Financial Statements. Wheelock College. June 30, 2014 and 2013

Financial Statements Wheelock College June 30, 2014 and 2013

Financial Statements Table of Contents Financial Statements: Independent Auditors Report 1-2 Statements of Financial Position 3 Statements of Activities 4-5 Statements of Cash Flows 6 7-29

Independent Auditors Report Board of Trustees Wheelock College Boston, Massachusetts We have audited the accompanying financial statements of Wheelock College (the College ), which comprise the statements of financial position as of June 30, 2014 and 2013, and the related statements of activities, 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 auditor considers 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.

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wheelock College as of June 30, 2014 and 2013, 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. September 19, 2014 Boston, Massachusetts

Statements of Financial Position Assets June 30, 2014 2013 Cash $ 312,024 $ 1,241,070 Restricted cash 771,762 - Accounts and grants receivable, net 1,214,208 1,829,453 Contributions receivable, net 262,392 586,056 Loans receivable, net 1,240,407 1,268,684 Investments 66,194,713 50,646,740 Prepayments and other assets 897,071 1,224,408 Beneficial interest in trusts and remainder trusts 3,639,198 3,275,628 Funds held by bond trustee 3,035,472 3,035,477 Land, buildings and equipment, net 72,402,006 74,618,304 Total assets $ 149,969,253 $ 137,725,820 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses $ 3,913,442 $ 4,471,979 Annuity and other split-interest obligations 412,178 478,380 Deferred income and deposits 1,991,912 1,412,094 Debt 41,114,035 41,720,778 Government advances for student loans 945,387 945,387 Total liabilities 48,376,954 49,028,618 Net assets: Unrestricted 56,279,988 50,184,360 Temporarily restricted 15,638,514 11,358,764 Permanently restricted 29,673,797 27,154,078 Total net assets 101,592,299 88,697,202 Total liabilities and net assets $ 149,969,253 $ 137,725,820 See accompanying notes to financial statements. 3

Statement of Activities Year Ended June 30, 2014 (with comparative total for 2013) Temporarily Permanently 2014 2013 Unrestricted Restricted Restricted Total Total Operating revenues and other support: Student tuition and fees $ 36,565,443 $ - $ - $ 36,565,443 $ 34,975,401 Less: Institutional scholarships (11,714,929) - - (11,714,929) (11,153,715) Net student tuition and fees 24,850,514 - - 24,850,514 23,821,686 Dormitory and dining hall fees 7,391,230 - - 7,391,230 7,072,414 Grants and contracts 918,155 1,650,867-2,569,022 4,313,152 Contributions 5,999,559 510,911-6,510,470 2,214,118 Investment income 46,186 - - 46,186 25,558 Investment income availed per endowment spending policy 1,998,601 - - 1,998,601 1,953,874 Other 2,943,547 - - 2,943,547 3,003,336 Net assets released from restrictions 2,393,699 (2,393,699) - - - Total operating revenues and other support 46,541,491 (231,921) - 46,309,570 42,404,138 Operating expenses: Program: Instruction, research and related programs 25,468,579 - - 25,468,579 25,123,102 Operation of dormitories and dining hall 3,648,257 - - 3,648,257 3,804,581 Total program expenses 29,116,836 - - 29,116,836 28,927,683 Management and general 8,346,518 - - 8,346,518 8,158,008 Interest 2,150,610 - - 2,150,610 2,415,549 Depreciation 2,915,837 - - 2,915,837 3,066,873 Total operating expenses 42,529,801 - - 42,529,801 42,568,113 Change in operating net assets 4,011,690 (231,921) - 3,779,769 (163,975) Non-operating revenue/expense: Contributions - - 1,866,808 1,866,808 423,295 Investment gain, net of amounts availed 2,039,753 4,501,019 633,178 7,173,950 3,313,826 Change in value of split-interest agreements 44,185 10,652 19,733 74,570 48,715 Non-recurring expenses associated with 125th anniversary - - - - (1,054,928) Change in non-operating net assets 2,083,938 4,511,671 2,519,719 9,115,328 2,730,908 Change in net assets 6,095,628 4,279,750 2,519,719 12,895,097 2,566,933 Net assets, beginning of year 50,184,360 11,358,764 27,154,078 88,697,202 86,130,269 Net assets, end of year $ 56,279,988 $ 15,638,514 $ 29,673,797 $ 101,592,299 $ 88,697,202 See accompanying notes to financial statements. 4

