Assumption College Financial Statements May 31, 2010 and 2009

Transcription

1 Financial Statements

2 Contents Page(s) Report of Independent Auditors... 1 Financial Statements Statements of Financial Position... 2 Statement of Activities and Changes in Net Assets Statements of Cash Flows

3 PricewaterhouseCoopers LLP 125 High Street Boston MA Telephone (617) Facsimile (617) Report of Independent Auditors To the Board of Trustees of Assumption College In our opinion, the accompanying statements of financial position and the related statements of activities and changes in net assets, and of cash flows, present fairly, in all material respects, the financial position of Assumption College ("the College") at May 31, 2010 and May 31, 2009, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. September 28,

4 Statements of Financial Position As of Assets Cash and cash equivalents $ 21,898,011 $ 18,514,321 Short-term investments 120,056 3,198,136 Student tuition receivables (net of allowance of $143,343 and $48,639 at, respectively) 566, ,890 Grants and other receivables 623, ,080 Student loans receivable (net of allowance of $333,419 and $267,281 at, respectively) 3,531,645 3,662,810 Contributions receivable, (net of allowance of $158,288 and $138,743 at, respectively) 1,328, ,855 Long-term investments 74,240,483 63,195,920 Prepaid expenses and other assets 1,344,840 1,309,806 Unamortized bond issuance costs (net of accumulated amortization of $321,000 and $282,000 at May 31, 2010 and 2009, respectively) 834, ,151 Property, plant and equipment, net 76,188,183 76,879,554 Total assets $ 180,675,666 $ 169,856,523 Liabilities Accounts payable and accrued liabilities $ 6,823,572 $ 5,538,556 Student deposits and deferred revenue 2,189,839 2,418,832 Obligations under split interest agreements 730, ,365 Long-term debt 42,674,201 44,712,308 Asset retirement obligation 157, ,869 Liability under interest rate swap agreements 2,436,028 2,555,448 Refundable government student loans 2,946,532 2,941,493 Total liabilities 57,957,837 59,220,871 Net assets. Unrestricted 97,716,435 88,442,125 Temporarily restricted 7,008,512 4,537,601 Permanently restricted 17,992,882 17,655,926 Total net assets 122,717, ,635,652 Total liabilities and net assets $ 180,675,666 $ 169,856,523 The accompanying notes are an integral part of these financial statements. 2

5 Statement of Activities and Changes in Net Assets Year Ended May 31, 2010 Temporarily Permanently Unrestricted Restricted Restricted Total Operating revenues and reclassifications Tuition and fees $ 68,300,825 $ - $ - $ 68,300,825 Less financial aid and scholarships (31,425,860) (31,425,860) Net tuition and fees 36,874, ,874,965 Investment income Operating assets 1,194,158 1,194,158 Nonoperating assets 663, ,811 Auxiliary enterprises 19,078,927 19,078,927 Annual gifts 1,139,290 1,139,290 Grants 5,975,965 5,975,965 Other income 1,283,531 1,283,531 Net assets released from restrictions 611,837 (611,837) - Total operating revenue and reclassifications 66,822,484 (611,837) - 66,210,647 Operating expenses Instruction 19,931,868 19,931,868 Academic support 6,845,283 6,845,283 Student services 9,784,274 9,784,274 Institutional support 8,720,940 8,720,940 Auxiliary enterprises 17,607,306 17,607,306 Faculty severance adjustment - - Total operating expenses 62,889, ,889,671 Increase (decrease) in net assets from operations 3,932,813 (611,837) - 3,320,976 Nonoperating revenue and expense Contributions 1,315,066 25, ,956 1,677,368 Unrealized gains/(losses) 4,914,730 2,858,944 7,773,674 Investment income (utilized) earned (1,007,719) 42,477 (965,242) Life income distribution 155, ,981 Change in value of interest rate swap agreements 119, ,420 Increase (decrease) in net assets from nonoperating activities 5,341,497 3,082, ,956 8,761,201 Increase in net assets 9,274,310 2,470, ,956 12,082,177 Net assets at beginning of year 88,442,125 4,537,601 17,655, ,635,652 Net assets at end of year $ 97,716,435 $ 7,008,512 $ 17,992,882 $ 122,717,829 The accompanying notes are an integral part of these financial statements. 3

