SAINT MICHAEL S COLLEGE. Consolidated Financial Statements. June 30, 2008 and (With Independent Auditors Report Thereon)

Transcription

1 Consolidated Financial Statements (With Independent Auditors Report Thereon)

2 Table of Contents Page Independent Auditors Report 1 Consolidated Statements of Financial Position 2 Consolidated Statements of Unrestricted Activities 3 Consolidated Statements of Changes in Net Assets 4 Consolidated Statements of Cash Flows 5 6

3 KPMG LLP P.O. Box 564 Suite 400 Burlington, VT Mountain View Drive Colchester, VT Independent Auditors Report The President and Board of Trustees of Saint Michael s College: We have audited the accompanying consolidated statements of financial position of Saint Michael s College and subsidiaries as of, and the related consolidated statements of unrestricted activities, changes in net assets, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the College s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Saint Michael s College and subsidiaries as of, and the changes in their net assets and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. December 1, 2008 Vt. Reg. No KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

4 Consolidated Statements of Financial Position Assets Cash and cash equivalents $ 2,045 $ 2,319 Accounts and other receivables (note 9) 1, Contributions receivable, net (note 7) 4,496 4,433 Other assets (note 12) 4,023 3,504 Deposits with bond trustees (note 12) 4,888 4,743 Long-term investments (note 8) 79,731 81,056 Loans to students 5,085 4,968 Land, buildings, and equipment, net of accumulated depreciation (notes 10, 12 and 13) 75,803 76,246 Total assets $ 177,353 $ 178,199 Liabilities and Net Assets Accounts payable and accrued expenses (notes 11 and 15) $ 7,888 $ 7,859 Deferred income 2,468 2,609 Capital lease obligations (note 13) 2, Amounts held on behalf of others 1,953 1,754 Bonds payable (notes 12 and 14) 34,542 36,628 Refundable advances U.S. government grants 3,883 3,883 Total liabilities 53,411 53,645 Net assets: Unrestricted (note 3) 90,097 93,738 Temporarily restricted (note 4) 6,897 6,980 Permanently restricted (note 5) 26,948 23,836 Total net assets 123, ,554 Total liabilities and net assets $ 177,353 $ 178,199 See accompanying notes to consolidated financial statements. 2

5 Consolidated Statements of Unrestricted Activities Years ended Operating: Revenues: Tuition and fees $ 65,979 $ 62,760 Residence and dining 14,134 12,922 Financial aid (20,879) (20,472) Net student charges 59,234 55,210 Contributions 2,291 1,918 Federal and state grant revenues 1,833 1,816 Investment income used in operations (note 8) 2,672 2,427 Other operating income 1,608 1,869 Other auxiliary enterprises 5,450 5,269 Total revenues 73,088 68,509 Net assets released from restrictions (note 6) Total operating revenues and net assets released from restrictions 73,437 68,729 Expenses (note 17): Instruction 23,290 23,146 Academic support 5,663 5,311 Research Student services 9,108 8,173 Institutional support 10,854 10,907 Public service 1,625 1,175 Auxiliary enterprises 18,581 18,055 Total expenses 69,615 67,188 Increase in unrestricted net assets from operations 3,822 1,541 Nonoperating: Reinvested investment income and unrestricted gains (losses) (note 8) (7,767) 8,776 Other nonoperating (expense) income 1 (3) Net assets released from restrictions (note 6) Gain on disposal of property and equipment Increase (decrease) in unrestricted net assets from nonoperating activities (7,463) 8,872 Increase (decrease) in unrestricted net assets $ (3,641) $ 10,413 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statements of Changes in Net Assets Years ended Increase (decrease) in unrestricted net assets (from previous statement) $ (3,641) $ 10,413 Changes in temporarily restricted net assets: Contributions Reinvested investment income and gains (note 8) Change in value of split-interest agreement (10) (7) Net assets released from restrictions (note 6) (630) (277) Change in value of pledges expected to be received (56) (64) Increase (decrease) in temporarily restricted net assets (83) 161 Changes in permanently restricted net assets: Contributions 3,399 2,957 Reinvested investment income and gains (note 8) (54) 101 Change in value of pledges expected to be received (233) (1,160) Increase in permanently restricted net assets 3,112 1,898 Increase (decrease) in net assets (612) 12,472 Net assets at beginning of year 124, ,082 Net assets at end of year $ 123,942 $ 124,554 See accompanying notes to consolidated financial statements. 4

