• See the University of Maine System Annual Financial Report:
• Statement of Net Position (Balance Sheet) on page 28; and
• Statement of Revenues, Expenses & Changes in Net Position (Income Statement) on page 30
• Using the ratios for Liquidity, Solvency, Profitability and Sustainability, perform a Ratio Analysis for FY2016 and FY2015 for the University of Maine System.
• Provide a brief analysis for each ratio commenting on whether the University of Maine System achieves the benchmark and note whether the trend from FY2015 to FY2016 is somewhat consistent, worsening or improving.

Annual Financial Report Year Ended June 30, 2016 2016 University of Maine University of Maine at Augusta University of Maine at Farmington University of Maine at Fort Kent University of Maine at Machias University of Maine at Presque Isle University of Southern Maine Electronic statements are available at http://www.maine.edu/about-the-system/system-office/finances/annual-financial-reports/ or by contacting: Controller's Office 5703 Alumni Hall Suite 101 Orono, ME 04469-5703 The University of Maine System does not discriminate on the grounds of race, color, religion, sex, sexual orientation, including transgender status and gender expression, national origin, citizenship status, age, disability, genetic information or veterans' status in employment, education, and all other programs and activities. The following positions have been designated to handle inquiries regarding non-discrimination policies: Campus Equal Opportunity Officers or the Director of the Equal Opportunity Center of Excellence for the University of Maine System, 39 Exeter St., Portland, Me 04101, Voice (207) 780-4709, TTY 711 (Maine Relay System). 2016 Annual Financial Report 2 2016 Annual Financial Report 3 University of Maine System As of June 30, 2016 Board of Trustees Samuel W. Collins, Chair Jason E. Coombs John M. B. Craig James O. Donnelly James R. Erwin Norman L. Fournier Mark R. Gardner M. Michelle Hood Gregory G. Johnson, Vice Chair Kevin P. McCarthy Shawn H. Moody Sarah E. Newell Bonnie D. Newsom Theresa A. Sutton Karl W. Turner Commissioner of Education, ex officio Chancellor James H. Page Management Support to Tracy B. Bigney the Chancellor and Board Lynda Dec of Trustees Daniel C. Demeritt Tracy E. Elliott M. F. Chip Gavin Clerk of the Board of Trustees Chief Human Resource Officer Executive Director of Public Affairs Director of Finance and Controller Chief Facilities Management and General Services Officer Ryan W. Low Mark R. Schmelz Rosa S. Redonnett David A. Stevens Chief Financial Officer and Treasurer James B. Thelen Richard B. Thompson, Jr. Vendean Vafiades General Counsel Rebecca M. Wyke Vice Chancellor for Finance and Administration University Presidents Susan J. Hunter James F. Conneely Kathryn A. Foster John N. Short Stewart G. Swain Linda K. Schott Glenn A. Cummings Director of Labor and Employee Relations Chief Student Affairs Officer Executive Director of Organizational Effectiveness Chief Information Officer Special Counsel and Senior Staff to the Chancellor University of Maine University of Maine at Augusta University of Maine at Farmington University of Maine at Fort Kent University of Maine at Machias University of Maine at Presque Isle University of Southern Maine 2016 Annual Financial Report 4 INDEPENDENT AUDITOR'S REPORT The Board of Trustees University of Maine System Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of the University of Maine System (the System), a component unit of the State of Maine, which consist of the System's statements of net position and financial position as of June 30, 2016 and 2015, the related statements of revenues, expenses and changes in net position and cash flows for the years then ended the related statement of activities for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the System's basic financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the financial statements of the discretely presented component unit. Those statements were audited by another auditor, whose reports have been furnished to us, and our opinions, insofar as they relate to the amounts included for the discretely presented component unit, are based solely on the reports of the other auditor. We conducted our audits in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the discretely presented component unit were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5 The Board of Trustees University of Maine System November 14, 2016 Page 2 of 3 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audits and the reports of the other auditor, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities and the discretely presented component unit of the System as of June 30, 2016 and 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended in accordance with U.S. generally accepted accounting principles. Other Matters Required Supplementary Information U.S. generally accepted accounting principles require that the Management's Discussion and Analysis on pages 8 through 27, Schedules of Funding Progress on page 80 and the supplementary information related to the System's retirement plans on pages 81 through 86, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with U.S. generally accepted auditing standards, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audits were conducted for the purpose of forming opinions on the financial statements that collectively comprise the System's basic financial statements as a whole. The supplementary information presented in the Schedules of Activities on page 87 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audits of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with U.S. generally accepted auditing standards. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. 6 The Board of Trustees University of Maine System November 14, 2016 Page 3 of 3 Report on Summarized Comparative Information We have previously audited the System's June 30, 2015 financial statements, and we expressed unmodified opinions on those audited financial statements in our report dated November 16, 2015. In our opinion, the summarized comparative information presented herein for the year ended June 30, 2015 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 14, 2016 on our consideration of the System's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the System's internal control over financial reporting and compliance. Bangor, Maine November 14, 2016 7 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) University of Maine System (\"the System\" or UMS) management has prepared the following unaudited Management's Discussion and Analysis (MD&A) to provide users with a narrative and analysis of the financial position and activities based on currently known facts, decisions, and conditions. This discussion includes an analysis of the financial condition and results of activities of the System for the fiscal years ended June 30, 2016 and prior years. This presentation includes highly summarized information and should be read in conjunction with the accompanying basic financial statements and related notes. MISSION Established in 1968 by the Maine State Legislature, the System is the State's largest educational enterprise, uniting seven distinctive public universities in the common purpose of providing high-quality educational undergraduate and graduate opportunities