6 Statement of Activities and Changes in Net Assets Year Ended May 31, 2009 Temporarily Permanently Unrestricted Restricted Restricted Total Operating revenues and reclassifications Tuition and fees $ 66,881,928 $ - $ - $ 66,881,928 Less financial aid and scholarships (27,515,364) (27,515,364) Net tuition and fees 39,366, ,366,564 Investment income Operating assets 1,110,130 1,110,130 Nonoperating assets 382, ,122 Auxiliary enterprises 19,451,104 19,451,104 Annual gifts 978, ,419 Grants 3,472,877 3,472,877 Other income 1,077,685 1,077,685 Net assets released from restrictions 878,263 (878,263) - Total operating revenue and reclassifications 66,717,164 (878,263) - 65,838,901 Operating expenses Instruction 20,618,396 20,618,396 Academic support 6,804,143 6,804,143 Student services 10,471,890 10,471,890 Institutional support 8,552,145 8,552,145 Auxiliary enterprises 16,841,949 16,841,949 Faculty severance adjustment - - Total operating expenses 63,288, ,288,523 Increase (decrease) in net assets from operations 3,428,641 (878,263) - 2,550,378 Nonoperating revenue and expense Contributions 1,163,072 1,589,331 2,752,403 Unrealized gains/(losses) (8,929,003) (5,243,202) (14,172,205) Investment income (utilized) earned (1,014,405) 51,613 (962,792) Life income distribution - 208, ,050 Change in value of interest rate swap agreements (1,224,498) (1,224,498) Increase (decrease) in net assets from nonoperating activities (10,004,834) (4,983,539) 1,589,331 (13,399,042) Increase (decrease) in net assets (6,576,193) (5,861,802) 1,589,331 (10,848,664) Net assets at beginning of year 95,018,318 10,399,403 16,066, ,484,316 Net assets at end of year $ 88,442,125 $ 4,537,601 $ 17,655,926 $ 110,635,652 The accompanying notes are an integral part of these financial statements. 4

7 Statements of Cash Flows Years Ended Cash flows from operating activities Change in net assets $ 12,082,177 $ (10,848,664) Adjustments to reconcile changes in net assets to net cash provided by operating activities Depreciation 3,169,755 3,122,837 Amortization 60,435 60,435 Cash contributions to permanently restricted net assets (336,956) (1,588,911) Adjustment for noncash gifts received Realized and unrealized (gains)/losses on investments (6,101,022) 16,799,880 Change in the fair value of interest rate swap agreements (119,420) 1,224,498 Change in allowance for doubtful contributions receivable 19,546 (90,315) Provision for uncollectible student tuition and loans receivable (28,566) (15,556) Discount for contributions receivable (11,791) (13,789) Asset retirement cost (10,589) (73,507) Changes in operating assets and liabilities Student tuition receivables 88,541 25,720 Grant and other receivables 143,211 (354,443) Contributions receivable (439,906) 452,548 Prepaid expenses and other assets (35,034) (33,288) Accounts payable and accrued liabilities 1,285,016 (898,894) Student deposits and deferred revenue (228,993) 197,337 Obligations under split interest agreements (155,980) (208,051) Refundable government student loans 5,039 6,916 Total adjustments (2,696,714) 18,613,417 Net cash provided by operating activities 9,385,463 7,764,753 Cash flows from investing activities Short-term investments 3,078,080 (3,198,136) Purchases of long-term investments (12,221,032) (28,596,127) Proceeds from maturities and sales of long-term assets and noncash gifts 7,277,492 24,368,018 Purchases of property, plant and equipment (2,478,384) (5,151,376) Issuance of student loans (435,350) (479,496) Payments on student loans 500, ,374 Net cash (used in) investing activities (4,278,817) (12,633,743) Cash flows from financing activities Cash contributions to permanently restricted net assets 336,956 1,588,911 Payments on long-term debt (2,348,452) (1,832,190) Proceeds from note payable 288,540 Net cash (used in) financing activities (1,722,956) (243,279) Net increase (decrease) in cash and cash equivalents 3,383,690 (5,112,269) Cash and cash equivalents, at beginning of year 18,514,321 23,626,590 Cash and cash equivalents, at end of year $ 21,898,011 $ 18,514,321 Supplemental disclosure Cash paid for interest $ 1,893,110 $ 2,204,454 Noncash activity Acquisition of property, plant and equipment included 85,000 - in accounts payable and accrued liabilities The accompanying notes are an integral part of these financial statements. 5

