ST. LABRE INDIAN SCHOOL EDUCATIONAL ASSOCIATION. Financial Statements. June 30, 2011 and (With Independent Auditors Report Thereon)

Transcription

1 ST. LABRE INDIAN SCHOOL EDUCATIONAL ASSOCIATION Financial Statements (With Independent Auditors Report Thereon)

2 KPMG LLP Suite N 27 th Street Billings, MT Independent Auditors Report Board of Directors St. Labre Indian School Educational Association: We have audited the accompanying statements of financial position of St. Labre Indian School Educational Association (the Association) as of, and the related statements of activities, functional expenses and cash flows for the years then ended. These financial statements are the responsibility of the Association s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association 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 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 financial statements referred to above present fairly, in all material respects, the financial position of St. Labre Indian School Educational Association as of June 30, 2011 and 2010, and the changes in its net assets and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. October 18, 2011 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity

3 Statements of Financial Position Assets Cash and cash equivalents: Demand deposits $ 61, ,441 Savings and other interest-bearing accounts 196, ,680 Cash at broker 5,304, ,314, Total cash and cash equivalents 5,561, ,357,622 Contributions ti receivable 430, Accrued interest receivable 131, , Marketable securities and investments 76,728, ,517,247 Investments held in trust 5,588,766 Inventories 40,924 57,631 Notes receivable 103, ,328 Other assets 932, ,612 Funds held in trust tfor others 345, ,454 Property, plant, and equipment, net 18,372,084 12,600,893 Total assets $ 102,645, ,629,855 Liabilities and Net Assets Liabilities: Trade accounts and other payables $ 1,436,406 1,351,502 Accrued payroll and related expenses 874, ,789 Tax-exempt bonds payable 9,780,000, ,000, , 000 Annuity liabilities and funds held in trust for others 3,651,829 3,750, Total liabilities 15,743, ,903,621 Nt Net assets: Unrestricted 68,269,568 54,622,060 Temporarily restricted 6,264,095 9,780,136 Permanently restricted 12,368,209, ,324,038, 038 Total net assets 86,901,872 74,726,234 Commitments and contingencies Total liabilities and net assets $ 102,645, ,629,855 S i t t fi il tt t See accompanying notes to financial statements. p y g

4 Statement of Activities Year ended June 30, 2011 Temporarily Permanently Unrestricted restricted restricted Total Public support, other revenues and investment gains: Public support: Contributions active donors $ 25,820,681 1,274,433 44,171 27,139,285 Contributions donor development 3,834,792 3,834,792 Legacies and bequests 7,922,121 2,000,000 9,922, Grants State and federal 440, ,624 Annuity contracts funded 204, ,510 Total public support 38,018,218 1,478,943 2,044,171 41,541,332 Other revenues and investment t gains: Interest t and dividendsid d 1,937,453 1,937,453 Net unrealized and realized gain on marketable securities and investments 12,480,792, 172,400 12,653,192, Rental income teacher housing 383, ,813 Other miscellaneous revenues 825, ,654 Ttl Total other revenues and dinvestment tgains 15,627, ,400 15,800, Net assets released from restrictions: Restrictions met on contributions 4,780, (4,780,761) 761) Termination of annuity contracts 273, (273,307) 307) Total net assets released from restrictions 5,054,068 (5,054,068) Total public support and other revenues 58,699, (3,402,725) 2,044,171 57,341, Expenses and losses: Program services: Instructional 16,436,782 16,436,782 Youth and family services 1,535, ,535, Community services 1,700,652 1,700,652 Total program services 19,672,606 19,672,606 Supporting services: Fund raising i 22,771, ,771, Management and general 2,608,093, 2,608,093, Total supporting services 25,379,884 25,379,884 Actuarial loss, net, on annuity liabilities and funds held in trust for others 113, ,316 Ttl Total expenses and dlosses 45,052, , ,165,806 Change in net assets 13,647,508 (3,516,041) 2,044,171 12,175, Net assets at beginning g of year 54,622,060, 9,780,136, 10,324,038, 74,726,234, Net assets at end of year $ 68,269,568 6,264,095 12,368, ,901, See accompanying notes to financial ilstatements. tt t

