GETTYSBURG COLLEGE. Consolidated Financial Statements. May 31, 2016 and (With Independent Auditors Report Thereon)

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1 Consolidated Financial Statements (With Independent Auditors Report Thereon)

2 Table of Contents Page(s) Independent Auditors Report 1 2 Consolidated Statements of Financial Position, 3 Consolidated Statement of Activities, Year ended May 31, Consolidated Statement of Activities, Year ended May 31, Consolidated Statements of Cash Flows, Years ended Schedule of Assets, Liabilities, and Net Assets 27

3 KPMG LLP Suite North Third Street PO Box 1190 Harrisburg, PA Independent Auditors Report The Board of Trustees Gettysburg College: We have audited the accompanying consolidated financial statements of Gettysburg College, which comprise the consolidated statements of financial position as of, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Gettysburg College as of, and the changes in its net assets and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. KPMG LLP, is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Other Matter Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying Schedule of Assets, Liabilities, and Net Assets is presented for purposes of additional analysis and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Harrisburg, Pennsylvania September 15,

5 Consolidated Statements of Financial Position Assets Cash and cash equivalents $ 51,594,797 43,674,799 Accounts and other receivable, net 953,519 1,006,539 Contributions receivable, net 5,242,739 5,253,777 Student loans receivable, net 5,646,855 5,992,915 Prepaid expenses and other assets 3,696,946 3,886,111 Investments 241,560, ,596,175 Funds held in trust by others 34,462,764 35,414,673 Property, plant, and equipment, net 162,218, ,342,309 Total assets $ 505,376, ,167,298 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses $ 16,495,448 15,810,206 Students advance payments and deposits 2,293,867 2,512,905 Deposits held in custody for others 795, ,789 Annuities payable 7,155,649 6,869,407 Advances from federal government 2,048,278 2,047,553 Accrued postretirement benefit cost 15,144,309 16,350,947 Bonds premium 1,544,349 1,821,846 Long-term debt 77,483,773 80,723,870 Total liabilities 122,960, ,919,523 Net assets: Unrestricted 179,527, ,999,262 Temporarily restricted 45,357,103 55,066,471 Permanently restricted 157,531, ,182,042 Total net assets 382,415, ,247,775 Total liabilities and net assets $ 505,376, ,167,298 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statement of Activities Year ended May 31, 2016 (with comparative totals for the year ended May 31, 2015) 2016 Temporarily Permanently 2015 Unrestricted restricted restricted Total Total Operating revenues and gains: Tuition and fees $ 126,602, ,602, ,219,454 Student aid (49,095,641) (49,095,641) (47,342,659) Net tuition and fees 77,506,622 77,506,622 75,876,795 Investment income 4,890,939 5,977,164 10,868,103 10,164,111 Private gifts and grants 4,218,594 2,541,451 6,760,045 5,772,536 Government grants 1,247,943 1,247,943 1,194,322 Other income 2,949,691 7,037 2,956,728 2,927,647 Auxiliary services 34,007,881 34,007,881 32,907,522 Total operating revenues and gains 124,821,670 8,525, ,347, ,842,933 Net assets released from restrictions operations 8,299,785 (8,299,785) Total operating revenues and gains and other support 133,121, , ,347, ,842,933 Operating expenses: Education and general: Instruction 47,348,992 47,348,992 46,912,774 Research 1,100,286 1,100, ,959 Public service 2,741,335 2,741,335 2,738,981 Academic support 17,157,727 17,157,727 17,197,698 Student services 21,531,785 21,531,785 21,732,697 Institutional support 19,988,694 19,988,694 20,920,518 Auxiliary services 19,019,952 19,019,952 19,294,669 Total operating expenses 128,888, ,888, ,661,296 Change in net assets from operating activities 4,232, ,867 4,458,551 (818,363) Nonoperating activities: Investment (loss) income, net of endowment spending (11,043,985) (11,269,957) (1,158,723) (23,472,665) 2,440,423 Change in value of split-interest agreements (729,903) (98,488) (258,340) (1,086,731) (717,482) Postretirement-related charges other than net periodic benefit costs 1,718,160 1,718,160 (1,754,345) Private gifts 3,501,540 1,875,167 8,651,530 14,028,237 7,452,625 Government grants 100, , ,000 Other nonoperating revenue 7,137,596 15,165 7,152,761 6,935,261 Other nonoperating expenses (6,730,217) (6,730,217) (6,778,108) Net assets released from restrictions capital 441,957 (441,957) Change in net assets from nonoperating activities (5,704,852) (9,935,235) 7,349,632 (8,290,455) 7,778,374 Change in net assets (1,472,168) (9,709,368) 7,349,632 (3,831,904) 6,960,011 Net assets, beginning of year 180,999,262 55,066, ,182, ,247, ,287,764 Net assets, end of year $ 179,527,094 45,357, ,531, ,415, ,247,775 See accompanying notes to consolidated financial statements. 4