Statement of Activities Year Ended June 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Operating revenues and other support: Student tuition and fees $ 34,975,401 $ - $ - $ 34,975,401 Less: Institutional scholarships (11,153,715) - - (11,153,715) Net student tuition and fees 23,821,686 - - 23,821,686 Dormitory and dining hall fees 7,072,414 - - 7,072,414 Grants and contracts 1,610,439 2,702,713-4,313,152 Contributions 910,230 1,303,888-2,214,118 Investment income 25,558 - - 25,558 Investment income availed per endowment spending policy 1,953,874 - - 1,953,874 Other 3,003,336 - - 3,003,336 Net assets released from restrictions 2,868,164 (2,868,164) - - Total operating revenues and other support 41,265,701 1,138,437-42,404,138 Operating expenses: Program: Instruction, research and related programs 25,123,102 - - 25,123,102 Operation of dormitories and dining hall 3,804,581 - - 3,804,581 Total program expenses 28,927,683 - - 28,927,683 Management and general 8,158,008 - - 8,158,008 Interest 2,415,549 - - 2,415,549 Depreciation 3,066,873 - - 3,066,873 Total operating expenses 42,568,113 - - 42,568,113 Change in operating net assets (1,302,412) 1,138,437 - (163,975) Non-operating revenue/expense: Contributions - - 423,295 423,295 Reclassification of net assets - (125,205) 125,205 - Net assets released from restrictions 776,099 (776,099) - - Investment gain, net of amounts availed 1,081,039 1,885,797 346,990 3,313,826 Change in value of split-interest agreements 39,264 25,246 (15,795) 48,715 Non-recurring expenses associated with 125th anniversary (1,054,928) - - (1,054,928) Change in non-operating net assets 841,474 1,009,739 879,695 2,730,908 Change in net assets (460,938) 2,148,176 879,695 2,566,933 Net assets, beginning of year 50,645,298 9,210,588 26,274,383 86,130,269 Net assets, end of year $ 50,184,360 $ 11,358,764 $ 27,154,078 $ 88,697,202 See accompanying notes to financial statements. 5

Statements of Cash Flows Years Ended June 30, 2014 2013 Cash flows from operating activities: Change in net assets $ 12,895,097 $ 2,566,933 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 2,928,862 3,072,403 Net realized and unrealized investment gains (8,350,697) (4,757,428) Unrealized gains on beneficial interest in trusts (363,570) (173,413) Gifts of securities (6,571,883) (742,911) Contributions restricted for long-term investments (407,825) (269,903) Income restricted for long-term investments (74,078) (72,177) Provision for doubtful loans and accounts and grants receivable 86,898 (238,124) Change in operating assets and liabilities: Restricted cash (771,762) - Accounts and grants receivable 567,857 804,845 Contributions receivable 323,664 (401,452) Prepayments and other assets 292,569 (189,205) Accounts payable and accrued expenses (558,542) 1,308,492 Annuity and pooled life income obligations (66,202) (50,637) Deferred income and deposits 579,818 (593,645) Net cash provided by operating activities 510,206 263,778 Cash flows from investing activities: Purchases of land, buildings and equipment (699,539) (6,339,315) Purchases of investments (41,933,740) (26,575,450) Proceeds from sales of investments 41,308,351 32,542,408 Change in funds held by bond trustees 5 16 Loans granted (224,060) (227,959) Loans repaid and cancelled 212,828 484,769 Net cash used in investing activities (1,336,155) (115,531) Cash flows from financing activities: Repayment of debt (585,000) (240,000) Contributions restricted for long-term investments 407,825 269,903 Income restricted for long-term investments 74,078 72,177 Net cash provided by (used in) financing activities (103,097) 102,080 Increase (decrease) in cash (929,046) 250,327 Cash, beginning 1,241,070 990,743 Cash, ending $ 312,024 $ 1,241,070 Supplemental Disclosure: Cash paid during the year for interest $ 2,157,924 $ 2,254,074 See accompanying notes to financial statements. 6

Note 1 - Organization Wheelock College (the College ), founded in 1888, is a private nonsectarian institution located in Boston s Longwood Medical and Academic area. The College offers undergraduate and graduate programs in the professional fields of child life, social work and education, as well as in the liberal arts and sciences. Its student population is drawn primarily from the New England states. The College participates in student financial aid programs sponsored by the United States Department of Education that facilitate the payment of tuition and other expenses for a significant portion of its students. Note 2 - Summary of Significant Accounting Policies Financial Statement Presentation The accompanying financial statements have been prepared on the accrual basis of accounting. Net assets and revenues, expenses, gains and losses are classified based on the existence or the absence of donorimposed restrictions. Accordingly, net assets of the College are classified and reported as follows: Unrestricted - Net assets that are not subject to donor-imposed restrictions or for which restrictions have expired. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees. Temporarily restricted - Net assets subject to donor-imposed restrictions that may or will be met either by actions of the College and/or the passage of time. Unexpended appreciation on endowment type assets is included as part of temporarily restricted net assets until expended. Permanently restricted - Net assets subject to donor-imposed restrictions that stipulate that resources be maintained permanently but may permit the College to use or expend part or all of the economic benefits derived from the donated assets. The College 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. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Donor-restricted gifts intended for capital projects are released from their temporary restrictions and presented as unrestricted support when the related expenditures are incurred. Operations The statement of activities reports the changes in unrestricted, temporarily restricted and permanently restricted net assets from operating and non-operating activities. Operating expenses consist of those items attributable to the College s primary mission of providing education. The primary operating revenues are derived from tuition, room and board, the theater program, grants and contracts, restricted and unrestricted gifts for current operations (and related earnings), income and gains appropriated from the earnings of the pooled investments (endowment and quasi-endowment) consistent with the College s spending policy plus earnings from general unrestricted investments. 7

