SEA EDUCATION ASSOCIATION, INC.

Transcription

1 FINANCIAL STATEMENTS JUNE 30, 2017 AND 2016

2 CONTENTS Independent Auditors Report 1-2 Statements of Financial Position - June 30, 2017 and Statements of Activities for the Years Ended June 30, 2017 and Statements of Functional Expenses for the Years Ended June 30, 2017 and Statements of Cash Flows for the Years Ended June 30, 2017 and Notes to Financial Statements 7-20

3 2 Batterymarch Park 1 Pine Hill Drive Suite 301 Quincy, MA Tel Fax blumshapiro.com Independent Auditors Report To the Board of Trustees Sea Education Association, Inc. We have audited the accompanying financial statements of Sea Education Association, Inc., which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of 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 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Blum, Shapiro & Company, P.C. -1- An independent member of Baker Tilly International

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sea Education Association, Inc., as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 2 to the financial statements, during the year ended June 30, 2017, Sea Education Association, Inc., adopted the Accounting Standards Update No , Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) and Accounting Standards Update No , Interest - Imputation of Interest. These amendments require retrospective application. As a result, investment disclosures and certain amounts related to debt issuance costs have been restated as of June 30, Our opinion is not modified with respect to this matter. Quincy, Massachusetts September 27,

5 STATEMENTS OF FINANCIAL POSITION JUNE 30, 2017 AND ASSETS Cash and cash equivalents (Note 3) $ 758,715 $ 370,878 Tuition receivable, net of allowance 28,152 20,659 Contributions receivable (Note 4) 643, ,530 Prepaid expenses and other assets 279, ,614 Property, vessels and equipment, net (Note 5) 6,908,428 6,874,167 Investments (Notes 6 and 7) 5,794,519 5,985,890 Total Assets $ 14,412,833 $ 13,778,738 LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses $ 432,097 $ 278,954 Accrued compensated absences 105, ,651 Advance tuition and deposits 922,657 1,080,640 Deferred contribution and grant revenue (Note 4) 57,700 74,256 Note payable, net (Note 8) 1,363,025 1,457,105 Total liabilities 2,880,507 3,010,606 Net Assets Unrestricted net assets 6,201,431 6,195,106 Temporarily restricted (Note 9) 824,314 70,290 Permanently restricted (Note 9) 4,506,581 4,502,736 Total net assets 11,532,326 10,768,132 Total Liabilities and Net Assets $ 14,412,833 $ 13,778,738 The accompanying notes are an integral part of the financial statements -3-

6 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2017 AND Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Operating Revenues and other support: Tuition and fees $ 4,623,822 $ - $ - $ 4,623,822 $ 5,452,286 $ - $ - $ 5,452,286 Less deductions for financial assistance (1,179,854) - - (1,179,854) (1,410,283) - - (1,410,283) Contributions 1,130, ,922-1,239,343 1,656,967 1,520-1,658,487 Seminar and other fees, net of direct financial aid of $44,915 and $23,244, respectively 778, , , ,112 Grants 523, , , ,447 Interest and dividend income (Note 7) 27,914 81, ,696 31,645 87, ,857 Endowment income used for operations (Note 7) 369,584 (50,584) - 319, ,412 (87,212) - 343,200 Other income 80, , , ,434 Net assets released from restrictions 24,735 (24,735) ,884 (136,884) - - Total revenues and other support 6,378, ,385-6,493,943 7,329,904 (135,364) - 7,194,540 Expenditures Program services 5,203, ,203,963 5,581, ,581,748 Management and general 1,360, ,360,103 1,463, ,463,779 Development 491, , , ,201 Total expenditures 7,055, ,055,844 7,456, ,456,728 Change in Net Assets from Operating Activities (677,286) 115,385 - (561,901) (126,824) (135,364) - (262,188) Nonoperating Contributions 619, ,035 3,845 1,212, ,628 7,628 Capital campaign expenses (123,372) - - (123,372) Change in split interest agreement - (1,824) - (1,824) - (1,824) - (1,824) Net realized and unrealized gains (losses) on investments (Note 7) 273, , ,424 (199,806) (34,638) - (234,444) Endowment income used for operations (Note 7) (88,500) (230,500) - (319,000) (102,600) (240,600) - (343,200) Net assets released from restrictions 1,520 (1,520) - - 1,130 (1,130) - - Change in Net Assets from Nonoperating Activities 683, ,639 3,845 1,326,095 (301,276) (278,192) 7,628 (571,840) Change in Net Assets 6, ,024 3, ,194 (428,100) (413,556) 7,628 (834,028) Net Assets - Beginning of Year 6,195,106 70,290 4,502,736 10,768,132 6,623, ,846 4,495,108 11,602,160 Net Assets - End of Year $ 6,201,431 $ 824,314 $ 4,506,581 $ 11,532,326 $ 6,195,106 $ 70,290 $ 4,502,736 $ 10,768,132 The accompanying notes are an integral part of the financial statements -4-