7 Consolidated Statements of Cash Flows Years ended Cash flows from operating activities: Change in net assets $ (612) $ 12,472 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 6,011 5,735 Change in value of pledges expected to be received 289 1,224 Gain on disposal of property and equipment (22) (42) Noncash contributions (432) (521) Realized gain on sale of investments (2,522) (1,394) Change in unrealized (appreciation) depreciation on investments 8,106 (9,160) Contributions restricted for long-term investment (3,301) (3,973) Change in contributions receivable (352) (233) Change in accounts and notes receivable (352) 352 Change in inventory and prepaid expenses (557) 49 Change in other liabilities (222) 307 Change in deferred income (141) 5 Change in amounts held on behalf of others 199 (1,175) Change in refundable advance U.S. government grants 588 Change in accounts payable and accrued expenses 290 (302) Net cash provided by operating activities 6,382 3,932 Cash flows from investing activities: Purchase of buildings and equipment (3,347) (3,228) Proceeds from sale of equipment Purchase of investments (58,272) (36,130) Proceeds from sale and maturities of investments 54,451 33,986 Disbursements of loans to students, net of repayments (117) (127) Net cash used in investing activities (7,255) (5,235) Cash flows from financing activities: Contributions restricted for long-term investment 3,301 3,973 Change in deposits with bond trustees (145) (143) Payments on capital leases (455) (391) Payments of long-term debt (2,096) (2,037) Payments of annuity obligations (6) (16) Net cash provided by financing activities 599 1,386 Net increase (decrease) in cash and cash equivalents (274) 83 Cash and cash equivalents at beginning of year 2,319 2,236 Cash and cash equivalents at end of year $ 2,045 $ 2,319 Supplemental data: Cash paid for interest $ 1,748 $ 1,792 Capital lease additions 2, See accompanying notes to consolidated financial statements. 5

8 (1) Background Saint Michael s College, founded in 1904 by the Society of Saint Edmund and conducted under its auspices, is an independent nonprofit educational institution chartered by the State of Vermont. The College is a Catholic institution of higher education in the liberal arts tradition. The mission of Saint Michael s College is to contribute through higher education to the development of human culture and enhancement of the human person in the light of Catholic faith. The College serves approximately 2,000 traditional undergraduate students in a residential setting in 29 academic programs. In addition, the College offers graduate degree programs for approximately 500 adult students; and provides intensive English training, masters degree programs in teaching English as a second language, and a wide array of special language training programs. The accompanying financial statements also include the accounts of Saint Michael s College Fire and Rescue, Inc. and Saint Michael s College Merrill Cemetery Association, Inc., both wholly owned subsidiaries of the College. All significant intercompany transactions and balances have been eliminated in consolidation. (2) Summary of Significant Accounting Policies (a) Basis of Statement Presentation The accompanying financial statements, which are presented on the accrual basis of accounting, have been prepared to focus on the College as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions. Net assets and revenues, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the College. Generally the donors of these assets permit the College to use all or part of the income earned and capital gains, if any, on related investments for general or specific purposes. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met by actions of the College and/or the passage of time. Unrestricted net assets Net assets not subject to donor-imposed stipulations. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are generally reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their uses are restricted by explicit donor stipulations or law. Expirations of temporary restrictions on net assets, that is, when the donor-imposed stipulated purpose has been accomplished and/or the stipulated time period has elapsed, are reported as reclassifications between the applicable classes of net assets. 6 (Continued)