5 Statement of Activities Year ended June 30, 2010 Temporarily Permanently Unrestricted restricted restricted Total Public support, other revenues and investment gains: Public support: Contributions active donors $ 24,487, ,943 68,461 24,998,324 Contributions donor development 3,338,623 3,338,623 Legacies and bequests 5,554, ,554, Grants State and federal 358, ,646 Annuity contracts funded 172, ,622 Total public support 33,739, ,565 68,461 34,422,701 Other revenues and investment t gains: Interest t and dividendsid d 1,617,427 1,617,427 Net unrealized and realized gain on marketable securities and investments 5,633,231, 223,961 5,857,192, Rental income teacher housing 353, ,080 Other miscellaneous revenues 1,494,072 25,000 1,519,072 Ttl Total other revenues and dinvestment tgains 9,097, ,961 25,000 9,346,771 Net assets released from restrictions: Restrictions met on contributions 2,055, (2,055,223) 223) Termination of annuity contracts 168, (168,155) 155) Total net assets released from restrictions 2,223,378 (2,223,378) Total public support and other revenues 45,060,863 (1,384,852) 852) 93,461 43,769, Expenses and losses: Program services: Instructional 15,633,295 15,633,295 Youth and family services 1,414,855 1,414,855 Community services 4,586, ,586, Total program services 21,634,558 21,634,558 Supporting services: Fund raising i 19,701, ,701, Management and general 2,337,539, 2,337,539, Total supporting services 22,039,475 22,039,475 Actuarial loss, net, on annuity liabilities and funds held in trust for others 198, ,627 Ttl Total expenses and dlosses 43,674, ,627 43,872,660 Change in net assets 1,386, (1,583,479) 93,461 (103,188) 188) Net assets at beginning g of year 53,235,230, 11,363,615, 10,230,577, 74,829,422, Net assets at end of year $ 54,622,060 9,780,136 10,324, ,726, See accompanying notes to financial ilstatements. tt t

6 Statement of Functional Expenses Year ended June 30, 2011 Program services Supporting services Youth & family Community Management Total Instructional services services Fund raising and general Salaries $ 10,098, , 7,252,435, 638, ,836 1,442,929, 672,943 Employee benefits 4,730,583 3,391, ,024 42, , ,655 Total salaries and benefits 14,829,118, ,644,007, , , ,117,639, 995, Supplies, books, materials, and printing 4,438, ,207 47,592 25,592 3,549,689 88,577 Food and food services 592, ,743 40, ,653 42,043 22,565 Maintenance, utilities, and insurance 2,741, ,926, , , , ,093 Transportation, ti travel, and freight 1,110, ,016,513 3, ,114 37,427 Grants and other disbursements on bhlf behalf of fh the community 1,301, , , ,159, Postage 7,545,325, 14, ,522,572, 572 7,684 Mailing list acquisition 644, ,982 Costs of gifts sent to donors 7,447,563 7,447,563 Data processing and other outside support 1,605, ,112 31,684 91, ,231,990 28,482 Bank and professional fees 1,090,714 2, ,158 1,067,943 Miscellaneous 134, ,956 14,600 6,754 19,249 (18,586) Total expenses before depreciation 43,482,083 15,180,457 1,378,131 1,543,611 22,771,791 2,608,093 Depreciation 1,570,407, 1,256,325, 157, ,041 Ttl Total expenses $ 45,052, ,436,782 1,535, ,700,652 22,771, ,608, See accompanying notes to financial il statements. tt t

7 Statement of Functional Expenses Year ended June 30, 2010 Program services Supporting services Youth & family Community Management Total Instructional services services Fund raising and general Salaries $ 9,438,487, 487 6,783,147, 541,087 87, ,395,596, ,899 Employee benefits 4,565,199 3,304, ,035 47, , ,044 Total salaries and benefits 14,003,686, 10,087, , 801, , ,052,324, 926, Supplies, books, materials, and printing 3,956, ,910 47,181 24,540 3,102,646 82,324 Food and food services 567, ,156 40,156 1,807 19,579 22,560 Maintenance, utilities, and insurance 2,682, ,880, , , , ,193 Transportation, ti travel, and freight 985, ,373 4, , ,301 Grants and other disbursements on bhlf behalf of fh the community 4,282,647 43, , ,111, Postage 6,690, , 17, ,664, , 8,615 Mailing list acquisition 572, ,304 Costs of gifts sent to donors 5,708,632 5,708,632 Data processing and other outside support 1,634, ,513 36,096 44,029 1,374,597 19,069 Bank and professional fees 1,000, , ,613 7,934 26, , Miscellaneous 65, , , ,342 Total expenses before depreciation 42,150,044 14,414,104 1,262,456 4,434,009 19,701,936 2,337,539 Depreciation 1,523,989, 1,219,191, , ,399 Ttl Total expenses $ 43,674,033 15,633,295 1,414,855 4,586, ,701, ,337,539 See accompanying notes to financial il statements. tt t

