Management’s Discussion and Analysis

The Management’s Discussion and Analysis (“MD&A”) of The University of Alabama’s (the “University”) annual financial report presents a discussion and analysis of the financial performance of the University during the fiscal years ended September 30, 2018 and 2017. This discussion has been prepared by management along with the financial statements and related note disclosures and should be read in conjunction with the financial statements and notes. The financial statements, notes and this discussion are the responsibility of management.

Oversight responsibilities of the Alabama Commission on Higher Education (“ACHE”) and annual requests for appropriations from the Alabama legislature are coordinated for each campus by the Chancellor of the System with the approval of the Board.

Overview of Financial Statements

The University’s financial report includes three basic financial statements: the Statement of Net Position; the Statement of Revenues, Expenses, and Changes in Net Position; and the Statement of Cash Flows. The University’s financial statements encompass the University and its blended component unit, The Crimson Tide Foundation (“CTF”). The aggregate financial statements of six affiliated foundations are presented discretely from the University:

• • National Alumni Association

  • Law School Foundation

  • Donor Advised Fund

  • Capstone Foundation

  • 1831 Foundation

  • Capstone Health Services Foundation

The MD&A focuses solely on the University and the Crimson Tide Foundation. Information on discretely presented component units can be found in the component units’ annual financial reports, as well as Note 2 – Component Units. The notes to the financial statements provide additional information that is essential to a full understanding of the financial statements. A summary of new accounting standards and their anticipated effects concludes the notes with brief summations of recently issued statements of the Governmental Accounting Standards Board (“GASB”).

Statements of Net Position

The statements of net position present the financial position of the University at the end of the fiscal year. These statements reflect the various assets, deferred outflows, liabilities, deferred inflows, and net position of the University as of the fiscal years ended September 30, 2018 and 2017.

From the data presented, readers of the statements of net position have the information to determine the assets available to continue the operations of the University. They may also determine how much the University owes vendors, bondholders, and lending institutions. In addition, the statements of net position outline the net position (assets and deferred outflows minus liabilities and deferred inflows) available to the University.

Net position is divided into three major categories. The first category, net investment in capital assets, provides the University’s equity in property, plant and equipment owned by the University.

The second category is restricted net position, which is divided into two categories, non-expendable and expendable. The corpus of non- expendable restricted resources, as it pertains to endowments, is only available for investment purposes. The earnings on these funds support the programs and activities as determined by the donors, typically to fund scholarships and fellowships. Expendable restricted resources are available for expenditure by the University but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets.

The last category, unrestricted net position, presents the net position available to the University for any lawful purpose of the University and is typically internally designated or committed for specific academic programs or initiatives.

At September 30, 2018, the University’s assets and deferred outflows of resources were $4.6 billion, liabilities and deferred inflows of resources were $2.5 billion, leaving a net position of $2.1 billion. During fiscal year 2018 the University implemented GASB 75, which resulted in a decrease to beginning net position of $222.8 million. However, this is offset in part by tuition growth, an increase in capital gifts, and an increase in contracts and grants revenue.

The University’s Assets

Current assets are used to support the University’s normal operations and include cash and cash equivalents, short-term investments available for operating purposes, net accounts receivable (primarily student accounts receivable, receivables from sponsoring agencies and accrued interest receivable), prepaid expenses, and unearned scholarships.

The University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Current cash and cash equivalents totaled $75.4 million at September 30, 2018, an increase of $16.5 million from the prior year. At September 30, 2017, current cash and cash equivalents totaled $58.9 million, a slight increase of $357,000 from the prior year. Current cash balances fluctuate based on operating needs, timing of expenditures, and cash management strategies.

