowment,
and temporarily restricted purposes. In particular, gifts and
pledges designated by donors for endowed purposes were
substantial in fiscal 2006.
Vanderbilt’s managed endowment totaled $2,915.6 million
and comprised the largest portion of the university’s net
assets as of June 30, 2006. The original corpus amounts of
endowed gifts generally are considered permanently restricted
net assets, while the cumulative returns on endowed gifts are
included in unrestricted net assets.
Net assets designated for plant facilities, or plant equity,
totaled $764.3 million and comprised the second largest component of Vanderbilt’s net assets. Plant equity is included in
unrestricted net assets and primarily consists of the university’s property, plant, and equipment assets, at cost, net of
accumulated depreciation and capital-related debt.
Other net assets, which totaled $645.8 million as of June 30,
2006, include accumulated working capital, unrealized gains
and losses on non-endowed investments and interest rate
swap agreements, contributions receivable, undesignated gift
assets, and interests in trusts held by others.
Other non-operating results shown in the table above consisted largely of mark-to-market adjustments on interest rate
swap agreements, which resulted in unrealized gains in fiscal
2006 and unrealized losses in fiscal 2005.
17
Operating Revenues and Expenses
Unrestricted Operating Results
Vanderbilt’s net operating results totaled $54.0 million in fiscal 2006 and $31.3 million in fiscal 2005. The university’s
operating results before interest and depreciation increased to
$201.5 million in fiscal 2006, as compared to $163.7 million
in the prior year. The increased operating results were primarily the result of improved financial performance in almost all
of our operating divisions, particularly in those divisions
delivering health care services.
Operating Revenues by Source
Total operating revenues increased by $252.5 million, or
11.3%, to $2,482.0 million in fiscal 2006. All of the major revenue categories experienced growth contributing to the overall increase in operating revenue. The chart below illustrates
the proportional revenues contributing to our overall financial performance.
Operating Revenues by Source
$2,482.0 million in fiscal 2006
Investment income
and other 4.6%
Tuition, fees, room, and board (net of student financial aid)
accounted for 8.7% of total operating revenues in fiscal 2006.
While the university implemented a 5.7% increase in the
undergraduate tuition rate to $30,920 for the academic year,
student financial aid offsets increased from the prior year,
resulting in only a 4.4% increase in net tuition, fees, room,
and board revenues. As part of our commitment to providing
educational opportunities to a diverse population, we continue to enhance the university’s financial aid offerings.
Operating Expenses by Function
The Consolidated Statements of Activities present operating
expenses by function, or purpose, for which the expenses
were incurred. These expenses totaled $2,428.0 million in fiscal 2006 and are depicted by functional classification in the
chart below.
Operating Expenses by Function
$2,428.0 million in fiscal 2006
Institutional support 2.2%
Public service and other
3.1%
Education, room,
and board 20.7%
Gifts, private grants and
contracts, and endowment
distributions 8.2%
Net tuition, fees, room,
and board 8.7%
Research 13.2%
Government grants and
contracts, including F&A
costs recovery 14.9%
Health care 63.6%
Vanderbilt’s health care services revenue, which constituted
63.6% of total operating revenues, increased by 13.7% in fiscal 2006 due to modest price increases combined with a continuing trend of increased patient care volumes.
Among the university’s other operating revenues, government
grants and contracts revenue and government-related facilities and administrative (F&A) costs recovery constituted
14.9% of total operating revenues in fiscal 2006. These revenues grew by 7.9%, which exceeded the growth in the federal
government’s budget for research appropriations.
18
Health care 60.8%
As in prior years, the percentages of operating expenses related
to health care services and research, which comprised a combined 74.0% of total operating expenses in fiscal 2006, correlated with the percentages of total operating revenues generated
from health care services and government grants and contracts.
In contrast, education, room, and board expenses comprised
20.7% of total operating expenses, which is proportionally
much more than the net revenues generated from tuition,
fees, room, and board charges. Due to this structural variance, we rely upon philanthropy, endowment support, and
other alternative sources of revenue to help pay for the coremission cost of educating students—which exceeds the
tuition “sticker price.”
Operating Expenses by Natural Classification
Vanderbilt’s total operating expenses increased by $229.8 million, or 10.5%, in fiscal 2006. While the financial statements
present operating expenses by function, the chart below
depicts the fiscal 2005 and 2006 operating expenses by natural classification type.
The provision for bad debts expense, increased from $95.5
million in fiscal 2005 to $130.9 million in fiscal 2006. This
change primarily resulted from significant increases in the
numbers of uninsured patients that Vanderbilt treated during the past year, which, as discussed later in this Overview,
resulted from the disenrollment of patients from Tennessee’s
TennCare (Medicaid) program.
Operating Expenses by Natural Classification
(in millions)
$3,000
$2,500
$2,000
Utilities and other
Provision for bad debts
$1,500
Interest
Depreciation and amortization
$1,000
Supplies and materials
$500
Services
Salaries, wages, and benefits
$0
2005
2006
Salaries, wages, and benefits increased 9.2% from the prior
year to total $1,397.2 million in fiscal 2006, representing
57.5% of total operating expenses. Increases in salaries and
wages, as well as in supplies and materials, were driven by
activity and volume increases in the research and patient care
areas. Benefit costs, meanwhile, increased at a rate commensurate with the growth in faculty and staff headcount,
salaries, and wages.
Expenses for supplies and materials increased by 7.4%, which,
when compared to the 11.3% increase in total operating revenues, reflects effective purchasing and supply chain management strategies.
Depreciation and amortization expenses increased from
$105.6 million in fiscal 2005 to $121.0 million in fiscal 2006,
consistent with expectations established in our capital plans.
Meanwhile, Vanderbilt’s debt service burden remained low in
fiscal 2006, as total interest expense decreased slightly to
$26.5 million. Interest rate swap agreements and debt structuring strategies enacted within the past few years resulted in
a slightly lower net interest rate on the university’s debt portfolio in fiscal 2006, despite the rise in market interest rates
during the year.
19
20
Students
The first phases of our plans to transform Vanderbilt’s undergraduate, graduate, and professional programs are nearing a
successful completion. Our goal of being a fully integrated university that educates the whole student, inside and outside of
the classroom, has yielded impressive gains with a record number of the nation’s most talented young people applying to the
undergraduate, graduate, and professional programs. The
number of undergraduate applications for fall 2006 reached an
all-time high in excess of 12,000. Vanderbilt continued to experience impressive gains in the quality of students, as well. With
this fall’s entering undergraduate class, Vanderbilt’s average
SAT profile score has increased by more than 51 points in just
five years. We also are proud of successful efforts to increase the
diversity of the student body—the percentage of minority
freshmen has risen from 18.2% to 28.6% over the last six years.
We realize that recruiting the best students to apply is only the
first step. The next step lies in ensuring that the students who
are accepted at Vanderbilt decide to attend and decide to stay.
Making certain that every Vanderbilt student can find a place at
the university is of utmost importance and requires us to continually examine ways in which this community can develop in
both breadth and depth. As the result of many initiatives in the
past few years, Vanderbilt’s freshman retention rate reached an
all-time high of 95.4% last year, and the university’s undergraduate graduation rate also reached a record level at 89.3%.
Percentage of Freshmen Remaining at Vanderbilt
Through Graduation
100%
Also of critical importance to Vanderbilt is ensuring that students who want to attend the university can afford to do so.
The university’s “need-blind” admission practices reflect a
commitment to enroll the most qualified students regardless
of their financial need. Presently, however, loans comprise significant portions of Vanderbilt students’ financial aid packages. For many families, loans are an unacceptable—and often
an impossible—prospect. Shape the Future: A Campaign for
Vanderbilt is committed to improving the affordability of a
Vanderbilt education through scholarships and other academic support. We believe the Vanderbilt student community
should consist of exceptional quality reflecting the broadest
possible array of experiences and perspectives.
Another university priority has been to increase the amount of
space in which students can interact with one another and with
faculty. Efforts over the last five years have resulted in the opening of the Ben Schulman Center for Jewish Life, renovations to
the Bishop Joseph Johnson Black Cultural Center, completion
of the new student life center, and the opening of the renovated
Buttrick Hall for interdisciplinary scholarship and teaching.
Furthermore, The Commons, the first phase of College Halls
at Vanderbilt, is nearing completion after years of planning
and construction. The Commons will provide an invigorating
experience for incoming freshmen beginning in the fall of
2007, with enough space to house the entire freshman class by
the fall of 2008. The guiding concept for College Halls at
Vanderbilt is to reinvent the classical definition of residential
life at a university, creating a place where the boundaries
between learning and living converge to maximize the connections among the people, programs, and ideas that highlight
the Vanderbilt experience. After The Commons project concludes, we will assess the university’s long-term plans to add
college halls for upperclassmen as funding becomes available.
90%
80%
70%
2002
2003
2004
2005
Six–Year Periods Ending
2006
In addition to capital investments, several major appointments have been made to enhance the student experience.
Frank Wcislo, professor of history, has been named dean of
The Commons, and Mark Bandas, who formerly served as
associate vice chancellor for student life, has been appointed
dean of students. With these appointments, academic and
student affairs will move under the direction of Nicholas
Zeppos, provost and vice chancellor for academic affairs, to
further integrate academic programs and student life in a
uniquely Vanderbilt manner.
21
Research
Top research universities like Vanderbilt are generating and
disseminating the new knowledge that powers modern society. In contrast to physical resources, which are limited in
quantity and consumed by use, knowledge and information
are unlimited: the more they are used, the more valuable they
become. The development of new interventions, effective
drugs, better ways of diagnosing and treating illnesses, and
smaller and smarter electromechanical devices are examples
of how applied knowledge can improve lives.
Discoveries at Vanderbilt translate into real-life solutions. For
instance, research findings at the Vanderbilt Kennedy Center
for Research on Human Development, a university-wide collaborative of Vanderbilt’s Peabody College, the School of
Medicine, and the College of Arts and Science, are helping to
prevent developmental problems in children and to enable
persons with developmental disabilities to lead fuller lives.
Moreover, as the result of visionary collaborations, our
researchers are making basic discoveries that promote further
22
improvements in society’s ability to treat a broad range of
diseases. The university’s chemists, biochemists, pharmacologists, physicians, biologists, and biomedical engineers are
working together to identify and test new substances for
drugs that someday could cure a host of diseases.
To better diagnose and treat illnesses, transinstitutional initiatives such as the Vanderbilt Institute of Chemical Biology and
the Mass Spectrometry Research Center are developing strategies and technologies to allow for earlier disease detection, to
help bring new therapeutics to market quickly at lower costs,
and to accelerate the translation of scientific breakthroughs
into better public health.
Anyone who has watched a loved one suffer from cancer,
heart disease, diabetes, or other diseases knows what it is like
to wish for a therapy that can ease symptoms, or even provide a cure. In recent decades, increased understanding has
transformed cancer from a capital “C” to a lower case “c” by
dramatically improving the survival rate for many types of
cancer. In the last year, Lilianna Solnica-Krezel, professor of
biological sciences, collaborated with Raymond Dubois, B. F.
Byrd Jr. Professor of Oncology and director of the
Vanderbilt-Ingram Cancer Center, to perform a study on the
zebrafish, a small freshwater aquarium fish with a transparent embryo. The study revealed that prostaglandin—a fatty
molecule commonly linked to pain, inflammation, and cancer—has a surprising role in helping to choreograph cell
movements early in the life of an embryo. This finding, combined with evidence from human cancer studies, indicates
that prostaglandin may be involved in making tumors malignant and may be an effective target for cancer prevention
therapies.
In research vital to treating heart disease, Dan Roden,
William Stokes Professor of Experimental Therapeutics and
assistant vice chancellor for personalized medicine, is studying what causes arrhythmias, or abnormal heart rhythms.
Roden and his Vanderbilt colleagues are working to identify
markers of sudden death risk from cardiac arrhythmia
before an individual is diagnosed with heart disease. He also
is exploring why certain patients respond differently to
antiarrhythmic drugs. By understanding the fundamental
mechanisms causing differing reactions in heart patients,
researchers can identify the best choices from current therapies and better direct new therapies.