8 Statements of Cash Flows Years ended Cash flows from operating activities: i i Change in net assets $ 12,175,638 (103,188) Adjustments to reconcile change in net assets to net cash used in operating activities: iti Depreciation 1,570,407 1,523,989 Amortization of bond cost 35, Gi Gain on sale and dinsurance proceeds of property, plant, and equipment (323,204) (1,053,243), Net realized and unrealized gain on marketable securities and dinvestments t and dfunds held ldin trust tfor others (12,653,192) 192) (5,857,192) Actuarial loss, net, on annuity liabilities and funds held in trust for others 113, ,627 Split-interest interest agreements and trust funds funded 261, ,398 Contributions i permanently restricted (2,044,171), (68,461) Contributed marketable securities and investments (156,913) (48,401) 401) Changes in operating assets and liabilities: Contributions i receivable (430,004) 004) Accrued interest receivable 7, ,640 Inventories 16,707 (7,485) Oh Other assets (10,368) (497,703) 703) Trade accounts and other payables 84, ,586 Accrued payroll and related expenses 73,131 36,433 Net cash used in operating activities (1,279,415) (5,404,000) 000) Cash flows from investing activities: Proceeds from sales and maturities i of marketable securities i and investments 55,619,921 98,694,328 Purchases of marketable securities and investments (52,993,706) (100,676,280) Change in investments t held in trustt 5,588, (5,588,766) 588 Proceeds from sale of property, plant, and equipment 11,874 Purchases of property, plant, and equipment (7,393,151) (2,535,431) Proceeds from insurance coverages 362,883 1,173, Payments received on notes receivable 116, ,053 Issuance of notes receivable (118,575) (121,408) Net cash provided by (used in) investing activities 1,194, (8,921,926) 926) Cash flows from financing activities: Receipts under split-interest i t t agreements 15,772 9,010 Proceeds from tax-exempt bonds payable 10,000,000, Capitalized bond issuance costs (344,341) 341) Payments on tax exempt bonds payable (220,000) 000) Payments under split-interest agreements (550,903) (615,620) Contributions permanently restricted 2,044,171 68,461 Net cash provided by financing activities 1,289,040 9,117,510 Net change in cash and cash equivalents 1,204, (5,208,416) Cash and cash equivalents, beginning of year 4,357,622 9,566,038 Cash and cash equivalents, end of year $ 5,561, ,357,622 Supplemental Disclosures Cash paid for interest t $ 424, ,553 See accompanying notes to financial statements.

9 (1) Nature of Organization St. Labre Indian School Educational Association (the Association) is a Native American Catholic School that provides educational opportunities and social outreach services primarily to the Northern Cheyenne and Crow people. The Association operates three schools with a total enrollment of approximately 600 students. The three schools operated by the Association are St. Labre Catholic School located in Ashland, Montana, St. Charles Mission School located in Pryor, Montana, and Pretty Eagle Catholic School located in St. Xavier, Montana. In addition, the Association operates a group home located in Ashland, Montana, a day-care located in Ashland, Montana, provides counseling and assistance to students and their families, and a cattle/buffalo ranch property located north of Custer, Montana. The Association is supported by donations received from appealing to the public, primarily through direct mail. The Association s programs depend on the success of these solicitations for support. The majority of contributions result from direct mail appeals. (2) Summary of Significant Accounting Policies (a) Organization The Association is a not-for-profit religious organization. (b) Basis of Presentation The Association classifies net assets, revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. Permanently restricted net assets are those subject to donor-imposed stipulations that they be maintained permanently by the Association. Generally, the donors of these assets permit the Association to use the interest and dividend income earned, if any, on related investments for general or specific purposes. A limited number of donors also allow the Association to use capital gains, if any, on related investments for general or specific purposes. Temporarily restricted net assets are those subject to donor-imposed stipulations that may or will be met by action of the Association and/or the passage of time. Unrestricted net assets are those not subject to donor-imposed stipulations and donor-restricted contributions whose restrictions are met in the same reporting period. A donor s gift may impose restrictions on otherwise unrestricted net assets. Such restrictions result in a reclassification of unrestricted net assets to permanently restricted or temporarily restricted net assets depending on the nature of the restriction. 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. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. (Continued)