7 Consolidated Statement of Activities Year ended May 31, Temporarily Permanently Unrestricted restricted restricted Total Operating revenues and gains: Tuition and fees $ 123,219, ,219,454 Student aid (47,342,659) (47,342,659) Net tuition and fees 75,876,795 75,876,795 Investment income 4,630,983 5,533,128 10,164,111 Private gifts and grants 3,966,241 1,806,295 5,772,536 Government grants 1,194,322 1,194,322 Other income 2,921,858 5,789 2,927,647 Auxiliary services 32,907,522 32,907,522 Total operating revenues and gains 121,497,721 7,345, ,842,933 Net assets released from restrictions operations 7,857,570 (7,857,570) Total operating revenues and gains and other support 129,355,291 (512,358) 128,842,933 Operating expenses: Education and general: Instruction 46,912,774 46,912,774 Research 863, ,959 Public service 2,738,981 2,738,981 Academic support 17,197,698 17,197,698 Student services 21,732,697 21,732,697 Institutional support 20,920,518 20,920,518 Auxiliary services 19,294,669 19,294,669 Total operating expenses 129,661, ,661,296 Change in net assets from operating activities (306,005) (512,358) (818,363) Nonoperating activities: Investment income, net of endowment spending 646,205 1,680, ,209 2,440,423 Change in value of split-interest agreements (411,235) (15,821) (290,426) (717,482) Postretirement-related charges other than net periodic benefit costs (1,754,345) (1,754,345) Private gifts 251,475 1,305,948 5,895,202 7,452,625 Government grants 200, ,000 Other nonoperating revenue 6,930,353 4,908 6,935,261 Other nonoperating expenses (6,778,108) (6,778,108) Net assets released from restrictions capital 712,556 (712,556) Change in net assets from nonoperating activities (403,099) 2,257,580 5,923,893 7,778,374 Change in net assets (709,104) 1,745,222 5,923,893 6,960,011 Net assets, beginning of year 181,708,366 53,321, ,258, ,287,764 Net assets, end of year $ 180,999,262 55,066, ,182, ,247,775 See accompanying notes to consolidated financial statements. 5

8 Consolidated Statements of Cash Flows Years ended Cash flows from operating activities: Change in net assets $ (3,831,904) 6,960,011 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 11,462,318 11,392,466 Net realized and unrealized losses (gains) on investments and funds held in trust by others 16,013,678 (9,311,594) Loss on disposition of equipment 3, ,840 Receipt of contributed securities and property, plant, and equipment (3,938,361) (2,404,240) Private gifts and grants restricted for long-term investment (10,626,697) (7,401,150) Changes in assets and liabilities: Accounts and other receivable 53,020 37,049 Prepaid expenses and other assets 189, ,115 Accounts payable and accrued expenses 685,242 (105,512) Students advance payments and deposits (219,038) (193,733) Deposits held in custody for others 12, ,877 Accrued postretirement benefit cost (1,206,638) 1,839,405 Bond premium (277,497) (295,125) Net cash provided by operating activities 8,319,417 1,028,409 Cash flows from investing activities: Purchases of property, plant, and equipment (6,182,920) (7,586,687) Proceeds from sale of equipment 7,300 Proceeds from sales of investments 30,455,214 49,566,314 Purchases of investments (31,689,299) (49,712,469) Student loans collected 1,258,237 1,141,742 Student loans issued (999,491) (993,641) Increase in provision for uncollectible loans 87,314 64,701 Net cash used in investing activities (7,063,645) (7,520,040) Cash flows from financing activities: Change in annuities payable 286,242 20,082 Proceeds from issuance on long-term debt 8,500,000 Payments on long-term debt refinancing (6,163,168) Payments on long-term debt principal payments (3,240,097) (3,076,130) Change in advances from federal government for student loans 725 (21,486) Distribution of termination of funds held in trust by others 403,479 Proceeds received from private gifts and grants restricted for long-term investment 9,617,356 7,622,792 Net cash provided by financing activities 6,664,226 7,285,569 Net increase in cash and cash equivalents 7,919, ,938 Cash and cash equivalents, beginning of year 43,674,799 42,880,861 Cash and cash equivalents, end of year $ 51,594,797 43,674,799 Supplemental disclosures: Cash paid for interest $ 3,555,749 3,726,999 Schedule of noncash investing/financing activities: Gifts of funds held in trust by others $ 1,020,379 Gifts of securities and property, plant, and equipment 3,938,361 2,515,927 See accompanying notes to consolidated financial statements. 6