Vanderbilt researchers also are tackling type 1 diabetes—an
illness rapidly becoming commonplace in the U.S. population. Pancreatic beta cells are the only cells in the body that
secrete insulin, and destruction of these precious cells by a
person’s own immune system gives rise to type 1 diabetes.
Mark Magnuson, professor of molecular physiology and biophysics, is leading investigators at Vanderbilt and worldwide
in beta cell biology and stem cell research—areas that may
yield new therapies for type 1 diabetes.
Meanwhile, our faculty are at the forefront of one of the
hottest frontiers in the physical sciences and engineering:
nanoscience and nanotechnology, which explore and exploit
the smallest of the small. Research under way at the
Vanderbilt Institute of Nanoscale Science and Engineering lies
between the familiar world of classical physics and the strange
world of the atom—a world that operates in a different and
often counterintuitive fashion.
Nanoscience research has allowed Vanderbilt faculty to play a
pioneering role in developing biological applications for a
nano-device called “quantum dots.” David Wright, associate
professor of chemistry, and James Crowe, Ingram Professor of
Cancer Research and professor of pediatrics, have shown that
quantum dots can identify the presence of a common respiratory virus within hours after a patient is infected, compared
to the days required for current tests. Quick detection is vital
because treatment for respiratory viral attacks is effective only
if administered at an early stage of infection.
Vanderbilt faculty, who shape the future in classrooms and
laboratories, are supported in part by endowed chairs and
operating gifts from private donors. Additionally, the costs of
particular research initiatives, such as those described above,
are largely funded through grants and contracts from government sources, foundations, and corporations. As illustrated in the graph below, in fiscal 2006, the federal government
provided 80.1% of the funding for Vanderbilt’s research
expenditures, which totaled $387.9 million inclusive of indirect facilities and administrative costs related to research.
The Department of Health and Human Services, primarily
through the National Institutes of Health (NIH), accounted
for about 82% of that federal support.
Research Expenditures – Funding by Source
$387.9 million in fiscal 2006 (including indirect costs)
Federal government
80.1%
University funded
10.1%
Foundations and
associations 4.7%
Corporations 3.6%
Other 1.5%
While the majority of our research is funded externally, in fiscal 2006 Vanderbilt internally supported research expenses
totaling $39.2 million, or 10.1% of total research. Internal
support for research activities came largely from the university’s Academic Venture Capital Fund to promote strategic
academic initiatives. In addition to the research represented
above, Vanderbilt faculty also participate in many departmental research efforts that further contribute to their teaching
and to the development of new ideas.
23
24
Health Care
Vanderbilt’s health care enterprise, which includes the
Vanderbilt University Hospitals and Clinics and the
Vanderbilt Medical Group physician practice, continued to
have a tremendous positive impact on the overall financial
health of the university in fiscal 2006. As noted earlier, health
care services revenue increased by more than 13.7% from the
prior year and comprised 63.6% of the university’s total
operating revenues.
The increase in health care services revenue is largely attributed to the continued growth in patient care volumes. During
fiscal 2006, the numbers of hospital discharges, clinic outpatient visits, emergency room visits, and surgical operations
each increased between 8% and 11% from the prior year.
Increased hospital admissions led to a continuing upward
trend in the percentage occupancy of licensed beds, even as
improved patient care practices resulted in a lower average
length of stay during fiscal 2006.
TennCare regulatory changes in the spring of 2005, causing
disenrollment in the program and the transition of more
than 170,000 adult TennCare enrollees to an uninsured status. These changes caused a considerable increase in the percentage of uninsured patients in Vanderbilt’s payor mix,
which diminished the overall growth in net patient revenue.
Changes in the payor mix resulted in more uninsured
patients in all specialties, with the most significant increase
occurring in trauma care.
The table below reflects the shift of patients away from
TennCare (Medicaid) coverage in fiscal 2005 to an uninsured
status in fiscal 2006. The percentage of TennCare (Medicaid)
patients decreased from 23.5% in fiscal 2005 to 18.9% in fiscal 2006. Conversely, the percentage of uninsured (self pay)
and other payors increased from 7.8% to 11.8%—the largest
percentage in more than a decade. This change resulted in
dramatic growth in uncompensated care provided to uninsured patients.
Payor Mix
Percentage Occupancy (licensed beds)
40%
Managed care
Medicare
TennCare (Medicaid)
Commercial indemnity
Uninsured (self pay) and other
20%
Total
100%
80%
60%
2006
2005
40.1%
38.7%
19.4
20.5
18.9
23.5
9.8
9.5
11.8
7.8
___________
___________
100.0%
100.0%
___________ ___________
___________
___________
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
The growth in health care services in fiscal 2006 resulted from
many factors, including new staffed bed capacity in the
Vanderbilt University Hospital; the first full year for our renovated and expanded emergency department; the achievement
of optimal occupancy levels in the Monroe Carell Jr.
Children’s Hospital at Vanderbilt; and full-year occupancy for
new clinic space in the Medical Center East-South Tower and
the outpatient tower at the Children’s Hospital. Additionally,
expansion continued in Williamson County through the
opening of new clinics and the acquisition of private practices.
Our patient care activity is greatly affected by TennCare,
Tennessee’s state-managed health care program designed for
Medicaid-eligible residents and those who lack access to
health insurance. Tennessee’s state legislature enacted several
Although operating revenues were affected by the factors
described above, management enacted several initiatives to
ensure that net operating margins remained strong. These
included effective uses of clinical and business technology,
supply chain cost reduction initiatives, labor productivity
standards, and best practices for revenue cycle management
to ensure timely and complete reimbursements for patient
care services rendered. Meanwhile, operating expenses in
fiscal 2006 reflected growth in patient care volumes, annual
wage increases under the medical center’s pay for performance salary program, the impact of new hospital and clinic
space, and the opening of new physician practices in satellite
locations.
Overall, the growth in patient care volumes contributed to
health care services’ increasingly positive impact on
Vanderbilt’s consolidated financial results in fiscal 2006.
25
Philanthropy
Vanderbilt benefited enormously from increased philanthropic support received during fiscal 2006. Gifts and grants from
private sources provided scholarships for talented students,
encouraged and funded vital faculty research and teaching,
improved campus facilities, and sustained and energized the
programs of the university.
26
Vanderbilt received external support in excess of $100 million
in fiscal 2006. Unrestricted gifts to support the research and
teaching activities of our schools and colleges, as well as new
endowed gifts for scholarships and faculty chairs, increased
significantly. During the past year, alumni, either directly or
through their family foundations or businesses, gave more
than $48 million, and non-alumni parents of Vanderbilt students gave nearly $10 million.
While these results indicate continuing strength and capacity
for attracting gifts and grants, two additional indicators bode
well for future giving. Vanderbilt made outstanding progress
in securing new pledges, more than doubling the value of
those secured in 2005. Most of the new pledges recorded in
2006 will be fulfilled within the next three to five years to
strengthen scholarships, faculty support, research, and the
university’s breadth of facilities and resources for students
and faculty.
ly have donated stock valued at more than $400 million to
support the mission of Vanderbilt. Proceeds from these stock
gifts are being allocated for important uses over several years.
Among the many initiatives that these gifts supported in fiscal
2006, Ingram family gift proceeds were directed to support
programs, facilities, faculty chairs, scholarships, and other
operating activities associated with the College of Arts and
Science, Blair School of Music, Owen Graduate School of
Management, Vanderbilt-Ingram Cancer Center, the School
of Medicine, The Commons, and athletics.
The second indicator is the increased amount of newly documented future bequests that Vanderbilt will receive from the
estates of alumni and friends. During fiscal 2006, these generous supporters informed Vanderbilt of their intentions to
donate more than $26 million through their wills, tripling the
amount documented in fiscal 2005.
All of this support contributes to the momentum of
Vanderbilt’s Shape the Future campaign, which had accrued
$1.24 billion of gifts and pledges as of June 30, 2006.
Vanderbilt surpassed the campaign goal of $1.25 billion in
August 2006, well in advance of the target date of June 2008.
We plan to expand the campaign during fiscal 2007.
Furthermore, during the campaign the university has counted
nearly $74 million toward a secondary goal of $100 million
for new planned bequests.
The ultimate success of our campaign is measured not in
dollars, but more importantly in the lives of students and
faculty and in the greater impact of Vanderbilt in the world.
The university has attracted increasing levels of gifts and
pledges for student scholarships and faculty chairs, which,
along with selected capital projects, are the greatest priorities
for the remainder of the campaign. Our recent success in
raising funds for these purposes is reflected in the $45.9 million of permanently restricted contributions reported in the
Consolidated Statements of Activities for fiscal 2006.
Working partnerships forged among the university’s development and alumni relations staff, key volunteers, dynamic faculty, and Vanderbilt’s deans, vice chancellors, and chancellor
were vital to the positive results for fiscal 2006. Of course, the
success of this past year, or any year, would not be possible
without the generous donors whose philanthropic support
advances Vanderbilt and inspires greater achievement. Of particular note, since 1998, Martha Ingram and the Ingram fami-
Benefactions of the Vanderbilt Family
Vanderbilt University was founded in 1873 by
Commodore Cornelius Vanderbilt and has been
generously supported by successive generations
of his family. Especially significant were the gifts
and bequests of Harold Stirling Vanderbilt and his
wife, Gertrude Conaway Vanderbilt. In 1970, the
Board of Trust passed a resolution that the extent
of this philanthropy should forever be recognized
by the university in appropriate communications.
The contributions of the Vanderbilt family are summarized below, without adjustments for inflation.
All amounts are shown in thousands of dollars.
The founding gifts of Commodore
Cornelius Vanderbilt
Harold Stirling Vanderbilt
gifts and bequests
Gertrude Conaway Vanderbilt
gifts and bequests
Gifts and bequests from other
members of the family
TOTAL
$
1,004
57,279
6,456
8,599
_________
$
73,338
_________
_________
27
28
Capital Investments
In today’s competitive environment, universities such as
Vanderbilt must provide modern facilities to keep pace with
the needs and expectations for world-class research, learning,
living, and patient care. In order to continue the current
momentum toward attracting extraordinary students and faculty, and to remain Middle Tennessee’s patient care provider
of choice, we must strategically invest in facilities while ensuring that capital plans and priorities are consistent with the
mission and goals of the university.
Possibly the most visibly transformative initiative at
Vanderbilt today is the construction and development of The
Commons, the first phase of College Halls at Vanderbilt, on
the Peabody College campus (photo on this page). This
endeavor will bring together students, faculty, and campus
leaders in a unique and vibrant intellectual community.
Construction of The Commons began in 2005 to renovate
five existing residence halls into “houses,” to build five new
houses and a dean’s residence, and to construct a dining center. Construction of two of the new facilities—Sutherland
House and Crawford House—was completed in time to
house more than 300 students for the fall 2006 semester. Two
more houses and the dining center are expected to be operational by the fall of 2007; and The Commons is scheduled to
be fully completed by the fall of 2008, when it will house the
entire freshman class.
such centers in the nation supported by the NIH.
Construction of the second phase, to include seven floors
atop Langford Auditorium (photo on facing page), is scheduled to finish in the summer of 2007. When completed, the
387,000-square-foot MRB IV will support Vanderbilt’s
growth in research awards, which has outpaced the growth in
research space over the past several years.
In the fall of 2006, construction neared completion on the
Vanderbilt University Institute of Imaging Science (VUIIS), a
new four-story facility for advanced imaging studies of
human and non-human subjects. The new facility, adjoined
to Medical Center North, will house a seven tesla MRI scanner and will support advances in physics, engineering, computing, and other sciences for the development of better
imaging techniques to be used in biological and medical
research.
Vanderbilt’s leadership undertakes capital planning with a university-wide perspective, supported by coordinated fundraising efforts and consolidated debt portfolio management. This
integrated approach will allow us to continue proceeding with
our long-term capital plans in a nimble, yet well-planned and
strategic, manner.