9 Contributions, including unconditional promises to give, are recognized as revenues in the period received. Contributions subject to donor-imposed stipulations that are met in the same reporting period are reported as unrestricted support. Promises to give that are scheduled to be received after the balance sheet date are shown as increases in temporarily restricted net assets and are reclassified to unrestricted net assets when the purpose or time restrictions are met. Promises to give subject to donor-imposed stipulations that the corpus be maintained permanently are recognized as increases in permanently restricted net assets. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions to be received after one year are discounted at the appropriate rate commensurate with the risks involved. Amortization of the discount is recorded as additional contribution revenue in accordance with the donor-imposed restrictions, if any, on the contributions. The College reports contributions of land, buildings, or equipment as unrestricted nonoperating support unless the donor places restrictions on their use. Contributions of cash or other assets that must be used to acquire long-lived assets are reported as unrestricted nonoperating support provided the long-lived assets are placed in service in the same reporting period; otherwise, the contributions are reported as temporarily restricted support until the assets are acquired and placed in service. Dividends, interest, and net gains or losses on investments of endowments and similar funds are reported as follows: as increases (decreases) in permanently restricted net assets if the terms of the gift require that they be added to the principal of a permanent endowment fund; as increases (decreases) in temporarily restricted net assets if the terms of the gift impose restrictions on the current use of the income or net gains; and as increases (decreases) in unrestricted net assets in all other cases. (b) Operations The statement of unrestricted activities reports the change in unrestricted net assets from operating and nonoperating activities. Operating revenues consist of those items attributable to the College s instructional programs, research conducted by the academic departments, residential services and other auxiliary enterprises. Investment income and gains on the College s unrestricted investments over the amount appropriated under the College spending plan, as discussed in note 8, are reported as nonoperating revenue. Net assets released from restriction related to capital asset purchase or construction are reported as nonoperating revenues. Expenses associated with the operation and maintenance of College plant assets, including interest and depreciation expense, are allocated on the basis of building space utilized by the functional areas. (c) Cash and Cash Equivalents For the purpose of the statement of cash flows, the College considers cash equivalents as investments with maturities at date of purchase of three months or less. 7 (Continued)

10 (d) Long-Term Investments Investments are reported at their respective fair values. The values of publicly traded fixed income and equity securities are based upon quoted market prices. Investments in units of nonpublicly traded pooled funds are valued at the unit value determined by the fund s administrator based on quoted market prices of the underlying investments. Private equities and certain nonmarketable securities are valued using current estimates of fair value by management based on information provided by the general partner or investment manger for the respective funds. College management is responsible for the fair measurement of investments reported in the financial statements. The College has implemented policies and procedures to assess the reasonableness of the fair values provided. Because of the inherent uncertainty of valuation for certain of these investments, the estimate of the investment manager or general partner may differ from the values that would have been used had a ready market existed, and the differences could be significant. The agreements underlying participation in nonmarketable investment funds may limit the College s ability to liquidate its interest in such investments for a period of time. The College believes that the reported fair values of its nonmarketable securities at the balance sheet date are reasonable. (e) Land, Buildings, and Equipment Constructed and purchased property and equipment are carried at cost. Library books are expensed during the period the expenditures are incurred. Land, buildings, or equipment donated to the College are generally carried in the accounts at appraised value at the date of the gift. Long-lived fixed assets, with the exception of land and artwork, are depreciated using the straight-line method over the estimated useful lives. The College recognizes the fair value of a liability for legal obligations associated with asset retirements in the period in which the obligation is incurred, in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, and FIN 47, Accounting for Conditional Asset Retirement Obligations, if a reasonable estimate of the fair value of the obligation can be made. When the liability is initially recorded, the College capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long lived asset. The liability is accreted to its present value each period and the capitalized cost associated with the retirement obligation is depreciated over the useful life of the related asset. Upon settlement of the obligations, any difference between the cost to settle the asset retirement obligation and the liability recorded will be recognized as a gain or loss in the statement of unrestricted revenues and expenses. (f) (g) Bond Issue Costs Bond issue costs are included in other assets and have been deferred. Bond issue costs are amortized using the straight-line method over the life of the associated bond issue. Student Deposits Student deposits, along with advance payments for tuition, room, and board related to the next semester, have been deferred as amounts held on behalf of others and will be reported as unrestricted revenue as the programs occur. 8 (Continued)

11 (h) (i) (j) (k) (l) Tax Status The College is a tax-exempt organization as described in Section 501(c)(3) of the Internal Revenue Code and is generally exempt from income taxes pursuant to Section 501(a) of the Code. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Contributed Services Contributed services are recorded at fair value, and the amount recorded represents the value of volunteer ambulance staff time donated by members of Saint Michael s Fire and Rescue, Inc. Contributed services of $332 thousand are included in both contribution revenue and salaries of Saint Michael s College as of June 30, Functional Expenses Expenses are reported in the statements of activities in categories recommended by the National Association of College and University Business Officers. The College s primary program services are instruction and public service. Expenses reported as academic support, student services, institutional support, and auxiliaries are incurred in support of these primary program services. Split-Interest Agreements The College s split-interest agreements with donors consist of irrevocable charitable gift annuities, and charitable remainder trusts held and administered by others. For annuity contracts, the contributed assets are included as part of long-term investments at fair value. Charitable gift annuity assets as of were $247 thousand and $198 thousand, respectively. Contribution revenues are recognized as of the date the donated assets are transferred to the College and liabilities are recorded for the present value of the estimated future payments to the donors and/or other beneficiaries. The liabilities are adjusted during the term of the annuities consistent with changes in actuarial assumptions. For charitable remainder trusts held and administered by others the present values of the estimated future cash receipts from the trusts are recognized as contributions receivable, and contribution revenues as of the dates the trusts are established. Distributions from these trusts are recorded as contributions and the carrying value of the assets is adjusted for changes in the estimates of future receipts. (m) Reclassifications of Prior Year Financial Information Certain amounts in the 2007 comparative data have been reclassified to conform to the current year s presentation. 9 (Continued)