Short-term investments include both unrestricted and restricted balances. Unrestricted short-term investments were $233.2 million, $222.4 million, and $173.7 million at September 30, 2018, 2017, and 2016, respectively. These investments are available for operating purposes. Restricted short-term investments were $27.5 million, $84.6 million, and $120.9 million at September 30, 2018, 2017, and 2016, respectively. Restricted short-term investments are comprised of deposits held and invested by the University relating to the Gulf State Park Project. During fiscal year 2017, the University of Alabama entered into an agreement with the State of Alabama Department of Conservation and Natural Resources (“DCNR”) to provide financial services for the Gulf State Park Project (previously the agreement had been between the DCNR and the University of Alabama System Office). The University deposits and disburses the funds authorized by the DCNR. The University did not receive additional funds for the Gulf State Park Project in fiscal years 2018 or 2017. This led to a decrease in total short-term investments of $46.3 million in fiscal year 2018 as funds were expended. Total short- term investments increased in fiscal year 2017 by $12.4 million.

Accounts receivable decreased approximately $4.5 million in fiscal year 2018 mostly as a result of a $16.1 million decrease in the CTF accounts receivable and a $9.4 million increase in student accounts receivable. In fiscal year 2017, accounts receivable increased $14.2 million due to a $16.6 million increase in the CTF accounts receivable balance. The majority of this increase relates to a receivable between the University and its blended component unit, CTF, at June 30, 2017. Due to the timing of the payment after CTF’s June 30 year end, it was a receivable for CTF at June 30, 2017, but not a payable for UA at September 30, 2017.

Prepaid expenses and unearned scholarships decreased slightly by $237,000 in 2018 due to a decrease in prepaid expenses. Unearned scholarship expense results from the Fall academic term spanning across the fiscal year-end. The University prorates scholarship expense to recognize only the amounts incurred in each fiscal year. In the prior year, prepaid expenses and unearned scholarships increased $9.9 million due in large part to unearned scholarships. Fall 2017 classes started a week later than in the prior year, thus more scholarships were deferred to fiscal year 2018. This, coupled with the growth in enrollment, contributed to an increase in current unearned scholarships at September 30, 2017.

Noncurrent assets are predominantly composed of endowment and life income investments, investments for capital activities, other long-term investments, notes receivable (net), and capital assets (net).

The University’s investment portfolio is principally invested in three separate investment pools sponsored by the System. The University’s investment approach is intended to maximize current investment returns consistent with annual liquidity needs while protecting principal. The University adopts the broad objective of investing assets to preserve their real value, enhance the purchasing power of income, and keep pace with inflation and evolving University needs. Total noncurrent investments decreased $8.7 million at September 30, 2018, primarily resulting from a decrease in investments for capital activities as bond proceeds were expended throughout the year. This follows an increase of $260.2 million in noncurrent investments at September 30, 2017. During fiscal year 2017, the University issued new bonds which contributed to a $160.5 million increase in investments for capital activities. Additionally, the University experienced a rise in unrealized gains due to favorable market performance.

Noncurrent notes receivable increased $44.0 million due to the issuance of additional student organization housing loans, which follows an increase of $9.1 million in fiscal year 2017, also due to the issuance of an additional student organization housing loan.

Capital assets include land and land improvements, infrastructure, buildings and improvements, equipment, construction in progress, library materials, collections and intangible assets. The construction of new buildings on campus contributed to a rise in capital assets of $116.5 million in fiscal year 2018 and $79.2 million during 2017. During fiscal year 2015, the University had the opportunity to purchase property within close proximity to the main campus from the Alabama Department of Mental Health (“ADMH”), which allows the University to devote more of its core campus to academic and student life activities. The total purchase, commonly referred to as the Partlow Property, encompasses approximately 362 acres and is composed of both land and associated buildings. As part of the purchase agreement, the University leases back some of the buildings to the ADMH who continues to operate the mental health facilities. The leaseback period is 99 years. Capital spending remains a priority to provide the necessary facilities needed to accommodate both present and future enrollment growth. As outlined in the University’s Master Plan, the University seeks to “unify the campus as a complete learning environment, interwoven into a gracious and hospitable setting that both nurtures the soul and inspires the mind.”

Significant capital asset expenditures in 2018 include Freshman Residential Housing ($36.2 million), Student Organizations (refer to note 5) ($28.8 million), Tutwiler Parking Deck ($21.0 million), M. Comer Hall renovations ($17.1 million), Mal Moore Dining Facility ($10.7 million), University Hall renovations ($8.3 million), and Lakeside Dining renovations ($6.4 million).