that are accessible, affordable, and relevant to the needs of Maine students, businesses, and communities. The System carries out the traditional tripartite mission - teaching, research, and public service. The System is a major resource for the State, driving economic development by conducting world-class research, commercializing valuable ideas, and partnering successfully with businesses and industries throughout Maine and beyond. UNIVERSITY OF MAINE SYSTEM UNIVERSITIES, CAMPUSES & CENTERS The System is a comprehensive public institution of higher education with approximately 30,000 enrolled students, supported by the efforts of 1,133 regular full-time faculty, 61 regular part-time faculty, 2,936 regular full-time staff, and 285 regular part-time staff members. From Maine's largest city to its rural northern borders, our universities are known for excellence in teaching and research. Our universities are: University of Maine (UM): University of Maine at Augusta (UMA): University of Maine at Farmington (UMF): University of Maine at Fort Kent (UMFK): University of Maine at Machias (UMM): University of Maine at Presque Isle (UMPI): University of Southern Maine (USM): Maine's land and sea-grant institution Central Maine's baccalaureate and associate degree institution Maine's selective liberal arts college Baccalaureate university in the St. John Valley Eastern Maine's baccalaureate institution Baccalaureate education for the Northeastern region A comprehensive public university The University of Maine School of Law, a freestanding institution within the System, is located in Portland and is Maine's only law school. Lewiston-Auburn College is a campus of USM. The University of Maine at Augusta-Bangor is a campus of UMA. The Hutchinson Center in Belfast is a campus of UM. University College is the UMS' distant education organization and offers access to courses and programs from the 7 universities at more than 40 locations and online. The System has also expanded its Professional Graduate Center (PGC) initiative which will serve as a combined graduate center for the UM and USM graduate business programs, the Juris Doctor program at the University of Maine School of Law, and now the graduate programs in public health and in public policy and management that operate at the Muskie School of Public Service at USM. In addition, the PGC will now include the Cutler Institute for Health and Policy, which is the research arm of USM and part of the Muskie School. 2016 Annual Financial Report 8 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) STUDENT ENROLLMENT Throughout the System, 28,994 students were enrolled on a headcount basis for the Fall 2015 semester, down 2.1% from Fall 2014 and 6.8% since Fall 2011. Table 1: Fall Student Enrollments by Headcount Full-Time Part-Time Headcount Fall 2015 Fall 2014 Fall 2013 Fall 2012 Fall 2011 18,898 65% 19,273 65% 19,728 65% 20,153 65% 20,057 64% 10,096 35% 10,340 35% 10,637 35% 10,859 35% 11,051 36% 28,994 100% 29,613 100% 30,365 100% 31,012 100% 31,108 100% Table 2 below shows student enrollment on a full-time equivalent (FTE) basis with 21,629 students enrolled for the Fall 2015 semester, down 1.9% from Fall 2014. FTE enrollments were down 2.2% from Fall 2013 to Fall 2014. Since Fall 2011, enrollments have declined by 1,297 students or 5.7%. For Fall 2015, 65% of the student population was enrolled full-time and 80% on an FTE basis were Maine residents. Table 2: Fall Student FTE Enrollments % Change Fall 2011 Fall % Fall % Fall % Fall % Fall % to 2015 2015 Change 2014 Change 2013 Change 2012 Change 2011 Change UM 2.8% 9,371 -1.5% 9,512 1.7% 9,356 3.5% 9,040 -0.9% 9,120 -2.5% UMA -7.0% 2,626 0.4% 2,615 -3.6% 2,713 -5.2% 2,862 1.4% 2,823 0.6% UMF -13.1% 1,724 1.7% 1,695 -6.2% 1,807 -4.7% 1,896 -4.4% 1,983 -1.0% UMFK 29.8% 911 8.7% 838 4.1% 805 3.3% 779 11.0% 702 -0.4% UMM -8.2% 493 -4.5% 516 -4.8% 542 -5.1% 571 6.3% 537 -5.6% UMPI -17.5% 823 5.6% 779 -7.6% 843 -13.4% 974 -2.3% 997 -4.5% USM -16.0% 5,681 -6.6% 6,082 -5.9% 6,460 -6.0% 6,871 1.6% 6,764 -4.1% Total -5.7% 21,629 -1.9% 22,037 -2.2% 22,526 -2.0% 22,993 0.3% 22,926 -2.6% 2016 Annual Financial Report 9 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) STUDENT COMPREHENSIVE COST OF EDUCATION Net student fee revenue, totaling $237 million in FY16 and $238 million in FY15, is the System's greatest source of revenue, contributing 36% of Total Operating and Net Nonoperating Revenues for the past four years. Net student fees are impacted by enrollment levels; tuition, room and board, and fees; and the amount of scholarship allowances provided to students. The weighted average comprehensive cost of education for UMS undergraduate, graduate and Law School students is shown in Table 3 below. The modest increases in the student cost of education reflect the System's continued commitment to providing affordable higher education. Containing increases in tuition and fees rates continues to be challenging given cost pressures and limited increases in Noncapital State of Maine Appropriations. Noncapital Appropriations were the System's second largest source of revenues contributing $201 million (or 31%) in FY16 and $199 million (or 31%) in FY15. As shown below, FY16 saw weighted average comprehensive cost of education increases that were significantly lower than in FY12. Percentage changes in FY16 range from an increase of 2.6% for Undergraduate Canadian students to an increase of 0.5% for Graduate Canadian students. Percentage changes in FY15 range from an increase of 2.0% for Undergraduate Canadian students to a decrease of 1.4% for Graduate New England Board of Higher Education (NEBHE) students. Table 3: Student Comprehensive Cost of Education Tuition, Mandatory Fees, and Room and Board Fiscal Year Weighted Averages 2016 Cost 2015 % Change Cost 2014 % Change Cost 2013 % Change Cost 2012 % Change Cost % Change Undergraduate $18,396 1.3% $18,151 0.6% $18,035 1.3% $17,802 0.4% $17,731 3.3% Out-of-State 33,998 1.6% 33,453 1.3% 33,022 2.4% 32,250 2.6% 31,418 3.0% NEBHE 23,067 1.6% 22,707 0.5% 22,584 1.7% 22,213 -0.1% 22,239 3.8% Canadian 22,119 2.6% 21,548 2.0% 21,116 1.9% 20,725 0.7% 20,572 4.0% $17,217 1.4% $16,982 0.3% $16,937 1.3% $16,721 0.5% $16,634 3.2% Out-of-State 32,733 2.4% 31,958 1.4% 31,517 2.5% 30,757 2.2% 30,099 3.5% NEBHE 20,655 1.1% 20,438 -1.4% 20,735 0.9% 20,552 0.8% 20,389 5.3% Canadian 21,123 0.5% 21,014 -0.4% 21,095 2.5% 20,572 0.4% 20,492 3.3% $32,630 0.8% $32,380 0.6% $32,180 0.6% $31,989 0.4% $31,857 4.1% Out-of-State 43,700 0.6% 43,450 0.5% 43,250 0.4% 43,059 0.7% 42,777 3.2% NEBHE/Canadian 40,760 0.6% 40,510 0.5% 40,310 0.5% 40,119 0.6% 39,897 3.5% In-State Graduate In-State Law School In-State 2016 Annual Financial Report 10 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) OVERVIEW OF THE FINANCIAL STATEMENTS The University of Maine System's financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles and include three primary components, the: Statements of Net Position, Statements of Revenues, Expenses, and Changes in Net Position, and Statements of Cash Flows. The University of Maine Foundation is a legally separate tax-exempt component unit of the University of Maine System. This entity's financial position and activities are discretely presented in the University's financial statements as required by Governmental Accounting Standards Board (GASB) statements. The