Note 2 - Summary of Significant Accounting Policies (Continued) Operations (Continued) Investment income and gains/losses on endowment, temporarily restricted and Board-designated funds, other than the amount appropriated for operations, are classified as non-operating activities. Gifts to the endowment and other gifts not directed to current operations, as well as capital improvements and facilities, are also classified as non-operating activities. Any releases of the restrictions of these gifts are also classified as non-operating activities. In addition, changes in the value of split-interest agreements and non-recurring program revenue received which is a lump-sum payment from another organization for Wheelock to take over the operations of a program are also classified as non-operating activities. Cash Cash held by investment managers are considered part of investments given the expectation of near term reinvestment. The College maintains its cash balances at several financial institutions, which at times exceed federally insured limits. The College monitors its exposure and has not experienced any losses in such accounts. Restricted Cash Restricted cash consists of funds that the organization is holding on behalf of another organization under a fiscal agency arrangement. The cash is offset by a corresponding liability and is included in accounts payable and accrued expenses in the accompanying statements of financial position. Accounts and Grants Receivable Accounts and grants receivable are reported at the amount management expects to collect on balances outstanding at year end. Management estimates the allowance for doubtful accounts based on history of collections and knowledge about specific items. Adjustments to the allowance are charged to bad debt expense. Uncollectible accounts are written off against the reserve when deemed uncollectible; recoveries are recorded when received. An account is considered uncollectible when all efforts to collect the account have been exhausted. Accounts receivable are considered past due if any portion of the receivable balance is outstanding after the due date of the charges. Interest is not charged on receivables. Contributions Receivable Unconditional promises to give are recorded at fair value based on the present value using a risk adjusted discount rate when initially pledged. This is considered a Level 2 fair value method. Amortization of the discount is included in contributions revenue. Unconditional promises to give are periodically reviewed to estimate an allowance for doubtful collections. Management estimates the allowance by a review of historical experience and a specific review of collection trends that differ from plans on individual accounts. Conditional promises to give are not included as support until the conditions are substantially met. 8

Note 2 - Summary of Significant Accounting Policies (Continued) Loans Receivable / Financing Receivables Loans receivable include both Perkins loans and College loans receivable from students and former students. Perkins loans receivable are funds advanced to the College by the Federal government under the Federal Perkins Loans Program ( Perkins ). College funds loaned to students are carried at their estimated net realizable value. Interest income is recorded monthly. Loans receivable are considered past due if any portion of the balance due is past its due date. Interest is recorded monthly and late fees on past due accounts are recorded when received. College loans receivable are written off when deemed uncollectible. Recoveries of loans receivable previously written off are recorded as a reduction of bad debt expense. Interest and late fees on past due amounts are recorded when received. Perkins loans funds may be re-loaned by the College after collection, but in the event that the College no longer participates in the Perkins Loan Program, the amounts are generally refundable to the Federal government. Loans receivable are carried at their net realizable value. Interest income is recorded monthly. Loans receivable are considered past due if any portion of the balance due is past its due date. Interest is recorded monthly and late fees on past due accounts are recorded when received. Perkins loans receivable deemed uncollectible may be assigned to the U.S. Department of Education based on criteria established by the U.S. Department of Education. Management determines the allowance for doubtful accounts on all loans receivable (both Perkins and College loans) by identifying troubled accounts and by using historical default rate trends applied to an aging of accounts. Funds Held by Bond Trustee Funds held by bond trustee consist primarily of funds held in a debt service reserve fund that have been invested in accordance with the various resolutions and note agreements in connection with the Massachusetts Development Finance Agency fixed rate revenue bonds. Funds held by bond trustee are carried at fair value which was determined as per the fair value measurement policies in this section. Fair Value Measurements The College reports certain assets and liabilities at fair value on a recurring and nonrecurring basis depending on the underlying accounting policy for the particular item. Recurring fair value measures include the College s pooled investments, life income funds, beneficial interests in trusts, and funds held by bond trustee. Nonrecurring measures include contributions receivable and conditional asset retirement obligations. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. In addition, the College reports certain investments using the net asset value per share as determined by investment managers under the so called practical expedient. The practical expedient allows net asset value per share to represent fair value for reporting purposes when the criteria for using this method are met. Fair value standards also require the College to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical expedient rules, which allow for either Level 2 or Level 3, depending on lock up and notice periods associated with the underlying funds. 9