Significant capital asset expenditures in 2017 include Student Organizations (refer to note 5) ($22.7 million), Freshman Residential Housing ($11.2 million), Little Hall renovation ($8.3 million), Central Campus Thermal Energy Connection ($7.0 million), University Boulevard improvements ($6.3 million), and the Adapted Athletics facility ($6.0 million).

A deferred outflow of resources is a use of net position that is applicable to future reporting periods. The University’s deferred outflows of resources consists of bond deferred refunding amounts (note 7), pension obligations (note 9), and OPEB obligations (note 10). At September 30, 2018, deferred outflows of resources from debt refundings decreased $883,000 related to the annual amortization of the refundings. Deferred outflows of resources from pension and OPEB obligations increased $18.0 million. The University implemented GASB 75 during fiscal year 2018, which resulted in deferred outflows of resources from OPEB obligations of $47.8 million. Deferred outflows of resources from pension obligations decreased $29.8 million. At September 30, 2017, deferred outflows of resources from debt refundings increased $368,000 as the University defeased certain indebtedness during fiscal year 2017. Deferred outflows of resources from pension obligations increased $31.8 million in fiscal year 2017.

The University’s Liabilities

Current liabilities consist primarily of accounts payable, accrued liabilities, unearned revenue, and deposits. The majority of accounts payable and accrued liabilities represent amounts owed for salaries, wages and benefits, and supplies and services. Accounts payable and accrued liabilities decreased $1.2 million in 2018 from the prior year. This follows an increase of $14.4 million in 2017. Unearned revenue consists primarily of tuition and housing revenues for the portion of the fall semester that occurs after September 30, and football ticket revenue for the portion of the season which occurs after September 30. Current unearned revenue increased $2.7 million in fiscal year 2018, an expected increase given the growth in tuition and enrollment. In fiscal year 2017, there was an increase of $36.2 million. Fall 2017 classes started a week later than in the prior year, thus more revenue was deferred to fiscal year 2018. This, coupled with the growth in enrollment, contributed to the larger 2017 increase. Deposits consist primarily of agency funds, food service deposits, debit card operation deposits and Capstone Village entrance fees. Deposits decreased $61.9 million and $43.4 million at September 30, 2018 and 2017, respectively, due to expenditures for the Gulf State Park Project.

The University’s long-term debt, pension liability, and OPEB liability comprise the majority of its noncurrent liabilities. Long- term debt (current and noncurrent combined) decreased $35.3 million in fiscal year 2018 as debt repayments were made throughout the year. This follows an increase of $122.6 million in 2017 due to the 2017A, 2017B and 2017C bond issuances, offset by payments and defeasances. In 2018, the University’s proportionate share of the net pension liability in the Teachers’ Retirement System Plan (the “Plan”) decreased by $58.2 million to $565.2 million, following a $50.6 million increase from 2016. The overall Plan net pension liability decreased by 9.3% in 2018 due to an increase in the Plan’s fiduciary net position. In fiscal year 2018, the University implemented GASB 75, requiring the recognition of $257.7 million for its proportionate share of the net OPEB liability in the Alabama Retired Education Employee’s Health Care Trust.

GASB Statements No. 68 and 75 require governmental employers participating in multi-employer cost-sharing pension and healthcare benefit plans to recognize liabilities for their proportionate share of the unfunded liability for plans whose actuarial liabilities exceed the plan’s net assets. As required by Alabama statute, all eligible employees of a qualifying public educational employer must be a member of the Teacher’s Retirement System of Alabama (“TRS”). As a qualifying employer, the University is required to make certain employer contributions on behalf of its employees participating in TRS’s defined benefit pension plan. Additionally, Alabama statutes permitted the University to opt-in to provide its eligible retirees with healthcare benefits through the Public Education Employees’ Health Insurance Plan (“PEEHIP”).

The employer contribution rates for both plans are established annually by TRS and PEEHIP, and adopted by the Alabama Legislature. Both the TRS employer contribution rate and the employer’s PEEHIP cost for retiree coverage are based upon the actuarial valuations performed by TRS and PEEHIP, respectively. Although the liabilities recognized under GASB 68 and 75 meet GASB’s definition of a liability within GASB’s framework for accounting standards, University of Alabama management does not believe that the associated recorded liabilities constitute legal liability for the University, nor do they open the University to other claims on its resources.