MD&A includes information only for the System, not its component unit. STATEMENTS OF NET POSITION The Statements of Net Position present the financial position of the System at one point in time - June 30 - and include all assets, deferred outflows, liabilities, deferred inflows, and net position of the System. This statement is the primary statement used to report financial condition. Net position represents the residual interest in the System's assets and deferred outflows after liabilities and deferred inflows are deducted. The change in net position is an indicator of whether the overall financial condition has improved or deteriorated during the year. Table 4 on page 13 shows Condensed Statements of Net Position for the past five years. Restatement of Prior Years As noted in the FY15 financial statements, the FY14 financial statements were restated to reflect: adoption of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, as described in the FY15 financial statements' Notes 1b and 17 and early adoption of GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as described in the FY15 financial statements' Notes 1b and 17. The overall impact to the Condensed Statements of Net Position was that the FY14 beginning of year net position as previously reported declined over $11 million while the FY14 effect on the Change in Net Position was an increase of almost $4 million, resulting in a nearly $8 million decline from the previously stated FY14 unrestricted net position. Additionally, as noted in the FY14 financial statements, the FY13 financial statements were restated to reflect adoption of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The overall impact to the Condensed Statements of Net Position was that the beginning of year net position as previously reported declined $2 million while the FY13 effect on the Change in Net Position was a decline of $1 million, resulting in a total $3 million decline from the previously stated FY13 net position category of net investment in capital assets. 2016 Annual Financial Report 11 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Table 4 shows total assets and deferred outflows of $1.19 billion at June 30, 2016 decreased $12 million, or -1%, from the prior year, and increased $10 million, or less than 1%, since June 30, 2012. Total assets are categorized as either current or noncurrent. Current assets are available to satisfy current liabilities, which in turn are those amounts expected to be payable within the next year. The major component of current assets is operating investments which totaled $231 million at June 30, 2016 and 2015. Noncurrent assets consist mainly of endowment investments and capital assets, net of depreciation. Endowment investments totaled $136 million at June 30, 2016, a decrease of $7 million or 5% from the FY15 year-end balance of $143 million and a $15 million or 12% increase since June 30, 2012. Capital assets totaled $707 million and $703 million at June 30, 2016 and 2015, respectively. Current liabilities of $64 million and $74 million at June 30, 2016 and 2015, respectively, consist primarily of accounts payable and various accrued liabilities including those for the System's workers compensation, health, and retirement plans. Impacts to accounts payable and accrued liabilities include the timing of the last check cycle for the fiscal year, the level of construction activity in progress, timing of the funding of the Other Postemployment Benefits (OPEB) Trust and budget constraints. At $258 million, total noncurrent liabilities decreased $7 million or 3% from June 30, 2015 to 2016. This decrease is primarily the result of an increase of $3 million in accrued liabilities offset by a net decrease of $10 million in bonds and notes payable as the System made debt payments. Total noncurrent liabilities increased $1 million or less than 1% from June 30, 2014 to 2015 primarily the result of a decrease of $3 million in endowment funds held for others offset by a net increase of $5 million in bonds and notes payable. In FY15, the System issued $48 million of revenue bonds to provide $13 million for energy efficiency projects at UMF and UMM and to achieve interest savings by refunding $38 million of previously issued bonds. Total net position at June 30, 2016 of $867 million increased $6 million or less than 1% from the June 30, 2015 balance. Additional information about net position is presented on page 18. 2016 Annual Financial Report 12 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Table 4: Condensed Statements of Net Position as of June 30 ($ in millions) 2016 % Change 2015 % Change 2014 2013 2012 $293 2% $288 -4% $300 $307 $315 136 707 45 1,181 9 $1,190 -5% 1% -25% -1% 13% -1% 143 703 60 1,194 8 $1,202 -5% 1% 30% 0% 100% 0% 150 698 46 1,194 4 $1,198 133 688 57 1,185 4 $1,189 121 684 60 1,180 $1,180 Current Liabilities Noncurrent Liabilities: Long-term debt Other Total Liabilities Deferred Inflows of Resources Total Liabilities & Deferred Inflows $64 -14% $74 16% $64 $71 $79 155 103 322 1 323 -6% 3% -5% -50% -5% 165 100 339 2 341 4% -6% 3% 0% 4% 158 106 328 0 328 173 95 339 183 93 355 339 355 Net investment in capital assets Restricted: Nonexpendable Expendable Unrestricted Total Net Position Total Liabilities & Net Position 544 1% 541 2% 532 511 500 58 108 157 867 $1,190 0% 2% 1% 1% -1% 58 106 156 861 $1,202 2% -3% -9% -1% 0% 57 109 172 870 $1,198 56 100 183 850 $1,189 55 93 177 825 $1,180 Current Assets Noncurrent Assets Endowment investments Capital assets, net Other Total Assets Deferred Outflows of Resources Total Assets & Deferred Outflows Managed Investment Pool (MIP) The System pools certain funds for investment purposes including the System's endowment pool monies (including affiliated organizations) and monies on behalf of the following entities: the UMS OPEB Trust, Maine Maritime Academy, and the University of Maine School of Law Foundation. Table 5 on the next page shows the June 30, 2016, 2015, and 2014 market values of the pooled investments, including the amounts held on behalf of each entity. These amounts exclude other separately held UMS endowment assets. 2016 Annual Financial Report 13 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Table 5: Market Value of MIP Investments by Entity ($ in millions) 2016 $135 98 29 4 $266 University of Maine System & Affiliates Endowments Other Post Employment Benefits Trust (OPEB) Maine Maritime Academy University of Maine School of Law Foundation Total 2015 $140 94 30 4 $268 2014 $150 95 29 4 $278 The accompanying Statements of Net Position report endowment investments that include the System's and affiliates' share of the MIP, along with separately invested UMS endowments. The liability for the affiliates' share of those investments is also recognized on those Statements as funds held for others. The OPEB Trust, Maine Maritime Academy, and the University of Maine School of Law Foundation investments are not included in those Statements. The MIP investments are diversified among the following asset classes to minimize risk while optimizing return. Table 6: Asset Allocation Percentages for Managed Investment Pool at June 30 Domestic Equities International Equities Fixed Income Global Asset Allocation Hedge Funds Timber Cash Total 2016 2015 2014 24% 24% 18% 18% 12% 2% 2% 100% 22% 23% 15% 25% 13% 2% 0% 100% 22% 23% 15% 26% 12% 2% 0% 100% Financial markets were a challenge again in FY16 with the pool realizing a net of fees return of -2.0%, down from -0.9% in FY15, and 16.3% in FY14. The pooled investments have a 5-year annualized net of fees return of 4.5%. 