7 STATEMENTS OF FUNCTIONAL EXPENSES FOR THE YEARS ENDED JUNE 30, 2017 AND Program Management Program Management Services and General Development Total Services and General Development Total Salaries and wages $ 2,304,693 $ 756,942 $ 349,710 $ 3,411,345 $ 2,385,354 $ 805,136 $ 280,664 $ 3,471,154 Payroll taxes 166,979 52,838 24, , ,715 55,825 19, ,468 Pension plan contributions 53,075 19,975 10,398 83,448 53,475 19,825 8,346 81,646 Other employee benefits 200,670 72,440 20, , ,435 85,676 14, ,515 Total personnel expenses 2,725, , ,731 4,033,343 2,803, , ,342 4,093,783 Academic fees 49, ,950 64, ,910 Advertising - 69,157-69,157-36,268-36,268 Bad debt expense - 2,923-2, Bank and other fees - 22,244-22,244-22,380-22,380 Computer support and service 41,695 13,030 3,475 58,200 41,146 12,858 3,429 57,433 Conferences, events and meetings 5,116 24,512 9,387 39,015 6,720 41,698 11,475 59,893 Educational development 34,421 4,519-38,940 39,752 4,663-44,415 Facilities rental 62, ,795 65, ,546 Food 271, , , ,174 Fuel 102, ,618 93, ,679 Grant subawards and subcontracts 79, ,101 94, ,996 Insurance 266,217 19, , ,847 18, ,102 Interest and amortization of debt service costs 61, ,048 64,623 20,503-85,126 Library fees and supplies 23, ,769 22, ,385 Miscellaneous 8,669 21, ,846 10,033 33,915 1,997 45,945 Occupancy 105,439 14,733 2, , ,773 13,035 1, ,740 Postage and shipping 8,492 13,771 10,450 32,713 14,402 16,173 12,613 43,188 Printing and publications 13 30,972 22,216 53,201-51,247 20,668 71,915 Professional fees 31, ,801 2, ,103 49, ,810 5, ,919 Ship supplies 156, , , ,972 Shipboard maintenance and repairs 115, , , ,326 Student stipends 68, ,190 76, ,870 Supplies 97,270 6, , ,450 8, ,122 Telephone 30,393 7,540 6,659 44,592 24,072 8,186 6,439 38,697 Travel 319,702 77,094 21, , ,546 70,329 16, ,106 Website services - 10,540 4,937 15,477-13,312 4,477 17,789 Total expenses before depreciation 4,666,308 1,345, ,544 6,500,880 5,095,919 1,448, ,934 6,953,332 Depreciation 537,655 15,075 2, , ,829 15,300 2, ,396 Total Expenses $ 5,203,963 $ 1,360,103 $ 491,778 $ 7,055,844 $ 5,581,748 $ 1,463,779 $ 411,201 $ 7,456,728 The accompanying notes are an integral part of the financial statements -5-