9 (1) Summary of Significant Accounting Policies Gettysburg College (the College) is a private, not-for-profit institution of higher education in Gettysburg, Pennsylvania. The College provides education services at the undergraduate level. The College s significant accounting policies are described as follows to enhance the usefulness of the consolidated financial statements to the reader: (a) Reporting Entity The accompanying consolidated financial statements include the accounts of the College, its pooled life income funds, and its wholly owned subsidiaries, which include: Gettysburg Great Productions, LLC (GGP) GGP was organized as a film production company to develop a feature length film that further raises the national visibility of the College. Capitalized film development and production costs are reported within prepaid expenses and other assets. Amortization of capitalized film costs began in fiscal year 2014 upon the film s distribution and is based upon the ratio of the current period s revenues to total revenues. Majestic Concessions Corporation (MCC) MCC was organized to operate the food and beverage service for The Majestic Theater at the David and Jennifer LeVan Performing Arts Center. Gettysburg Hotel The College is sole investor in Gettysburg Hotel Investors, LP, which was organized to own, renovate, and operate commercial real estate located at Lincoln Square in Gettysburg, PA. Bullet Land, Inc. and Gettysburg Hotel Management, LLC were formed to serve as general partner and limited partner of Gettysburg Hotel Investors, LP. Gettysburg Hotel, Inc., a subsidiary of Bullet Land, Inc., was created to manage and operate the Gettysburg Hotel. These entities are collectively referred to as the Gettysburg Hotel. Subsidiary operations are presented within other nonoperating revenues and other nonoperating expenses. All significant intercompany accounts and transactions have been eliminated in consolidation. (b) Basis of Presentation The College follows not-for-profit reporting standards, which require the reporting of total assets, liabilities, and net assets in a consolidated statement of financial position; reporting the change in net assets in a consolidated statement of activities; and reporting the sources and uses of cash and cash equivalents in a consolidated statement of cash flows. Net assets and revenues, gains, expenses, and losses are classified as unrestricted, temporarily restricted, or permanently restricted based on the existence or absence of donor-imposed restrictions as follows: Permanently restricted 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 on these assets. These net assets primarily include the College s permanent endowment funds. 7 (Continued)

10 Temporarily restricted Net assets whose use by the College is subject to donor-imposed stipulations that can be fulfilled by actions of the College pursuant to those stipulations or that expire by the passage of time. Unrestricted Net assets that are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the board of trustees or may otherwise be limited by contractual agreements with outside parties. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Expiration of donor-imposed stipulations that simultaneously increase one class of net assets and decrease another are reported as reclassifications between the applicable classes of net assets. Nonoperating activities reflect transactions affecting net assets associated with endowment and capital contributions, gains or losses on investments (net of endowment spending), change in value of split-interest agreements, subsidiary operations, and other activities of a nonoperating nature. (c) (d) Cash and Cash Equivalents Cash and cash equivalents are recorded at fair value and include institutional money market funds and similar short-term investments with original maturities of three months or less. Contributions Contributions, including unconditional promises to give, are recognized as revenues in the period received. 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 an appropriate discount rate commensurate with the risks involved. Amortization of discounts is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable is provided based upon management s judgment, including such factors as prior collection history, type of contribution, and nature of the fundraising activity. Contributions and endowment income with donor-imposed restrictions, including those met in the same year as received or earned, are reported as temporarily restricted revenues and are reclassified to unrestricted net assets when an expense is incurred that satisfies the donor-imposed restriction. Contributions restricted for the acquisition of plant and equipment are reported as temporarily restricted revenues. (e) Investments Investments are reported at fair value. Whenever available, quotations from organized securities exchanges are used as the basis of fair value. For investments not traded on organized exchanges, their net asset value (NAV) per share or equivalent have been used as a practical expedient for determining fair value and are subject to additional uncertainty. Therefore, values realized upon disposition may vary significantly from currently reported values. 8 (Continued)

11 Investments are exposed to various risks, such as interest rate, market, and credit risks. The College attempts to manage these risks through diversification and monitoring of economic conditions. In addition, the College employs procedures to ensure appropriate oversight of its investments including ongoing monitoring of investment managers and periodic review of fair value and other information received from managers. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the consolidated statements of financial position. (f) Funds Held in Trust by Others Funds held in trust by others represent the College s beneficial interest in various irrevocable trusts. The terms of these perpetual trusts provide that the College is to receive annually a certain percentage of the income earned by the funds. Distributions from the trusts are recorded as operating investment income, and the carrying value of the assets is adjusted for changes in fair value of the trusts. These funds are neither in the possession nor under the control of the College. Because of its permanent right to the earnings of the trusts, the College reports its share of these trusts on its consolidated financial statements as funds held in trust by others. The trusts are recorded at fair value based on market prices provided by the financial institutions that administer the trust funds. (g) (h) (i) Property, Plant, and Equipment Property, plant, and equipment are stated at cost on date of acquisition or at fair value on the date of donation, less accumulated depreciation. Annual depreciation is calculated on a straight-line basis over useful lives ranging from 15 to 40 years for building and improvements, 5 to 15 years for equipment and vehicles, and 5 to 39 years for hotel equipment and buildings. The College capitalizes interest on borrowed funds during construction periods. Capitalized interest is charged to construction in progress or buildings and, upon completion of project, amortized over the useful lives of the asset. Split-Interest Agreements and Annuities Payable The College s split-interest agreements with donors consist primarily of charitable remainder trust and annuity agreements for which the College serves as trustee. Assets held in these trusts are included in investments and reported at fair value. Annuity funds represent funds received on the condition that the College pays stipulated amounts for a specified term to individuals designated in the split-interest agreement. Contribution revenues are recognized at the date the trusts are established after recording liabilities for the present value of the estimated future payments to be made to the donors and/or other beneficiaries. The College uses the applicable federal rate at the time of gift as the basis for determining the discount rate for recording annuity obligations at net present value. Discount rates range from 1.2% to 11% for the years ended, respectively. Adjustments to annuities payable are included in nonoperating activities on the consolidated statements of activities. Advances from Federal Government Funds provided by the U.S. government under the Federal Perkins Loan Program are loaned to qualified students and may be reloaned after collections. These funds are ultimately refundable to the government and are reported as a liability. 9 (Continued)