12 (n) Recently Issued Accounting Standards Tax Uncertainties Effective July 1, 2007, the College adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income tax recognized in an entity s financial statements. FIN 48 requires entities to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The adoption of FIN 48 had no impact on the College s financial statements. UPMIFA and FSP No. FAS In 2006, the Uniform Law Commission approved the model act, Uniform Prudent Management of Institutional Funds Act (UPMIFA), which serves as a guideline to states to use in enacting legislation. Among UPMIFA s most significant changes is the elimination of UPMIFA s important concept of historic dollar value threshold, the amount below which an organization could not spend from the fund in favor of a more robust set of guidelines about what constitutes prudent spending. As of June 30, 2008, the State of Vermont has not enacted the provisions of UPMIFA. In August 2008, FASB Staff Position No. FAS 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act and Enhanced Disclosures for All Endowment Funds (FSP), was issued, and its guidance is effective for fiscal years ending after December 15, A key component of that FSP is a requirement to classify the portion of a donor-restricted endowment fund that is not classified as permanently restricted net assets as temporarily restricted net assets until appropriated for expenditure. This component of the FSP is not applicable to the College until or if the State of Vermont enacts the provisions of UPMIFA. The College will adopt the FSP for the year ending June 30, 2009, which will require expanded disclosures for all endowment funds. (3) Unrestricted Net Assets Unrestricted net assets consist of the following at : Undesignated $ 10,106 $ 5,114 Designated for other purposes 125 Designated for student loans Designated for investment in plant 38,202 38,927 Designated for long-term investment 40,809 48,782 $ 90,097 $ 93, (Continued)

13 (4) Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at : Purpose restrictions: Student aid $ 2,723 $ 2,756 Purchase or construction of property and equipment 1,762 1,796 Other Total 4,837 4,884 Time restrictions: Contributions receivable 2,060 2,096 Total $ 6,897 $ 6,980 (5) Permanently Restricted Net Assets Permanently restricted net assets consist of the following at : Funds for which the income is restricted: Instruction $ 3,501 $ 3,487 Student aid 16,726 14,092 Other, including contributions receivable of $2.4 million and $2.3 million in 2008 and 2007, respectively 6,721 6,257 Total $ 26,948 $ 23,836 (6) Net Assets Released from Restrictions Net assets released from temporary donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of events specified by the donors are as follows at : Purpose restrictions: Student aid $ 238 $ 150 Construction or purchase of buildings and equipment Other $ 630 $ (Continued)

14 The net assets released from restrictions are allocated between operating and nonoperating as follows: Operating $ 349 $ 220 Nonoperating $ 630 $ 277 (7) Contributions Receivable Contributions receivable consist of the following at : Unconditional promises expected to be collected in: Less than one year $ 2,984 $ 6,171 One year to five years 951 2,558 More than five years 5 Less allowance for uncollectible contributions (270) (5,237) Less discount to present value (192) (286) 3,473 3,211 Contributions receivable under charitable gift trust agreements 1,698 1,798 Less discount to present value (675) (576) 1,023 1,222 Total $ 4,496 $ 4,433 The College uses a discount rate ranging from 3.34% to 5.10% as established upon receipt of the contribution to determine the present value of contributions receivable. Discount rates used to calculate the College s present value of charitable gift trust agreements range from 4.00% to 6.88% 12 (Continued)