Meanwhile, our medical center’s management has begun
assessing and planning for the potential construction of a new
critical care tower with additional acute care beds to accommodate the forecasted growth in surgical operations and cardiovascular services. In June 2006, the university filed a
Certificate of Need with the State of Tennessee, a crucial regulatory requirement before construction can begin. With occupancy at consistently high levels, utilization has recently overtaxed our adult hospital’s existing bed capacity, resulting in
emergency room overcrowding and the use of holding areas to
provide inpatient care until beds become available.
The first phase of Medical Research Building IV (MRB IV),
consisting of three floors above Light Hall, was completed in
fiscal 2006. It now houses programs such as the John A.
Oates Institute for Experimental Therapeutics and the
Digestive Disease Research Center, which is one of only 16
29
30
Debt Portfolio Management
The university issued $139.3 million of commercial paper
(CP) during fiscal 2006 to provide financing for strategic capital projects that continue to change the landscape of the
campus. Included within this amount was $39.3 million used
during the year to finance portions of The Commons, VUIIS,
and emergency generators for Vanderbilt’s medical facilities.
The remaining $100.0 million of CP was issued in advance of
construction expenditures and will be used to finance construction costs as they occur for The Commons, VUIIS, and
other near-term projects.
The fiscal 2006 CP issuances, net of principal reductions on
long-term debt, resulted in a net increase of $120.7 million in
the university’s outstanding debt, which totaled $906.6 million as of June 30, 2006.
Effective and responsible debt portfolio management enables
Vanderbilt to execute major strategic initiatives while preserving working capital. Our long-term planning process sets
forth a capital plan that identifies facility investment priorities. Projects that relate to the university’s core mission and
projects generating net additional revenues receive priority
for debt financing. Vanderbilt’s formal comprehensive debt
policy then guides the use of long-term debt, CP, and derivative transactions in optimizing a debt portfolio that finances
those investments. The utilization of CP, which will be refinanced in the future by issuing long-term debt, provides us
with greater flexibility regarding the timing and structuring
of long-term debt transactions.
The debt policy also outlines principles for the use of derivative products to manage risk and the optimization of longterm financing strategies. Vanderbilt entered into two groups
of derivatives during fiscal 2006: (1) basis swaps involving
taxable and tax-exempt variable interest rates; and (2) shortdated fixed-to-variable interest rate swaps. These swaps were
used to limit the debt portfolio’s exposure to near-term interest rate fluctuations and to manage the university’s swapadjusted debt portfolio allocation between fixed and variable
rates. As of June 30, 2006, Vanderbilt’s debt portfolio had
been managed to a near-term allocation of 56% fixed and
44% variable. Despite an environment of rising interest rates,
derivative transactions entered into in the past two years contributed to low costs of capital for Vanderbilt’s debt portfolio
as weighted average interest rates totaled only 3.5% in fiscal
2006 and 3.7% in fiscal 2005.
In coordination with Vanderbilt’s strategic plans and within
the framework of its debt policy, we will continue to monitor
and evaluate the university’s optimal asset and debt structure
with a focus on financial equilibrium.
Vanderbilt’s debt policy describes the following objectives for
debt portfolio management:
● ensure that an appropriate mix of funding sources is used;
● limit overall debt to a level that, when combined with the
university’s strategic objectives, will help preserve appropriate
credit ratings over the long term;
● achieve a low risk-adjusted cost of capital while appropriately balancing that effort with the university’s exposure to
market shifts; and
● manage working capital, short-term investments, and debt
service requirements in a coordinated manner to optimize
overall funding and investment return strategies.
31
Perspectives on Trends
The performance trends at Vanderbilt are exceedingly positive, but only because we realize that even a single ounce of
complacency can be damaging.
Applications for student admissions have reached recordsetting levels, allowing for unprecedented selectivity in the
undergraduate, graduate, and professional programs. Why?
Because of bold steps taken by the university’s leadership to
enhance the opportunities for students to live and learn in this
32
unique academic community. Part of that enhancement is
Vanderbilt’s increasing ability to attract and support, through
need-based financial aid, outstanding students from traditionally underrepresented populations. As a physical example of
Vanderbilt’s bold steps, the soon-to-be-completed residential
community on the Peabody campus will transform the living
and learning environment for all first-year students.
In 2006, Vanderbilt ranked 18th in U.S. News & World
Report’s annual listing of national universities and has appropriately been recognized as a “hot school” in publications
such as Newsweek. The medical center also continues to
achieve national recognition for its patient care and research.
In its latest ranking of the “best hospitals,” U.S. News again
ranked Vanderbilt among the top 50 hospitals in the country.
And Vanderbilt continues to have one of the country’s
strongest medical research programs, ranking 15th among
medical schools in the latest reports of NIH awards, with particularly great success in molecular physiology and biophysics, biochemistry, pharmacology, and pediatrics.
The success of Vanderbilt’s health care enterprise can be
attributed to faculty and staff that are dedicated and caring,
yet who maintain a tenacious attitude toward meeting financial goals. The medical center’s leadership has established
ambitious goals for the clinical enterprise, research, philanthropy, and technology transfer. A program known as
“Elevate” has taken hold to further instill a culture committed
to effective communication, accountability, and excellence
toward a broad set of goals. Most notably, as the preferred
provider in Middle Tennessee, Vanderbilt maintains robust
patient care volume and satisfaction trends.
Meanwhile, operating support generated from endowment
distributions and philanthropy has never been stronger.
Nonetheless, Vanderbilt plans to create many more endowed
faculty chairs and student scholarships through the ongoing
Shape the Future campaign.
agreements, we believe that Vanderbilt is appropriately
hedged to deal with changes in variable interest rates, and we
are confident in our ability to manage current and planned
debt levels.
As a not-for-profit institution, Vanderbilt attempts to optimize expenditures and maximize their impact in support of
the university’s mission. To that end, Vanderbilt conducts its
activities with net margins that are consistently between only
1% and 3% of operating revenues. Therefore, to ensure positive net results for the long term—and, thus, perpetuate
Vanderbilt’s mission—we must maintain the university’s
momentum and never become complacent. We are committed to maintaining that momentum while remaining keenly
aware of the challenges that we
face. And we are excited by the
direction in which Vanderbilt is
headed.
Lauren J. Brisky
Vice Chancellor for
Administration and Chief
Financial Officer
The environment in which we operate is ever changing.
Intense competition for students and research grants is, as
described by Moody’s Investors Service, resulting in institutions “increasing their spending on programs and borrowing
heavily to invest in physical facilities.” Private universities and
not-for-profit health care institutions, on average, are investing about 1.5 times annual depreciation in physical facilities.
The top-tier peers with which Vanderbilt competes generally
are spending at an even greater pace. This competition cannot be ignored, yet we believe that Vanderbilt has so many
intangible factors in its favor—including campus layout, culture, leadership, values, a spirit of collaboration, and location
in Nashville—that we will succeed through the execution of
strategies other than simply outspending our peers.
Still, strategic capital spending will continue at a strong pace
at Vanderbilt, while we monitor our debt capacity and appropriately manage risk. Through the use of interest rate swap
33
Financial Ratios
Debt Service Coverage Ratio
The debt service coverage ratio measures the ability to cover debt service
requirements from continuing operations. The change in unrestricted net
assets from operating activities is increased by depreciation and interest
expenses to calculate the operating surplus available to make principal
and interest payments. The annual debt service is normalized to compensate for certain debt issues with back-end loaded principal payment due
dates.
5.0
4.6
4.6
4.5
4.0
4.3
4.1
4.1
3.8
3.6
3.6
3.6
3.0
2.0
1.0
At Vanderbilt: The university continued to demonstrate its ability to
cover annual debt service by producing a healthy ratio of over four times
the required debt service in fiscal 2006. The debt service coverage ratio
increased in fiscal 2006 due to an increase in operating results before
interest and depreciation expenses and stable debt service resulting from
effective debt portfolio management strategies.
Operating Surplus Ratio
This ratio measures the margin on each dollar of operating revenue for
a university. The operating results before interest and depreciation, or
operating surplus, are calculated as a percentage of total operating
revenue.
0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Operating Results before Interest and Depreciation
Normalized Annual Debt Service
12.0%
10.4%
10.0%
9.9%
9.3%
8.5%
8.1% 7.8% 8.1%
7.6%
8.0%
8.1%
7.3%
6.0%
At Vanderbilt: The university continues to produce strong operating
results while strategically investing in faculty, student financial aid, and
facilities. While embarking on a strategic growth strategy, the university
has maintained a remarkably steady operating surplus ratio during the
past five years. During that period, total operating revenues and operating results before interest and depreciation have each increased at an
average annual rate of just less than 12% per year.
Debt Service Burden
4.0%
2.0%
0.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Operating Results before Interest and Depreciation
Total Operating Revenues
3.0%
This measurement is defined by normalized annual debt service as a
percentage of a university’s total operating expenses.
2.6%
2.3% 2.3%
2.1% 2.1%
2.0%
At Vanderbilt: Vanderbilt has managed its growth in debt through
comprehensive strategic capital planning. The university has
maintained a low debt service burden, around 2%, during the past
several years as annual debt service has grown at a pace relatively
consistent with the growth in the university’s total operating base.
2.2%
2.0%
2.1%
1.9%
1.9%
1.0%
0.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Normalized Annual Debt Service
Total Operating Expenses
34
Primary Reserve Ratio
The primary reserve ratio measures financial strength by indicating how
many years a university could operate using its expendable resources without
relying on additional net assets generated by operations. “Expendable Net
Assets” are all unrestricted and temporarily restricted net assets other than
amounts comprising net investment in property, plant, and equipment.
At Vanderbilt: The university’s expendable net assets have consistently
exceeded a full year’s worth of operating expenses. The primary reserve
ratio has remained relatively level the past few years as growth in the
endowment has matched growth in the university’s total operating base.
Extraordinary endowment returns bolstered this ratio in the late 1990s
through 2000; then, subsequent declines in investments coupled with the
increased operating size of the university caused declines in the primary
reserve ratio from 2000 through 2003.
Viability Ratio
The viability ratio measures the availability of expendable net assets to
cover debt should a university need to settle its obligations immediately.
Aggregate capital-related debt includes debt guaranty commitments and
any capital project-related commercial paper.
At Vanderbilt: This ratio is heavily influenced by new debt issuances,
returns on endowment assets, and operating results. Changes in the university’s viability ratio over the past ten years have been consistent with
strategic capital plans. Vanderbilt’s ratio of 3.2x as of June 2006 compares
favorably to similarly rated private universities having a consolidated
school of medicine and hospital.
Capital Expenditures to Depreciation
This ratio indicates the rate of capitalization occurring at an institution. A
ratio above 1.0x indicates that a university is in a growth mode. A ratio
below 1.0x indicates that a university may not be investing in its equipment
and facilities at a rate fast enough to maintain its plant condition.
2.0
1.9
1.6
1.5
1.6
1.5
1.3
1.3
1.1
1.0
1.2
1.2
0.5
0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Expendable Net Assets
Total Operating Expenses
7.0
6.0
6.1
5.0
4.9
4.0
4.5
4.1
4.1
3.6
3.0
3.3
3.2
3.2
3.2
2.0
1.0
0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Expendable Net Assets
Aggregate Capital-Related Debt
3.0
2.5
2.5
2.5
2.2
2.0
2.0
1.8
1.5
At Vanderbilt: Investments in renovations of existing facilities and the construction of new facilities continue to be a priority at Vanderbilt. Capital
investment activity peaked in 2002/2003 with the construction of the
Biological Sciences Building/Medical Research Building III, the Monroe
Carell Jr. Children’s Hospital at Vanderbilt, and the School of Engineering’s
renovation and expansion. This ratio is expected to remain well above 1.0 as
ongoing construction activity occurs in earnest for the Vanderbilt University
Institute of Imaging Science, Medical Research Building IV, and The
Commons—the first phase of College Halls at Vanderbilt.