12 (j) (k) Bond Issuance Costs Costs associated with issuing bonds payable have been capitalized and are amortized over the term of the bonds and are reported in other assets on the consolidated statement of financial position. Income Taxes The College is recognized by the Internal Revenue Service as a not-for-profit educational institution and, therefore, qualifies under Section 501(c)(3) of the Internal Revenue Code for exemption from federal income tax on activities related to its exempt purpose. Management annually reviews its tax positions and has determined that there are no material uncertain tax positions that require recognition in the financial statements. Bullet Land, Inc., Gettysburg Hotel, Inc., and MCC are for-profit corporations subject to federal income taxes and are included in nonoperating activities. Gettysburg Hotel Management, LLC and GGP are single member limited liability companies and, as such, they are disregarded for federal income tax purposes. Gettysburg Hotel Investors, L.P. is a limited partnership. (l) (m) Functional Expenses Costs related to the operation, maintenance, and financing of the physical plant, including depreciation of plant assets and interest on long-term debt, are allocated to program and supporting activities based upon the primary use of the facilities. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent asset and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates. 10 (Continued)

13 (2) Investment Income A summary of the College s total investment (loss) income as reported in the consolidated statements of activities is presented as follows: Interest and dividends $ 3,409,116 3,292,940 Net realized/unrealized (losses) gains on investments and funds held in trust by others (16,013,678) 9,311,594 Total investment (loss) income $ (12,604,562) 12,604,534 Distributable endowment income $ 9,557,000 8,873,000 Other investment income, principally related to trusts 1,311,103 1,291,111 Operating investment income 10,868,103 10,164,111 Nonoperating investment income (23,472,665) 2,440,423 Total investment (loss) income $ (12,604,562) 12,604,534 (3) Fair Value of Financial Instruments (a) Fair Value Measurements Fair value refers to the price the College would receive upon selling an asset or the price paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the reporting date. A three-tier hierarchical framework has been established that classifies valuation inputs based on the extent to which the inputs are observable in the marketplace. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants, in the context of an orderly market, would use in pricing the asset or liability. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs, and are summarized as follows: Level 1 Level 2 Level 3 Valuations are based on observable inputs that reflect quoted prices in active markets for identical assets or liabilities. Valuations are based on observable inputs that reflect quoted prices for similar assets or liabilities in markets that are less active; or other significant market-based inputs, which are observable, either directly or indirectly. Valuations are based on significant unobservable inputs that may be supported by little or no market activity for the assets or liabilities. In certain cases, the inputs used to measure valuations may fall into different levels of the fair value hierarchy. Accordingly, the fair value level is determined based on the lowest level of input that is 11 (Continued)

14 significant to the valuation of the specific investment. These classifications are intended to reflect the observability of the inputs used in valuation and are not necessarily an indication of risk or liquidity. (b) Investments The following tables summarize the College s investments for which fair value is measured on a recurring basis by level within the fair value hierarchy. The tables also summarize investments for which fair value is measured using the net asset value per share (or its equivalent) as a practical expedient. These investments have not been categorized within the fair value hierarchy. Fair value measurement Net asset Total May 31, 2016 Level 1 Level 3 value fair value Long-term pooled endowment: Global public equities $ 48,323,780 62,648, ,972,426 Hedge funds 41,257,374 41,257,374 Real assets 4,465,552 13,608,060 18,073,612 Private equity 9,093,360 9,093,360 Private common stock 1,000,000 1,000,000 Fixed income securities 27,803,159 27,803,159 Cash and cash equivalents 4,271,308 4,271,308 84,863,799 1,000, ,607, ,471,239 Trust and split interest investments: Global public equities 1,026,046 2,446,457 3,472,503 Fixed income securities 579,041 1,000,103 1,579,144 Cash and cash equivalents 461, ,197 2,066,284 3,446,560 5,512,844 Nonpooled investments: Private preferred stock 700, ,000 Cash and cash equivalents 22,876,147 22,876,147 22,876, ,000 23,576,147 Total investments $ 109,806,230 1,700, ,054, ,560, (Continued)