15 (8) Long-Term Investments The College s investments are summarized as follows at : Cost Fair value Cost Fair value Cash and cash equivalents $ 4,559 $ 4,559 $ 1,300 $ 1,300 Short term fund 6,606 6,606 3,049 3,049 Domestic equities 6,721 6,790 7,158 8,242 Domestic equities index fund 3,516 3,139 4,939 5,464 Global equities mutual funds 23,229 31,854 27,748 42,799 Domestic fixed income mutual funds 5,199 5,029 12,781 12,543 Hedge fund-of-funds and private equities 19,555 20,957 6,465 7,656 Real estate Land held for sale Total $ 70,261 $ 79,731 $ 63,446 $ 81,056 Included in the above table of investments are approximately $21.8 million and $7.7 million of investments whose carrying values have been estimated by management in the absence of readily determinable fair values as of, respectively. Management s estimates are based on information provided by the fund managers or the general partners; management believes such estimates are reasonable. Certain investments in hedge fund-of-funds permit redemptions on an annual basis. 13 (Continued)

16 Long-term investment activities consist of the following for the year ended : Investment return: Interest and dividends, net of investment fees of $257 thousand in 2008 and $287 thousand in 2007 $ 601 $ 985 Unrealized gains (losses) (8,141) 9,051 Realized gains 2,522 1,394 Total return on investments (5,018) 11,430 Amount appropriated for operations (2,672) (2,427) Reinvested investment income (losses) $ (7,690) $ 9,003 Reinvested investment income (losses): Reinvested in unrestricted, designated groups $ (7,767) $ 8,776 Reinvested in temporarily restricted group Reinvested in permanently restricted group (54) 101 Total reinvested investment income (losses) $ (7,690) $ 9,003 The College has interpreted relevant state law as generally permitting the spending of gains on endowment funds. The College s endowment spending policy is 4.5% of the lowest of the following, but not less than $2.0 million: 1. the rolling average market value for the three year period ended two years prior to the fiscal year in which the spending from the endowment occurs, 2. the market value as of June 30th of the fiscal year ending two years prior to the fiscal year in which the spending from the endowment occurs, or 3. the market value as of October 31st of the preceding fiscal year. Endowment spending amounted to $2.7 million and $2.4 million for the years ending June 30, 2008 and 2007 and is classified as unrestricted operating revenue. The College has outstanding capital contribution commitments related to private equity, real estate and subordinated debt investments in the amount of $7.7 million as of June 30, (9) Allowances for Uncollectible Accounts Accounts receivable are net of allowance for uncollectible accounts of $838 thousand and $836 thousand, at, respectively. Bad debt expense charged to operations was $67 thousand and $81 thousand in 2008 and 2007, respectively. 14 (Continued)

17 (10) Land, Buildings, and Equipment The following is a summary of the College s property and equipment as of : Estimated lives Artwork $ 306 $ 103 Land 2,094 1,986 Land improvements years 3,678 3,521 Buildings and improvements 5 50 years 113, ,169 Equipment and furniture 3 10 years 27,363 26,118 Construction in progress 2,867 1, , ,052 Less accumulated depreciation (74,114) (68,806) Net land, buildings, and equipment $ 75,803 $ 76,246 Depreciation expense charged to operations was $6.0 million and $5.7 million in 2008 and 2007, respectively. (11) Retirement and Similar Plans The College has a defined contribution retirement plan providing retirement benefits for eligible employees. Employees are generally eligible to participate in the plan after one year of continuous employment. College contributions to the plan are calculated as a percentage of the participant s annual base compensation and additional voluntary contributions by participants are permitted. College contributions to the plan totaled $2.2 million in 2008 and 2007, respectively. The College adopted a formal phased retirement plan for faculty, which was in effect from September 1, 1999 to December 15, Participants in the plan engage in a reduced level of employment over a three-year period, and during that period were entitled to annual salary increases, pension contributions, health care coverage, and other College benefits. After the phased retirement period, retired faculty members and qualified dependents remained as members of the College health insurance group, at the expense of the College, until they became eligible for Medicare. Eligibility was limited to current tenured faculty between the ages of 55 and 67 with a minimum of ten years of full-time service. In subsequent fiscal years, the College made individual arrangements with several tenured faculty members, which taken together constitute a similar plan. The plan and these agreements are accounted for under Financial Accounting Standards No. 106, Employers Accounting for Postretirement Benefits Other than Pensions. The amount recorded as an accrued liability was $228 thousand and $316 thousand at June 30, 2008 and 2007, respectively. 15 (Continued)