2016 Annual Financial Report 14 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Chart 2 - Total Return (Net of Fees) 25.0% 20.0% 16.3% 12.7% 15.0% 10.0% 5.0% -2.0% -0.9% -2.0% 0.0% -5.0% FY12 FY13 FY14 FY15 FY16 Endowments (Including Affiliates) Endowments are generally created from gifts or bequests from donors with the funds invested for the purpose of creating present and future income with the original amount of the gift (corpus) retained in perpetuity. If the donor established criteria to determine how the expendable amounts are to be used, then such amounts are considered restricted expendable. If the use of funds is left to the discretion of the System, the endowment income and appreciation are considered unrestricted. As mentioned above, the System continues to use a pooled investment approach for its endowments, unless otherwise specified by the donor, and the endowments of three affiliates. Affiliates investing in the endowment pool include: the University of Maine at Fort Kent Foundation, the University of Southern Maine Foundation, and the John L. Martin Scholarship Fund, Inc. As shown in Chart 3, these pooled investments had a market value of $135 million at June 30, 2016, decreasing $5 million from the prior year end market value of $140 million. This decline included endowment contributions of $4 million less $3 million in net negative performance and $6 million distributed for scholarships and other operating activities. These pooled investments had a market value of $140 million at June 30, 2015, decreasing $10 million from the prior year end market value of $150 million. This decline included endowment contributions of $1 million less $2 million in net negative performance, $6 million distributed for scholarships and other operating activities, and $3 million withdrawn by one of the affiliates. The System manages its endowment with the goal of generating a fairly consistent stream of annual support for current needs, while at the same time preserving the endowment as a whole to ensure funds for future years. 2016 Annual Financial Report 15 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Chart 3: Market Values of UMS & Affiliates Endowments Invested in Pool ($ in millions) 170 150 130 $150 $121 $132 $140 $135 110 90 70 50 30 10 -10 FY12 FY13 FY14 FY15 FY16 The UMS endowment distribution formula is designed to smooth market volatility. The method uses a 3year market value average with a percentage spending rate applied. The spending rate applied in FY13 thru FY16 was 4.5%, down from 4.75% in FY12. Capital Assets and Debt Activities Table 7 on page 17 shows the status of major capital construction projects as of June 30, 2016, and the related budget approved by the Board of Trustees (BOT). The System's facilities are critical to each University's mission as they provide the physical framework and environment for education, research, cultural programs and residential life. The System continually evaluates its long-term capital and strategic needs as it considers which facilities to upgrade, retire, or build. Capital needs are funded with State bonds, gifts, grants, educational and general funds, and System revenue bonds. During FY16, the System had capital asset additions of $43 million which included $38 million of construction in progress and $5 million of equipment. In FY15, the System had capital asset additions of $41 million which included $33 million of construction in progress and $8 million of equipment and software. In FY14, the System had capital asset additions of $44 million which included $39 million of construction in progress and $5 million in equipment and software. The System strives to manage all of its financial resources effectively including the prudent use of debt to finance construction projects that support the System's mission; thereby, placing the System in a better position to achieve its strategic goals. Total debt as of June 30, 2016 and 2015, was $166 million and $176 million, respectively. 2016 Annual Financial Report 16 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Table 7: Major Capital Projects Completed During FY16 or In Progress at June 30, 2016 ($ in millions) BOT Approved Budget Project Funding Source Status UMA Lewiston Hall Renovation Educational & General In Progress Science Labs Renovations (Preble & Ricker) Educational & General, State Bond Completed 1.38 Central Heating Plant 2015 Revenue Bond Completed 11.00 Forestry Geographic Info Sys Tech Labs/Nursing Lab Renovation/Teleconference Center Upgrades State Bond In Progress 1.20 Powers Hall Exterior and Masonry Educational & General, State Bond Completed 1.56 Compressed Natural Gas Heating Conversion Kimball Hall Demolition 2015 Revenue Bond Educational & General, Anticipated 2017 Revenue Bond In Design In Progress 1.80 0.95 Advanced Structures & Composites Ctr Expansion Grant, Gift, State Bond In Progress 8.90 Cooperative Extension Diagnostic & Research Lab Educational & General, State Bond In Design 9.00 Aubert Hall STEM Classroom Renovation State Bond Completed 2.70 Wells Commons Dish Room Renovation Educational & General Completed 1.30 Boardman Hall STEM Lab Renovation State Bond Completed 0.61 Little Hall STEM Classroom Renovation State Bond Completed 1.74 Estabrooke 3rd & 4th Floor Renovation Educational & General Completed 5.00 Central Heat Plant Renovation Portland Educational & General Completed 3.00 Bailey Hall Lab Renovation State Bond Completed 1.25 Lewiston Auburn College Nursing Lab Renovation State Bond Completed 0.60 Science Building Lab Upgrade State Bond In Progress 0.77 Improvements to existing space for relocation of personnel from perimeter and lower density facilities Educational & General In Progress 1.54 Bio-Science Chemistry Lab State Bond Completed 1.25 Gorham Softball Field Improvements Educational & General In Progress 2.20 Wireless Infrastructure Upgrade Educational & General In Progress 1.90 Brooks Kitchen Exhaust Upgrade Educational & General In Progress 0.82 Folsom/Pullen Science Classroom & Lab Upgrades State Bond Completed 1.20 IT Infrastructure - Wireless and Classroom Technology Upgrades Anticipated 2017 Revenue Bond In Design 19.00 Anticipated 2017 Revenue Bond In Design 2.00 Educational & General In Progress 1.00 UMA $ 2.00 UMF UMFK UMM UM USM UMPI UMS MaineStreet Upgrade Improvements to existing space for relocation of personnel from 16 Central Street TOTAL $ 2016 Annual Financial Report 85.67 17 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Net Position Net investment in capital assets represents the historical cost of the System's capital assets reduced by total accumulated depreciation and outstanding principal balances on debt attributable to the acquisition, construction, or improvement of those assets. As seen in Table 4 on page 13, the System's net investment in capital assets was $544 million at June 30, 2016. The FY16 increase of $3 million was primarily the result of $4 million in net additions to capital assets after annual depreciation and a $1 million decline in related debt. For FY15, the $9 million increase was primarily the result of $5 million in net additions to capital assets after