15 Fair value measurement Net asset Total May 31, 2015 Level 1 Level 3 value fair value Long-term pooled endowment: Global public equities $ 50,416,383 65,436, ,853,172 Hedge funds 46,459,510 46,459,510 Real assets 4,283,686 15,795,072 20,078,758 Private equity 10,352,385 10,352,385 Private common stock 1,000,000 1,000,000 Fixed income securities 27,590,843 27,590,843 Cash and cash equivalents 3,362,784 3,362,784 85,653,696 1,000, ,043, ,697,452 Trust and split interest investments: Global public equities 1,106,390 2,552,082 3,658,472 Fixed income securities 630,462 1,081,483 1,711,945 Cash and cash equivalents 509, ,740 2,246,592 3,633,565 5,880,157 Nonpooled investments: Private preferred stock 700, ,000 Cash and cash equivalents 22,318,566 22,318,566 22,318, ,000 23,018,566 Total investments $ 110,218,854 1,700, ,677, ,596,175 Investments Measured under the Fair Value Hierarchy For those investments that are measured under the fair value hierarchy, the investments have been assigned a level based upon the observability of the inputs that are significant to the overall valuation, which is summarized as follows: Level 1 Level 2 Level 3 Investments include publicly traded equity and fixed income securities held in separate accounts and institutional commingled mutual and money market funds that have daily quoted prices in organized securities exchanges. These investments allow daily redemptions with one-day notice. At May and 2015, there were no Level 2 investments. Investments include common and preferred stock in a private company. Since quoted prices are not readily available, fair value is estimated using valuation techniques based on a dividend discount model and restricted stock transactions disclosed in the private company s audited financial statements. 13 (Continued)

16 Investments Measured Using the NAV Practical Expedient For those investments for which fair value is measured using the NAV practical expedient, the College uses the reported capital account or NAV per share to determine the fair value of investments that (a) do not have a readily determinable fair value due to a lack of market activity or transparency into the underlying investments of the fund and (b) either have the attributes of an investment company or prepare their audited financial statements consistent with the measurement principles of an investment company. Valuations of underlying assets that comprise the capital account or NAV per share are provided by the general partner or fund manager, and consider variables such as comparable sales, income streams discounted for risk levels, and other pertinent information. Investments measured using the NAV practical expedient include equity common trust funds, hedge funds utilizing absolute return and long/short equity strategies, private equity, and real assets (including buyout, energy, real estate, and natural resources). Liquidity Investment liquidity is aggregated below based on redemption provisions and lockup periods as of May 31, 2016: Daily Monthly Quarterly Annual >1 year Total Cash and cash equivalents $ 27,608,652 27,608,652 Fixed income securities 29,382,304 29,382,304 Global public equities 61,726,168 9,066,841 43,651, ,444,928 Hedge funds 7,418,751 13,013,312 20,738,392 86,919 41,257,374 Real assets 4,465,552 3,932,179 9,675,881 18,073,612 Private equity 9,093,360 9,093,360 Private stock 1,700,000 1,700,000 $ 123,182,676 20,417,771 56,665,231 20,738,392 20,556, ,560,230 Investment liquidity is aggregated below based on redemption provisions and lockup periods as of May 31, 2015: Daily Monthly Quarterly Annual >1 year Total Cash and cash equivalents $ 26,191,090 26,191,090 Fixed income securities 29,302,788 29,302,788 Global public equities 63,761,063 9,791,708 45,958, ,511,644 Hedge funds 6,762,842 10,611,753 26,369,281 2,715,634 46,459,510 Real assets 4,283,686 4,567,100 11,227,972 20,078,758 Private equity 10,352,385 10,352,385 Private stock 1,700,000 1,700,000 $ 123,538,627 21,121,650 56,570,626 26,369,281 25,995, ,596,175 Investments in the >1 year category include hedge funds that are not eligible for redemption because of certain illiquid side pocket investments or the manager has restricted the amount of annual redemptions. The real assets and private equity investments are not available for liquidation and depend on the fund managers decisions about exit timing to provide capital distributions. It is 14 (Continued)