Note 2 - Summary of Significant Accounting Policies (Continued) Fair Value Measurements (Continued) Instruments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 - Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments which are generally included in this category include listed equity and debt securities publicly traded on a stock exchange. Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Level 2 also includes investments reported at net asset value per share with lock up periods of 90 days or less. Level 3 - Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. Level 3 also includes investments reported at net asset value per share with lock up periods in excess of 90 days. In some instances, the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement. Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that changes in values of these instruments will occur in the near term and that such changes could materially affect amounts reported in these financial statements. For more information on the fair value of the College s financial instruments, see Note 8 - Fair Values of Financial Instruments. Investments Investments are carried at fair value. Fair value is determined as per the fair value measurements policy in this section. Investment returns are reported as increases or decreases in unrestricted net assets or: as increases in permanently restricted net assets if the terms of the gift require that they be added to the principal of a permanent endowment fund. as increases in temporarily restricted net assets if the terms of the gift or state law impose restrictions on the current use of the income or net gains or as decreases, up to any existing unrealized appreciation. Realized gains and losses are determined using the average cost basis. Purchases and sales of securities are accounted for using the trade date. Investment income is presented net of investment management and custodial fees. 10

Note 2 - Summary of Significant Accounting Policies (Continued) Bond Issuance Costs Included in prepayments and other assets are bond issuance costs that are amortized using the weighted average method over the period the bonds are outstanding. Bond issuance costs, net of amortization were approximately $465,000 and $500,000 as of June 30, 2014 and 2013, respectively. Amortization expense for bond issuance costs was $34,768 in both 2014 and 2013. Split-Interest Agreements Beneficial Interest in Trusts and Remainder Trusts The College records its beneficial interest in trusts and remainder trusts at fair value when the College is notified of the existence of the instrument. On an ongoing basis, the College reports its interest at fair value based on its underlying share of assets and estimates the fair value of the remainder. The initially recorded fair values of the donated investments are determined based on the underlying nature of the investments received which have generally represented Level 3 measurements. Charitable Gift Annuities From time to time, the College receives charitable gift annuities in which donors contribute assets and receive a promise of payments for life. The assets and obligations are initially recorded at fair value with the assets generally being at Level 1 and obligations measured at Level 2 per the fair value policy contained elsewhere in this section. The assets received are transferred to the College s managers for long-term investment as part of the portfolio. The obligations are periodically updated to reflect changes in life expectancy using the same discount rate as when the gift was made. The College also has small amounts included in this obligation for other types of split interest. Charitable Remainder Trusts The College records an asset for charitable remainder trust agreements, included in beneficial interest in trusts, for which the College is a beneficiary but is not the trustee of the assets. The asset is recorded at the present value of the anticipated residual interest in the trust which is generally determined using Level 3 methods. Pooled Life Income Funds The College manages a pooled life income fund, included in investments. Donors are assigned a specific number of units based on their proportion of the fair market value of the contribution to the total fair value of the fund. Donors receive the actual income earned on those units, included in annuity and pooled life income obligations, until their death. At that time, the value of the units assigned to the donor become available to the College without restriction. The fair values of these investments are generally determined using Level 1 measures while the obligations are measured using Level 2 methods. 11

Note 2 - Summary of Significant Accounting Policies (Continued) Land, Buildings and Equipment Land, buildings and equipment are recorded at cost, or if received by gift, at the fair value at the date of the gift. Fair value of any donated land, buildings and equipment would effectively be recorded using a Level 3 market approach. Depreciation expense is computed on the straight-line basis over the estimated useful lives of buildings (forty years) and furniture and equipment (five years). No salvage values are assumed in the computation of depreciation. Interest on debt is capitalized to the extent that the College meets the criteria for capitalization of such costs during the year. The amount of interest cost eligible for capitalization is reduced by any interest earned on the unused proceeds associated with the debt issuance. Conditional Asset Retirement Obligations The College applies the principles of accounting for conditional asset retirement obligations to its retirement obligations. Under these principles, the obligation to perform asset retirement activity may be unconditional even though uncertainty exists about the timing and (or) method of settlement. If such liabilities can be reasonably estimated, the College initially records such obligations at fair value using Level 3 as per the fair value policies. Subsequent considerations of these obligations are made based on changes in expected timing and cost; however, discount rates remain over the life of each obligation. The College has recorded a liability of approximately $154,000 for the years ended June 30, 2014 and 2013 for its estimated asset retirement obligations, which is included in accounts payable and accrued expenses. Deferred Income and Deposits Deferred income and deposits principally represent tuition and student deposits paid in advance and are recognized as income when the related educational services are provided. Student Tuition and Fees and Dormitory and Dining Hall Fees Student tuition and fees and dormitory and dining hall fees are recognized as revenue when earned. Institutional Scholarships Although reported in the statement of activities as an adjustment to revenues unless related to an employee benefit program, the College s grants for scholarships are managed as a core program expense. The financial aid program provides a mix of grants and loans designed to help fund a portion of the students tuition costs. Grants and Contracts Revenue associated with exchange transactions is recorded when direct and indirect costs are incurred. Costs incurred under government contracts are subject to review by the funding agency or its representatives. Functional Expense Allocation The costs of providing various programs and activities have been summarized on a functional basis in the accompanying statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services based on the relative effort exerted for the related functions. 12