10 Expiration of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets as net assets released from restrictions in the accompanying statements of activities. (c) (d) (e) (f) (g) (h) Cash Equivalents The Association considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Marketable Securities and Investments The Association reports equity securities, having readily determinable fair values, and all debt securities at fair value with unrealized gains and losses included in the statements of activities as increases or decreases to unrestricted net assets unless their use is restricted by explicit donor stipulation or law. Investments Held in Trust The Association reports investments held in trust at fair value. Inventories Inventories, which consist of gift shop merchandise, are valued at the lower of cost, determined using the specific identification method, or net realizable value. Notes Receivable Notes receivable are recorded at cost, less any related allowance for impaired notes receivable. Management, taking into account current information and events regarding the borrowers ability to repay their obligations, considers a note to be impaired when it is probable that the Association will be unable to collect all amounts due according to the contractual terms of the note agreement. The Association had no impaired notes receivable at June 30, 2011 or Interest rates on the notes receivable were fixed at 5% at. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which generally approximates 20 years for buildings, 7 years for building improvements, 3 to 7 years for equipment and 5 years for purchased and contributed livestock. Repairs and maintenance costs are expensed as incurred. 2 (Continued)

11 (i) (j) Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Public Support The Association reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. Accordingly, net assets of the Association and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations and donor restricted contributions whose restrictions are met in the same reporting period. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Association and/or the passage of time. Permanently restricted net assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Association. Generally, the donors of these assets permit the Association to use all, or part of, the income earned and capital gains, if any, on related investments for general or specific purposes. 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. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Contributions, including unconditional promises to give, are recognized as revenues in the period received. 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 cash is received and any purpose restrictions are met. 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. 3 (Continued)

12 It is the policy of the Association to report gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long lived assets with explicit restrictions specifying how the assets are to be used and gifts of cash or other assets that must be used to acquire long lived assets are recorded as restricted support. Absent explicit donor stipulations about how long those long lived assets must be maintained, the Association reports expirations of donor restrictions when the donated or acquired long lived assets are placed in service. Legacies and bequests are recognized at the time the Association has an established right to such legacies and bequests and the proceeds are measurable. Grants are recognized in the period received. (k) (l) (m) Allowance for Losses on Contributions Receivable An allowance for losses on contributions receivable is provided based upon management s assessment of the collectibility of the receivables. No allowance for losses on contributions receivable was, in the opinion of management, necessary as of June 30, There were no contributions receivable at June 30, Contributions receivable at June 30, 2011, were expected to be received within one year from the date the contributions were committed. Bond Issuance Costs and Amortization Bond issuance costs related to the issuance of the tax-exempt bonds payable are included in other assets on the statement of financial position and are amortized over the life of the tax-exempt bonds. Amortization expense is recorded in management and general expenses in the accompanying statement of activities. Direct Mail Fund Raising The Association derives its public support primarily from direct mail solicitations. Direct mail fund raising involves two distinct functions. The functions are: Active Donors Donor Development Active donors include the costs of developing, producing, and processing mail appeals to the current donors on the house file of the Association. Donor development includes the costs of new donor acquisition or prospecting (i.e., sending an initial mailing to persons who have not previously contributed, or are no longer actively participating in the house mailings of the Association). (n) Rental Income Revenues from the rental of teacher housing properties are recognized as the service is provided. 4 (Continued)