A deferred inflow of resources is the acquisition of net position in future periods. The University’s deferred inflows of resources result from pension obligations (note 9), OPEB obligations (note 10), and the University’s remainder interest in its irrevocable split interest agreements (note 1). At September 30, 2018, deferred inflows of resources from pension and OPEB obligations increased $70.7 million. The University implemented GASB 75 during fiscal year 2018, which resulted in deferred inflows of resources from OPEB obligations of $28.1 million. Deferred inflows of resources from pension obligations increased $42.6 million. GASB 81 was also implemented during fiscal year 2018, resulting in the recognition of deferred inflows of resources from the remainder interest in split interest agreements of $2.8 million. At September 30, 2017, deferred inflows of resources from pension obligations increased $13.0 million from the prior year.

The University’s Net Position

Net position represents the residual interest in the University’s assets and deferred outflows of resources after all liabilities and deferred inflows of resources are deducted. The University’s net position increased $188.8 million during fiscal 2018, totaling $2.1 billion. The adoption of GASB 75 caused a decrease in beginning net position of $222.8 million when the initial OPEB liability was recorded. In fiscal year 2017, net position increased $224.3 million, or 11.7%, totaling $2.1 billion.

Net investment in capital assets increased $75.1 million from $1.1 billion in 2017. The previous year increase of $74.1 million rose from $1.0 billion reported in 2016. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt attributable to the acquisition, construction or improvement of those assets.

Restricted nonexpendable net position increased approximately $27.5 million primarily due to gifts and earnings on true endowment corpus funds. This net position type encompasses true endowments that are required to be held in perpetuity. In the prior year, restricted nonexpendable net position experienced growth of $31.8 million.

Restricted expendable net position increased $46.0 million in 2018 resulting from an increase in true endowment gains and gifts. This follows an increase of $67.6 million in 2017 largely due to higher mineral rights and timber land valuations, true endowment gains, and an increase in restricted quasi endowments. This net position category includes restricted gifts, institutional loan funds, sponsored programs, restricted quasi endowments, term endowments, endowment income and unrealized appreciation, and restricted plant funds. Restricted expendable net position is restricted by externally-imposed constraints.

Unrestricted net position decreased $182.5 million in fiscal year 2018 primarily due to the aforementioned implementation of GASB 75. In the prior year, unrestricted net position increased $50.8 million due to unrealized gains, unrestricted quasi endowments, and an increase in CTF unrestricted net position.

University Endowments

The University carefully navigates the investment environment and works diligently to manage its financial resources effectively. Endowment spending has remained stable. With a continual commitment to excellence, we expect funding given by the University’s generous donors will continue to grow, leveraging those gifts for the benefit of our students for many years to come.

In 2018, the University’s endowments grew $60.6 million to reach $845.9 million. The growth results from additions to the endowment of $24.9 million and unrealized gains. This follows an increase of $102.1 million in 2017 resulting from additions to the endowment of $23.7 million and unrealized gains. This endowment total does not include the endowment values of discretely presented component units.

Statements of Revenues, Expenses and Changes in Net Position

The statements of revenues, expenses and changes in net position (“SRECNP”) present the revenues received by the University, both operating and nonoperating, and the expenses paid by the University, both operating and nonoperating, and any other revenues and expenses received or expended by the University. Primary components of the University’s operating revenue sources are tuition and fees and auxiliary sales and services, which are generated from self-supporting departments including Intercollegiate Athletics, residence halls, food service operations, and the UA Supply Store. Additionally, the University seeks funding from the federal and state governments and sponsored programs in support of its mission of teaching, research, and service. Other significant revenue sources, which are considered nonoperating as defined by the GASB, include State educational appropriations, private gifts, investment income, and Federal Pell grants.

Operating expenses are those incurred in conjunction with the fulfillment of the University’s mission and include salaries, wages and benefits; supplies and services; depreciation; and scholarships and fellowships. The SRECNP also includes other changes affecting its net position including capital gifts and grants, additions to permanent endowments, and intragovernmental transfers between the University and CTF, its blended component unit, and other state agencies.

Revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid. A summary of the University’s revenues, expenses and changes in net position follows:

The University’s net position increased $188.8 million in 2018 primarily due to tuition growth, an increase in capital gifts, and an increase in contracts and grants revenue. Net position grew by $224.3 million and $141.4 million in fiscal years 2017 and 2016, respectively, as improved market performance resulted in large investment gains in those years. As noted in the SRECNP, the University experienced operating losses in all fiscal years presented of $186.8 million, $183.3 million, and $130.4 million, respectively. These operating losses highlight the University’s dependency on nonoperating revenues, such as State educational appropriations and private gifts, to meet its cost of operations.

Operating Revenues

Net tuition and fees reflect the steady increases in tuition related to continued enrollment growth coupled with modest tuition rate increases. Net tuition and fees in 2018 was $516.8 million, a $34.0 million increase over 2017’s $482.8 million, which increased $6.0 million over $476.7 million in 2016. Tuition rates are reviewed annually by the University and presented to the Board for approval.

The University receives grant and contract revenue from federal, state, and local governments and private agencies. These funds are used to further the mission of the University – to advance the intellectual and social condition of the people of the state, the nation and the world through the creation, translation and dissemination of knowledge with an emphasis on quality programs in the areas of teaching, research and service. The following chart reflects the funding sources for federal operating grant and contract revenues for the years ended September 30:

Federal grants and contracts increased by $4.1 million in 2018. The University experienced a sharp increase in awards during the fiscal year, including a significant increase in federally funded research. Some of this increase is reflected in federally funded research expenditures during the year. In fiscal year 2017, federal grants and contracts decreased $1.5 million, which reflects a decrease in federal funding for instruction and research in that year. State and local grants and contracts (combined) decreased slightly by approximately $71,000 in both 2018 and 2017. Private grants and contracts increased $1.8 million in 2018, following a $1.3 million decrease in the prior year.

The University’s auxiliary activities are comprised of Intercollegiate Athletics, food service, housing, the UA Supply Store, and other miscellaneous auxiliary enterprises. Auxiliary income decreased $2.1 million in 2018 due to the accrual of an extra licensing payment in the prior year. This follows an $8.4 million increase in 2017 due to athletic income and the aforementioned extra licensing payment accrual.

Other operating revenue for the University totaled $29.3 million, while CTF revenue of $33.8 million contributed to the combined total of $63.1 million as reported in 2018, an increase of $3.8 million from the prior year, largely due to an increase in CTF revenues. In 2017, other operating revenue increased by $3.5 million also due to an increase in CTF revenues.

Non-Operating Revenues and Expenses

Due to the required classification of key revenue sources such as State educational appropriations, financial aid grants, and private gifts as non-operating revenues, the University’s operating expenses will typically exceed operating revenues, resulting in an operating loss. These non-operating revenues are essential in offsetting the operating loss.

In fiscal year 2018, the University received $156.7 million in State educational appropriations for operating purposes, an increase of $1.9 million. In 2017, the University received $154.8 million, which was an increase of $6.4 million from 2016.

Gift revenue for the University totaled $48.9 million at September 30, 2018, of which $26.9 million was recorded by the Crimson Tide Foundation. This was a decrease of $7.3 million from the prior year primarily due to a decrease in CTF operating gifts as CTF focused on raising capital gifts. Gift revenues increased $3.9 million in 2017 to $56.1 million due to an increase in CTF gifts.

Nonoperating grants consist primarily of Federal Pell grant awards. This program provides financial assistance grants to qualifying undergraduate students to promote access to postsecondary education. Also included in nonoperating grants are Build America Bond and Recovery Zone Economic Development Bond interest reimbursements. In 2018, nonoperating grant revenue increased to $33.2 million, following a small increase to $31.6 million in 2017 from $31.1 million in 2016.

Both investment and endowment income are combined as investment income on the SRECNP. The University posted net investment income of $90.1 million at September 30, 2018, a decrease of $69.6 million largely due to a decrease in unrealized gains. In fiscal year 2017, the University posted net investment income of $159.7 million, an increase of $105.0 million from fiscal year 2016 as the University posted substantial unrealized gains following a positive market performance, coupled with an increase in the mineral rights and timber land valuations.