8 1. Organization and Summary of Significant Accounting Policies Background Assumption College (the "College"), founded in 1904, is a Catholic, nonprofit, coeducational college located in Worcester, Massachusetts on a 175-acre campus. Approximately 3,500 undergraduate and graduate students attend the College annually. The College offers bachelor's degrees in the liberal arts and pre-professional programs with a liberal arts core, and master's degrees in business, education, theology, counseling and social rehabilitation on a full-time and part-time basis. In addition, the Center of Continuing and Professional Education offers bachelor degrees and certificate programs, as well as noncredit courses. Basis of Financial Statement Presentation The accompanying financial statements are presented on the accrual basis of accounting and have been prepared to focus on the College as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes are classified as follows: 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. The change in unrestricted net assets is primarily impacted by the results of operations, new capital purchases, net of depreciation and debt, unrestricted giving, and by the amount of temporarily restricted assets that have been released from restrictions. 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. The change in temporarily restricted net assets is impacted primarily by gifts with time and donor constraints, such as restricted annual fund gifts, unconditional pledges and deferred giving instruments. Permanently Restricted Net assets subject to donor-imposed stipulations that they be maintained in perpetuity by the College. Generally, the donors of these assets permit the College to use all or part of the investment return on these assets for designated purposes. Such assets primarily represent the historic dollar amount of restricted endowment gifts. Operations The statement of activities and changes in net assets reports the changes in unrestricted, temporarily restricted and permanently restricted assets from operating and nonoperating activities. Unrestricted operating revenues consist of those items attributable to the College's primary mission of providing education. Additionally, unrestricted operating revenue includes contributions received related to annual fund support. The College allocates endowment income and appreciation based on the absence or existence of donor imposed restrictions. Income (e.g., interest and dividends) earned on the funds received relating to its mission is included as operating revenue. The net increase (decrease) in realized and unrealized appreciation (depreciation) on investments and the change in value on interest rate swap agreements is included in nonoperating revenue and expenses. 6

9 The College reports expenses associated with the management of the College's restricted, plant, endowment, annuity and loan funds as operating expenses. Interest expense, depreciation, and expenses associated with the maintenance of the physical plant are allocated to their functional categories on the basis of square footage. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increase those net asset classes. When a qualifying expenditure occurs or a time restriction expires, temporarily restricted assets are recognized as unrestricted net assets as "net assets released from restrictions" in the statement of activities. However, if a restriction is fulfilled in the same time period in which the contribution is received, the contribution is immediately reported as an unrestricted contribution. Furthermore, dividends and interest and realized and unrealized gains (losses) on endowment investments are reported as follows: Increases (decreases) in permanently restricted net assets if the terms of the gift require these to be added to the principal of a permanent endowment fund; Increases (decreases) in temporarily restricted net assets if the terms of the gift, or the College's interpretation of the relevant state law, impose restrictions on the use of the income or net gain; and Increases (decreases) in unrestricted net assets in all other cases. Cash and Cash Equivalents Cash equivalents consist of time deposits and short-term investments with maturities of three months or less at date of purchase. Cash equivalents are stated at cost, which approximates fair value. Most of the College's banking activity, including cash and cash equivalents, is maintained with several regional banks and from time to time cash deposits exceed federal insurance limits. It is the College's policy to monitor these banks' financial strength on an ongoing basis. Tuition and Fee Revenue Tuition and fee revenue is recorded at the College's established rates, net of college, state and federal financial aid administered directly by the College. Contributions Unconditional promises to give that are expected to be collected within one year are recorded at their net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of estimated future cash flows. The discounts on those amounts are computed using a risk free interest rate applicable to the year in which the promise is received. Amortization of the discount is included in contribution revenue. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. It is the College's policy to not record bequests, given that the actual amount to be received is indeterminable until the time the estate has completed the probate process. 7

10 Investments The College's portfolio is managed by outside investment managers who operate under the oversight of the Investment Committee of the Board of Trustees. The Committee has established and communicated to the managers the College's investment guidelines. All long-term investments have been reported in the financial statements at their fair value as of. The fair value of publicly-traded fixed income and equity securities is based upon quoted market prices and exchange rates, if applicable. The alternative investments, which are not readily marketable, are carried at estimated fair values as provided by the investment managers. The College and its Finance Committee review and evaluate the values provided by the investment managers and agree with the valuation methods and assumptions used in determining the fair value of the alternative investments. Because the investments are not readily marketable, the estimated value is subject to uncertainty and, therefore, may differ significantly from the value that would have been used had a market for such investments existed. The net increase (decrease) in realized and unrealized appreciation in the fair value of such investments has been included in the statement of activities and changes in net assets in the applicable net asset category. In 2009, new guidance related to the Fair Value Measurement standard was issued for estimating the fair value of investments in investment companies that have a calculated value of their capital account or net asset value ("NAV") in accordance with, or in a manner consistent with US generally accepted accounting principles ("US GAAP"). As a practical expedient, the College is permitted under US GAAP to estimate the fair value of an investment at the measurement date using the reported NAV without further adjustment unless the entity expects to sell the investment at a value other than NAV or if the NAV is not calculated in accordance with US GAAP. The College performs additional procedures including due diligence reviews on its investments in investment companies and other procedures with respect to the capital account or NAV provided by investment companies to ensure conformity with US GAAP. The College has assessed factors including, but not limited to, managers compliance with Fair Value Measurement standard, price transparency and valuation procedures in place, the ability to redeem at NAV at the measurement date, and existence of certain redemption restrictions at the measurement date. The guidance also requires additional disclosure, to enable users of the financial statements to understand the nature and risk of the College's investments in investment companies. Furthermore, investments which can be redeemed at NAV by the College on the measurement date or in the near term are classified as Level 2. Investments which cannot be redeemed on the measurement date or in the near term are classified as Level 3. The new guidance did not materially impact the College's financial statements. Fair Value of Financial Instruments The fair value of the College's investments is based on quoted market prices at the reporting date for those or similar investments. The fair value of the College's long-term debt, which approximates the carrying amount, is estimated based upon the College's incremental borrowing rate for similar types of borrowings. The carrying amounts reported in the statement of financial position for cash and cash equivalents, receivables, accounts payable and accrued liabilities, interest rate swaps and student deposits approximate their fair values. 8