annual depreciation and a $4 million decline in related debt. The restricted-nonexpendable net position at June 30, 2016 remained at $58 million and represents the System's permanent endowment funds. Items that impact this category of net position include new endowment gifts and fair market value fluctuations for those endowments whose fair value has fallen below the endowment corpus. From FY12 to FY15, the balance increased $1 million each year. The restricted-expendable net position of $108 million at June 30, 2016 consists of a variety of funds including unexpended gifts, quasi endowments and appreciation on true endowments, subject to externally imposed conditions on spending. This category of net position is restricted for various purposes including student financial aid, capital asset acquisitions, research, and public service. The FY16 net increase of $1 million included a nearly $5 million increase in gift balances; an increase of approximately $1 million each in quasi endowment gifts, appropriation balances, and University student loan fund balances; and a decline of nearly $7 million in endowment values due to negative investment performance and distributions for endowed spending. For FY15, the $3 million net decrease in restricted-expendable net position was primarily the result of a nearly $500 thousand loss from negative investment performance, nearly $6 million distributed for endowed spending, a $1 million increase in restricted gift monies for scholarships for adults, a $1 million increase in unspent State of Maine appropriations for the Maine Economic Improvement Fund, and a $1 million increase in a restricted institutional loan fund. The unrestricted net position of $157 million at June 30, 2016 increased by $1 million after having decreased by $16 million in FY15. This net position category is not subject to externally imposed stipulations; however, these resources are critical for the financial stability of the UMS and have been designated by management for specific areas, including operational and capital needs, operating investment and other budget fluctuations, and benefits costs including covering the risks associated with self-insured plans. Given both the physical and financial size of the University of Maine System, funds must be readily available to cover various situations including emergency expenditures, strategic priorities, operating losses, over-expenditures on capital or other projects, and benefits costs. 2016 Annual Financial Report 18 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION The Statements of Revenues, Expenses, and Changes in Net Position reports operating revenues, operating expenses, nonoperating revenues (expenses), other changes in net position, and the resulting change in net position for the fiscal year. Restatement of Prior Years As mentioned earlier on page 11, and as further described in the FY15 financial statements' Notes 1b and 17, FY14 was restated to reflect application of the change in accounting principle related to pensions resulting in a decrease to the FY14 beginning of year net position of over $11 million while the effect on FY14 operating expense was a decrease of almost $4 million. The change in net position for FY14 (as restated) therefore increased almost $4 million and the impact on net position at June 30, 2014, was a decline of nearly $8 million, from the amount previously reported. As noted in the System's FY14 financial statements' Notes 1b and 16, FY13 was restated to reflect retroactive applications of the change in accounting principle, related to assets previously reported as assets and liabilities. This resulted in a change to the 2013 beginning of year net position of -$2 million while the effect on 2013 operating expenses was an increase of $1 million. The change in net position for FY13 (as restated) therefore declined $1 million and the impact to net position at June 30, 2013, was a decline of $3 million from the amount previously reported. The System's total net position increased by $6 million in FY16, decreased $9 million in FY15 and increased $20 million in FY14. Table 8 shows Condensed Statements of Revenues, Expenses, and Changes in Net Position for the past five fiscal years ended June 30. 2016 Annual Financial Report 19 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Table 8: Condensed Statements of Revenues, Expenses, and Changes in Net Position Years Ended June 30 ($ in millions) 2016 2015 2014 2013 2012 Net Student Fees Grants, Contracts and Indirect Cost Recovery Other Operating Revenues Operating Revenues $237 148 52 437 $238 146 52 436 $243 156 54 453 $246 161 56 463 $241 178 57 476 Operating Expenses Operating Loss (660) (223) (669) (233) (671) (218) (673) (210) (672) (196) 201 17 6 3 (5) 222 (1) 199 15 6 (1) (5) 214 (19) 198 14 5 13 (6) 224 6 194 11 5 10 (7) 213 3 198 12 5 5 (8) 212 16 13 3 (8) (1) 7 $6 11 4 (6) 1 10 ($9) 2 7 14 1 24 $30 6 8 8 2 24 $27 5 20 (6) 3 22 $38 Nonoperating Revenues (Expenses) Noncapital State of Maine Appropriations Gifts Currently Expendable Endowment Return Used for Operations Investment Income (Loss) Interest Expense, Net Net Nonoperating Revenues Income (Loss) Before Other Changes in Net Position Other Changes in Net Position State of Maine Capital Appropriation Capital Grants and Gifts Endow. Return, Net of Amt. Used for Operations Other Total Other Changes in Net Position Change in Net Position Operating and Nonoperating Revenue In addition to receiving tuition and fees, the System receives revenue from other sources such as governmental and privately funded grants and contracts; gifts from individuals, foundations, and corporations; state appropriations; and investment income. UMS revenues and expenses are categorized as either operating or nonoperating. Certain significant recurring revenues and expenses are considered nonoperating including state appropriations, gifts, investment income or loss, and interest expense. The following pie charts illustrate the total operating and net nonoperating revenue sources used to fund the System's activities for FY16 and FY15. 2016 Annual Financial Report 20 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) CHART 4: TOTAL OPERATING & NET NONOPERATING REVENUE 2015 - $650 million 2016 - $659 million Other Nonoperating Revenues Net 2% Other Nonoperating Revenues Net 2% Net Student Fees 36% State Appropriation 31% Educ. Sales & Services/Aux. Enterprises 8% Indirect Cost Recovery 2% Net Student Fees 36% State Appropriation 31% Educ. Sales & Services/Aux. Enterprises 8% Grants & Contracts 21% Indirect Cost Recovery 2% Grants & Contracts 21% Net student fees of $237 million for FY16 are the primary source of operating revenues. The portion of total operating and net nonoperating revenues funded by net student revenues has remained constant at 36% from FY13 through FY16. Net student revenues are comprised of tuition and fees and residence and dining fees less scholarship allowances: Tuition and fees totaled $270 million in FY16, increasing $2 million (or almost 1%) from the prior year. FY15 increased $1 million (or almost 1%) and FY14 saw a decrease of $1 million (or almost 1%) compared to FY13. Residence and dining fees of $61 million in FY16 were up $3 million (or 4%) compared with FY15 which was down $2 million (or 3%) from FY14, while such revenues were up $2 million in FY14 (or 4%) from FY13. Scholarship allowances of $95 million increased $6 million (or 7%) in FY16, increased $4 million (or 5%) in FY15, and increased $4 million (or 6%) in FY14. Student Financial Aid: Student financial aid awards are made from a variety of sources including federal, state, private, and university funds. Aid received from third parties is recognized as grants and contracts revenue on the Statements of Revenues, Expenses, and Changes in Net Position while the distribution of aid from all sources is shown as one of two components: 1. Scholarship Allowances - financial aid retained by the System to cover students' tuition, fees, and on-campus housing and meals. These amounts are reported as a direct offset to operating revenues. 