1.2
1.6
1.4
1.4
1.0
1.1
1.2
0.5
0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
3-Year Rolling Avg of Annual Capital Expenditures
Annual Depreciation Expense
35
Endowment Review
Flexibility
The best word to describe the management of institutional
funds over the past thirty years is structured. As a result of
poor performance in the bear market of 1973–1974 and the
passage of ERISA, portfolios have been governed by detailed
asset allocation guidelines, and most tend to hug target
weightings because any form of market timing is held in low
regard. Investment managers are chosen to fill highly specific
roles (e.g., large cap growth, small cap value, etc.) and they
are generally subject to very detailed guidelines and restrictions. And, investing in a new category or strategy requires a
detailed research project, a series of committee meetings, and
a change in the published Investment Policy. The time
required to complete this process frequently eliminates the
possibility of tactical shifts or opportunistic investments.
While many people draw comfort from such a highly structured approach to investing, we believe it can result in less
than optimal results. This is particularly true given the globalization of capital markets, which has blurred the distinction
between many asset categories.
Over the past few years, we have steadily adjusted our investment process at Vanderbilt and the watchword for the new
paradigm is flexibility. First, we have eliminated specific targets for many sub-asset classes and have instead created broad
categories with wide ranges of permissible exposure. For
example, all of the targets for individual equity categories
(domestic, international, growth, value, etc.) have been
replaced by a single marketable equity component with a target weighting of 40%. Similarly, individual targets for energy,
real estate, and timber have been replaced by a real asset category with a target weighting of 15%. While we intend to
maintain significant diversification in each segment of the
portfolio, this flexibility will allow the Investment Team to
make tactical shifts designed to capture notable misevaluations in the marketplace. For example, we overweighted value
stocks in 2000 and emerging market stocks in 2004–2006.
Recently, we tilted the U.S. equity component toward high
quality, large capitalization issues.
Second, we have hired a number of global managers who
have been given relatively broad mandates. In other words,
they are free to go wherever they see opportunity. We believe
they are more likely to add value than managers who are constrained to invest in a narrow and fixed universe of securities.
36
Finally, we have created an opportunistic component of the
portfolio with a maximum weighting of 5%. This segment
allows our team to take advantage of periodic temporary dislocations in the marketplace that result in significant return
potential. For example, during fiscal 2006, we identified an
opportunity to take advantage of low volatility in most asset
categories and historically narrow credit spreads. Both are an
indication of complacency in the marketplace and are typically followed by an upward re-pricing of risk.
Endowment Asset Allocation (% of Portfolio)
Category
Vanderbilt
Large
University Endowments
Actual %
Average %
U.S. Equities
International Equities
Hedge Funds
Private Equity
21.1
21.6
21.6
12.3
_________
20.2
21.7
23.7
10.6
_________
76.6
76.2
5.4
4.9
_________
Total Real Assets
6.4
4.4
_________
10.8
Treasury Inflation-Protected
Securities (TIPS)
U.S. Bonds
International Bonds
High-Yield Bonds
Cash
0.0
10.6
0.0
0.0
2.0
_________
2.1
8.5
0.9
0.4
1.6
_________
12.6
_________
100.0
_________
_________
13.5
_________
100.0
_________
_________
Total Equities
Real Estate
Timber & Energy
Total Fixed Income
Total Endowment
10.3
This flexible approach is not for everyone because it requires
careful monitoring of portfolio exposures, the ability to make
rapid portfolio shifts, and, most important, a good batting
average at recognizing opportunity and effectively implementing these insights in the portfolio. Your Investment Team
looks forward to the challenge!
Fiscal 2006 in Review
This was a fascinating year in which the lowest quality, most
speculative securities dramatically outperformed from July
through April. Then, for no obvious reason, investors awoke
to the fact that there is risk in the world and these securities
performed poorly from May through the end of the fiscal
year. For example, emerging markets rose 52% from July
through April only to fall 10.6% in the last two months of the
year. Similarly, small cap U.S. stocks rose 20.6% over the first
ten months and then dropped 5%.
Endowment Market Value
(in millions)
$3,000
potential value-added versus market benchmarks. First, one
can select managers who outperform the index in their particular category. This year we failed in that regard as
Vanderbilt’s managers underperformed by an average of
approximately 1.7%. The second source of potential addedvalue is timely decisions to over or under weight various asset
categories. This year we added approximately 1.6% in return
by shifting the portfolio toward non-U.S. equities, emerging
markets, and short duration bonds. The net effect on the
entire endowment of these two crosscurrents was value added
versus the blended benchmark of approximately -0.1%. This
is the first time that we have generated negative value-added
in the eight years that we have used this approach to evaluate
our performance. As the old saying goes, we are not taking
this lying down and you can expect to see some changes in
our investment process.
$2,000
Unit Distributions by Purpose (as of Spring 2006)
$1,000
Scholarships
29%
Faculty chairs
21%
$0
1991
1996
2001
2006
Against this backdrop, Vanderbilt’s endowment earned a
return of 14.0%. While that return is certainly attractive in an
absolute sense, it is slightly disappointing in relation to market indices and our peer group. There are two sources of
General
operations
10%
School
operations
27%
Other restricted
13%
Endowment Market Value Per Unit versus
Distribution Per Unit
$125.00
$5.00
Endowment Market
Value Per Unit
$100.00
$4.00
$3.00
$75.00
$2.00
$50.00
Distribution
Per Unit
$25.00
$0.00
1986
1991
1996
2001
$1.00
Distribution Per Unit
Despite all of these gyrations, the capital markets provided
returns for the fiscal year that were healthy in most cases and
spectacular in several categories. Leading the pack were
emerging market stocks which earned 35.7%. Stocks in the
industrialized markets outside of the U.S. also performed
well, yielding a return of 27%. We estimate that private equity
returns will be around 22% when fund numbers are reported
in October, and real estate continued to enjoy strong returns
as measured by the 18.7% return on the NCREIF real estate
market index. For a number of years, we have written that
U.S. stock returns should fall in the 6–8% range. Last year, we
were right on target as the S&P 500 earned 6.3%, and the fiscal 2006 return of 8.6% was in the ballpark. But, the broad
stock market earned 9.5% as measured by the Wilshire 5000
Index as a result of strong returns from mid and small capitalization issues. The major laggard for the fiscal year was
long-term U.S. Treasuries, which fell 6.3% in the face of generally rising interest rates.
Market Value Per Unit
1986
$0.00
2006
With respect to Vanderbilt’s peer group, our return was
slightly below the mean of a universe of endowments and
foundations with assets in excess of $1 billion. While not dis-
37
astrous, this ranking certainly does not meet our objective of
falling in the top quartile. Interestingly, our return did fall
near the first quartile of the broad universe of endowments,
which once again demonstrates the highly competitive nature
of the very large endowment funds in the U.S.
The Sixty-Four Million Dollar Question
Our longer-term record is much more attractive in that we
have outperformed the blended benchmark by an average of
4.8% per annum, and our ten-year return falls in the 24th
percentile of the large endowment universe and in the 8th
percentile of a broader universe containing some 350
endowments.
●
The June 30, 2006, value of the pooled endowment was just
over $2.9 billion, or $89.54 per unit. The payout to the operating budget for fiscal 2007 will be $3.564 per unit, which
represents a 12.2% increase over the 2006 level.
Anyone who invests knows that the capital markets provide a
never-ending series of difficult challenges and conundrums.
The major issue on our minds today results from the following:
There have been massive cash flows into all forms of lesstraditional assets including some marketable categories such
as hedge funds and emerging market equities.
● These flows have created a “sellers market” in which
investors often face higher management fees and more
restrictive lock-up agreements.
● Competition, higher costs, and exit restrictions point to
lower net returns and limits on our ability to make changes in
the endowment.
● There is some evidence of rising correlation across most
investment categories, which brings into question the value of
adding asset classes in search of diversification.
These lead us to the big question, which is: should we revert to
a simpler portfolio that limits Vanderbilt’s exposure to complex investments and relies instead on low-cost, passive vehicles? When combined with the flexible approach to asset allocation described above, could the university achieve strong
returns with less complexity and
greater transparency and risk control?
We look forward to sharing our conclusions with you in future
Endowment Reviews.
William T. Spitz
Vice Chancellor for Investments
and Treasurer
38
39
Independent Auditors’ Report
Board of Trust,
The Vanderbilt University:
We have audited the accompanying consolidated statements
of financial position of The Vanderbilt University (the
University) as of June 30, 2006 and 2005, and the related consolidated statements of activities and cash flows for the years
then ended. These financial statements are the responsibility
of the University’s management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits 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 whether the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the University’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of The Vanderbilt University as of June 30,
2006 and 2005, and the changes in its net assets and its cash
flows for the years then ended in conformity with U.S. generally accepted accounting principles.
As described in note 16 to the financial statements, on June
30, 2006, the University adopted Financial Accounting
Standards Board Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations.
September 5, 2006,
except as to note 5 which is as of September 25, 2006
40
Consolidated Statements of Financial Position
2006
As of June 30, 2006 and 2005 (in thousands)
ASSETS
Cash and cash equivalents
Collateral under security lending agreements
Accounts receivable
Prepaid expenses and other assets
Contributions receivable
Student loans receivable
Investments
Property, plant, and equipment
Interest in trusts held by others
Total assets
LIABILITIES
Accounts payable and accrued liabilities
Accrued payroll and withholdings
Payable under security lending agreements
Deferred revenue
Commercial paper
Actuarial liability for self-insurance
Actuarial liability for annuities payable
Government advances for student loans
Long-term debt and capital leases
Total liabilities
NET ASSETS
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
2005
$
511,573
271,353
257,567
109,946
80,608
34,461
3,277,053
1,457,159
42,936
___________
$
217,697
324,757
230,262
80,118
84,381
35,117
3,188,638
1,365,177
42,782
___________
$ 6,042,656
$ 5,568,929
$
$
216,917
136,808
271,353
52,067
144,830
77,396
39,746
16,007
761,787
___________
260,093
137,871
324,757
48,091
5,500
70,464
38,542
15,781
780,399
___________
1,716,911
1,681,498
3,445,162
155,755
724,828
___________
3,044,386
175,043
668,002
___________
4,325,745
3,887,431
$ 6,042,656
$ 5,568,929
The accompanying notes are an integral part of the consolidated financial statements.