11 Property, Plant and Equipment Property, plant and equipment are recorded at cost at the date of acquisition or, in the case of gifts, at estimated fair value at the date of the gift. The College depreciates its fixed assets using the straight-line depreciation method over the estimated useful lives of the related assets, as follows: Land improvements Buildings and improvements Equipment and automobiles years years 5-20 years Expenditures for repairs and maintenance are charged to expense as incurred. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period. Bookstore and Campus Store Inventory Bookstore and campus store inventories are recorded at the lower of cost (first-in, first-out method) or market. Bond Discount and Issuance Costs Unamortized discount and bond issuance costs are being amortized on a straight-line basis (which approximates the calculation if the effective interest method was used) through the maturity dates of the bonds payable. Annuity Obligations The College accepts certain gifts with the condition that periodic payments of specified amounts (annuities) are made to donors. The gifts are recorded at estimated fair value at the date of the receipt of such gifts and a liability is recognized equal to the estimated present value of the annuity payments. Asset Retirement Obligations An asset retirement obligation ( ARO ) is a legal obligation associated with the retirement of longlived assets. These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount. Asset retirement costs are subsequently depreciated over the useful lives of the related assets. Subsequent to initial recognition, the College records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. 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 estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in determining the valuation of investments, allowances for student tuition receivables, student loans receivable and contributions receivable, the value of interest rate swap agreements, the severance plan accrual and the estimated liabilities for annuity obligations. 9

12 Income Taxes The Internal Revenue Service has determined that the College qualifies as a tax-exempt, nonprofit organization under Section 501(c) (3) of the Internal Revenue Code. Accordingly, there is no provision for federal or state income taxes. Subsequent Events Effective June 1, 2009, the College adopted a new accounting standard that provides guidance on the accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued. The College has assessed the impact of subsequent events through September 28, 2010, the date the audited financial statements were issued, and has concluded that there were no such events that require adjustment to the audited financial statements or disclosure in the notes to the audited financial statements. 2. Contributions Receivable Contributions receivable are summarized as follows as of May 31: Amounts due in Less than one year $ 632,449 $ 295,017 One to five years 891, ,592 1,523,514 1,083,609 Less: Discount to present value (37,220) (49,011) Less: Reserve for doubtful accounts (158,288) (138,743) Contributions receivable, net $ 1,328,006 $ 895,855 The discount to present value of $37,220 and $49,011 as of, respectively, has been calculated using discount factors that approximate the risk and expected timing of future contribution payments. The College has reflected contributions received during fiscal 2010 and 2009 at fair value as determined in accordance with fair value accounting guidance. Contributions receivable includes permanently restricted promises to give of $315,115 and $524,809 at, respectively. The College had outstanding conditional pledges of $50,000 for the years ended May 31, 2010 and These conditional pledges are not recognized as assets in the statement of financial position since the conditions have not yet been made. 10

13 3. Investments The College's investments at are as follows: Pooled investments Equity funds $ 41,117,336 $ 34,488,682 Fixed income funds 11,329,306 9,140,149 Nonmarketable securities 21,369,180 19,132,030 73,815,822 62,760,861 Nonpooled investments Equities, fixed income and other investments 424, ,059 $ 74,240,483 $ 63,195,920 Assets held under split-interest agreements and included in pooled investments at May 31, 2010 and 2009 were $1,629,766 and $1,468,757. The College's return on longer-term investments consisted of the following components: Investment income $ 1,854,305 $ 1,928,854 Net realized and unrealized gain (loss) on investments 6,101,023 (16,799,880) $ 7,955,328 $ (14,871,026) The College made budgeted appropriations under its spending policy of $1,007,719 and $1,014,405 for the years ended, respectively. Such amounts are included in investment income within the College's operating revenues. Investment management fees were approximately $511,000 and $493,000 for the years ended, respectively. 11