13 (o) Functional Allocation of Expenses The costs of providing for the various programs and other activities have been summarized on a functional basis in the statements of activities and the statements of functional expenses. Certain costs have been allocated among the programs and supporting services benefited. The Association conducted no fund raising activities during the years ended which incurred joint costs allocable to program and management and general functions. (p) (q) (r) (s) Donated Materials No amounts have been included in these financial statements for donated materials such as food and clothing as there is no clearly measurable and objective basis for valuation and the Association acts primarily as a distribution agent with respect to such materials. Income Taxes The Association is a not-for-profit organization that is exempt from income taxes under Section 501(c)(3) if the Internal Revenue Code. The Association is also exempt from federal and state income taxes and unemployment taxes as it is a qualifying tax exempt organization listed in the 2011 edition of the Official Catholic Directory. Split-Interest Agreements The Association is the beneficiary of deferred giving vehicles subject to split-interest agreements. Two different types of agreements are currently maintained: charitable gift annuity and charitable remainder trust. Contributions for these split-interest agreements are recognized at the date the agreement is established, net of the annuity liability recorded for the present value of the estimated future payments to be made to the respective donor or designated beneficiary. Changes in the annuity liability are accounted for prospectively as a change in estimate. Discount rates that approximate current market conditions to reflect the time value of money are employed to determine the net present value of both contributions and annuity liabilities pertaining to these deferred giving arrangements. Discount rates ranged from 5.1% - 9.5% during the year ended June 30, 2011 and from 4.9 % - 9.5% during the year ended June 30, Use of Estimates Management of the Association has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with U.S. generally accepted accounting principles. Significant items subject to such estimates and assumptions include the fair value of marketable securities and investments, the fair value of investments held in trust, the carrying amount of annuity liabilities and recorded amounts for incurred but not yet reported medical and dental claims, and losses from litigation, claims and assessments. Actual results could differ from those estimates. 5 (Continued)

14 (3) Marketable Securities and Investments Investments by investment type at June 30 consist of the following: Equity securities $ 53,417,427 41,965,420 U.S. treasury and agency securities 13,104,107 20,186,774 Corporate debt 10,040,612 4,257,269 Other 165, ,784 $ 76,728,113 66,517,247 The equity securities portfolio of the Association is diversified and contains a blend of large, mid and small cap companies. Investment expenses of $450,269 and $418,692 were incurred during the years ended June 30, 2011 and 2010, respectively. Investment expenses are recorded in bank and professional fees in management and general in the accompanying statements of functional expenses. As a requirement of the tax-exempt bonds (see note 7), a portion of the marketable securities and investments of the Association are held as collateral and managed by US Bank National Association. At, the fair value of this portion of the Association s marketable securities and investments were $13,010,453 and $12,515,925, respectively. (4) Investments Held in Trust Investments held in trust by investment type at June 30, 2010 consisted of the following: Corporate debt $ 3,434,986 U.S. treasury and agency securities 1,597,965 Cash equivalents 555,815 $ 5,588,766 The investments held in trust represented the unspent funds associated with the issuance of tax-exempt bonds during the year ended June 30, 2010 (see note 7). The investments were held in trust by US Bank National Association and were restricted to use by the Association on approved expenditures for costs incurred in accordance with the tax-exempt bond agreement. The funds were available to the Association upon submission of a properly executed construction requisition form and approval by US Bank National Association. 6 (Continued)

15 (5) Property, Plant, and Equipment Property, plant, and equipment at June 30 consists of the following: Land $ 140, ,520 Agricultural land required to be used for employment and training of those served by the Association 2,000,000 2,000,000 Buildings and building improvements 44,651,889 44,491,064 Less accumulated depreciation 36,698,106 35,866,034 Buildings and building improvements, net 7,953,783 8,625,030 Equipment 9,218,950 8,813,208 Less accumulated depreciation 7,908,309 7,566,211 Equipment, net 1,310,641 1,246,997 Livestock 238, ,125 Less accumulated depreciation 225, ,605 Livestock, net 12,948 9,520 Construction in progress 6,954, ,826 Total property, plant and equipment, net of accumulated depreciation $ 18,372,084 12,600,893 Construction in progress at consists primarily of amounts related to construction of a new dormitory and a new water storage system. During the year ended June 30, 2010, the Association suffered a fire that destroyed a piece of equipment and a hail storm that caused significant damage to the roofs of several buildings and vehicles at the Ashland, Montana campus. The Association received insurance proceeds of $362,883 and $1,173,578 related to the incidents during the years ended, respectively. Insurance recoveries for repair expenses are recognized in the period received and included in other miscellaneous revenues in the accompanying statements of activities. Costs for repairs are expensed as incurred. Costs for replacement of destroyed or damaged properties are capitalized as incurred. The carrying value of the property destroyed during the year ended June 30, 2010 was $75,078. The loss associated with the destruction of the property was recorded when the loss occurred. During 2011, the Association realized a gain on insurance proceeds of $320,458. (6) Annuity Liabilities and Funds Held in Trust for Others The Association is party to a number of charitable gift annuities in which donors have contributed assets to the Association in exchange for promises by the Association to pay fixed amounts to the donors or to individuals or organizations designated by the donors, until the death of the donor or the donor s beneficiary. At, the annuity liabilities amounted to $3,525,569 and $3,630,054, respectively. The estimated values of the gift annuity agreements to the Association are recorded in temporarily restricted net assets (see note 9). Certain state laws limit the manner in which contributed assets may be invested. 7 (Continued)