Operating Expenses

The University reports natural classifications of expenditures in the SRECNP. Salaries, wages and benefits increased $33.4 million to $699.8 million in 2018 from $666.3 million in 2017, which was a $53.8 million increase over $612.5 million in 2016. The University is committed to recruiting and retaining outstanding faculty, staff and graduate students. Compensation packages and benefit offerings provide leverage for the University to successfully compete with peer institutions and employers outside of the academic sector. In fiscal year 2018, the University implemented GASB 75, resulting in an adjustment that increased OPEB expense by $15.2 million. In fiscal year 2017, the University’s GASB 68 adjustment to pension expense increased $31.8 million resulting from changes in the discount rate and actuarial assumptions used by the Teachers’ Retirement System of Alabama.

Supplies and services experienced an increase of $9.3 million during fiscal year 2018. Factors contributing to the increase include a rise in network maintenance and upgrades, contract and grant expenditures, travel expenses, and higher fuel prices. This follows an increase of $5.0 million from 2016 due to a rise in advertising, program development and marketing expenditures, as well as an increase in the Capstone Village future services obligation.

Scholarships and fellowships expense is reported net of scholarship allowances. The net expenses of $23.7 million, $24.6 million, and $20.4 million for fiscal years 2018, 2017, and 2016, respectively, represent payments made directly to students after awards have been applied against tuition and fees and auxiliary housing charged to student accounts. Gross scholarship expenses totaled $299.6 million, $268.1 million, and $245.0 million for the years ended September 30, 2018, 2017, and 2016, respectively.

In addition to natural classifications, operating expenses are reported by functional classifications as defined by the National Association of College and University Business Officers (“NACUBO”). The functional classification of an operating expense (Instruction, Research, etc.) is assigned to a department based on the nature of the activity, which represents the material portion of the activity attributable to the department. This method reflects, by function of the University, amounts expended in areas such as instruction, research, and operations and maintenance and is used most commonly for comparative reporting purposes among colleges and universities. Scholarships and fellowships related to auxiliary enterprises are broken out separately below and are comprised primarily of Intercollegiate Athletics and housing scholarships.

Other Changes in Net Position

Capital gifts and grants experienced an increase of $47.0 million in fiscal year 2018. $35.3 million of the increase is attributable to UA. This follows a slight increase of $131,000 in fiscal year 2017.

Additions to permanent endowments grew by $1.2 million and $4.8 million in fiscal years 2018 and 2017, respectively, due to restricted endowment gifts made throughout the year.

Intragovernmental transfers are typically limited to transactions with the Crimson Tide Foundation, a blended component unit of the University. At September 30, 2018, intragovernmental transfers had decreased $3.5 million from the prior year. At September 30, 2017 intragovernmental transfers had increased $6.8 million from the prior year.

Capital Assets and Debt Administration

At September 30, 2018, the University had $3.0 billion invested in gross capital assets and accumulated depreciation of $853.8 million, a net of $2.1 billion. At September 30, 2017, the University had $2.8 billion invested in gross capital assets and accumulated depreciation of $786.7 million, a net of $2.0 billion. At September 30, 2016, the University had $2.6 billion invested in gross capital assets and accumulated depreciation of $723.6 million, a net of $1.9 billion. Depreciation expense for fiscal years 2018, 2017, and 2016 totaled $75.5 million, $72.4 million, and $67.4 million, respectively. Buildings and fixed equipment are responsible for the largest increase for each year presented. The following schedule summarizes the University’s capital assets, net of accumulated depreciation:

Significant capital asset expenditures for fiscal year 2018 included (in millions):

Freshman Residential Housing $36.2

Student Organizations (refer to note 5) $28.2

Tutwiler Parking Deck $21.0

H. M. Comer Hall renovation $17.1

Mal Moore Dining Facility $10.7

University Hall Renovation $8.3

Lakeside Dinning renovation  $6.4

Significant capital asset expenditures for fiscal year 2017 included (in millions):

Student Organizations (refer to note 5) $22.7

Freshman Residential Housing $11.2

Little Hall renovation $8.3

Central Campus Thermal Energy Connection $7.0

University Boulevard improvements $6.3

Adapted Athletics Facility $6.0

The University plans to fund ongoing construction projects with reserves, debt proceeds, private gifts, and various federal and state grants.