14 4. Property, Plant and Equipment Property, plant and equipment as of is as follows: Land $ 2,250,548 $ 2,250,548 Land improvements 4,730,617 4,697,517 Buildings and improvements 101,672, ,121,444 Equipment 12,731,943 12,096,517 Property, plant and equipment, gross 121,385, ,166,026 Less: Accumulated depreciation (45,857,921) (42,765,750) 75,527,548 76,400,276 Construction-in-progress 660, ,278 Property, plant and equipment, net $ 76,188,183 $ 76,879,554 Depreciation expense for the years ended amounted to $3,169,755 and $3,122,837, respectively. 5. Leases The College has leases for office equipment and vehicles which are accounted for as operating leases. The future minimum rental commitments under these agreements are approximately as follows: For the year ending May 31, 2011 $ 85, , ,168 $ 184,917 Rent expense, which is inclusive of both cancelable and noncancelable leases, was approximately $200,670 and $239,000 for the years ended, respectively. 6. Long-Term Debt Series 2000A Bonds In March 2000, the College borrowed $13,735,000 of Massachusetts Development Finance Agency ("MDFA") Revenue Bonds (the "Series 2000A Bonds"). The bond discount associated with the Series 2000A Bonds was $659,651. Proceeds were used to provide funding for improvements to the College's physical plant. These bonds bear interest at various fixed rates ranging from 5.3% to 6.0% per year and mature on March 1, These bonds are collateralized by the College's tuition revenues sufficient to equal the maximum amount of principal and interest due each year the bonds are outstanding. Debt Covenants include the maintenance of a Debt Service Coverage ratio. The total amount outstanding as of is $11,355,000 and $11,660,000, respectively. Amortization expense associated with the bond discount was $21,805 in 2010 and in

15 The College is required to maintain a minimum cash balance equal to a year's principal and interest payments. The debt service fund balance was $991,133 at May 31, 2010 and $1,013,073 at May 31, 2009 and is included in long-term investments on the statement of financial position. Series 2002 Bonds In May 2002, the College borrowed $47,005,000 of MDFA Variable Rate Demand Revenue Bonds, Assumption College Issue, Series 2002 (the "Series 2002 Bonds"). The Series 2002 Bonds consist of three separate bonds consisting of $38,340,000 Variable Rate Demand Revenue Bonds, Series 2002A ("Series 2002A Bonds"), $4,510,000 Variable Rate Demand Revenue Bonds, Series 2002B ("Series 2002B Bonds") and $4,155,000 Variable Rate Demand Revenue Bonds, Series 2000C ("Series 2002C Bonds"). The original bond discounts associated with the Series 2002A, B and C Bonds were $201,285, $23,677 and $21,814, respectively. Amortization expense associated with the bond discounts was $8,226 in 2010 and Proceeds from the Series 2002 Bonds were used to finance the construction of a new science hall and to repay previously outstanding debt. These bonds bear interest at a variable rate. The variable rate at was approximately.5% and.3%, respectively. The Series 2002A and the Series 2002C Bonds mature on March 31, 2032 and the Series 2002B Bonds mature on March 1, These bonds are collateralized by an irrevocable letter of credit. The total amount outstanding of the Series 2002A Bonds at May 31, 2010 was $30,310,000. The total amount outstanding as of May 31, 2009 for the Series 2002A Bond is $31,790,000. No amounts were outstanding on the Series 2002B or 2002C Bonds at May 31, 2010 or The College prepaid $500,000 on its outstanding Series 2002 Bonds in 2010 and Notes Payable The College had a payable balance of $1,326,813 and $1,858,233 at, respectively. The College will repay $81,420 annually through February 9, 2011 at which time a lump-sum payment of the remaining balance is due. The note had a variable interest rate of 1.79% and 1.88% at, respectively. Aggregate principal payments (unamortized bond discount on the Series 2000A, and Series 2002A was $648,879 and $670,683 at, respectively) due in each of the next five years ending May 31 and thereafter on the Series 2000A, and Series 2002A Bonds and the note payable are as follows: 2011 $ 2,661, ,385, ,440, ,500, ,560,000 Thereafter 34,445,000 42,991,813 Less: Unamortized bond discount (648,879) $ 42,342,934 Principal payments are made annually and on various dates throughout the year, in accordance with the respective bond agreements which include provisions for prepayments. 13