Note 2 - Summary of Significant Accounting Policies (Continued) Fundraising Expenses Fundraising expenses of approximately $775,000 and $1,003,000 are included as management and general expenses in the statements of activities for the years ended June 30, 2014 and 2013, respectively. Related Party The Wheelock College Alumni Association, Inc. donated approximately $69,000 and $58,000 for the years ended June 30, 2014 and 2013, respectively, to various scholarship programs at the College. The Alumni Association's Board of Directors is the governing board of the Alumni Association and works in conjunction with the College to support alumni in their chosen fields of work and to foster fellowship and common bonds among its members. The President of the Alumni Association serves as a member of the College s Board of Trustees. Income Taxes The College is recognized as an organization exempt from income tax under Section 501(c)(3) of the Internal Revenue Code. However, certain activities of exempt organizations, to the extent profitable, may be subject to Federal and state taxation as unrelated business income. Given the limited taxable activities of the College, management determined that disclosures relative to tax provisions are not necessary. The College accounts for the effect of any uncertain tax positions based on a more likely than not threshold to the recognition of the tax positions being sustained based on the technical merits of the position under scrutiny by the applicable taxing authority. If a tax position or positions are deemed to result in uncertainties of those positions, the unrecognized tax benefit is estimated based on a cumulative probability assessment that aggregates the estimated tax liability for all uncertain tax positions. The College has identified its tax status as a tax exempt entity as its only significant tax position and has determined that such tax position does not result in an uncertainty requiring recognition. The College is not currently under examination by any taxing jurisdiction. The College s federal and state income tax returns are generally open for examination for the past three years. 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 reported amounts of revenue and expenses during the reporting period. These estimates include the allowance for doubtful accounts, loans, and contributions receivable, present value discount on contributions receivable, the fair value of certain investments, depreciable lives for fixed assets, valuation of interest in and obligations under split-interest agreements, fair value disclosures for certain financial investments reported at cost, measurement of asset retirement obligations, satisfaction of program restrictions for the release of restricted net assets, and allocation of expenses to functional categories. Actual results could differ from those estimates. 13

Note 2 - Summary of Significant Accounting Policies (Continued) Subsequent Events The College has evaluated all subsequent events through September 19, 2014, the date the financial statements were issued. Note 3 - Accounts and Grants Receivable Accounts and grants receivable are as follows at June 30: 2014 2013 Student accounts, net of allowance for doubtful accounts of $573,063 in 2014 and $620,451 in 2013 $ 698,436 $ 460,885 Grants 185,813 958,974 International programs 21,033 64,930 Other 308,926 344,664 Total accounts and grants receivable, net $ 1,214,208 $ 1,829,453 Grants receivable include unbilled amounts of approximately $118,000 and $811,000 as of June 30, 2014 and 2013, respectively. Note 4 - Contributions Receivable Contributions receivable consisted of the following at June 30: 2014 2013 Due within one year $ 129,573 $ 466,179 Due within two to five years 140,531 127,163 Total due 270,104 593,342 Present value discount (7,712) (7,286) Net contributions receivable $ 262,392 $ 586,056 The College expects to collect all of the amounts indicated above, and accordingly, has not provided an allowance for uncollectible contributions. 14

Note 5 - Financing Receivables Financing receivables consist of the following at June 30: 30-60 Days Past Due 60-90 Days Past Due Greater Than 90 Days Past Due 2014 Total Past Due Current Total Financing Receivables Perkins loans $ 149,754 $ 3,263 $ 382,038 $ 535,055 $ 821,704 $ 1,356,759 College loans 76,539 22,523 538,093 637,155 480,861 1,118,016 Allowance for uncollectible loans - - - - - (1,234,368) Loans receivable, net $ 226,293 $ 25,786 $ 920,131 $ 1,172,210 $ 1,302,565 $ 1,240,407 30-60 Days Past Due 60-90 Days Past Due Greater Than 90 Days Past Due 2013 Total Past Due Current Total Financing Receivables Perkins loans $ 121,590 $ 19,502 $ 299,500 $ 440,592 $ 839,691 $ 1,280,283 College loans 28,744 6,802 469,399 504,945 678,316 1,183,261 Allowance for uncollectible loans - - - - - (1,194,860) Loans receivable, net $ 150,334 $ 26,304 $ 768,899 $ 945,537 $ 1,518,007 $ 1,268,684 The College uses a third-party servicer to avail itself of expertise to manage, administer and collect student loans. 15