18 During the fiscal year ended June 30, 2003, the College offered a voluntary separation program to eligible faculty and staff members who had more than one year of service with the College. Eligible employees received two weeks of compensation for each year of service to a maximum of 52 weeks, a separation payment based on 15% of their annual base pay, plus any accrued vacation and holiday pay. In addition, health and dental insurance was provided for eighteen months at the existing employee co-payment levels, and employees who were age 57 or older (with at least 15 years of service) are able to continue on the insurance plan until they become eligible for Medicare or another insurance plan. Finally, employees and eligible dependents who were already matriculated in a graduate or undergraduate program receive the employee tuition benefit until the completion of their academic program. Forty staff members and five members of the faculty opted to enroll in this plan. The separation date for staff was January 3, 2003; faculty contracts terminated with the end of their academic year employment contract. The amount recorded as an accrued liability was $366 thousand and $425 thousand at, respectively. (12) Bonds Payable Bonds payable consist of the following at : Dormitory bonds: Agency bonds payable to USHFA; fixed interest rates varying from 2.875% to 3.750%; final payments due in various years through fiscal 2008 $ $ 5 Townhouse mortgage notes: Payable to Capmark Finance Inc.; 3% interest rate; principal and interest paid in level semi-annual installments over 30 years ending in fiscal 2013; collateralized by dormitory structure bonds: Payable to VEHBFA; consists of bonds issued aggregating $20.9 million with fixed interest rates ranging from 3.00% to 5.00%, maturing serially through 2015; and a $2.8 million 5.00% term bond due October 1, 2023; interest is payable semi-annually; the face amount of the bonds is $13.2 million and $14.4 million at, respectively. Unamortized original issue discount of $32.5 thousand and $38.5 thousand has been netted against this liability at, respectively. 13,137 14, (Continued)

19 2001 bonds: Payable to VEHBFA; consists of bonds issued aggregating $4.7 million with fixed interest rates ranging from 2.75% to 4.60%, maturing serially through 2016; and a $4.1 million 5.00% term bond due October 1, 2023; interest is payable semi-annually; the face amount of the bonds is $7.2 million and $7.5 million at, respectively. Unamortized original issue discount of $64 thousand and $71 thousand has been netted against this liability at, respectively. $ 7,111 $ 7, bonds: Payable to VEHBFA; consists of bonds issued aggregating $10.4 million with fixed interest rates ranging from 2.00% to 5.00%, maturing serially through 2023; and $1.6 million, 5.125% and $3.0 million, 6.00% term bonds due October 1, 2028; interest is payable semi-annually; the face amount of the bonds is $13.5 million and $13.9 million at, respectively. Unamortized original issue premium of $19 thousand and $20 thousand has been added to this liability at, respectively. 13,493 13,890 Total $ 34,542 $ 36,628 All bonds are subject to trust indentures. The agreements contain various covenants, which include the maintenance of certain levels of cash balances. The College is in compliance with these debt covenants at. Annual principal payments due on bonds and mortgage notes payable, excluding the original issue discount or premium, are as follows: Year ending June 30: 2009 $ 2, , , , ,294 Thereafter 23,790 $ 34, (Continued)

20 Bond issuance costs of $944 thousand less accumulated amortization of $292 thousand and $254 thousand are reported and are included in other assets at their net value of $652 thousand and $690 thousand at, respectively. Interest expense charged to operations was $1.8 million in 2008 and 2007, respectively. The College has an irrevocable unsecured line of credit in the amount of $3 million at June 30, 2008 and 2007, which is available for working capital needs. The current line of credit expires on September 1, (13) Capital Leases Capital leases for computers and equipment consist of the following at : Obligation payable for computer equipment, imputed interest of 8.50%, secured by equipment, annual installments of $54 thousand through $ 60 $ 107 Obligation payable for computer equipment, imputed interest ranging from 5.5% to 6.75%, secured by equipment, quarterly installments of $29 thousand through Obligation payable for office equipment, imputed interest of 6.75%, secured by equipment, monthly installments of $1 thousand through Obligation payable for computer equipment, imputed interest of 8.75%, secured by equipment, quarterly installments of $3 thousand through Obligation payable for computer equipment, imputed interest of 8.75%, secured by equipment, quarterly installments of $22 thousand through Obligation payable for office equipment, imputed interest of 8.25%, secured by equipment, monthly installments of $2 thousand through Obligation payable for office equipment, imputed interest of 6.75%, secured by equipment, monthly installments of $4 thousand through Obligation payable for office equipment, imputed interest of 6.75%, secured by equipment, monthly installments of $7 thousand through (Continued)