16 Total interest expense incurred on indebtedness was $1,893,110 and $2,204,454 in 2010 and 2009, respectively. Long-term debt on the balance sheet also consists of $331,263 and $74,756 in capital lease obligations at, respectively. Line of Credit The College has an uncollateralized line of credit aggregating $2,000,000 at May 31, 2010 and There were no amounts drawn down on this line of credit during 2010 or 2009, and therefore, no amounts were outstanding under this line of credit at. Interest Rate Swaps In April 2002, the College entered into two variable to fixed interest rate swap agreements ( Swap A, Swap B ) to manage the interest cost and risk associated with the Series 2002 Bonds. Under these swap agreements, the College pays fixed rates ranging from 3.6% to 4.1% and receives various LIBOR and municipal rates on the respective notional principal amounts. In May 2003, the College entered into an additional variable to fixed interest rate swap agreement ( 2003 Swap ) with a notional amount of $7,000,000 to manage interest cost and risk associated with the Series 2002 Bonds. Under this agreement, the College pays a fixed rate of 2.47% and receives LIBOR on the respective notional principal amounts. The following schedule presents swap agreements in force at, respectively: Fair Value Fair Value Notional at at Expiration Amount May 31, 2010 May 31, 2009 Date Swap A $ 11,745,000 $ (575,281) $ (784,927) February 28, 2012 Swap B 11,745,000 (1,607,942) (1,534,959) February 28, Swap 7,000,000 (252,805) (235,562) March 1, 2013 $ 30,490,000 $ (2,436,028) $ (2,555,448) The swap agreements are recorded at their fair value in the statement of financial position with the resulting change in fair value recognized as a nonoperating, noncash expense in the statement of activities and changes in net assets of $119,420 gain and $1,224,498 loss for the years ended, respectively. These fair values were determined by counter-party financial institutions and were calculated by discounting the present value of the difference between the contractual swap rates and current market swap rates on May 31, utilizing the notional amounts and the remaining terms of the swap agreements. The College has the option to terminate the swap agreements with a 30-day written notice. The estimated costs to terminate would approximate the fair value at the date of termination. At the present time, the College has no plans to exercise this option since it would be contrary to its plans to manage interest costs and risks. The counterparty does not have the option to terminate the swap. 14

17 7. Net Assets Net assets consist of the following as of May 31: 2010 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Donor restricted $ - $ 7,817,151 $ 17,722,493 $ 25,539,644 Board designated 44,701, ,701,893 44,701,893 7,817,151 17,722,493 70,241,537 Student loan 224, ,606 Net investment in plant 25,404,221 45,000 (85,000) 25,364,221 Operating Accumulated surplus 24,775, ,775,061 Designated and restricted for specific purposes 2,610,654 (853,639) 355,389 2,112,404 27,385,715 (853,639) 355,389 26,887,465 $ 97,716,435 $ 7,008,512 $ 17,992,882 $ 122,717, Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Donor restricted $ - $ 5,591,411 $ 17,385,537 $ 22,976,948 Board designated 39,752,736 39,752,736 39,752,736 5,591,411 17,385,537 62,729,684 Student loan 275, ,143 Net investment in plant 23,903,906 45,000 (85,000) 23,863,906 Operating Accumulated surplus 22,093,465 22,093,465 Designated for specific purposes 2,416,875 (1,098,810) 355,389 1,673,454 24,510,340 (1,098,810) 355,389 23,766,919 $ 88,442,125 $ 4,537,601 $ 17,655,926 $ 110,635,652 15

18 Net Assets Released From Restrictions Net assets released from temporary donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of events specified by the donors were as follows: Purpose restrictions Scholarship $ 539,505 $ 781,819 Other 72,332 96,444 $ 611,837 $ 878, Government Student Loans Student loans at include funds advanced to the College by the federal government under the Perkins Student Loan Program. Such funds may be reloaned by the College after collection, but ultimately are refundable to the federal government. The federal government's portion of these funds at was $2,946,532 and $2,941,493, respectively. 9. Retirement and Severance Plans Most of the College's full-time faculty and administrative staff are eligible to participate in one of two defined contribution plans the College offers. The College contributes to these plans for the benefit of all participating employees. Contributions to the retirement plans amounted to approximately $2,001,909 and $1,784,661 in 2010 and 2009, respectively. The College provides a Severance Plan (the "Plan") to full-time tenured faculty over age 60 who have completed ten years of service to the College. The benefit offers a lump sum benefit on a sliding scale based on age and salary. During 2007, the College underwent a thorough review of the assumptions used in the calculation of the present value of this benefit. The revised assumptions are based on actual experience during the first ten years of the Plan's existence. A liability of approximately $692,000 and $599,000 is included in accounts payable and accrued liabilities at, respectively representing the present value of the participants currently in the plan, as well as those expected to participate in the Plan. Provisions of the Plan allow the Board of Trustees at its sole discretion to terminate, suspend, or amend the Plan at any time. Per the plan a maximum payout of $500,000 is allowable each fiscal year. 10. Related Party Transactions The Augustinians of the Assumption is the founding order of the College which was founded in In 1972, with the support of the Assumptionist Order (the "Order"), the College's Board of Trustees elected its first lay president. Since this time, all of the Assumption College presidents have been lay presidents; however, the Assumptionist presence remains as an important, if not essential, part of the College's educational endeavors. To encourage the continued presence of the Assumptionists on campus as professors, administrators and clergy, the College provides financial support to the Order. During the years ended payments totaling $620,091 and $600,954 were made to the order, respectively. 16