17 estimated that the underlying assets of the funds will be liquidated over the remaining life of the respective funds that expire over the next 5 to 12 years. Commitments Private equity and real asset investments are generally made through private limited partnerships. Under the terms of the partnership agreements, the College makes a commitment of a specific amount of capital to a partnership and is obligated to remit committed funding periodically when capital calls are exercised by the General Partner as the partnership executes on its investment strategy. Private equity and real asset funds are structured with commitment periods of 3 to 5 years, within which the funds can make investments as established in the limited partnership agreements. The aggregate amount of unfunded commitments associated with private limited partnerships as of May 31, 2016 and 2015 was $14,194,000 and $11,076,000, respectively. The timing and amount of future capital calls expected to be exercised in any particular future year is uncertain. Reconciliation of Level 3 Opening and Closing Balances The following tables provide a reconciliation of the beginning and ending balances of investments classified as Level 3 within the fair value hierarchy: Sales, Market value Purchases redemptions, Transfer in Market value at May 31, and and Unrealized (out) of at May 31, 2015 acquisitions distributions gains level Private common stock $ 1,000,000 1,000,000 Private preferred stock 700, ,000 Total $ 1,700,000 1,700,000 Sales, Market value Purchases redemptions, Transfer in Market value at May 31, and and Unrealized (out) of at May 31, 2014 acquisitions distributions gains level Private common stock $ 900, ,000 1,000,000 Private preferred stock 700, ,000 Total $ 1,600, ,000 1,700,000 (c) Funds Held in Trust by Others Perpetual trust assets that include investments in commingled fixed income and equity securities are reported at fair value based on market prices provided by the trust administrators. Perpetual trust assets that include investments in hedge funds and real assets are reported at estimated fair values based on NAV reported by trust administrators. 15 (Continued)

18 The following table presents the fair value hierarchy of funds held in trust by others: Level Fair value $ 34,462,764 35,414,673 The following table provides a reconciliation of a beginning and ending balances of funds held in trust by others classified within the fair value hierarchy Level 3: Beginning balance $ 35,414,673 36,047,619 Gifts 1,020,379 Net realized and unrealized loss (1,972,288) (229,467) Terminations (403,479) Ending balance $ 34,462,764 35,414,673 (d) Other Financial Instruments The carrying amount of cash and cash equivalents accounts and other receivable, and accounts payable and accrued expenses approximates fair value because of the short maturity of these financial instruments. The carrying value of student loans receivable under the College s loan program approximates fair value. A reasonable estimate of the fair value of student loans receivable under government loan programs with a carrying value of $1,900,045 and $2,284,798 as of, respectively, could not be made because the loans are not saleable and can only be assigned to the U.S. government or its designees. The carrying value and estimated fair value of the College s contributions receivable, annuities payable, and long-term debt as of are summarized as follows: May 31, 2016 May 31, 2015 Carrying Level 2 Carrying Level 2 value fair value value fair value Contributions receivable $ 5,242,739 5,378,637 5,253,777 5,379,000 Annuities payable 7,155,649 8,788,179 6,869,407 8,396,156 Long-term debt 77,483,773 85,145,016 80,723,870 86,642,364 $ 89,882,161 99,311,832 92,847, ,417, (Continued)

19 (4) Endowments (a) Contribution Receivable The fair value estimate is based on the present value of estimated future cash flows, which has been measured at the balance sheet date using rates indicative of the market and credit risk associated with the contribution. Annuities Payable The fair value estimate is based on the present value of estimated future payments to beneficiaries, which has been measured using uniform gift annuity discount rates at the balance sheet date. Long-Term Debt The fair value estimate is based on quoted prices for bond issues and notes with similar maturities and credit quality. The market prices utilized reflect the rate the College would have to pay a credit worthy third party to assume its obligation and do not reflect an additional liability to the College. Interpretation of Relevant Law on Classification, Investment, and Appropriation of Endowment Funds The Commonwealth of Pennsylvania has not enacted a version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), or a version of the Uniform Management of Institutional Funds Act (UMIFA). Governing law resides in 15 Pa C.S Investment of Trust Funds. The College has interpreted relevant law as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets the original value of the gifts donated to the permanent endowment at the time of the gift. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified in temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standard of prudence prescribed by the relevant law. Therefore, the College considers the following factors, among others, in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the College and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the organization (7) The investment policies of the College 17 (Continued)

20 Commonwealth of Pennsylvania law permits the College to allocate to income each year a portion of endowment return. The amount that may be allocated under an endowment spending policy is limited to a minimum of 2% and a maximum of 7% of a three-year moving average of the fair value of the endowed assets. Since endowment net realized and unrealized gains may eventually be spent by the College, endowment net realized and unrealized gains are recorded in the consolidated financial statements as temporarily restricted net assets until transferred to unrestricted net assets. Gains in excess of the spending policy remain in temporarily restricted net assets. The College uses the total return concept for endowment funds. Under this concept and for the years ending, endowment income is determined by applying the board of trustees-approved spending rate of 5% to the average fair value of the endowment pool over a 20-quarter period. Based on this formula, the total distributable endowment income for the years ended amounted to $9,557,000 and $8,873,000, respectively. If distributable endowment income is less than actual earnings, the excess earnings are retained to support operations of future years and to offset potential market declines and inflation. If distributable endowment income exceeds actual earnings of the pooled endowment funds in any one year, the amount needed to fund such excess will be drawn from accumulated net realized and unrealized capital gains of the endowment fund, in accordance with Pennsylvania law. (b) Endowment Investment Policy The College s investment policy establishes guidelines to trustees, staff, and investment managers charged with the oversight and investment of the College s endowment. The policy defines the objectives of the fund, asset allocation guidelines, and the timing and criteria used to monitor and evaluate performance. The return objectives and total return strategy of the endowment are described as follows: Return Objectives The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets over time. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period, as well as board-designated funds. Under this policy, as approved by the board of trustees, the endowment assets are invested in a manner that is intended to generate average annual rates of return that equal or exceed the spending policy requirements, match inflation, and cover expenses of managing the assets, while assuming a moderate level of investment risk. Total Return Strategy To satisfy its long-term rate-of-return objectives, the College has adopted an investment strategy based on the total return concept. This concept frees the College from investing only for yield (interest and dividends) and allows investing for total return (a combination of interest, dividends, gains, and losses in market value). 18 (Continued)