8 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2017 AND Cash Flows from Operating Activities Change in net assets $ 764,194 $ (834,028) Adjustments to reconcile the change in net assets to net cash provided by (used in) operating activities: Depreciation 554, ,396 Amortization of deferred financing costs 7,146 7,146 Net realized and unrealized (gains) losses on investments (557,424) 234,444 Bad debt expense 2, Contributions restricted for endowment (3,845) (7,628) Forgiveness of related-party notes payable and accrued interest - (442,226) (Increase) decrease in operating assets: Tuition receivable (10,416) 502 Contributions receivable (498,588) (47,540) Prepaid expenses and other assets 102,713 (156,350) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 86,320 (107,678) Accrued compensated absences (14,623) - Advance tuition and deposits (157,983) (35,235) Deferred contribution and grant revenue (16,556) 30,083 Net cash provided by (used in) by operating activities 258,825 (854,461) Cash Flows from Investing Activities Purchases of property, vessels and equipment (522,402) (229,896) Purchases of investments (167,240) (125,880) Proceeds from sale of investments 916, ,654 Net cash provided by investing activities 226, ,878 Cash Flows from Financing Activities Proceeds from contributions restricted for endowment 3,845 7,628 Payments on note payable (101,226) (97,650) Net cash used in financing activities (97,381) (90,022) Change in Cash and Cash Equivalents 387,837 (803,605) Cash and Cash Equivalents - Beginning of Year 370,878 1,174,483 Cash and Cash Equivalents - End of Year $ 758,715 $ 370,878 Supplemental Disclosures Cash paid for interest $ 53,902 $ 57,477 Total purchases of property and equipment $ 589,225 $ 229,896 Less amounts included in construction payable (66,823) - Cash paid for property and equipment $ 522,402 $ 229,896 The accompanying notes are an integral part of the financial statements -6-

9 NOTE 1 - GENERAL Sea Education Association, Inc. (the Association) is a Massachusetts nonprofit educational institution dedicated to exploration, understanding and stewardship of the oceans, and to the study of humanity s relationship with the oceans. The Association offers college students an interdisciplinary curriculum, on shore and at sea aboard tall ships, that provides challenging voyages of scientific discovery, academic rigor and personal growth. In addition, the Association also provides summer programs for high school students. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Change in Accounting Principle In May 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No , Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent), which removes the requirement to categorize investments measured at net asset value within the fair value hierarchy tables. The standard is effective for years beginning after December 15, These changes are to be applied retrospectively. The Association has adopted ASU for the year ended June 30, In April 2015, the Financial Accounting Standards Board issued ASU No , Interest - Imputation of Interest, which simplifies the presentation of debt issuance costs. The amendments change the presentation of debt issuance costs from an asset to a direct deduction of the debt on the accompanying statement of financial position. In addition, the amortization of debt issuance costs is now included in interest expense rather than amortization expense in the accompanying statement of activities. This ASU is effective for annual periods beginning after December 15, The Association has adopted the amendments for the year ended June 30, The amendments have been retrospectively applied. As a result, debt issuance costs of $86,143 have been reclassified from assets to a direct deduction of the debt in the statement of financial position as of June 30, Basis of Financial Statements The accompanying financial statements are presented on the accrual basis of accounting in accordance with the reporting standards for nonprofit organizations. Generally accepted accounting principles (GAAP) require classification of net assets and revenues, expenses, gains and losses into three categories based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Permanently Restricted Net assets subject to donor-imposed stipulations that they be maintained in perpetuity 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. Temporarily Restricted Net assets subject to donor-imposed stipulations that may or will be met by actions of the Association and/or the passage of time. Unrestricted Net assets not subject to donor-imposed stipulations. -7-