16 The Association is the beneficiary of a charitable remainder trust. At, the estimated fair value of the assets held in trust amounted to $341,564 and $301,828, respectively, and the funds held in trust for others amounted to $119,720 and $110,927, respectively. The estimated value of the remainder interest is recorded in temporarily restricted net assets (see note 9). A scholarship trust fund was established by the Association for a student in fiscal year 2000 to be used for post-secondary education. The scholarship trust fund of $3,666 and $8,626 at, respectively, inclusive of interest earned, is recorded both as an asset and a liability in the accompanying statements of financial position. An agency liability was established by the Association for funds held for the use by a student. At June 30, 2011 and 2010, the agency liability amounted to $2,874 and $723, respectively. (7) Tax-Exempt Bonds Payable The Association issued tax-exempt bonds during the year ended June 30, The proceeds from the taxexempt bonds were used for construction of a new dormitory, purchase and installation of stand-by generators, a new water storage system, and assistance to St. Paul s Mission School to rebuild their school building. The tax-exempt bonds bear interest at 4.3%, payable monthly, with annual principal installments through The tax-exempt bond agreement contains several restrictive covenants including a fixed charge coverage ratio requirement. The future minimum principal requirements for the tax-exempt bonds are as follows: Year-ended June 30, Amount 2012 $ 240, , , ,000 Thereafter 8,755,000 $ 9,780,000 (8) Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a framework for measuring fair value. A three-level hierarchy for fair value measurements is based upon the transparency of inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows: Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. 8 (Continued)

17 Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data. Level 3 Inputs are unobservable for the asset or liability. Unobservable inputs reflect the reporting entity s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Association believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Financial assets and liabilities measured at fair value on a recurring basis at June 30, 2011 consisted of the following: Fair Value Estimates Total Level 1 Level 2 Level 3 Marketable securities and investments: Equity securities: Technology $ 11,384,634 11,384,634 Financials 7,977,977 7,977,977 Consumer staples 7,461,277 7,461,277 Energy 6,258,603 6,258,603 Consumer discretionary 5,974,389 5,974,389 Industrials 5,843,308 5,843,308 Health care 3,759,990 3,759,990 Basic materials 2,950,185 2,950,185 Telecommunication 1,396,284 1,396,284 Utilities 410, ,780 Total equity securities 53,417,427 53,417,427 U.S. treasury and agency securities: U.S. Treasury 7,511,850 7,511,850 U.S. Agency 5,592,257 5,592,257 13,104,107 13,104,107 Corporate debt 10,040,612 10,040,612 Other 165, ,967 76,728,113 66,687,501 10,040,612 9 (Continued)

18 Financial assets and liabilities measured at fair value on a recurring basis at June 30, 2010 consisted of the following: Fair Value Estimates Total Level 1 Level 2 Level 3 Marketable securities and investments: Equity securities $ 41,965,420 41,965,420 U.S. treasury and agency securities 20,186,774 20,186,774 Corporate debt 4,257,269 4,257,269 Other 107, ,784 66,517,247 62,259,978 4,257,269 Investments held in trust: Corporate debt 3,434,986 3,434,986 U.S. treasury and agency securities 1,597,965 1,597,965 5,032,951 1,597,965 3,434,986 (9) Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes or periods at June 30: Charitable remainder trust, net of amount held in trust for others at of $119,720 and $110,927, respectively $ 221, ,900 Gift annuity agreements 3,355,631 3,365,344 Employment and training of those served by the Association 2,000,000 2,000,000 Replacement dorm 3,430,042 Other 686, ,850 Temporarily restricted net assets $ 6,264,095 9,780,136 (10) Permanently Restricted Net Assets Permanently restricted net assets consist of the following at June 30: Investments in perpetuity, the interest and dividend income from which are expendable to support: General and administrative $ 118, ,466 Education 377, , , ,407 Investments in perpetuity, the interest and dividend income and capital gains from which are expendable to support: General and administrative 9,551,841 7,579,713 Education 2,320,149 2,306,918 11,871,990 9,886,631 Permanently restricted net assets $ 12,368,209 10,324, (Continued)