21 Obligation payable for computer equipment, imputed interest of 6.17%, secured by equipment, quarterly installments of $11 thousand through $ 105 $ Obligation payable for computer equipment, imputed interest of 6.75%, secured by equipment, monthly installments of $18 thousand through Obligation payable for computer equipment, imputed interest of 5.5%, secured by equipment, monthly installments of $38 thousand through ,637 Obligations under capital leases $ 2,677 $ 912 Future minimum lease payments under these capital leases as of June 30, 2008 are as follows: Year ending June 30: 2009 $ Total minimum lease payments 3,916 Less amounts representing estimated maintenance costs 765 Net minimum lease payments 3,151 Less amounts representing interest 474 Total future minimum lease payments $ 2,677 (14) Disclosure About Fair Value of Financial Instruments In accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosures About the Fair Value of Financial Instruments, the estimated fair values of the College s financial instruments as of have been determined by using, where practicable, appropriate valuation methodologies. Using discounted cash flow analysis, the College determined that the estimated fair value of its indebtedness was approximately $529 thousand and $917 thousand greater than the gross carrying value at, respectively. The College further determined that the carrying amounts of all other financial assets and liabilities at approximate fair values. 19 (Continued)

22 (15) Commitments and Contingencies The College is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the College s financial statements. The College provides health and dental insurance coverage to its eligible employees through self-funded plans administered by a regulated insurance carrier. The College carries stop loss insurance for any claim exceeding $100 thousand during the annual contract period, and for aggregate claims exceeding 125% of estimated claims for the year. There are no upper limits on these policies related to the core Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans for the contract period ended December 31, 2008; a $1.0 million maximum applies to any claims related to the comprehensive and Medicare supplemental plans. The amount reserved for incurred but not reported health and dental claims was $614 thousand and $646 thousand at, respectively. The College participates in the Independent 529 Plan (the Plan). The Plan permits families to purchase tuition certificates which provide prepaid annual tuition benefits. One annual tuition benefit covers the cost of full-time student tuition and mandatory fees. The College is obligated to accept certificates purchased during the period the College is a participant in the Plan as payment of tuition and fees without regard to the standard tuition rate in effect at the time of the individual s enrollment at the College. The effect of this program cannot be determined as it is contingent on future tuition increases and the Plan participants who attend the College. (16) Fundraising The College classifies fundraising expenses as institutional support. The amount included in operating expenses was $1.9 million and $1.7 million in 2008 and 2007, respectively. (17) Operating Expenses The natural classification of operating expenses for the years ended was: Salaries and benefits $ 39,077 $ 37,620 General supplies and expenses 9,814 10,333 Cost of items purchased for resale 5,376 5,140 Depreciation 6,015 5,735 Plant maintenance 4,528 4,137 Interest and debt fees 1,790 1,834 Travel and entertainment 2,315 1,814 Library acquisitions Total operating expenses $ 69,615 $ 67, (Continued)

23 (18) Subsequent Event Effective September 29, 2008, Wachovia Bank, N.A., as Trustee of the Common Fund for Short Term Investments (the Short Term Fund) announced its decision to terminate and liquidate the Short Term Fund. No additional contributions to the Short Term Fund will be accepted. Under the liquidation plan, investors in the Short Term Fund will be allowed to withdraw balances based on their proportional interest in the Short Term Fund as assets mature or are sold. The College s balances in the Short Term Fund as of June 30, 2008 and October 31, 2008 were $6.6 million and $1.7 million. The value of the liquidation proceeds received by the College is not expected to vary significantly from the fair value carried on the College s books based on the current net asset value of the Short Term Fund. However, the realization of this value will depend upon market conditions including the liquidity of the Short Term Fund s assets during the liquidation period. The Short Term Fund is included in investments as disclosed in footnote 8. Due to the nature of the Fund s underlying holdings, the College classified its interest of $6.6 million at June 30, 2008 as a long-term investment and has reclassified its interest of $3.0 million at June 30, 2007 ($2.1 million at June 30, 2006) from cash and cash equivalents to long-term investments. Additionally, for purposes of the statement of cash flows, the College has accounted for its activity in the Fund on a gross basis and has reported the activity in the investing section of the statements of cash flows. 21