10 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 stipulations or law. Expirations of temporary restrictions on net assets, that is, the donor-imposed stipulated purpose has been accomplished and/or the stipulated time period has elapsed, are reported as net assets released from restrictions. Operations The statements of activities present changes in net assets from operating and nonoperating activities. Operating activities consist of those revenues and expenses related to educational and general programs of the Association, including annual fund contributions to support these programs. It also includes interest and dividends and endowment appreciation used for operations under the Association s endowment spending policy. Nonoperating activities consist of contributions for long-term purposes (e.g., facilities and endowment), any related capital campaign costs and investment results (other than those used to support operations), as well as unusual items not directly related to the Association s educational and general programs (e.g., sales of property, vessels and equipment). Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. It is at least possible that the estimates will change within the next year. Contributions Contributions are recognized when the donor makes a donation or a promise to give (pledge) in writing to the Association that is, in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the reporting period in which the revenue is recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are released to unrestricted net assets. Conditional promises to give are not included as support until the conditions are substantially met. Unconditional pledges are recorded net of an allowance for uncollectible amounts. Those pledges that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using interest rates applicable to the years in which the promises are received. Amortization of the discounts is included in contributions. Donated Services The Association received a significant amount of donated services from unpaid volunteers. No amounts have been recognized on the statements of activities because the criteria for recognition under accounting standards have not been satisfied. -8-

11 Tax-Exempt Status and Income Taxes The Association is incorporated under the laws of the Commonwealth of Massachusetts and is qualified as a tax-exempt organization (and is classified as other than a private foundation) subject to the provisions of the Internal Revenue Code Section 501(c)(3). Cash and Cash Equivalents The Association considers cash and cash equivalents to be currency on hand or on deposit and all highly liquid investments with original maturities of three months or less. Cash in bank deposit accounts may, at times, exceed federally insured limits; however, the Association has not experienced any losses related to the uninsured balances. In addition, money market funds (included in cash and cash equivalents) are not federally insured. Cash and cash equivalents designated for long-term purposes or received with donor-imposed restrictions limiting their use to long-term purposes are not considered cash and cash equivalents for purposes of the statements of cash flows. Tuition Receivable The Association carries its tuition receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Association evaluates its tuition receivable and establishes an allowance for doubtful accounts when deemed necessary. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts. At June 30, 2017 and 2016, $7,500 and $6,800, respectively, was reserved for uncollectible tuition receivable. There was no interest charged on overdue balances. Management believes there is no additional credit risk, beyond amounts provided for doubtful accounts, related to tuition receivable. Property, Vessels and Equipment Purchases of property, vessels and equipment are recorded at cost. Maintenance and repairs are expensed as incurred. When items of property, vessels or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in nonoperating activities. Donations of property, vessels and equipment are recorded as support at their estimated fair value. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property, vessels and equipment are reported as temporarily restricted support. Unless the donor stipulates how long those donated assets must be maintained, the Association reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Association reclassifies temporarily restricted net assets to unrestricted net assets at that time. -9-

12 The Association provides for depreciation on a straight-line basis over various estimated useful lives as follows: Administrative and classroom facilities Housing buildings Housing furnishings Equipment Motor vehicles Vessels years years 5-7 years 3-20 years 10 years 3-40 years Investment Valuation and Income Recognition Investments are reported at fair value. Fair value is 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. See Note 6 for a discussion of fair value measurements. Purchases and sales of securities are recorded on the trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Realized and unrealized gains (losses) include the Association s gains and losses on investments bought and sold as well as held during the year. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is possible that changes in value of investment securities could occur in the near term, and that such change could materially affect investment balances and activity included in the financial statements. Realized gains and losses are determined using the average cost basis and are presented net of management and custodial fees. Purchases and sales of securities are accounted for using the trade date. Endowment The Association s endowment funds include both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The Association classifies, as permanently restricted net assets, the original value of gifts donated to the permanent endowment and the original value of subsequent gifts to the permanent endowment. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Association s spending policy and in accordance with the original restriction on the gift. 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 endowment, 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 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 enhance or preserve the long-term purchasing power, while assuming a moderate level of investment risk. -10-