41
Consolidated Statements of Activities
2006
Operating
Years Ended June 30, 2006 and 2005 (in thousands)
CHANGES IN UNRESTRICTED NET ASSETS
REVENUES
Tuition and educational fees, net
Government grants and contracts
Facilities and administrative costs recovery
Private gifts, grants, and contracts
Endowment distributions
Investment income
Health care services
Room, board, and other auxiliary services, net
Other sources
Net assets released from restrictions
$
188,166
277,839
100,081
68,578
109,270
28,256
1,577,841
75,565
38,626
17,841
___________
180,136
257,241
92,892
61,919
103,849
28,564
1,387,235
73,248
27,507
16,931
___________
2,482,063
___________
2,229,522
___________
334,308
321,035
1,475,234
100,503
54,128
24,596
23,869
94,372
___________
298,823
298,996
1,301,615
97,390
57,403
24,936
28,056
91,030
___________
Total expenses
2,428,045
___________
2,198,249
___________
Change in unrestricted net assets from operating activity
54,018
___________
31,273
___________
OTHER UNRESTRICTED ACTIVITY
Gifts and contributions for plant
Net assets released from restrictions for plant
Donor designation changes
Change in endowment appreciation, net of distributions
Cumulative effect of a change in accounting principle
Other, including change in fair value of interest rate swap agreements
5,212
29,312
(1,600)
262,583
(17,540)
68,791
___________
7,090
39,458
(521)
292,307
—
(40,934)
___________
346,758
___________
297,400
___________
400,776
328,673
5,441
(5,506)
6,935
2,816
18,179
(47,153)
___________
3,922
(19,707)
5,864
2,545
16,826
(56,389)
___________
(19,288)
(46,939)
45,908
7,106
794
3,018
___________
15,725
20,228
252
10,116
___________
56,826
46,321
Total revenues
EXPENSES
Instruction
Research
Health care services
Academic support
Institutional support
Student services
Public service
Room, board, and other auxiliary services
Change in unrestricted net assets from other unrestricted activity
Non-operating
Increase in unrestricted net assets
CHANGES IN TEMPORARILY RESTRICTED NET ASSETS
Contributions and other
Donor designation changes
Net gain on contributions receivable
Endowment distributions
Investment gains
Net assets released from restrictions
Decrease in temporarily restricted net assets
CHANGES IN PERMANENTLY RESTRICTED NET ASSETS
Contributions and other
Donor designation changes
Endowment distributions
Investment gains
Increase in permanently restricted net assets
Increase in total net assets
Net assets at beginning of year
Net assets at end of year
42
2005
$
438,314
3,887,431
___________
$ 4,325,745
$
$
328,055
3,559,376
___________
$ 3,887,431
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flows
2006
Years Ended June 30, 2006 and 2005 (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Increase in total net assets
$
Adjustments to reconcile increase in total net assets
to net cash provided by operating activities:
Non-operating changes in net assets
Gifts for plant and endowment
Net realized investment gains
Non-cash changes in net assets
Net increase in unrealized appreciation
Gifts of securities other than for plant and endowment
Depreciation and amortization
Present value adjustment on annuities payable
Present value adjustment on self-insurance
Net (increase) decrease in interest in trusts held by others
Amortization of bond discounts and premiums
Net (increase) decrease in fair value of interest rate swap agreements
Cumulative effect of a change in accounting principle
Change in operating assets and liabilities
Decrease (increase) in:
Accounts receivable
Prepaid expenses and other assets
Contributions receivable
Increase (decrease) in:
Non-construction accounts payable and accrued liabilities
Accrued payroll and withholdings
Deferred revenue
(108,005)
(19,398)
120,980
1,204
6,932
(154)
(4,740)
(68,875)
17,540
(188,380)
(14,367)
105,600
945
11,873
2,729
(890)
39,283
—
(27,305)
(6,236)
3,773
(1,956)
(4,544)
18,784
(15,411)
(1,063)
3,976
___________
28,511
20,655
11,903
___________
35,258
95,899
(1,593,061)
1,879,504
(219,247)
6,285
(5,633)
6,289
___________
(3,733,318)
3,654,137
(221,880)
1,242
(6,521)
5,826
___________
74,137
(300,514)
58,819
(22)
226
140,776
(15,318)
___________
53,396
4,663
322
482,860
(305,871)
___________
184,481
235,370
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
328,055
(53,396)
(208,906)
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Gifts for plant and endowment
(Decrease) increase in construction-related payables
Increase in government advances for student loans
Proceeds from the issuance of debt
Payments to retire or defease debt
$
(58,819)
(247,455)
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments
Proceeds from the sale of investments
Acquisition of property, plant, and equipment
Disposal of property, plant, and equipment
Student loans disbursed
Principal collected on student loans
438,314
2005
$
293,876
217,697
___________
$ 511,573
$
30,755
186,942
___________
$ 217,697
The accompanying notes are an integral part of the consolidated financial statements.
43
Notes to the Consolidated Financial Statements
1. Organization
The Vanderbilt University (the University) is a privately
endowed, coeducational, not-for-profit, nonsectarian institution located in Nashville, Tennessee. Founded in 1873, the
University owns and operates educational and research facilities
as well as a health care system. The University provides educational services to approximately 6,400 undergraduate and 5,100
graduate and professional students enrolled in its ten schools
and colleges. The Chancellor and the Board of Trust, the governing board of the University, have oversight responsibility for
all of the University’s financial affairs.
These consolidated financial statements include the accounts of
all entities in which the University has a significant financial
interest and over which the University has control, including its
hospitals and clinics. All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. Summary of Significant
Accounting Policies
Basis of Presentation
The consolidated financial statements of the University have
been prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of
America.
Based on the existence or absence of donor-imposed restrictions, the University classifies resources into three categories:
unrestricted, temporarily restricted, and permanently restricted
net assets.
Unrestricted net assets are free of donor-imposed restrictions. All revenues, gains, and losses that are not temporarily
or permanently restricted by donors are included in this
classification. All expenditures are reported in the unrestricted class of net assets, since the use of restricted contributions in accordance with donors’ stipulations results in
the release of the restriction.
Temporarily restricted net assets are limited as to use by
donor-imposed stipulations that expire with the passage of
time or that can be satisfied by action of the University.
These net assets may include unconditional pledges, splitinterest agreements, and interest in trusts held by others.
44
Permanently restricted net assets are amounts required by
donors to be held in perpetuity. These net assets may
include unconditional pledges, true endowment, split-interest agreements, and interest in trusts held by others.
Expirations of temporary restrictions on net assets, i.e., the passage of time and/or fulfilling donor-imposed stipulations, are
reported as net assets released from restrictions between the applicable classes of net assets in the Consolidated Statements of
Activities.
Cash and Cash Equivalents
Cash and cash equivalents, maturing in 90 days or less at date of
purchase, are reported at fair value.
Investments
Investments are reported at fair value, based primarily on market
quotes, except for certain real estate and mortgages that are stated at cost. Fair values for certain alternative investments (mainly
investments in limited partnerships) primarily are based on estimates reported by fund managers where a ready market for the
investments does not exist. The estimated values are reviewed
and evaluated by the University.
The University has significant exposure to a number of risks
including interest rate, market, and credit risks for both marketable and non-marketable securities. Due to the level of risk
exposure, it is possible that near-term valuation changes for
investment securities may occur to an extent that could materially affect the amounts reported in the University’s financial
statements.
Purchases and sales of securities are recorded on the trade dates,
and realized gains and losses are determined on the basis of the
average historical cost of the securities sold. Net receivables and
payables arising from unsettled trades by investment managers
are reported as a component of investments.
All true endowment investments and long-term net assets functioning as endowment are managed in a pool, unless special
considerations or donor stipulations require that they be held
separately.
Gains and losses on investments generally are reported as
increases or decreases in unrestricted net assets unless explicit
donor stipulations or law restrict their use.
Endowment Distribution Policy
The University employs a total return policy that establishes the
amount of endowment income distributed to support current
operational needs. This policy is designed to reduce the impact
of capital market fluctuations on operational programs and
increase the amount of return that is reinvested in the corpus of
funds in order to enhance its long-term value.
Under this policy, endowment income distributions are based on
4.5% of the previous three years’ average calendar year-end market values. Actual endowment return earned in excess of distributions under this policy is reinvested as part of the University’s
managed endowment and is reported as a non-operating item in
the Consolidated Statements of Activities. For years where actual
endowment return is less than distributions under the policy, the
shortfall is covered by realized returns from prior years.
Additionally, the Board of Trust has authorized the use of previously reinvested income, realized capital gains, and principal related to
unrestricted funds functioning as endowment for special transinstitutional academic development initiatives. Endowment distributions reported in the Consolidated Statements of Activities include
both (a) distributions to support current operational needs under
the policy as previously described and (b) the aforementioned supplemental endowment distributions for special academic initiatives
to the extent operating expenditures have been incurred.
The supplemental use of unrestricted funds functioning as
endowment to invest in capital needs of special academic initiatives is not reported as endowment distributions in the
Consolidated Statements of Activities.
Other Financial Instruments
Recorded amounts for receivables, prepaid expenses and other
assets, and accounts payable and accrued expenses approximate
fair value.
Using market quotations for similar issues or borrowings, the
University evaluates the estimated fair value of its fixed-rate
long-term indebtedness relative to carrying value. Principal balances for fixed-rate debt are reported at carrying value, which is
substantially equivalent to estimated fair value.
The University employs derivatives, primarily interest rate swap
agreements, to manage market risk associated with outstanding
variable-rate debt. Derivative financial instruments are reported at
fair value with any resulting gain or loss recognized as a non-operating item in the Consolidated Statements of Activities. Periodic
net cash settlement amounts with counterparties are accounted for
as adjustments to interest expense on the related debt.
Parties to interest rate swap agreements are subject to market
risk for changes in interest rates as well as risk of credit loss in
the event of nonperformance by the counterparty. The
University deals only with high-quality counterparties that meet
rating criteria for financial stability and credit worthiness.
Additionally, the University requires the posting of collateral
when amounts subject to credit risk under swap arrangements
exceed specified levels.
University management also approves strategic use of derivatives
by external investment managers to manage market risks. The
most common strategies engaged by such managers are futures
contracts, short sales, and hedges against currency translation risk
for investments denominated in other than U.S. dollars. These
derivative instruments are recorded at their respective fair values.
Through an agreement with its primary investment custodian,
the University participates in security lending to brokers. For
pledged cash and cash equivalents collateral under the control of
the University, a short-term asset and liability are recorded representing the market value of such collateral.
Split-Interest Agreements and Interest in Trusts
Held by Others
The University’s split-interest agreements with donors consist
primarily of irrevocable charitable remainder trusts, charitable
gift annuities, and life income funds for which the University
serves as trustee. Assets held in these trusts are included in
investments. Contribution revenue is recognized at the dates the
trusts are established, net of the liabilities for the present value of
the estimated future payments to be made to the donors and/or
other beneficiaries. Annually, the University records the change
in value of split interest agreements by marking to market the
assets that are associated with each trust and recalculating the
liability for the present value of the estimated future payments to
be made to the donors and/or other beneficiaries.
The University also is the beneficiary of certain trusts held and
administered by others. The University’s share of these trust
assets is recorded at fair value as interest in trusts held by others
with carrying values adjusted annually for changes in fair value.
45
Property, Plant, and Equipment
Purchased property, plant, and equipment are recorded at cost,
including, where appropriate, capitalized interest. Donated
assets are recorded at fair market value at the date of donation.
Additions to the library collection are expensed at the time of
purchase.
Depreciation is calculated by the straight-line method at rates
estimated to allocate the cost of various classes of assets over
their estimated useful lives. Equipment is removed from the
accounting records at the time of disposal.
Conditional asset retirement obligations related to legal requirements to perform certain future activities related to the retirement, disposal, or abandonment of assets are accrued utilizing
site-specific surveys to estimate the net present value for applicable future costs, e.g., asbestos abatement or removal.
The University reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment
charge is recognized when the fair value of the asset or group of
assets is less than the carrying value.
Revenue Recognition
The University’s revenue recognition policies are as follows:
Tuition and educational fees, net—Student tuition and educational fees are recorded as revenues during the year the
related academic services are rendered. Student tuition and
educational fees received in advance of services to be rendered are recorded as deferred revenue. Financial aid provided by the University for tuition and educational fees is reflected as a reduction of tuition and educational fees. Financial
aid does not include payments made to students for services
rendered to the University.
Government grants and contracts—Revenues from government grants and contracts are recognized when allowable
expenditures are incurred under such agreements.
Facilities and administrative (F&A) costs recovery—F&A
costs recovery, historically referred to as indirect cost recovery, is recognized as revenue and represents reimbursement,
primarily from the federal government, of F&A costs on
research grants. The federal F&A costs recovery rate for on-
46
campus research was 52.0% in fiscal 2006. This rate increases to 53.0% in fiscal 2007 and 53.5% in fiscal 2008.
Health care services—Health care services revenue is
reported at established rates, net of contractual adjustments
and charity services. Third party contractual revenue adjustments under governmental reimbursement programs are
accrued on an estimated basis in the period the related services are rendered. The estimated amounts are adjusted to
actual during the year that final settlement is determined by
the fiscal intermediary for each program. Health care services revenue includes that of Vanderbilt University Hospitals
and Clinics, Vanderbilt Medical Group, Vanderbilt Health
Services, Inc., and other activities directed toward the purpose of providing health care services to the community.
Contributions
Unconditional promises to give (pledges) are recognized as contribution revenue when the donor’s commitment is received.
Conditional promises (primarily bequest intentions) are not
recorded until donor stipulations are substantially met.
Unconditional promises to give, with payments due to the
University in future periods, are recorded as increases in temporarily restricted or permanently restricted net assets at the estimated present value of future cash flows, net of an allowance for
estimated uncollectible promises. Amortization of the discount is
recorded as additional contributions in the appropriate net asset
class. Allowance is made for uncollectible contributions receivable
based upon management’s analysis of past collection experience
and other judgmental factors.