21 (c) Endowment Asset Composition Endowment assets by donor restriction as of May 31, 2016 are as follows: 2016 Temporarily Permanently Unrestricted restricted restricted Total Pooled (unitized) investments $ 61,215,217 30,742, ,513, ,471,239 Trusts and split-interest investments (a) 365,767 1,482,759 3,664,318 5,512,844 Nonpooled investments 18,780,488 4,795,659 23,576,147 Total investments 80,361,472 37,020, ,178, ,560,230 Funds held in trust by others 475,495 33,987,269 34,462,764 Other unitized investments: Gettysburg Hotel (b) 6,900,000 6,900,000 Total endowment assets $ 87,261,472 37,496, ,165, ,922,994 Changes in endowment assets by donor restriction classification for the year ended May 31, 2016 are as follows: 2016 Temporarily Permanently Unrestricted restricted restricted Total Beginning balance, June 1, 2015 $ 96,860,319 48,747, ,302, ,910,848 Net investment return (5,737,061) (5,521,395) (2,027,454) (13,285,910) Contributions 4, ,652 9,258,514 9,446,858 Endowment spending draw (3,938,476) (5,618,524) (9,557,000) Beneficiary payments, transfers, and other changes 71,998 (295,658) 631, ,198 Ending balance, May 31, 2016 $ 87,261,472 37,496, ,165, ,922, (Continued)

22 Endowment assets by donor restriction as of May 31, 2015 are as follows: 2015 Temporarily Permanently Unrestricted restricted restricted Total Pooled (unitized) investments $ 71,495,634 41,752, ,449, ,697,452 Trusts and split-interest investments (a) 364,357 1,655,263 3,860,537 5,880,157 Nonpooled investments 18,100,328 4,918,238 23,018,566 Total investments 89,960,319 48,325, ,310, ,596,175 Funds held in trust by others 422,285 34,992,388 35,414,673 Other unitized investments: Gettysburg Hotel (b) 6,900,000 6,900,000 Total endowment assets $ 96,860,319 48,747, ,302, ,910,848 Changes in endowment assets by donor restriction classification for the year ended May 31, 2015 are as follows: 2015 Temporarily Permanently Unrestricted restricted restricted Total Beginning balance, June 1, 2014 $ 96,458,787 49,179, ,661, ,299,515 Net investment return 5,410,180 7,072,342 81,114 12,563,636 Contributions 1, ,000 6,793,120 7,014,285 Endowment spending draw (3,688,761) (5,184,239) (8,873,000) Beneficiary payments, transfers, and other changes (1,321,052) (2,539,166) (233,370) (4,093,588) Ending balance, May 31, 2015 $ 96,860,319 48,747, ,302, ,910,848 (a) (b) The portion of annuities payable to be funded from trust and split-interest investments was approximately $3,699,000 and $3,625,000 as of, respectively. The Gettysburg Hotel is a wholly owned subsidiary, which is reported in the consolidated statements of financial position, activities, and cash flows. The endowment fund s interest in the Gettysburg Hotel represents the cumulative total value of paid-in capital. (d) Losses in Excess of Temporarily Restricted Endowment Assets From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the College to retain as a fund of perpetual duration. These deficiencies result from unfavorable market fluctuations that occur after the investment of 20 (Continued)