Note 5 - Financing Receivables (Continued) Activity of loan balances and allowances for uncollectible loans are as follows for the years ended June 30: 2014 Perkins College Loans Loans Total Loans receivable Beginning balance $ 1,280,283 $ 1,183,261 $ 2,463,544 Loans granted 200,659 23,400 224,059 Loans repaid (115,020) (85,145) (200,165) Loans cancelled (9,163) (3,500) (12,663) Ending balance 1,356,759 1,118,016 2,474,775 Reserve Beginning balance (432,454) (762,406) (1,194,860) Reduction/(provision) (98,989) 59,481 (39,508) Ending balance (531,443) (702,925) (1,234,368) Loans receivable, net $ 825,316 $ 415,091 $ 1,240,407 2013 Perkins College Loans Loans Total Loans receivable Beginning balance $ 1,326,308 $ 1,394,046 $ 2,720,354 Loans granted 146,249 81,710 227,959 Loans repaid (178,030) (85,648) (263,678) Loans cancelled (14,244) (206,847) (221,091) Ending balance 1,280,283 1,183,261 2,463,544 Reserve Beginning balance (346,499) (864,579) (1,211,078) Reduction/(provision) (85,955) 102,173 16,218 Ending balance (432,454) (762,406) (1,194,860) Loans receivable, net $ 847,829 $ 420,855 $ 1,268,684 The reserves for the Perkins and College loans were evaluated individually for impairment. 16

Note 6 - Investments Investments are as follows at June 30: 2014 2013 Pooled investments: Core U.S. equity funds $ 3,883,503 $ 3,179,444 Large-cap equity funds 11,240,413 9,515,371 International equity funds 19,648,962 12,873,519 Small and mid-cap equity funds 2,966,055 3,196,085 Fixed income security funds 7,160,808 6,568,903 Long/short equity funds 8,490,775 9,566,992 Short-term bond fund 3,199,831 585,120 Total pooled investments 56,590,347 45,485,434 Pooled life income funds 134,002 276,770 Short-term money market funds 9,470,364 4,884,536 Total investments $ 66,194,713 $ 50,646,740 The College s pooled life income fund investments represent principally equities, bonds and money market funds. Pooled investments represent endowment and annuity net assets which are pooled on a market value basis, with each fund subscribing to or disposing of units on the basis of the market value per unit at the beginning of the calendar quarter within which the transaction takes place. Investment income is comprised of the following for the years ended June 30: 2014 2013 Interest and dividend income $ 683,753 $ 602,897 Net realized and unrealized gains 8,534,984 4,690,361 Total investment income 9,218,737 5,293,258 Less: Operating investment income (46,186) (25,558) Investment income availed per endowment spending policy (1,998,601) (1,953,874) Investment gain, net of amounts availed $ 7,173,950 $ 3,313,826 The amount of investment income appropriated to operations is the amount calculated by the 5% spending rate, with the remaining balance reported as non-operating. Investment management expenses totaled $207,029 and $176,366 for the years ended June 30, 2014 and 2013, respectively. 17

Note 7 - Funds Held by Bond Trustee In accordance with the terms of its bond indentures (see Note 10), the College maintains certain funds on deposit in a debt service reserve fund, invested with the bond trustee as follows at June 30: 2014 2013 Guaranteed investment contracts $ 1,156,139 $ 1,156,139 U.S. government securities funds 1,879,333 1,879,338 Total funds held by bond trustee $ 3,035,472 $ 3,035,477 Note 8 - Fair Values of Financial Instruments The following tables present financial assets at June 30 that the College measures fair value on a recurring basis, by level, within the fair value hierarchy: 2014 Level 1 Level 2 Level 3 Total Assets Pooled investments: Core U.S. equity funds $ 3,883,503 $ - $ - $ 3,883,503 Large-cap equity funds 11,240,413 - - 11,240,413 International equity funds 19,648,962 - - 19,648,962 Small and mid-cap equity funds 2,966,055 - - 2,966,055 Fixed income security funds 290,390 6,870,418-7,160,808 Long/short equity funds - - 8,490,775 8,490,775 Short-term bond fund 3,199,831 - - 3,199,831 Pooled investments 41,229,154 6,870,418 8,490,775 56,590,347 Pooled life income funds - - 134,002 134,002 Short-term money market funds 9,470,364 - - 9,470,364 Beneficial interest in trusts and remainder trusts - - 3,639,198 3,639,198 Funds held by bond trustee - guaranteed investment contracts - 1,156,139-1,156,139 Funds held by bond trustee - U.S. government securities 1,879,333 - - 1,879,333 Total assets at fair value $ 52,578,851 $ 8,026,557 $ 12,263,975 $ 72,869,383 18

Note 8 - Fair Values of Financial Instruments (Continued) 2013 Level 1 Level 2 Level 3 Total Assets Pooled investments: Core U.S. equity funds $ 3,179,444 $ - $ - $ 3,179,444 Large-cap equity funds 9,515,371 - - 9,515,371 International equity funds 12,873,519 - - 12,873,519 Small and mid-cap equity funds 3,196,085 - - 3,196,085 Fixed income security funds 290,390 6,278,513-6,568,903 Long/short equity funds - - 9,566,992 9,566,992 Short-term bond fund 585,120 - - 585,120 Pooled investments 29,639,929 6,278,513 9,566,992 45,485,434 Pooled life income funds - - 276,770 276,770 Short-term money market funds 4,884,536 - - 4,884,536 Beneficial interest in trusts and remainder trusts - - 3,275,628 3,275,628 Funds held by bond trustee - guaranteed investment contracts - 1,156,139-1,156,139 Funds held by bond trustee - U.S. government securities 1,879,338 - - 1,879,338 Total assets at fair value $ 36,403,803 $ 7,434,652 $ 13,119,390 $ 56,957,845 19