2. Student Aid Expense - financial aid refunded to students to cover off-campus living costs, books, and other personal living expenses. These amounts are reported as operating expense. 2016 Annual Financial Report 21 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Federal financial aid awards are based on a student's financial need compared with their total cost of education which includes tuition and fees, housing and meals (both on and off campus), books, and other personal living expenses. During FY16, total financial aid provided to students was $127 million, increasing $8 million or 7% over FY15 aid of $119 million. The increase includes an increase of $7 million in institutional unrestricted aid, an increase of $2 million in State of Maine aid, and a decrease of $1 million in aid from the Federal Pell Grant Program. For FY15, total financial aid provided to students was $119 million, increasing $5 million or 4% over FY14 aid of $114 million. The increase includes a nearly $1 million increase in institutional restricted aid, an increase of $5 million in institutional unrestricted aid, and a decrease of $1 million in aid from the Federal Pell Grant Program. In FY14, total financial aid provided to students was $114 million, increasing $3 million or 2% over FY13 aid of $111 million. The increase includes nearly $2 million in increased institutional restricted aid, an increase of $2 million in institutional unrestricted aid, and a decrease of nearly $2 million in aid from the State of Maine. Grants, Contracts, and Indirect Cost Recovery: Grants and contracts revenues are recognized to the extent of related expenses. Consequently, reported revenues will fluctuate based on the timing of expenses across fiscal years. The System receives funding from federal, state, and private sources with the majority of funding being provided by the federal government for research activities. State research and development funding is often used to leverage federal dollars. Grants and contracts revenues totaled $136 million in FY16, increasing $2 million or 2% from FY15. This net increase is primarily due to a new multiple year grant that provided $2 million in funding from the US Department of Education at UMF. Additionally, Federal student financial aid decreased $1 million and State of Maine financial aid increased by $2 million for FY16. Grants and contracts revenues totaled $134 million in FY15, decreasing $8 million or nearly 6% from FY14. Significant funding variations in this net decrease include a $4 million decline in gross funding for the Maine School and Library Network as one major grant sub-recipient negotiated FY15 funding directly from the federal government instead of funds being passed through the University of Maine System as in prior years; a $3 million decrease in funding from the US Department of Energy at UM as a result of two multiple year grants ending during FY15; and a decline of $2 million in US Department of Health and Human Services funding at USM as a result of three grants that ended prior to or during FY15. In addition to providing for direct costs, grants and contracts sponsors also provide for recovery of Facilities and Administrative (F&A) costs which are also known as indirect costs. The amount of allowable F&A costs is calculated for each grant and contract using the applicable negotiated rate subject to specific sponsor limitations and other proposal and award conditions. Recovery of indirect costs totaled $11 million in FY16 declining from $12 million in FY15, and down from $14 million in FY14. 2016 Annual Financial Report 22 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Noncapital State of Maine Appropriations: State noncapital appropriation revenue includes amounts for general operations as well as amounts legislatively earmarked for research and development, financial aid, and various other areas. Although not considered operating revenue under GASB reporting requirements, the noncapital State appropriation was the second largest funding source for educational and general operations behind Net Student Fees. As shown in Chart 5 below, the System received $201 million in noncapital State appropriation revenue during FY16, up $2 million or 1.0% from FY15. The System received $199 million in noncapital State appropriation revenue during FY15, up $1 million or 0.5% from FY14. At $201 million, noncapital state appropriation covered 90% of the $223 million net operating loss in FY16, up from net operating loss coverage levels of 85% in FY15 but down from 91% in FY14. 2016 Annual Financial Report 23 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Cash Gifts: As shown in Chart 6 below, gifts received in FY16 of $19 million were equivalent to the prior year. In FY15, gifts received were down by $1 million from the prior year compared to being up by $4 million in FY14. 89% of the $19 million in gifts received in FY16 were restricted, 6% were endowed and 5% were unrestricted. Of the $19 million in gifts received in FY15, 89% were restricted, 8% were endowed, and 3% were unrestricted. The donor type consistently contributing the most gift dollars is University Foundations. $40 CHART 6: GIFTS BY DONOR TYPE ($ in millions) $30 $20 $10 $21 $2 $2 $4 $16 $1 $2 $20 $2 $2 $3 $5 $4 $4 $3 $9 $9 $8 FY14 FY15 FY16 $19 $2 $1 $19 $2 $2 $3 $5 $3 $4 $8 $0 $5 FY12 FY13 University Foundations Corporations Non-Profits 2016 Annual Financial Report Alumni Other 24 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) Operating Expenses Table 9 shows expenses on a functional basis while Table 10 shows expenses based on natural classification. Table 9: Operating Expenses, Classified by Function For the Years Ended June 30 ($ in millions) 2016 Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Depreciation and amortization Student aid Auxiliary enterprises Total Operating Expenses $168 66 60 66 54 64 49 37 33 63 $660 2015 25% $180 10% 65 9% 61 10% 70 8% 52 10% 58 7% 50 6% 35 5% 31 10% 67 100% $669 2013 2014 27% $181 10% 72 9% 60 10% 76 8% 49 9% 48 7% 51 5% 34 5% 30 10% 70 100% $671 27% $180 69 11% 60 9% 11% 77 7% 50 7% 54 8% 50 5% 32 5% 32 10% 69 100% $673 2012 27% $179 10% 73 64 9% 12% 77 7% 48 8% 56 7% 47 5% 30 5% 28 10% 70 100% $672 27% 11% 10% 12% 7% 8% 7% 4% 4% 10% 100% Table 10: Total Expenses by Natural Classification For the Years Ended June 30 ($ in millions) 2016 Operating: Compensation Benefits Utilities Supplies and Services Depreciation and Amortization Student Aid Total Operating Expenses Nonoperating: Interest Total Expenses $296 124 27 143 37 33 660 2015 45% $306 19% 130 4% 30 21% 137 5% 35 5% 31 99% 669 46% 19% 4% 20% 5% 5% 99% 5 1% 5 1% $665 100% $674 100% 2014 $310 126 35 136 34 30 671 46% 19% 5% 20% 5% 4% 99% 6 1% $677 100% 2013 $308 125 34 142 32 32 673 45% 18% 5% 21% 5% 5% 99% 7 1% $680 100% 2012 $308 126 32 148 30 28 672 45% 19% 5% 22% 4% 4% 99% 8 1% $680 100% Compensation and benefits expense totaled $420 million in FY16, decreasing $16 million (4%) compared with FY15 after having stayed flat with FY14. 