Contributions with donor-imposed restrictions are recorded as
unrestricted revenue if those restrictions are met in the same
reporting period. Otherwise, contributions with donor-imposed
restrictions are recorded as increases in temporarily restricted or
permanently restricted net assets, depending on the nature of
the restriction.
Contributions recorded as temporarily restricted net assets are
released from restrictions and recognized as unrestricted net
assets upon receipt of the gift or expiration of the time restriction, and after any donor stipulations are met. Gifts for plant
facilities are released from restrictions and recognized as a nonoperating item only after resources are expended for the applicable plant facilities.
Contributions receivable of pledged securities are stated at the fair
value of the underlying securities. Net changes on shares pledged
in prior years due to fair value changes for the underlying securities are reported separately as a non-operating gain or loss on contributions receivable in the Consolidated Statements of Activities.
Operating Results
Operating results (change in unrestricted net assets from operating activity) in the Consolidated Statements of Activities reflect all
transactions that change unrestricted net assets, except gifts for
plant facilities, activity associated with endowment investments,
changes in the value of interest rate swap agreements, and certain
other non-recurring items. In accordance with the University’s
endowment distribution policy, as previously described, only the
portion of total investment return distributed under this policy to
meet operating needs is included in operating revenue. Operating
investment income consists of dividends, interest, and gains and
losses on unrestricted, non-endowed investments.
The University’s primary programs are instruction, research,
patient care, and public service. Academic and student support
expenses and auxiliary services are considered integral to the delivery of these programs. Fundraising costs are not material to the
University’s contributions or total program costs. Approximately
58% of private gifts, grants, and contracts revenue represent transactions where University services are provided to other parties.
well as the disclosure of contingent assets and liabilities. Actual
results ultimately could differ from management’s estimates.
Redesignations
When donors amend or clarify intent for applicable gifts and
contributions reported in a previous fiscal year, revisions are separately reflected as donor designation changes within the
Consolidated Statements of Activities.
Reclassifications
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
3. Accounts Receivable
Accounts receivable as of June 30 were as follows
(in thousands):
2006
$ 313,601
79,136
6,648
__________
2005
$ 307,109
74,502
6,959
__________
399,385
388,570
Less: Allowance for bad debts
141,818
__________
158,308
__________
Accounts receivable, net
$
257,567
__________
__________
$
230,262
__________
__________
Patient care
Students, grants, and other
Accrued investment income
Accounts receivable
Costs related to the operation and maintenance of physical plant,
including depreciation of plant assets, are allocated to operating
programs and supporting activities based upon facility usage.
Interest expense on external debt is allocated to the activities that
have benefited most directly from the debt proceeds.
Income Taxes
The University is a tax-exempt organization as described in
Section 501(c)(3) of the Internal Revenue Code (the Code), and
is generally exempt from federal income taxes on related income
pursuant to Section 501(a) of the Code. The University is, however, subject to federal and state income tax on unrelated business income, and provision for such taxes is included in the
accompanying financial statements.
Use of Estimates
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses during the reporting period as
47
4. Contributions Receivable
5. Investments
Contributions receivable as of June 30 were as follows
(in thousands):
Investments by security type as of June 30 were as follows
(in thousands):
2006
Unconditional promises expected
to be collected in:
Less than one year
One year to five years
More than five years
Contributions receivable
Less: Unamortized discount
Allowance for uncollectible
promises
Contributions receivable, net
$
22,275
69,739
4,869
__________
2005
$
20,738
74,879
1,848
__________
96,883
97,465
8,817
6,794
7,458
__________
$
80,608
__________
__________
6,290
__________
$
84,381
__________
__________
2006
Short-term securities
$ 81,358
Bonds
351,083
Stocks
975,572
Partnership investments
1,636,125
Mortgages
6,834
Real estate
190,013
Other
35,351
Net receivables (payables) for unsettled
trades by investment managers
717
__________
2005
$ 277,301
410,680
1,040,966
1,263,995
8,305
156,283
31,281
Total fair value
$3,277,053
__________
__________
(173)
__________
$3,188,638
__________
__________
Total cost
$2,732,570
__________
__________
$2,752,160
__________
__________
The University’s net contributions receivable include amounts
due from the Ingram Charitable Fund (ICF) totaling $21.1 million and $38.7 million as of June 30, 2006 and 2005, respectively. The assets of the ICF primarily consist of publicly traded
Ingram Micro Inc. common stock and privately held Ingram
Industries Inc. common stock.
Investments by net asset category as of June 30 were as follows
(in thousands):
In addition to pledges reported as contributions receivable, the
University had received bequest intentions of approximately
$167.2 million as of June 30, 2006. These intentions to give are
not recognized as assets due to their conditional nature. If these
bequests are received, generally they will be restricted for specific
purposes stipulated by the donors, primarily endowments for
faculty support, scholarships, or general operating support of a
particular department or division of the University.
Through an agreement with its primary investment custodian,
the University participates in lending securities to brokers.
Among other provisions that limit the University’s risk, this
agreement specifies that the custodian is responsible for managing strict borrower collateral requirements. Collateral, which is
pooled by the custodian, generally is limited to cash, government
securities, and irrevocable letters of credit. Depending on the
type of securities being lent, minimum collateral ranges from
101% to 105% with required daily marking-to-market.
Unrestricted
Temporarily restricted
Permanently restricted
2006
$2,539,668
118,974
618,411
__________
2005
$2,490,949
125,902
571,787
__________
Total fair value
$3,277,053
__________
__________
$3,188,638
__________
__________
Both the investment custodian and security borrowers have the
right to terminate a specific loan of securities at any time. Other
than for an event of default, the investment custodian is prohibited from re-pledging or otherwise encumbering the pledged collateral. The University receives lending fees and continues to earn
interest and dividends on the loaned securities.
At June 30, 2006, investment securities with a market value of
$304.5 million were loaned to various approved brokers under
this program with collateral having a total market value of
$310.9 million, including cash and cash equivalents of $271.4
million. The cash and cash equivalents collateral and the obligation to return such collateral are reported as an asset and liability
on the Consolidated Statements of Financial Position.
48
6. Investment Return
7. Net Asset Components of
Managed Endowment
As previously noted, the University employs a total return policy
that establishes endowment appreciation distributions.
Additionally, the Board of Trust authorized the use of funds
functioning as endowment to support operating and capital
needs of certain transinstitutional initiatives. Endowment distributions in fiscal 2006 and 2005 were based on 4.5% of the previous three years’ average calendar year-end market values plus the
use of $10.5 million and $11.7 million of funds functioning as
endowment for operating expenses of transinstitutional initiatives in fiscal 2006 and 2005, respectively.
Further, $2.3 million and $6.6 million of unrestricted funds
functioning as endowment were utilized for capital needs of
transinstitutional initiatives in fiscal 2006 and 2005, respectively.
Liquidations for these special capital investments are excluded
from the following summary of endowment distributions and
other investment income for the fiscal years ended June 30
(in thousands):
Operating:
Endowment distributions
Investment income
2006
2005
$ 109,270
28,256
__________
$ 103,849
28,564
__________
137,526
132,413
Total operating return
Non-operating:
Unrestricted:
Endowment appreciation utilized (112,324)
Investment income
374,907
Temporarily restricted:
Endowment distributions
2,816
Investment income
18,179
Permanently restricted:
Endowment distributions
794
Investment income
3,018
__________
Total non-operating return
Total investment return
(106,646)
398,953
2,545
16,826
287,390
__________
252
10,116
__________
322,046
__________
$
424,916
__________
__________
$
454,459
__________
__________
Vanderbilt’s managed endowment represents only those endowment-related net assets that are under the management control of
Vanderbilt University. Gift annuities, interest in trusts held by others, and certain contributions pending transfer are not considered
components of the managed endowment.
A summary of the University’s managed endowment as of
June 30 follows (in thousands):
Unrestricted net assets:
Funds functioning as
endowment, at cost
Net unrealized appreciation
on investments
Exclude net unrealized losses
allocable to other investments
Funds functioning as
endowment
Temporarily restricted net assets:
Funds functioning as
endowment, at cost
Permanently restricted net assets:
True endowment
Exclude portion allocable to
contributions receivable
and other
Managed true endowment
Fair value of managed endowment
2006
2005
$1,754,792
$1,637,322
537,895
395,673
643
__________
4,655
__________
2,293,330
__________
2,037,650
__________
9,433
__________
—
__________
660,164
603,724
(47,307)
__________
(43,147)
__________
612,857
__________
560,577
__________
$2,915,620
__________
__________
$2,598,227
__________
__________
The components of total investment return for the fiscal years
ended June 30 were as follows (in thousands):
2006
Net interest, dividend, and
partnership income
Net realized gains from original cost
Net unrealized gains
Total investment return
2005
$
68,051
247,469
109,396
__________
$
58,293
209,374
186,792
__________
$
424,916
__________
__________
$
454,459
__________
__________
49
8. Property, Plant, and Equipment
Property, plant, and equipment as of June 30 were as follows
(in thousands):
2006
$ 49,651
1,810,770
585,484
117,178
__________
2005
$ 48,385
1,692,707
532,423
114,756
__________
Property, plant, and equipment
2,563,083
2,388,271
Less: Accumulated depreciation
1,105,924
__________
1,023,094
__________
Property, plant, and equipment, net
$1,457,159
__________
__________
$1,365,177
__________
__________
Land
Buildings and improvements
Moveable equipment
Construction in progress
Purchases for the library collection are not included in the foregoing since they are expensed at the time of purchase. As of
June 30, 2006, the estimated replacement cost for library collections, including processing costs to properly identify, catalog, and
shelve materials, exceeds $298.1 million. For both fiscal 2006 and
2005, $0.7 million of capitalized interest was added to construction in progress. Internally developed software costs of $3.0 million in 2006 and $2.6 million in 2005 were capitalized.
9. Long-Term Debt, Commercial Paper,
and Capital Leases
Long-term debt consists of bonds and notes payable with scheduled final maturity dates at least one year after the original
issuance date. Outstanding long-term debt, commercial paper,
and capital lease obligations as of June 30 were as follows
(in thousands):
Fiscal 2006
Effective
Years to
Interest
Maturity
Rate
Fixed-rate long-term debt
1996 Series A
1997 Series A
1998 Series A
1998 Series B
1998 Series C1
2001 Series A
2001 Series B1
2005 Series B1, 2
HUD
Note payable
Other
3
13
10
23
9
10
17
38
3
3
13
Total fixed-rate
long-term debt
Total variable-rate
long-term debt
2005
5.7% $ 3,265 $ 4,265
5.4%
23,635
24,870
5.6%
19,700
21,145
5.0%
34,280
35,075
5.0%
17,805
19,370
4.9%
13,655
14,700
5.1%
54,015
56,010
3.2%
277,750
277,750
3.0%
385
660
7.3%
8,408
8,802
3.0% _________
227 _________
299
3.1%
62,000
63,200
3.1%
62,000
63,200
3.1%
21,370
21,730
3.1%
35,790
38,040
3.0% _________
113,300 _________
113,300
294,460 _________
299,470
_________
Par amount of long-term debt
Net unamortized premium
747,585
762,416
12,435 _________
17,175
_________
Total long-term debt
760,020
3
Total long-term debt and
capital leases
Tax-exempt commercial
paper, series A and B
2006
453,125 _________
462,946
_________
Variable-rate long-term debt
2000 Series A
25
2000 Series B
25
2002 Series A
27
2003 Series A1
13
2005 Series A
38
Capital leases
Outstanding
Principal
3.5% _________
1,767 _________
808
761,787
<1
Total long-term debt, commercial
paper, and capital leases
779,591
780,399
2.8% _________
144,830 _________
5,500
$ 906,617 _________
$ 785,899
_________
_________
_________
Issued under Master Trust Indenture structure.
The 2005B bonds are fixed only through put dates in fiscal years 2008
through 2010 when re-marketings could result in differing modes.