Note 8 - Fair Values of Financial Instruments (Continued) The changes in assets measured at fair value for which the College has used Level 3 inputs to determine fair value as of June 30 is as follows: Long/Short Equity Funds Pooled Life Income Funds 2014 Beneficial Interests in Trusts Total Beginning of year $ 9,566,992 $ 276,770 $ 3,275,628 $ 13,119,390 Investment activity: Unrealized gains 1,217,402 13,528 363,570 1,594,500 Management fees (41,564) - - (41,564) Purchases 3,000,000 - - 3,000,000 Sales (5,252,055) (156,296) - (5,408,351) End of year $ 8,490,775 $ 134,002 $ 3,639,198 $ 12,263,975 Long/Short Equity Funds Pooled Life Income Funds 2013 Beneficial Interests in Trusts Total Beginning of year $ 8,409,925 $ 342,010 $ 3,102,215 $ 11,854,150 Investment activity: Unrealized gains 1,203,716 27,222 173,413 1,404,351 Management fees (46,649) - - (46,649) Sales - (92,462) - (92,462) End of year $ 9,566,992 $ 276,770 $ 3,275,628 $ 13,119,390 Under certain unusual circumstances, investment managers may alter redemption provisions of their investment vehicles which could impact the ultimate liquidity of funds. The College has no unfunded commitments at June 30, 2014 and 2013. 20

Note 8 - Fair Values of Financial Instruments (Continued) All Level 2 and Level 3 investments have been presented at the net asset value per share as reported by the investment company. Management has no intentions or plans to liquidate any NAV practical expedient investments at other than NAV per share. Management has assessed that fair value approximates carrying value for cash, accounts receivable, grants receivable and accounts payable given the short-term nature of these instruments. Management has no practical or cost effective way of determining fair value for student loans receivable, contributions receivable and annuity and other split-interest obligations. The fair value of debt is noted below. The fair value of debt is derived in part by management s assumptions and current quoted market prices for the same or similar bond issues under Level 2 fair value methods. The market prices utilized reflect the rate that the College would have to pay to a creditworthy third party to assume its obligation and do not reflect an additional liability to the College. Carrying value represents the outstanding principal balance plus unamortized premium. 2014 2013 Carrying Value Fair Value Carrying Value Fair Value Debt $ 41,114,035 $ 42,657,797 $ 41,720,778 $ 42,426,199 Note 9 - Land, Buildings and Equipment Land, buildings and equipment are as follows at June 30: 2014 2013 Land $ 2,259,132 $ 2,259,132 Buildings and improvements 98,083,936 97,648,226 Furniture and equipment 12,879,582 12,618,483 113,222,650 112,525,841 Less accumulated depreciation (40,820,644) (37,907,537) Land, buildings and equipment, net $ 72,402,006 $ 74,618,304 Depreciation expense amounted to approximately $2,916,000 and $3,067,000 for the years ended June 30, 2014 and 2013, respectively. 21

Note 10 - Debt Debt consisted of the following at June 30: 2014 2013 Massachusetts Development Finance Agency fixed rate revenue bonds, Series C, collateralized by a first mortgage lien (subject to permitted encumbrances) on approximately 3.55 acres of land in Boston, Massachusetts and the buildings and improvements thereon. Term bonds are scheduled to mature in 2017, 2029 and 2037 with fixed rates of interest at 5.0%, 5.25% and 5.25%, respectively. $ 41,010,000 $ 41,595,000 Unamortized bond premium 104,035 125,778 Debt $ 41,114,035 $ 41,720,778 The bonds are subject to certain optional redemption provisions as described in the bond agreement. There are no material financial covenants contained in the bond agreement. Principal and sinking fund installments on debt become due as follows: 2015 $ 915,000 2016 940,000 2017 985,000 2018 1,050,000 2019 1,095,000 Thereafter 36,025,000 Total $ 41,010,000 Interest expense, net of amounts capitalized, included in operating expenses was approximately $2,151,000 and $2,416,000 for the years ended June 30, 2014 and 2013, respectively. Note 11 - Retirement Plans The College sponsors a 403(b) defined contribution plan (the Plan ) and makes contributions on behalf of all eligible participating employees to the Teachers Insurance and Annuity Association (TIAA). Contributions are made by the College and its employees as defined by the Plan. The College s contributions amounted to approximately $925,000 and $847,000 for the years ended June 30, 2014 and 2013, respectively. The College also sponsors a deferred compensation plan, available to a group of employees who meet the requirements of Section 457(b) of the Internal Revenue Code. Eligible employees may make additional pre-tax contributions to their TIAA retirement accounts. The College makes no contributions to this plan. 22