19 (11) Endowment and Quasi-Endowment Funds The Association follows the provisions of FASB ASC , Not-for-Profit Organizations: Net Asset Classifications of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act. The provisions provide guidance on classifying net assets associated with donorrestricted endowment funds held by organizations that are subject to an enacted version of Uniform Prudent Management of Institutional Funds Act (UPMIFA). A key component of the provision 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. Another key component of the provision is a requirement for expanded disclosures about all endowment funds. The Association s endowment consists of approximately eight individual funds established for a variety of purposes. The Association s endowment includes donor-restricted endowment funds. Net assets associated with endowment funds are classified and reported based on the existence or absence of donorimposed restrictions. Interpretation of Relevant Law The Association s management has interpreted UPMIFA as enacted in the State of Montana 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 Association classifies as permanently restricted net assets (a) the original value of the gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund (primarily realized and unrealized gains and losses and investment income) is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Association in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Association considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the fund The purposes of the Association and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments The investment policies of the Association 11 (Continued)

20 Endowment net asset composition by type of fund consists of the following as of June 30, 2011: Unrestricted Temporarily restricted Permanently restricted Total Donor-restricted endowment $ funds 12,368,209 12,368,209 Board-designated endowment funds Total endowment net assets $ 12,368,209 12,368,209 Endowment net asset composition by type of fund consists of the following as of June 30, 2010: Unrestricted Temporarily restricted Permanently restricted Total Donor-restricted endowment $ funds 10,324,038 10,324,038 Board-designated endowment funds Total endowment net assets $ 10,324,038 10,324,038 Changes in endowment net assets for the year ended June 30, 2011 are as follows: Endowment net assets, June 30, 2010 $ Unrestricted Temporarily restricted Permanently restricted Total 10,324,038 10,324,038 Investment return: Investment income 292, ,714 Net realized and unrealized gains 3,499,956 3,499,956 Total investment return 3,792,670 3,792,670 Reclassification of endowment 3,792,670 (3,792,670) New donor-restricted funds received 2,044,171 2,044,171 Appropriation of endowment assets for expenditures (3,792,670) (3,792,670) Endowment net assets, June 30, 2011 $ 12,368,209 12,368, (Continued)

21 Changes in endowment net assets for the year ended June 30, 2010 are as follows: Endowment net assets, June 30, 2009 $ Unrestricted Temporarily restricted Permanently restricted Total 10,230,577 10,230,577 Investment return: Investment income 210, ,657 Net realized and unrealized gains 2,004,336 2,004,336 Total investment return 2,214,993 2,214,993 Reclassification of endowment 2,189,993 (2,189,993) New donor-restricted funds received 68,461 68,461 Appropriation of endowment assets for expenditures (2,189,993) (2,189,993) Endowment net assets, June 30, 2010 $ 10,324,038 10,324,038 Funds with Deficiencies From time to time, the fair value of assets associated with individual donorrestricted endowment funds may fall below the level that the donor requires the Association to retain as a fund of perpetual duration. There were no such deficiencies at June 30, 2011 or Subsequent gains that restore the fair value of the assets of the endowment fund to the required level would be classified as an increase in unrestricted net assets. Return Objectives and Risk Parameters The Association has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowments while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Association must hold in perpetuity or for a donorspecified period(s) as well as board-designated funds. There were no board-designated funds at June 30, 2011 or The Association seeks to earn a long-term total rate of return sufficient to produce growth of endowment assets net of spending requirements of 4%, inflation and investment expenses. The S&P 500 Stock Index and the Merrill Lynch Domestic Master Bond Index, weighted to reflect the equity/fixed income composition of the endowment portfolio, are used as the undiversified benchmark. The diversified benchmark consists of the common industry benchmarks for the individual asset classes weighted according to the asset allocation policy. Actual returns in any year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Association relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Association targets a diversified asset allocation that places a greater emphasis on equity-based and alternative investments to achieve its long-term return objectives within prudent risk constraints. 13 (Continued)