13 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 includes equity, fixed income and cash-based investments to achieve its long-term return objectives within prudent risk constraints. The Association has a policy of appropriating for distribution a percentage of its endowment fund s average fair value over the prior three years through the third quarter in the fiscal year in which the distribution is planned. In establishing this policy, the Association considered the long-term expected return on its endowment. For the years ended June 30, 2017 and 2016, the Board approved a 7% spending policy which was applied only to those funds with available appreciation in both endowment and unrestricted funds functioning as endowment. Deferred Financing Costs Deferred financing costs were incurred in obtaining the note payable (see Note 8). These costs, which amount to $178,487, are being amortized over the term of the financing. Debt issuance costs are presented as a direct deduction of the carrying amount of the debt. Amortization expense was $7,146 for both of the years ended June 30, 2017 and 2016, and is included within interest expense. Revenue Recognition Tuition and fees are generally billed and deferred in advance of services provided and recognized in revenue when earned. Financial Assistance The Association awards financial assistance to a number of students each year based on a variety of factors, such as need and ability. These awards are determined by the Association s management and are recorded as a reduction of tuition revenue on the statements of activities. Grant Activity Federal and other grant funds are received on a cost reimbursement basis. Revenue is recognized to the extent of funds expended under the award terms. Upon completion or expiration of a grant, unexpended funds are not available to the Association. Grants and contracts normally provide for the recovery of direct and indirect costs subject to audit. The Association recognizes revenue associated with direct costs as the related costs are incurred. Recovery of related indirect costs is generally recorded at fixed rates negotiated with the granting authority. Advertising Advertising costs are expensed as incurred. Advertising expense was $69,157 and $36,268 for the years ended June 30, 2017 and 2016, respectively. -11-

14 Functional Allocation of Expenses The costs of providing the various programs and other activities are summarized on a functional basis on the statements of activities and the statements of functional expenses. Accordingly, certain costs are allocated among the programs and supporting services benefited based on direct costs, usage and other factors. Subsequent Events Management has evaluated subsequent events through September 27, 2017, the date which the financial statements were available for issue, noting no events requiring adjustment to, or disclosure in, the financial statements. NOTE 3 - CASH AND CASH EQUIVALENTS At June 30, 2017 and 2016, cash and cash equivalents consisted of the following: Currency on hand or deposit $ 87,001 $ 103,240 Money market funds 671, ,638 $ 758,715 $ 370,878 NOTE 4 - CONTRIBUTIONS RECEIVABLE AND DEFERRED CONTRIBUTION AND GRANT REVENUE At June 30, 2017 and 2016, contributions receivable included the following: Contributions receivable before unamortized discount $ 667,380 $ 144,530 Less unamortized discount (using discount rates of 3.6%) (24,262) - Net Contributions Receivable $ 643,118 $ 144,530 Amounts due in: Less than one year $ 265, ,530 One to five years 402,317 - $ 667,380 $ 144,530 No allowance was deemed necessary by management for the years ended June 30, 2017 and

15 Conditional contributions and grants received by the Association were reported as deferred contribution and grant revenue on the statements of financial position. The balances at June 30, 2017 and 2016, of $57,700 and $74,256, respectively, consisted of contributions and nonfederal grant funds which are required to be returned to the donors or granting authorities if certain conditions are not met by the Association. As a result, they have been recorded within deferred contribution and grant revenue until such conditions have been met. NOTE 5 - PROPERTY, VESSELS AND EQUIPMENT At June 30, 2017 and 2016, property, vessels and equipment consisted of the following: Property and equipment: Land $ 190,484 $ 190,484 Administrative and classroom facilities 2,081,978 2,028,592 Housing buildings 1,129,423 1,110,122 Housing furnishings 70,283 70,283 Maintenance equipment 58,555 57,374 Office equipment 634, ,151 Classroom equipment 183, ,124 Motor vehicles 18,599 9,199 Total property and equipment 4,366,568 4,244,329 Less accumulated depreciation (3,673,053) (3,574,233) Total property and equipment, net 693, ,096 Vessels and oceanographic equipment: Vessels 13,819,362 13,630,185 Oceanographic equipment 1,991,590 1,946,813 Construction in process 233,032 - Total vessels and oceanographic equipment 16,043,984 15,576,998 Less accumulated depreciation (9,829,071) (9,372,927) Total vessels and oceanographic equipment, net 6,214,913 6,204,071 Total Property, Vessels and Equipment, Net $ 6,908,428 $ 6,874,167 Depreciation expense for the years ended June 30, 2017 and 2016, was $554,964 and $503,396, respectively. Construction in process as of June 30, 2017 consisted of costs associated with the Corwith Cramer refit project which will be completed during Total estimated costs of the refit is $1,500,