19 11. Fair Value Measurements Effective June 1, 2008, the College recorded its investments, including alternative investments, at fair value. Fair value is defined as the exchange price that would be received for an asset or 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 on the measurement data. Prior to the fair value election as of June 1, 2008, certain alternative investments were recorded at the lower of cost or estimated fair value based on net asset values provided by the investment managers. The College reviews and evaluates values provided by the investment managers and assesses the valuation methods and assumptions used in determining their fair value. Those estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed and the differences could be material. The College has the ability to liquidate its investments periodically in accordance with the provisions of the respective fund managers. There is a hierarchy of valuation inputs for assets and liabilities based on the extent to which the inputs are observable in the marketplace. The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the College for financial instruments measured at fair value on a recurring basis. The three levels of inputs are as follows: Level 1 - Observable inputs such as quoted prices in active markets; Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 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 following table presents the financial instruments carried at fair value as of May 31, 2010, by caption on the statement of financial position. Total Level 1 Level 2 Level 3 Fair Value Asset Mutual funds $ 32,943,373 $ 15,003,526 $ - $ 47,946,899 Fixed income 16,387,413 4,719,168-21,106,581 Equities 3,265, ,265,035 Government securities Limited partnership - - 1,921,968 1,921,968 Total assets at fair value $ 52,595,821 $ 19,722,694 $ 1,921,968 $ 74,240,483 Liability Interest rate swaps $ - $ 2,436,028 $ - $ 2,436,028 Total liabilities at fair value $ - $ 2,436,028 $ - $ 2,436,028 17

20 The following is a reconciliation of investments for which significant unobservable inputs (Level 3) were used in determining value: Limited Partnerships Total Balance as of June 1, 2009 Net contributions/withdrawals $ 1,732,259 $ 1,732,259 Interest and dividends 67,948 67,948 Unrealized gain/loss 123, ,749 Investment manage fee (1,988) (1,988) Balance as of May 31, 2010 $ 1,921,968 $ 1,921,968 There were no transfers of Level 3 assets to Level 2 as a result of adopting the new guidance for estimating fair value of investments. The fair market value of the alternative investments described in the table below are based on net asset value per share of the investments as of May 31, Redemption Redemption Notice Asset Class Fair Value Terms Period Mutual funds $ 15,003,526 monthly, quarterly 1-90 days Fixed income 4,719,168 monthly 1-90 days Limited partnerhips 1,921,968 three years+, indefinite 1 day $ 21,644,662 As of May 31, 2010, the College had no unfunded commitments. The following table represents the financial instruments carried at fair value as of May 31, 2009, by caption on the statement of financial position. Total Level 1 Level 2 Level 3 Fair Value Asset Loans receivable $ 354,038 $ - $ - $ 354,038 Mutual funds 12,649,755 9,075,821-21,725,576 Fixed income 9,140,149 6,077,866-15,218,015 Equities 21,299,063 4,956,503-26,255,566 Government securities 3,198, ,198,137 Total assets at fair value $ 46,641,142 $ 20,110,190 $ - $ 66,751,332 Liability Interest rate swaps $ - $ 2,555,448 $ - $ 2,555,448 Total liabilities at fair value $ - $ 2,555,448 $ - $ 2,555,448 18

21 Following is a description of the College's valuation methodologies for assets and liabilities measured at fair value. Fair value for Level 1 is based upon quoted prices in active markets that the College has the ability to access for identical assets and liabilities. Market price data is generally obtained from exchange or dealer markets. The College does not adjust the quoted price for such assets and liabilities. Fair value for Level 2 is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources including market participants, dealers, and brokers. Fair value for Level 3 is based on valuation techniques that use significant inputs that are unobservable as they trade infrequently or not at all. Interest rate swaps are valued using both observable and unobservable inputs, such as quotations received from the counterparty, dealers or brokers, whenever available and considered reliable. In instances where models are used, the value of the interest rate swap depends upon the contractual terms of, and specific risks inherent in, the instrument as well as the availability and reliability of observable inputs. Such inputs include market prices for reference securities, yield curves, credit curves, measures of volatility, prepayment rates, assumptions for nonperformance risk, and correlations of such inputs. Certain of the interest rate swap arrangements have inputs which can generally be corroborated by market data and are therefore classified within Level 2. 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 College 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 estimate of fair value at the reporting date. 12. Endowment Disclosures The College endowment funds consist of approximately 110 individual accounts established for a variety of purposes. The endowment consists of donor restricted endowment funds and funds designated by the Board of Trustees to function as endowments. 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. Effective as of June 30, 2009, Massachusetts adopted a version of the Uniform Prudent Management of Institutional Funds Act ( UPMIFA ). UPMIFA is a model act that provides rules of construction concerning the investment, use and modification of funds held by operating charitable organizations, including endowment funds. The standard does provide guidance on the net asset classification of donor restricted endowment funds for a not for profit organization that is subject to UPMIFA and also requires additional disclosures about an organization s endowment funds related to net asset classifications, net asset composition, changes in net asset composition, and spending and investment policies. The Board of Trustees of Assumption College has interpreted the Massachusetts Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of 19