22 Spending Policy and How the Investment Objectives Relate to Spending Policy The Association has a policy of appropriating for distribution each year 4% of its endowment fund s average fair value over the prior 12 quarters through the fiscal year end preceding the fiscal year in which the distribution is planned. In establishing this policy, the Association considers the long-term expected return on its endowment. The expectation is that the endowment will maintain an average return from investments of 8%, after the annual spending allocation. Since inception in September of 1994, the compound annual rate of return has been 7.4% after spending. This is consistent with the Association s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. During the years ended, the Association appropriated and spent the unrestricted earnings from its endowment net assets. Substantially all investments of the Association held for endowment are pooled for investment purposes. Income earned on endowment fund investments is allocated on the basis of each fund s proportionate interest in the pooled investment portfolio. (12) Retirement Plan The Association has a contributory defined contribution retirement plan which covers substantially all employees who work 1,000 hours or more during the calendar year. Retirement expense for the years ended totaled approximately $864,390 and $805,000, respectively. (13) Medical and Dental Self-Insurance The Association is self-insured with respect to employee medical and dental claims up to $80,000 per claim, approximately $1.0 million per individual and approximately $3.4 million and $3.2 million in aggregate at, respectively. The Association accrues for estimated expenses occurring from both reported and incurred but not reported medical and dental claims. The estimate of the liability arising from incurred but not reported medical and dental claims is based on an analysis of historical claims data. The Association incurred costs of approximately $2,888,200 and $2,726,000 for the years ended June 30, 2011 and 2010, respectively, related to this plan which is included in employee benefits in the accompanying statements of functional expenses. At, the Association had recorded liabilities for incurred but not reported medical and dental expenses of $280,000 and $250,000, respectively, which are included in trade accounts and other payables in the accompanying statements of financial position. 14 (Continued)

23 (14) Fund Raising Costs The following is a summary of direct mail fund raising costs by function: Year Ended June 30, 2011 Fund raising Fund raising donor active donors development Total fund raising Salaries $ 1,082, ,733 1,442,929 Employee benefits 506, , ,710 Total salaries and benefits 1,588, ,410 2,117,639 Supplies, books, materials and printing 2,662, ,422 3,549,689 Maintenance, utilities and insurance 92,094 30, ,792 Transportation, travel and freight 39,835 13,279 53,114 Postage 5,641,929 1,880,643 7,522,572 Mailing list acquisition 644, ,982 Costs of gifts sent to donors 5,585,672 1,861,891 7,447,563 Data processing and other outside support 923, ,997 1,231,990 Other 61,088 20,362 81,450 Total expenses $ 16,595,107 6,176,684 22,771,791 Year Ended June 30, 2010 Fund raising Fund raising donor active donors development Total fund raising Salaries $ 1,046, ,899 1,395,596 Employee benefits 492, , ,728 Total salaries and benefits 1,539, ,081 2,052,324 Supplies, books, materials and printing 2,326, ,661 3,102,646 Maintenance, utilities and insurance 88,412 29, ,883 Transportation, travel and freight 23,482 7,827 31,309 Postage 4,998,092 1,666,031 6,664,123 Mailing list acquisition 572, ,304 Costs of gifts sent to donors 4,281,474 1,427,158 5,708,632 Data processing and other outside support 1,030, ,649 1,374,597 Other 58,588 19,530 78,118 Total expenses $ 14,347,224 5,354,712 19,701, (Continued)

24 (15) Commitments and Contingencies Litigation The Association was named as a defendant in a lawsuit filed in March 2005 in the District Court in Billings, Montana by the Northern Cheyenne Tribe (the Tribe). The suit alleges that certain contributions received by the Association since 1884 have been wrongfully obtained and that a portion of all past and future contributions should be paid to the Northern Cheyenne people. The dispute arose due to differing interpretations of certain Federal statutes and administrative actions that have occurred over the last 100 years. In March 2009, the Association was awarded summary judgment in its favor on all counts in the ongoing lawsuit with the Tribe. It is unknown whether the Tribe plans to appeal the decision. Stipend and Consulting Fee The Association has committed to provide lifetime stipends and consulting fees in the amount of $60,000 annually to certain emeritus staff. In addition, the Association is paying assisted-living expenses to certain emeritus staff in the amount of $24,000 annually. Lease The Association has entered into an operating lease related to space for operating a fund raising office in Billings, Montana. The lease is renewable on an annual basis. The 2011 and 2010 rent expense was $8,640 and is included as a miscellaneous expense of the fund raising support service in the accompanying statements of functional expenses. (16) Subsequent Events Management has updated their evaluation of conditions and events existing that would require subsequent event disclosure through the financial statement issuance date of October 18,