16 NOTE 6 - INVESTMENTS AND FAIR VALUE MEASUREMENTS Investments consisted of the following at June 30, 2017 and 2016: Endowment funds (Note 7) $ 5,732,487 $ 5,951,261 Other investments 62,032 34,629 Total Investments $ 5,794,519 $ 5,985,890 Generally accepted accounting principles establish a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Association has the ability to access. Level 2 Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset s or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodology used for financial instruments measured at fair value: Mutual and Money Market Funds Mutual and money market funds are valued at the quoted price of shares reported in the active market in which the funds are traded. -14-

17 Common Collective Trusts The Association invests in funds managed by the Common Fund, a consortium of private schools, colleges and universities who have pooled their investments for common management, which operates common collective trusts investing in stocks, bonds and other investments. The Association also invests in a variety of mutual, exchange traded and money market funds. Exchange Traded Funds These items are valued at the closing price reported in the active market in which the individual securities are traded. There have been no changes in the methodologies used at June 30, 2017 and 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. The following tables set forth by level, within the fair value hierarchy, the Association s assets at fair value as of June 30, 2017 and 2016: Level Investments Measured at Net Asset Value (a) Total Money market and mutual funds: International equity funds $ 507,632 $ - $ 507,632 Domestic bond funds 1,255,435-1,255,435 Money market funds 838, ,145 Common collective trust: Domestic equity funds - 957, ,426 Exchange traded funds: Domestic bond funds 624, ,141 Domestic equity funds 1,518,333-1,518,333 International equity funds 93,407-93,407 Total Assets at Fair Value $ 4,837,093 $ 957,426 $ 5,794,

18 Level Investments Measured at Net Asset Value (a) Total Money market and mutual funds: Domestic equity funds $ 864,974 $ - $ 864,974 Domestic bond funds 1,270,680-1,270,680 Money market funds 141, ,930 Common collective trust: Domestic equity funds - 1,834,029 1,834,029 Exchange traded funds: Domestic bond funds 868, ,481 Domestic equity funds 924, ,985 International equity funds 67,523-67,523 Money market funds 13,288-13,288 Total Assets at Fair Value $ 4,151,861 $ 1,834,029 $ 5,985,890 a) Certain investments that are measured using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position. There were no transfers between levels of investments during the years ended June 30, 2017 and Investments are reported at fair value. The estimated net asset value of units of the common collective trusts are based upon quoted market prices of the underlying securities, which consist primarily of publicly traded equity, fixed income and other securities. The Association has adopted authoritative guidance that permits the use of the net asset value per share or its equivalent as a practical expedient, when estimating fair value. The Association s investments within the Common Fund have been classified as being valued as net asset value as the practical expedient. These investments are restricted to one monthly redemption on the last business day of the month, with advanced notice of at least five business days. NOTE 7 - ENDOWMENT The composition of the Association s endowment investments by net asset class at June 30, 2017 and 2016, was as follows: Unrestricted - board-designated endowment funds $ 1,107,989 $ 1,415,988 Temporarily restricted - donor-restricted 117,917 32,537 Permanently restricted - donor-restricted 4,506,581 4,502,736 $ 5,732,487 $ 5,951,261

19 Changes in the Association s endowment investments by net asset class for the years ended June 30, 2017 and 2016, were as follows: Unrestricted Temporarily Restricted Permanently Restricted Total June 30, 2015 $ 1,716,858 $ 307,775 $ 4,495,108 $ 6,519,741 Contributions - - 7,628 7,628 Investment return (decline): Interest and dividends 31,328 87, ,540 Net investment losses* (198,270) (34,638) - (232,908) (166,942) 52,574 - (114,368) Appropriated for expenditure: Interest and dividends used for operations (31,328) (87,212) - (118,540) Other amounts used for operations (102,600) (240,600) - (343,200) (133,928) (327,812) - (461,740) June 30, ,415,988 32,537 4,502,736 5,951,261 Contributions - - 3,845 3,845 Investment return: Interest and dividends 25,789 81, ,571 Net investment gains* 275, , , , , ,060 Transfer to operations (505,100) - - (505,100) Appropriated for expenditure: Interest and dividends used for operations (15,995) (50,584) - (66,579) Spending policy transfer (88,500) (230,500) - (319,000) (104,495) (281,084) - (385,579) June 30, 2017 $ 1,107,989 $ 117,917 $ 4,506,581 $ 5,732,487 * Net investment gains (losses) for the years ended June 30, 2017 and 2016, were presented net of investment management and custodial fees of $15,134 and $10,372, respectively. -17-