Note 11 - Retirement Plans (Continued) The College is a member of Emeriti Retirement Health Solutions, a not-for-profit entity that offers a postretirement, supplemental medical insurance program through health savings accounts in a Voluntary Employees Beneficiary Association (VEBA) trust. The College generally makes an annual contribution to the VEBA. During the years ended June 30, 2014 and 2013, the College contributed approximately $41,000 and $43,000, respectively, to this plan including account management fees. Note 12 - Commitments and Contingencies The College participates in the Massachusetts College Savings Prepaid Tuition Program. This program allows participants to lock in tuition prices by limiting future increases to the changes in CPI plus 2%. This could result in discounts on tuition charged to students in the future. To date, activity related to the program has not been significant. All funds received in connection with federal and state awards are subject to audit by the grantors or their representatives. Management does not expect any audit by a grantor to result in any significant disallowed amounts. Various legal cases arise in the normal course of the College s operations. The College believes that there are currently no outstanding cases which would have a material adverse effect on the financial position of the College. The College has an employment agreement with its president through June 2016 that stipulates a variety of business terms typical in the education sector. The College has a collaboration agreement with an overseas institution pursuant to which the College will operate and deliver a Bachelor of Science degree program in Early Childhood Education. This agreement is for ten years and provides payments to the College associated with people, practices, and systems to partially support the program. The agreement which began in June 2012 calls for payments to the College which depend on the level of enrollment, subject to a minimum and a maximum. Such payments to the College are subject to currency risk; however, the agreement provides for negotiation if the relationship between the two currencies varies from a stipulated range. In addition, such payments are indexed to local changes in consumer prices, also subject to a stipulated range. The College has an agreement with an outside provider of education services to operate a program targeted at expanding the College s international enrollment at its Boston, MA campus. The agreement runs through August 2015 and automatically renews subject to notice periods. The agreement calls for the payment of fees based on enrollment levels and is subject to cancelation by either party under specified conditions. The College has an agreement with a neighboring school to lease athletic facilities through June 30, 2022. The minimum annual rent is $230,000. The contract may be terminated by the school if it ceases to use the facilities for its own students, if the College discontinues its athletics program, or in case of breach by either party. The College has a number of other agreements with organizations and schools offering a number of opportunities and advantages for students. One such agreement provides access to academic programs and co-curricular activities at five other colleges in direct proximity to the College s campus. 23

Note 13 - Net Assets and Endowment Matters Temporarily Restricted Net Assets Temporarily restricted net assets are comprised of the following at June 30: Scholarships Funds to be awarded to students to pay tuition and fees. Capital improvements and facilities Funds that will support projects that maintain or enhance campus buildings and/or grounds. Instruction and academic support Funds that support academic programs, the library and similar activities. Time restricted Funds that will be available upon the passage of time which will then be spent in a manner consistent with donor instructions. General support Earnings on these funds is unrestricted and provides general operating support. 2014 2013 Purpose restrictions: Scholarships $ 5,943,591 $ 3,759,616 Capital improvements and facilities 28,258 28,298 Instruction and academic support 3,884,725 2,730,730 College ready project - 385,834 Time restrictions 538,260 637,829 General support 5,243,680 3,816,457 Temporarily restricted net assets $ 15,638,514 $ 11,358,764 24

Note 13 - Net Assets and Endowment Matters (Continued) Temporarily Restricted Net Assets (Continued) Net assets were released from donor restrictions as the College incurred expenses satisfying the restricted purposes or by the passage of time as follows for the years ended June 30: 2014 2013 Satisfaction of purpose restrictions: Scholarships $ 553,749 $ 465,341 Capital improvements and facilities 40 774,054 Instruction and academic support 1,440,994 1,629,869 College ready project 388,566 707,948 Satisfaction of time restrictions - 65,485 General support 10,350 1,566 Net assets released from restrictions $ 2,393,699 $ 3,644,263 Permanently Restricted Net Assets Permanently restricted net assets are comprised of the following at June 30: Scholarships Earnings on these funds will be awarded to students to pay tuition and fees. Instruction and academic support Earnings on these funds will support academic programs, the library, advising services and similar activities. Student loans Earnings on these funds are loaned to students to help finance their educations and repaid over a term of ten years. General support Earnings on these funds is unrestricted and provides general operating support. Beneficial interest in perpetual trusts Funds invested with third parties; the earnings on which are spent for various purposes. 2014 2013 Scholarships $ 11,101,560 $ 10,457,734 Instruction and academic support 5,072,122 3,906,326 Student loans 3,673,982 3,378,032 General support 6,458,519 6,408,506 Beneficial interest in perpetual trusts 3,367,614 3,003,480 Permanently restricted net assets $ 29,673,797 $ 27,154,078 25