23 permanently restricted contributions. Deficiencies of this nature are funded by unrestricted net assets. The aggregate amount of deficiencies for all donor-restricted endowment funds for which fair value is less than the level required by donor stipulation was approximately $1,806,000 and $177,000 as of, respectively. (5) Property, Plant, and Equipment A summary of the College s property, plant, and equipment as of May 31 is as follows: Accumulated Accumulated Cost depreciation Cost depreciation Land $ 3,632,543 3,632,543 Hotel land 859, ,385 Land improvements 20,936,211 (13,983,050) 19,980,060 (13,455,742) Building and improvements 239,433,203 (116,857,074) 237,361,646 (109,684,624) Hotel building and improvements 14,006,585 (4,096,434) 13,957,721 (3,556,093) Equipment 52,122,925 (36,005,662) 46,934,103 (33,687,197) Hotel equipment 4,326,701 (3,388,833) 5,156,133 (3,828,451) Construction in progress 1,232, ,825 $ 336,549,972 (174,331,053) 328,554,416 (164,212,107) Depreciation expense for the College for the years ended was $10,477,914 and $10,293,273, respectively. Depreciation expense for the Gettysburg Hotel for the years ended May 31, 2016 and 2015 was $984,404 and $1,099,193, respectively. (6) Contributions Receivable, Net Contributions receivable, net as of May 31 is as follows: Unconditional promises expected to be collected: One year or less $ 2,939,588 2,632,563 One year to five years 3,271,020 3,447,330 6,210,608 6,079,893 Less: Allowance for doubtful accounts (758,171) (600,781) Discount of contributions receivable (209,698) (225,335) Total $ 5,242,739 5,253, (Continued)

24 Contributions receivable are recorded at estimated fair value on the date the donor s unconditional promise to contribute is made using the present value of future cash flows. Contributions receivable are not measured at fair value subsequent to the initial measurement because the discount rate selected for each contribution receivable remains constant over time. Contributions receivable due in excess of one year are discounted at rates ranging 0.7% and 2.1% for the years ended. (7) Long-Term Debt (a) Bonds and Note Payable Bonds and note payable consist of the following at May 31: Original Principal outstanding at May 31 principal Adams County IDA: Series 2010 $ 67,680,000 50,510,000 53,530,000 Series ,890,000 18,890,000 18,890,000 69,400,000 72,420,000 PNC Note 8,500,000 8,083,773 8,303,870 Total $ 77,483,773 80,723,870 Series 2010 Bonds In June 2010, the College issued fixed rate bonds through the Adams County Industrial Development Authority (IDA). The proceeds were used for various tax-exempt purposes including the current refunding of the Series 1998B and 2008B Bonds as well as the current and advance refunding of the Series 1998 Bonds and to pay issuance costs. The remaining balance of the Series 1998 Bonds was defeased with College proceeds. The Series 2010 Bonds were issued at a premium and bear interest rates of 4.00% to 5.00% depending upon the maturity date, which ranges between 2013 and Interest is paid semiannually. Series 2013 Bonds In July 2013, the College issued fixed rate bonds through Adams County Industrial Development Authority in the aggregate principal amount of $18,890,000 at a discount of approximately $305,000. The proceeds were used for current refunding of the outstanding Series 2008A Bonds and payment of issuance costs. The Series 2013 Bonds have varying maturities beginning August 2028 through August 2033 and bear interest rates ranging from 4.00% to 4.25% depending on the maturity date. Interest is paid semiannually. PNC Note In June 2014, the College entered into a term note with PNC Bank, NA with an aggregate principal amount of $8,500,000. The proceeds were used for the full repayment of a prior note to Wells Fargo 22 (Continued)

25 Bank, NA, various improvements and to pay issuance costs. The note bears a fixed interest rate of 3.55%, which will be paid in monthly installments through June Approximate aggregate principal maturities for bonds and note payable are as follows: Bonds payable Note payable Total Year ending May 31: 2017 $ 3,180, ,987 3,408, ,340, ,367 3,577, ,485, ,053 3,731, ,640, ,344 3,894, ,830, ,363 4,094,363 Thereafter 51,925,000 6,852,659 58,777,659 $ 69,400,000 8,083,773 77,483,773 (b) Line of Credit The College has a committed revolving line of credit (the Line) under which it may request advances in an aggregate outstanding amount up to $5,000,000. The expiration date of the Line is March 31, 2017, or such later date as may be designated by the bank. Each advance outstanding under the Line will bear interest at a rate or rates per annum as may be selected by the College from the following interest rate options: (a) prime rate, (b) LIBOR plus 45 basis points, or (c) rate offered by the bank in its sole discretion. There was no borrowing or balance outstanding as of May 31, 2016 or (8) Retirement and Postemployment Benefits (a) Retirement Benefits Defined-contribution retirement benefits are provided for substantially all employees through the Teacher s Insurance and Annuity Associations and College Retirement Equities Fund (TIAA-CREF). The College s contribution to the fund during the years ended was approximately $4,489,000 and $4,641,000, respectively. (b) Health and Welfare Plan The College offers eligible employees a defined-contribution health and welfare plan (HW Plan) through Emeriti Retirement Health Solution, a consortium of colleges and universities organized to address retiree healthcare needs. The HW Plan is intended to assist employees and their families with medical expenses during their retirement years. Funding for the HW Plan is provided through Voluntary Employees Beneficiary Association trusts (VEBA). The College begins making contributions to the HW Plan on behalf of eligible employees on the first day of the month following attainment of age 35 and completion of two years of service. The College s contribution to the HW Plan was approximately $297,000 and $304,000, respectively, for the years ended May 31, 2016 and (Continued)