20 Interest and dividend income on the statements of activities included $2,125 and $317 of interest earned for the years ended June 30, 2017 and 2016, respectively, on other investments and cash and cash equivalents which were not included in the Association s endowment. Net realized and unrealized gains (losses) on investments on the statements of activities included net losses of $3,065 and $1,536 for the years ended June 30, 2017 and 2016, respectively, on other investments which were not included in the Association s endowment and contributions of securities which were liquidated by the Association. 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 Association to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that were reported in unrestricted net assets were $1,941 and $141,383 as of June 30, 2017 and 2016, respectively. These deficiencies have reduced the board-designated endowment investments of $1,109,930 and $1,557,371 as of June 30, 2017 and 2016, respectively, and resulted from unfavorable market fluctuations. NOTE 8 - NOTE PAYABLE At June 30, 2017 and 2016, the Association has a note payable at interest rate of 3.6%, payable in monthly installments of principal and interest of $12,930 through October Interest on the note will be reset every five years based on a factor of the Federal Home Loan Bank rate plus 2.77%. The next interest rate recalculation date is October 15, The note is collateralized by substantially all of the assets of the Association and is subject to financial and other covenants. Note payable at June 30, 2017 and 2016, consisted of the following: Note payable $ 1,442,022 $ 1,543,248 Less unamortized deferred financing fees (78,997) (86,143) Note Payable, Net $ 1,363,025 $ 1,457,105 Maturities of note payable are as follows: Year Ending June 30: 2018 $ 104, , , , ,197 Thereafter 877,344 Total $ 1,442,

21 NOTE 9 - NET ASSETS Temporarily and permanently restricted net assets consisted of the following at June 30, 2017 and 2016: Temporarily restricted: Unexpended appreciation on permanently restricted endowment $ 117,917 $ 32,537 Development support - 24,735 Unrestricted pledges receivable 637,723 1,520 Ship maintenance 49,000 - Charitable remainder trust whereby donor is the lifetime income beneficiary 9,344 11,168 Unexpended income for instruction, scholarships and fellowships 10, Total Temporarily Restricted Net Assets $ 824,314 $ 70,290 Permanently restricted: Scholarships $ 2,714,793 $ 2,710,948 Doherty chair for ocean studies 1,244,238 1,244,238 Ship operations 300, ,100 Plant operations or construction projects 197, ,100 Academic programs 50,350 50,350 Total Permanently Restricted Net Assets $ 4,506,581 $ 4,502,736 NOTE 10 - LEASES The Association leases certain equipment through noncancelable operating lease agreements, with expiration dates through March Future minimum lease payments under the noncancelable operating leases with initial or remaining terms of one year or more are as follows: Year Ending June 30: 2018 $ 12, , , ,024 Total $ 30,081 Total rent expense under operating lease was $12,295 and $13,980 for the years ended June 30, 2017 and 2016, respectively, and is included in computer support and service expenses on the statements of functional expenses. -19-

22 NOTE 11 - RETIREMENT PLAN Retirement provisions for the Association include contracts between each participating employee and the Teachers Insurance and Annuity Association and the College Retirement Equities Fund. Contributions are applied to individual annuity contracts that are fully funded and provide for full and immediate vesting of all contributions to the participant. The accrued benefit at any time for a participant is the current value of the annuity accumulation, including all contributions, less expense charges, plus investment results. The Association contributes 3% of eligible compensation. The Association s portion of contributions amounted to $83,447 and $81,646 for the years ended June 30, 2017 and 2016, respectively. -20-