1
2
50
The preceding table reflects fixed/variable allocations before the
effects of interest rate swap arrangements used by the University
to manage its debt portfolio. Such agreements are covered in
more detail in a successive footnote.
Tax-exempt commercial paper, as well as all of the aforementioned bonds (with the exception of the HUD bonds), has been
issued by the Health and Educational Facilities Board of The
Metropolitan Government of Nashville and Davidson County,
Tennessee (HEFB). As a conduit issuer, the HEFB loans the
debt proceeds to the University. Pursuant to loan agreements,
the University’s debt service requirements under these loan
agreements coincide with required debt service of the actual
HEFB bonds.
Included in the foregoing are hospital and clinic (patient care)
bonds, with a principal balance outstanding of $385.4 million as
of June 30, 2006, that were issued under a Master Trust
Indenture (MTI) structure. The MTI provides the flexibility for
multiple parties to participate in debt issuances as part of an
obligated group; presently, the University’s hospitals and clinics
have no other members participating in its obligated group.
Bonds issued under the MTI are payable solely from hospital
revenues (as defined in the MTI). All MTI bonds presently outstanding are also supplemented by a University guarantee of
debt service.
Selected information for long-term debt, commercial paper, and
interest rate swap arrangements follows (in thousands):
Interest cost paid
Interest cost expensed
Assets held by trustees for
subsequent debt service as of
June 30
$
$
2006
29,886
26,474
$
$
2005
25,954
26,830
$
5,352
$
2,024
Under certain circumstances, variable-rate bond obligations
may be converted to a fixed-rate structure. While these bonds
are in a variable rate mode, they are subject to optional and
mandatory tender. The University has agreements with
remarketing agents to re-market any bonds so tendered.
Liquidity for the variable debt portfolio (both commercial
paper and variable rate demand bonds) is covered primarily
by portfolio self-liquidity, supplemented by a bank revolving
credit agreement dedicated solely to debt portfolio liquidity.
There were no borrowings outstanding on the revolving credit agreement as of June 30, 2006 or 2005.
Trust indentures for certain bond issues contain covenants and
restrictions involving the issuance of additional debt, maintenance of a specified debt service coverage ratio, and the maintenance of liquidity facilities. As of and for the fiscal year ended
June 30, 2006, management believes that the University has complied with applicable covenants.
In prior fiscal years, the University defeased certain obligations
by irrevocably placing assets with a trustee to pay principal and
interest on the obligations as they become due. The outstanding
balance of the defeased obligations was $20.3 million as of
June 30, 2006.
In fiscal 2006, the University issued $139.3 million of commercial paper (CP) under its $600 million tax-exempt CP program
to finance the construction, expansion, and renovation of various University facilities and related equipment, most notably The
Commons and the Vanderbilt University Institute of Imaging
Science. The University’s taxable CP program is authorized for
draws up to $75 million. No draws were made under this CP
program during the year.
Principal payments and scheduled sinking fund requirements on
the par amount of long-term debt due in subsequent fiscal years
ending June 30 are as follows (in thousands):
2007
2008
2009
2010
2011
Thereafter
$
15,482
16,522
24,481
16,450
17,320
657,330
__________
Total
$
747,585
__________
__________
51
10. Interest Rate Swap Agreements
To manage the fixed/variable mix for its debt portfolio, including
hedging exposure to increasing interest expense from variablerate debt, the University utilizes interest rate swap agreements.
The fair value of interest rate swap agreements is the estimated
amount that the University would pay or receive to terminate
these contracts as of the report date. The estimated cumulative
gain (loss) for the fair value of these swap agreements was $23.6
million and ($45.3) million as of June 30, 2006 and 2005, respectively, and is included in prepaid expenses in 2006, and accounts
payable and accrued liabilities in 2005. Changes in the fair value
for these contracts, which for fiscal 2006 and 2005 amounted to
an unrealized gain of $68.9 million and an unrealized loss of
Origination/
Description
$39.3 million, respectively, were recorded as other non-operating
items in the Consolidated Statements of Activities.
Periodic net cash settlement receipts (payments) for all agreements aggregated $0.5 million and ($8.4) million for fiscal 2006
and 2005, respectively, and were reflected as adjustments to operating expense in the Consolidated Statements of Activities.
As of June 30, 2006, the University’s adjusted debt portfolio, after
taking into account the aforementioned derivatives, was approximately 56% fixed and 44% variable.
Outstanding interest rate swap agreements as of June 30 were as
follows (in thousands):
Settlement Provisions
Maturity
January 2002 fixed
payer swaps
University receives variable payments based
on 70% of London Interbank Offered Rate
(LIBOR) and pays fixed amounts at a
weighted average rate of 3.990%
Gradual amortization1, corresponding to
principal retirements for the University’s
Series 2000A and 2000B bonds, with final
expiration in October 2030
January 2005 fixed
payer swaps
University receives variable payments based
on 68% of LIBOR and pays fixed amounts
at a weighted average rate of 3.433%
Amortization commences in October 2033,
corresponding to principal retirements for the
University’s Series 2005A bonds, with final
expiration in October 2044
Other fiscal 2005
fixed payer swaps
University receives variable payments based
on 68% of LIBOR and pays fixed amounts
at a weighted average rate of 3.460%
January 2005 fixed
receiver swaps
Outstanding
Notional Amounts
2006
2005
$124,000
$126,400
$80,000
$80,000
Bullet maturities in October 2039
$315,000
$315,000
University receives fixed payments
averaging 2.997% and pays variable
amounts based on the Bond Market
Association (BMA) municipal swap index
Amortization commences in April 2008,
corresponding to scheduled re-marketings
for the University’s Series 2005B bonds, with
final maturity in April 2010
$277,750
$277,750
March 2005 and
August 2005 fixed
receiver swaps
University receives fixed payments
averaging 3.428% and pays variable
amounts based on the BMA index
Bullet maturities2 in April 2008 and
September 2009
$200,000
$100,000
Fiscal 2005 and
2006 basis swaps
University receives payments averaging
82.2% of LIBOR and pays variable amounts
based on the BMA index
Bullet maturities in July 2034 and 2035
$500,000
$350,000
1
Commencing in October 2012, the counterparty has an option to cancel
50% of the outstanding notional amount without a termination payment,
which would result in a remaining fixed payment commitment of 4.175%.
2
The counterparty has an option exercisable in April 2008 to extend the
transaction for two additional years. If exercised, the fixed payment rate
will increase to 3.75%.
52
11. Net Assets
The University has chosen to provide further classification information about net assets.
Unrestricted net assets are internally designated into the following groups:
Designated for operations represents the cumulative budgeted
operating activity of the University and routine equipment
replacement reserves.
Designated gifts and grants are composed of departmental gift
and grant funds.
Designated for student loans represents University funds set aside
to serve as revolving loan funds for students.
Designated for plant facilities represents the net investment in
property, plant, and equipment, as well as funds designated for
future acquisitions of plant facilities and retirement of debt.
Funds functioning as endowment are amounts set aside by the
Board of Trust, intended to generate income in perpetuity to
support operating needs. Such amounts include substantially all
cumulative realized appreciation on the applicable investments.
Net unrealized appreciation on investments represents cumulative
unrealized net gains from original cost on marketable investments. Most of the net unrealized appreciation is attributable to
funds functioning as endowment.
Net fair value of interest rate swap agreements represents the
mark-to-market valuation for derivative contracts. Because
these agreements are intended to serve as long-term hedges
within the debt portfolio, segregation apart from other designations is maintained.
Based on the foregoing designations, unrestricted net assets as of
June 30 were as follows (in thousands):
Designated for operations
Designated gifts and grants
Designated for student loans
Designated for plant facilities
Funds functioning as endowment,
at cost
Net unrealized appreciation on
investments
Net fair value of interest rate swap
agreements
Total unrestricted net assets
2006
$ 202,847
131,021
30,735
764,280
2005
$ 178,048
133,434
30,144
715,048
1,754,792
1,637,322
537,895
395,673
23,592
__________
(45,283)
__________
$3,445,162
__________
__________
$3,044,386
__________
__________
Temporarily restricted net assets as of June 30 were composed
of the following (in thousands):
Gifts and pledges
Interest in trusts held by others
Life income and gift annuities
2006
$ 131,210
7,604
16,941
__________
2005
$ 152,038
6,824
16,181
__________
Total temporarily restricted
net assets
$
155,755
__________
__________
$
175,043
__________
__________
Such temporarily restricted net assets were available for the
following purposes as of June 30 (in thousands):
Student scholarships
Instruction
Capital improvements
Subsequent period operations
and other
Total temporarily restricted
net assets
$
2006
1,020
3,401
10,065
$
2005
762
3,837
11,801
141,269
__________
158,643
__________
$
155,755
__________
__________
$
175,043
__________
__________
Permanently restricted net assets as of June 30 were composed
of the following (in thousands):
True endowment
Interest in trusts held by others
Life income and gift annuities
2006
$ 660,164
35,332
29,332
__________
2005
$ 603,724
35,958
28,320
__________
Total permanently restricted
net assets
$
724,828
__________
__________
$
668,002
__________
__________
53
12. Natural Classification of Expenses and
Allocations
Operating expenses incurred in the fiscal years ended June 30,
2006 and 2005, were as follows (in thousands):
Salaries, wages, and benefits
Services
Supplies and materials
Depreciation and amortization
Interest
Provision for bad debts
Utilities, operating leases, and other
2006
$1,397,173
117,136
537,928
120,980
26,474
130,927
97,427
__________
2005
$1,279,366
107,144
500,950
105,600
26,830
95,464
82,895
__________
Total operating expenses
$2,428,045
__________
__________
$2,198,249
__________
__________
Based on the functional uses of space on its campus, the
University initially allocated depreciation and interest on indebtedness to the various functional expense categories shown below.
Subsequent allocations of total institutional and other support
costs were made to the University’s primary programs. Initial
allocations are shown below (in thousands):
2006
Instruction
Research
Health care services
Academic support
Institutional support
Student services
Public service
Room, board, and other
auxiliary services
Total
Interest ____________
Depreciation
__________
$
2,723 $ 15,664
4,652
18,223
13,058
50,973
894
8,132
730
10,894
270
1,583
158
1,156
3,989
__________
$
26,474
__________
__________
14,355
__________
120,980
$
__________
__________
2005
Instruction
Research
Health care services
Academic support
Institutional support
Student services
Public service
Room, board, and other
auxiliary services
Total
54
Interest ____________
Depreciation
__________
$
2,478 $ 13,342
4,435
16,357
12,656
41,916
1,063
7,058
686
8,374
466
1,689
127
869
4,919
__________
$
26,830
__________
__________
15,995
__________
$
105,600
__________
__________
13. Retirement Plans
The University’s full-time faculty and staff members participate
in defined contribution retirement plans administered by thirdparty investment and insurance firms. For eligible employees
with one year of continuous service, these plans require employee and matching employer contributions; such contributions
immediately fully vest with the employee.
The University’s obligations under these plans are fully funded
by periodic transfers to the respective retirement plan administrators with the corresponding expenses recognized in the year
incurred. Retirement plan contributions for fiscal 2006 and 2005
were $39.4 million and $35.5 million, respectively.
14. Student Financial Aid
The University provides financial aid to students based upon
need and merit. This financial assistance is funded by institutional resources, gifts, endowment income, and externally sponsored aid.
In fiscal 2006 and 2005, financial aid for tuition and educational
fees of $128.0 million and $114.2 million was applied to gross
tuition and educational fees of $316.2 million and $294.3 million, respectively. In fiscal 2006 and 2005, financial aid for room
and board of $15.6 million and $14.5 million was applied to
gross room and board of $43.6 million and $41.5 million,
respectively.
Loans to students from University funds are carried at cost,
which, based on secondary market information, approximates
the fair value of educational loans with similar interest rates and
payment terms. Loans receivable from students under governmental loan programs, also carried at cost, can only be assigned
to the United States government or its designees. Loan balances
are net of allowances for estimated uncollectible accounts of $3.9
million as of June 30, 2006 and 2005.