22 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 net restricted assets (a) the original value of 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 donorrestricted 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 organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the College considers the following factors in making a determination to appropriate or accumulate donor restricted funds: 1. The duration and preservation of the Fund 2. The purpose 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 College 7. Investment policies of the College Investment Objective The Endowment's assets shall be invested in accordance with sound investment practices that emphasize long-term investment fundamentals. In establishing the investment objectives of the Endowment, the Trustees have taken into account the financial needs and circumstances of Assumption College, the time horizon available for investment, the nature of the Endowment's cash flows and liabilities, and other factors that effect their risk tolerance. Consistent with this, the Trustees have determined that the investment of these assets shall be guided by the following underlying goals: To achieve a positive rate of return over the long-term that would contribute to the cash flow needs of the organization for on-going operations, special initiatives and capital projects in support of the Endowment; To provide for asset growth at a rate in excess of the rate of inflation, net of expenses and spending; To diversify the assets in order to reduce the risk of wide swings in market value from year-toyear, or of incurring large losses that could occur from concentrated positions; To achieve investment results over the long-term that compare favorably with those of other endowments and foundations, professionally managed portfolios and of appropriate market indexes. Spending Policy Spending policy is the implementation of an approach that assists the Endowment in determining future distributions. The spending decision is important because of its impact on income and future asset value. The Spending Policy is controlled by the Investment Committee of Assumption College, which has a fiduciary responsibility to ensure that the Fund is prudently managed. The specific spending policy of the Assumption College Endowment is to spend 5.00% of the Fund's 12 quarter average aggregate market value. The "total return" basis for calculating spending is sanctioned by the Uniform Management of Institutional Funds Act (UMIFA), under which guidelines the Fund is permitted to spend an amount in excess of the current yield (interest and dividends earned), including either realized or unrealized appreciation. 20

23 The College has interpreted relevant state law as generally permitting the spending of gains on permanently restricted net assets over a stipulated period of time. State law allows the Board to appropriate all of the income and a specified percentage of the net appreciation as is prudent considering the College's long and short-term needs, present and anticipated financial requirements, expected total return on its investments, price level trends and general economic conditions. Under the College's spending policy, cumulative appreciation (including interest and dividends) in an amount up to five percent of the average market value of qualifying permanently restricted net assets at the end of the previous three years may be appropriated. At May 31, 2010, the endowment net asset composition by type of fund consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted funds $ - $ 7,817,151 $ 17,722,493 $ 25,539,644 Board-designated funds 44,701, ,701,893 Total funds $ 44,701,893 $ 7,817,151 $ 17,722,493 $ 70,241,537 Changes in endowment net assets for the fiscal year ended May 31, 2010 consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 39,752,736 $ 5,591,411 $ 17,385,537 $ 62,729,684 Investment return Investment income 1,045, ,989-1,698,543 Net depreciation (realized and unrealized) 3,755,990 2,112,260-5,868,250 Total investment gain 4,801,544 2,765,249-7,566,793 Contributions 10, , ,620 Appropriation of endowment assets for expenditure (1,153,698) (539,509) - (1,693,207) Other changes Transfers to create boarddesignated endowment funds 1,290, ,290,647 Endowment net assets, end of year $ 44,701,893 $ 7,817,151 $ 17,722,493 $ 70,241,537 21

24 Description of amounts classified as permanently restricted net assets and temporarily restricted net assets (Endowments only) for Permanently restricted net assets The portion of perpetual endowment funds that is required to be retained permanently by explicit donor stipulation: Restricted for scholarship support $ 9,809,970 Restricted for faculty support 1,262,625 Restricted for program support 6,649,898 Total endowment assets classified as permanently restricted net assets $ 17,722,493 Temporarily restricted net assets Term endowment funds Restricted for scholarship support $ 7,078,853 Restricted for faculty support 171,799 Restricted for program support 566,499 Total endowment assets classified as permanently restricted net assets $ 7,817,151 At May 31, 2009, the endowment net asset composition by type of fund consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Donor restricted $ - $ 5,591,411 $ 17,385,537 $ 22,976,948 Board designated 39,752, ,752,736 $ 39,752,736 $ 5,591,411 $ 17,385,537 $ 62,729,684 22