2016 Annual Financial Report 25 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) STATEMENTS OF CASH FLOWS The Statements of Cash Flows examines the changes in cash position from a year of operations. Its primary purpose is to provide relevant information about the cash receipts and cash payments of the System during the fiscal year. This statement helps users assess the System's ability to generate future cash flows, its ability to meet obligations as they become due and its need for external financing. CURRENT AND FUTURE CONSIDERATIONS The vision of One University for all of Maine was announced in January 2015 with the objective of seven mission-differentiated, mutually dependent campuses operating as one fully integrated university singularly focused on student success and responsive service to the State of Maine. As we make progress toward this vision, our universities and our people are in a much better position today to define and achieve our collective success. Hard work and tough choices over the past few years have aligned our universities in size and in structure with the times. We have also achieved pioneering collaboration and integration across our campuses that is better positioning our universities to compete regionally and globally for the talent and resources we need to move Maine forward. Establishing a truly integrated, comprehensive, and sustainable public university system for Maine goes hand in hand with certain aspirations which will be focused on over the next five years. Such priority outcomes include increased enrollment, improved student success and completion, enhanced fiscal positioning of our System and greater support of Maine through expanded research and economic development. Priorities will also include relevant academic programming and workforce engagement. At the forefront of this work remains the Trustees' priority to ensure the System continues to provide a quality education that is affordable to Maine families. We are becoming stronger through a strategic focus on our strengths and better alignment with the times. While there is still a great deal of work to do, our commitment to serve Maine as One University includes some notable achievements: Maine is the only state in the country to reduce the real cost of public higher education over the last five years; A landmark credit transfer agreement between Maine's higher education systems was established, transfer among Maine's public universities has improved significantly, and we have worked closely with our secondary school partners to increase early college participation by 74% over the last two academic years; A commitment to affordability and fiscal responsibility has strengthened our foothold along a path to financial stability; and, As of early October 2016, full time equivalent enrollment activity for fall shows out-of-state enrollment up 9% while in-state enrollment is down 2% compared to the same time last year. Throughout the System, our campuses are having successes in attracting national attention, outside resources, and youthful talent to Maine. Over the past several years, we have also been working hard to restructure University Services which is our statewide, single-entity approach to managing administrative functions and delivering support services to our seven mission differentiated universities. University Services largely replaces an expensive seven-campus administrative management model and includes functions such as facilities, 2016 Annual Financial Report 26 University of Maine System MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2016 and 2015 (Unaudited) finance and budget, general counsel, human resources, information technology, organizational effectiveness, risk and general services, shared processing center, and strategic procurement. Further, during FY16 and into FY17, the System's financial and business officers worked collaboratively along with various stakeholders to develop a comprehensive set of budget and other fiscal recommendations to increase collaborations and improve financial stability. The Board endorsed these Unified Budget recommendations in September 2016 and the System will now begin implementation. Accounting Pronouncements with Potential Significant Impacts GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (GASB No. 75) will be adopted in FY18 with retroactive application to FY17 including restatement of the beginning of year net position for FY17. The primary objective of this Statement is to improve accounting and financial reporting with the purpose of providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. The new Standard will affect how the System measures, reports, and discloses information about its other postemployment benefits (OPEB) other than pensions. The effects of implementation on the financial statements have not yet been determined but the adjustment to unrestricted net position is expected to be significant. Global Financial Considerations Financial market conditions present continued risks and opportunities as the System considers its investment and financing needs. FY16 saw another difficult year in the markets with volatility persisting while the sustained low interest rate environment bodes favorably for the System's anticipated revenue bond issuance in FY17. Anticipated proceeds will primarily be used for wireless and classroom technology improvements as well as refunding a prior revenue bond issuance to achieve interest savings. Net student fees represents 36% of Total Operating and Net Nonoperating Revenue and continues to be the largest source of revenue for the System. Affordable quality education remains among the System's highest priorities, as demonstrated by five years of frozen undergraduate in-state tuition and mandatory fees. The second largest revenue source for the System is the State of Maine noncapital appropriation representing 31% of Total Operating and Net Nonoperating Revenue. In years past, the State has made significant adjustments to UMS' appropriation and other fiscal support as it balances its own budget. As shown previously in Chart 5, the Noncapital State Appropriation has shown some improvement having increased from $198 million in FY12 to $201 million in FY16. Making college more affordable for Maine students, the Governor has committed to submitting a FY17 supplemental budget request of $4.65 million to support the System's extension of its in-state tuition freeze during FY17. This is in addition to the State supported 1.9% (or $3.46 million) increase in the System's FY17 general fund allocation. The Work Ahead With the launching of the One University for all of Maine framework and the recently approval Unified Budget recommendations, the work ahead will continue to be transformational and highly anticipated, guided by the objective of seven mission-differentiated, mutually dependent campuses operating as one fully integrated university singularly focused on student success and responsive service to the State of Maine. 