At September 30, 2018, the University had $1.0 billion of debt outstanding, of which $32.7 million was classified as current. At September 30, 2017, the University had $1.1 billion of debt outstanding, of which $32.3 million was classified as current. The University issued the 2017A, 2017B and 2017C bonds during fiscal year 2017, resulting in an increase in outstanding debt from the prior year. The University had $951.0 million of debt outstanding at September 30, 2016, of which $24.9 million was classified as current.

The large majority of debt obligations bears interest at fixed rates ranging from 0.0% to 6.3% and matures at various dates through fiscal year 2047. The University defeased certain indebtedness during the fiscal year 2017 bond issuance to secure more favorable rates. This is discussed further in note 7.

The University’s outstanding debt obligations at September 30, 2018, 2017, and 2016, exclusive of debt discounts and premiums of $40.1 million, $43.1 million, and $34.7 million, respectively, are summarized below. Further information may also be found in note 7.

Future Economic Outlook

The University has positioned itself to weather the uncertain times our economy experiences. Prudent management, cost containment, conservative budgeting, and sensible investment strategies help ensure the University can remain dedicated to its mission of teaching, research, and service.

A crucial element to the University’s future will continue to be our relationship with the State of Alabama as we work to maintain competitive tuition while providing an outstanding college education for our students. We continuously strive to attract the best students, while increasing the intrinsic and marketable value of education offered at The University of Alabama.

A direct relationship exists between the growth of state support and the University’s ability to control tuition rates. There can be no assurance of future state appropriations. The University expects to be able to absorb this loss of state funds, without a material reduction of its budget, through a combination of increased tuition, steady enrollment and internal reserves. State appropriations are not, and cannot lawfully be, pledged under debt indentures. Major financial strengths of the University include a diverse source of revenues, including state appropriations, tuition and fees (net of scholarship allowances), auxiliary units’ revenue, private support, and federally sponsored grants and contracts.

The University must have campus facilities that are competitive to meet student enrollment goals. The University continues to execute its long-term plan to modernize and expand its teaching, research, and student facilities with a balance of new construction and technology. The continuous improvement of the University’s aesthetic appeal offers visitors, current and prospective students, employees and the surrounding communities an attractive and appealing atmosphere in which to live and work.

The University’s private support is fundamental in meeting budgetary needs. Gifts received are testaments to the high regard in which alumni, corporations, foundations, and other supporters hold the University. The level of private support underscores the continued confidence among donors in the quality of the University’s programs and the importance of its mission. At the same time, economic pressures and potential tax law changes affecting donors may also affect the future level of support the University receives from corporate and individual giving. Our component units have also continued their level of support in the face of the current economic environment.

Enrollment and Statistics (Unaudited)*

The University of Alabama has ranked among the top 75 public universities in the nation in U.S. News and World Report’s annual college rankings for more than a decade, standing at 61st in the 2019 rankings. Approximately 40 percent of the Fall 2018 freshman class scored 30 or higher on the ACT, and 34 percent of the entering class had a high school GPA of 4.0 or higher. The University of Alabama is also a leader among public universities nationwide in the enrollment of National Merit Scholars with more than 600 currently enrolled. University students continue to win prestigious national awards. 53 University of Alabama students have been named Goldwater Scholars, including two in 2018. The University of Alabama has produced a total of 15 Rhodes Scholars, 16 Truman Scholars, 33 Hollings Scholars and 13 Boren Scholars.

Enrollment at the University continues to grow, reaching 38,563 in Fall 2017, an increase of 898 over the prior year. Full-time equivalent (“FTE”) enrollment totaled 36,027, an increase of 907. The chart below displays enrollment counts taken for each fall semester; the last of which (2017), demonstrates enrollment figures occurring for the fall semester of the 2018 fiscal year.

*Data provided by the Office of Institutional Research and Assessment