Loans to qualified students are funded principally with government advances to the University under the Perkins, Nursing, and
Health Professions Student Loan Programs.
15. Related Parties
17. Commitments and Contingencies
The University contracts with certain related parties for the purchase of goods, performance of construction activities, and provision of other services. Significant purchases of goods and services from related parties typically are subject to competitive pricing analyses. During fiscal 2006 and 2005, the University had
related party transactions approximating $29.2 million and $36.6
million, respectively.
(A) Construction. At June 30, 2006, approximately $104.8 million was committed for projects under construction and equipment purchases, to be financed primarily from anticipated debt
proceeds.
16. Conditional Asset Retirement
Obligations
In March 2005, the Financial Accounting Standards Board issued
Interpretation No. 47 (FIN 47), Accounting for Conditional Asset
Retirement Obligations. Under FIN 47, companies must accrue
for costs related to legal obligations to perform certain activities
in connection with the retirement, disposal, or abandonment of
assets. The obligation to perform the asset retirement activity is
not conditional, even though the timing or method may be conditional.
Vanderbilt implemented FIN 47 with an effective date of
June 30, 2006. Using site-specific surveys, the University identified asbestos abatement or removal as conditional asset retirement obligations, resulting in a liability of $17.5 million reported as accounts payable and accrued expenses on the
Consolidated Statements of Financial Position as of June 30,
2006. Implementation of this pronouncement resulted in $17.5
million being reflected as the cumulative effect of a change in
accounting principle in fiscal 2006.
(B) Lease Obligations. The University leases certain equipment
and real property. These leases are classified primarily as operating leases and have lease terms ranging up to fifteen years. Total
operating lease expense for fiscal 2006 and 2005 was $47.8 million and $44.3 million, respectively. Future minimum rentals on
non-cancelable operating leases with initial or remaining lease
terms in excess of one year as of June 30, 2006, were as follows
(in thousands):
2007
2008
2009
2010
2011
Thereafter
$
27,947
23,105
19,114
10,198
5,959
16,410
__________
Total future minimum rentals
$
102,733
__________
__________
In conjunction with its normal business practices related to the
leasing of equipment, in February 2005 and March 2004, the
University established financing mechanisms via $16.4 million
and $40.0 million, respectively, of tax-exempt bonds issued by the
Health and Educational Facilities Board of the Metropolitan
Government of Nashville and Davidson County, Tennessee.
Payments made by the University under these financing mechanisms are reported as operating lease expense and are included in
the future minimum rentals above.
(C) Litigation. The University is a defendant in several legal actions.
Management believes that the outcome of these actions will not
have a significant effect on the University’s financial position.
(D) Medical Malpractice Liability Insurance. The University is selfinsured for the first level of medical malpractice claims. The current self-insured limits are $5.5 million per occurrence, not to
exceed an annual aggregate of $41.0 million. For this self-insured
retention, a trust fund has been established. The funding of the
trust is based upon studies performed by an actuarial firm. Excess
malpractice and professional liability coverage has been obtained
from commercial insurance carriers on a claims-made basis for
claims above the retained self-insurance risk levels.
55
E) Employee Health and Workers Compensation Insurance. In
addition to the initial tier of self-insured exposure for medical
malpractice liability as previously noted, the University also is
self-insured for employee health insurance and workers compensation coverage. Actuarial liabilities are recorded based upon
studies performed by actuarial firms.
(F) Federal and State Contracts and Other Requirements.
Expenditures and F&A costs related to federal and state grants
and contracts are subject to adjustment based upon review by
the granting agencies. The amounts, if any, of expenditures that
may be disallowed by the granting agencies cannot be determined at this time, although management expects they will not
have a significant effect on the University’s financial position.
(G) Health Care Services Revenue. Revenue from health care services includes amounts paid under reimbursement agreements
with certain third-party payers and is subject to examination and
retroactive adjustments. Any differences between estimated yearend settlements and actual final settlements are reported in the
year final settlements are known. Substantially all settlements
have been made through the year ended June 30, 2003.
In August 1996, Congress approved the Health Insurance
Portability and Accountability Act of 1996 (Act). Under the Act,
the federal government was given substantial resources and
authority for the completion of fraud and abuse investigations,
and the Act has established substantial fines and penalties for
offenders. Management continues to refine policies, procedures, and organizational structures to enforce and monitor
compliance with this Act, as well as other government statutes
and regulations.
The medical center’s compliance with laws and regulations is
subject to future government review and interpretations, as well
as regulatory actions unknown or unasserted at this time.
Management believes that liability, if any, from such reviews will
not have a significant effect on the University’s financial position.
(H) Partnership Investment Commitments. There were $763.1
million of commitments to venture capital, real estate, and distressed security investments as of June 30, 2006. These funds
may be drawn down over the next several years upon request by
the general partners. As of June 30, 2006, $51.2 million of unallocated cash and cash equivalents in the managed endowment
are held to meet these obligations. Management expects to
56
finance these commitments with available cash and expected
proceeds from the sale of securities.
(I) McKendree Village, Inc. Debt Guaranty. In July 1998,
Vanderbilt University and McKendree Village, Inc., a not-forprofit retirement community, entered into a joint venture agreement. In September 1998, the University guaranteed payment of
$19.8 million of debt issued by McKendree Village. As of June 30,
2006, the balance of the guaranteed debt was $18.1 million.
Supplemental Information
57
Vanderbilt University Hospitals and Clinics Results of Operations
Years ended June 30, 2006 and 2005
(in thousands)
2006
2005
$1,191,857
$1,047,042
—
12,765
__________
1,204,622
__________
1,317
10,306
__________
1,058,665
__________
803,880
52,981
153,717
44,406
12,643
102,400
__________
716,305
44,642
142,203
35,428
10,891
74,353
__________
1,170,027
__________
34,595
1,023,822
__________
34,843
Total other income
759
4,075
__________
4,834
__________
716
3,010
__________
3,726
__________
Excess of revenues over
expenses
$
39,429
__________
__________
$
38,569
__________
__________
Operating revenues:
Net patient service revenue
Investment income on assets
limited as to use under
bond indenture agreements
Other revenue
Total operating revenues
Operating expenses:
Medical services
General services
Administrative and fiscal services
Depreciation and amortization
Interest
Provision for bad debts
Total operating expenses
Income from operations
Other income:
Unrestricted endowment income
and bequests
Investment income
58
General Officers
Gordon Gee, J.D., Ed.D.
Chancellor
Lauren J. Brisky, M.B.A.
Vice Chancellor for Administration
and Chief Financial Officer
Harry R. Jacobson, M.D.
Vice Chancellor for Health Affairs
Michael J. Schoenfeld, M.S.
Vice Chancellor for Public Affairs
William T. Spitz, M.B.A.
Vice Chancellor for Investments and Treasurer
David Williams II, M.A., M.B.A., J.D., LL.M.
Vice Chancellor for University Affairs,
General Counsel, and Secretary of the University
Nicholas S. Zeppos, J.D.
Provost and Vice Chancellor for Academic Affairs
Academic Deans
Mark D. Bandas, Ph.D.
Associate Provost and Dean of Students
Camilla P. Benbow, M.A., M.S., Ed.D.
Dean of Peabody College
James W. Bradford, J.D.
Dean of Owen Graduate School of Management
Douglas L. Christiansen, Ph.D.
Associate Provost for Enrollment Management
and Dean of Admissions
Colleen Conway-Welch, M.S.N., Ph.D.
Dean of the School of Nursing
Steven G. Gabbe, M.D., M.A.
Dean of the School of Medicine
Kenneth F. Galloway, Ph.D.
Dean of the School of Engineering
Dennis G. Hall, M.S., Ph.D.
Associate Provost for Research and Graduate Education
James Hudnut-Beumler, M.Div., M.A., Ph.D.
Dean of the Divinity School
Richard C. McCarty, M.S., Ph.D.
Dean of the College of Arts and Science
Edward L. Rubin, J.D.
Dean of the Law School
Mark Wait, M.M., D.M.A.
Dean of Blair School of Music
Francis W. Wcislo, M.A., Ph.D.
Dean of The Commons
59
Board of Trust
60
as of June 30, 2006
OFFICERS OF THE BOARD
MEMBERS
Martha R. Ingram
Chairman, Nashville, Tennessee
Mary Beth Adderley
La Jolla, California
Ron D. Ford
Atlanta, Georgia
Dennis C. Bottorff
Vice Chairman, Nashville, Tennessee
Michael L. Ainslie
Palm Beach, Florida
John R. Hall
Lexington, Kentucky
Darryl D. Berger
Vice Chairman, New Orleans, Louisiana
Camilla D. Bergeron
New York, New York
L. Hall Hardaway, Jr.
Nashville, Tennessee
William W. Bain, Jr.
Secretary, Boston, Massachusetts
Monroe J. Carell, Jr.
Nashville, Tennessee
H. Rodes Hart
Nashville, Tennessee
Gordon Gee
Chancellor of the University,
Nashville, Tennessee
Sheryll D. Cashin
Washington, D.C.
Joanne F. Hayes
Nashville, Tennessee
A
A
Carrie A. Colvin
Birmingham, Alabama
John R. Ingram
Nashville, Tennessee
Thomas F. Cone
Nashville, Tennessee
Orrin H. Ingram
Nashville, Tennessee
Cecil D. Conlee
Atlanta, Georgia
Alice Ji
Terre Haute, Indiana
Mark F. Dalton
Greenwich, Connecticut
J. Hicks Lanier
Atlanta, Georgia
William W. Featheringill
Birmingham, Alabama
Rev. Edward A. Malloy, C.S.C.
Notre Dame, Indiana
A
TRUSTEES EMERITI
Jackson W. Moore
Birmingham, Alabama
Richard H. Sinkfield
Atlanta, Georgia
Nancy P. Mulford
Dallas, Texas
Heather M. Souder
Cambridge, Massachusetts
Andrew B. Benedict, Jr.
Nashville, Tennessee
Cal Turner
Nashville, Tennessee
Lewis M. Branscomb
La Jolla, California
Edward G. Nelson
Nashville, Tennessee
Eugene H. Vaughan
Houston, Texas
Miriam M. Cowden
Nashville, Tennessee
Frederick B. Rentschler
Scottsdale, Arizona
Levi Watkins, Jr., M.D.
Baltimore, Maryland
Brownlee O. Currey, Jr.
Nashville, Tennessee
Catherine B. Reynolds
McLean, Virginia
W. Ridley Wills II
Franklin, Tennessee
Frank A. Godchaux III
Houston, Texas
Kenneth L. Roberts
Nashville, Tennessee
J. Lawrence Wilson
Rosemont, Pennsylvania
Delbert Mann
Los Angeles, California
Joe L. Roby
New York, New York
Rebecca W. Wilson
Memphis, Tennessee
Alyne Q. Massey
Nashville, Tennessee
Eugene B. Shanks, Jr.
Greenwich, Connecticut
William M. Wilson
Nashville, Tennessee
Judson G. Randolph, M.D.
Nashville, Tennessee
A
Sharon M. Munger
Dallas, Texas
A
A
Marissa N. Shrum
Chattanooga, Tennessee
Nelson C. Andrews
Nashville, Tennessee
John W. Rich
Nashville, Tennessee
Thomas B. Walker, Jr.
Dallas, Texas
James A. Webb, Jr.
Nashville, Tennessee
Dudley B. White
Nashville, Tennessee
David K. Wilson
Nashville, Tennessee
A
Nominated by Alumni Association
61
The Brain—is wider than the Sky —
For—put them side by side—
The one the other will contain
With ease—and You—beside—
The Brain is deeper than the Sea—
For—hold them—Blue to Blue—
The one the other will absorb—
As Sponges—Buckets—do—
The Brain is just the weight of God—
For—Heft them—Pound for Pound—
And they will differ—if they do—
As Syllable from Sound—
Emily Dickinson
Prepared by Vanderbilt University Division of Administration
Photos by Vanderbilt University Division of Public Affairs
Published by Vanderbilt University Creative Services
Printed by Vanderbilt University Printing Services
www.vanderbilt.edu