2016 Annual Financial Report 27 University of Maine System Statements of Net Position June 30, 2016 and 2015 ($ in thousands) 2016 Assets Current Assets Cash and cash equivalents (Note 2) Operating investments (Notes 3 and 16) Accounts, grants, and pledges receivable, net (Note 4) Inventories and prepaid expenses Notes and lease receivable, net (Note 5) Total Current Assets $ Noncurrent Assets Deposits with bond trustees (Notes 3, 6 and 16) Accounts, grants, and pledges receivable, net (Note 4) Notes and leases receivable, net (Note 5) Endowment investments (Notes 3 and 16) Capital assets, net (Note 6) Total Noncurrent Assets Total Assets Deferred Outflows of Resources (Note 15) Total Assets and Deferred Outflows Liabilities Current Liabilities Accounts payable Unearned revenue and deposits (Note 8) Accrued liabilities (Notes 7, 11, 13 and 14) Funds held for others Current portion of long-term debt (Note 7) Total Current Liabilities Noncurrent Liabilities Accrued liabilities (Notes 7, 11 and 13) Funds held for others (Note 3) Long-term debt (Note 7) Government advances refundable (Note 9) Total Noncurrent Liabilities $ 6,174 231,354 44,161 5,953 63 287,705 1,411 2,696 40,802 135,821 706,662 887,392 12,744 7,862 40,877 142,547 702,812 906,842 1,180,262 1,194,547 9,370 7,728 $ 1,189,632 $ 1,202,275 $ 14,742 10,692 24,896 1,831 11,411 63,572 $ 18,158 11,069 31,680 1,828 11,312 74,047 Total Liabilities Deferred Inflows of Resources (Note 15) Net Position Net investment in capital assets (Note 10) Restricted Nonexpendable (Note 10) Expendable (Notes 3 and 10) Unrestricted (Notes 3 and 10) Commitments and contingencies (Notes 6, 7 and 11) Total Net Position Total Liabilities, Deferred Inflows and Net Position 1,298 230,592 55,565 5,352 63 292,870 2015 $ 55,123 18,202 154,874 29,768 257,967 52,748 18,189 164,782 30,269 265,988 321,539 340,035 1,388 1,609 544,597 540,544 57,920 107,586 156,602 866,705 58,121 106,254 155,712 860,631 1,189,632 $ 1,202,275 See accompanying notes to the basic financial statements. 2016 Annual Financial Report 28 University of Maine System Statements of Financial Position - Discretely Presented Component Unit June 30, 2016 and 2015 ($ in thousands) 2015 2016 Assets Cash and cash equivalents Other receivables Promises to give, less allowance for uncollectible pledges of $125 Short-term investments Cash surrender value of life insurance Long-term investments, endowment Long-term investments, life income plans Notes receivable Equity in Buchanan Alumni House Investment real estate Property and equipment, net of accumulated depreciation of $187 and $147, respectively Other assets Irrevocable trusts Assets managed for Buchanan Alumni House Net funding to be provided from Buchanan Alumni House Total Assets Liabilities Accounts payable Distributions due income beneficiaries Accrued expenses Notes payable Custodial accounts payable $ 609 101 175 123 1,413 3,168 148 179,887 4,455 375 2,626 6,000 1,949 2,223 141 185,613 4,809 574 2,657 5,847 171 609 8,573 281 24 124 764 10,674 348 13 $ 208,440 $ 216,034 $ 35 1,798 558 523 2,835 $ 27 1,823 509 694 3,071 Total Liabilities Net Assets Unrestricted net assets Temporarily restricted net assets Permanently restricted net assets Total Net Assets Total Liabilities and Net Assets $ $ 5,749 6,124 8,218 41,372 153,101 8,033 54,325 147,552 202,691 209,910 208,440 $ 216,034 See accompanying notes to the basic financial statements. 2016 Annual Financial Report 29 University of Maine System Statements of Revenues, Expenses and Changes in Net Position Years Ended June 30, 2016 and 2015 ($ in thousands) 2015 2016 Operating Revenues Tuition and fees Residence and dining fees Less: scholarship allowances Net student fees Federal, state, and private grants and contracts Recovery of indirect costs Educational sales and services and other revenues Other auxiliary enterprises Total Operating Revenues $ Operating Expenses Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Depreciation and amortization (Note 6) Student aid Auxiliary enterprises Total Operating Expenses 270,193 60,936 (94,529) 236,600 136,103 11,524 34,977 17,693 436,897 $ 267,683 58,406 (88,432) 237,657 133,703 12,129 32,344 20,294 436,127 168,415 66,278 59,603 66,291 53,907 63,657 49,039 37,051 33,069 63,372 660,682 179,728 65,393 60,701 70,357 52,105 57,580 50,100 35,304 30,925 66,872 669,065 (223,785) (232,938) 201,404 17,072 6,165 2,561 (4,749) 222,453 198,757 14,539 5,660 (499) (5,146) 213,311 Loss Before Other Changes in Net Position (1,332) (19,627) Other Changes in Net Position State of Maine capital appropriations Capital grants and gifts Endowment return (loss), net of amount used for operations (Note 3) True and quasi endowment gifts Loss on disposal of capital assets Total Other Changes in Net Position 13,104 2,881 (7,946) 1,180 (1,813) 7,406 11,267 4,555 (6,151) 1,725 (841) 10,555 Operating Loss Nonoperating Revenues (Expenses) Noncapital State of Maine appropriations Gifts currently expendable Endowment return used for operations (Note 3) Investment income (loss) (Note 3) Interest expense, net (Note 7) Net Nonoperating Revenues Change in Net Position Net Position - Beginning of Year Net Position - End of Year 6,074 860,631 $ 866,705 (9,072) 869,703 $ 860,631 See accompanying notes to the basic financial statements. 2016 Annual Financial Report 30 University of Maine System Statements of Activities - Discretely Presented Component Unit Year Ended June 30, 2016 With Comparative Totals for 2015 ($ in thousands) Temporarily Permanently Unrestricted Restricted Restricted Revenues, Gains, Losses, and Reclassification Contributions Investment loss and other revenue Net assets released from restrictions Total Revenues, Gains, Losses, and Reclassification $ 1,427 (3,210) 14,232 $ 4,561 (4,116) (13,398) $ Total 2016 Total 2015 4,828 1,555 (834) $ 10,816 (5,771) - $ 12,283 (4,310) - 12,449 (12,953) 5,549 5,045 7,973 9,909 819 1,536 12,264 - - 9,909 819 1,536 12,264 9,424 763 940 11,127 Uncollectible promises to give - - - - 9 Total Expenses and Losses 12,264 - - 12,264 11,136 185 (12,953) 5,549 (7,219) (3,163) 8,033 54,325 147,552 209,910 213,073 $ 8,218 $ 41,372 $ 153,101 $ 202,691 $ 209,910 Expenses and Losses Program services Management and general Fundraising Total Expenses Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year See accompanying notes to the basic financial statements. 2016 Annual Financial Report 31 University of Maine System Statements of Cash Flows Years Ended June 30, 2016 and 2015 ($ in thousands) 2016 Cash Flows From Operating Activities Tuition, residence, dining, and other student fees Grants and contracts Educational sales and services and other auxiliary enterprise revenues Payments to and on behalf of employees Financial aid paid to students Payments to suppliers Loans issued to students Collection of loans to students Interest collected on loans to students Net Cash Used for Operating Activities $ 235,207 145,461 50,534 (422,224) (39,591) (167,535) (6,324) 5,929 713 (197,830) 2015 $ 237,551 149,024 53,990 (426,462) (37,314) (166,167) (6,306) 5,945 730 (189,009) Cash Flows From Noncapital Financing Activities State appropriations Noncapital grants and gifts Agency transactions Net Cash Provided by Noncapital Financing Activities 201,404 17,519 (10,402) 208,521 198,757 16,602 (1,771) 213,588 Cash Flows From Capital and Related Financing Activities