Financial Statements Nellie Mae Education Foundation, Inc. December 31, 2011 and 2010
Financial Statements Table of Contents Financial Statements: Independent Auditors Report 1 Statements of Financial Position 2 Statements of Activities and Changes in Net Assets 3-4 Statements of Cash Flows 5 6-18
Independent Auditors Report Board of Directors Nellie Mae Education Foundation, Inc. Quincy, Massachusetts We have audited the accompanying statements of financial position of Nellie Mae Education Foundation, Inc. (the Foundation ) as of December 31, 2011 and 2010 and the related statements of activities and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the Foundation s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nellie Mae Education Foundation, Inc. as of December 31, 2011 and 2010 and the changes in its net assets and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. March 13, 2012 Boston, Massachusetts
Statements of Financial Position Assets December 31, 2011 2010 Cash and cash equivalents $ 3,175 $ 3,506 Investments, at fair value 436,847 455,279 Student loans receivable, net 11,617 16,238 Accrued investment income 709 820 Accrued student loan interest 66 96 Other assets 308 165 Total assets $ 452,722 $ 476,104 Liabilities and Net Assets Accounts payable and accrued expenses $ 803 $ 1,049 Grants payable 11,874 6,707 Total liabilities 12,677 7,756 Net assets: Unrestricted net assets 439,859 467,098 Temporarily restricted net assets 186 1,250 Total net assets 440,045 468,348 Total liabilities and net assets $ 452,722 $ 476,104 See accompanying notes to the financial statements. 2
Statements of Activities and Changes in Net Assets Years Ended December 31, 2011 2010 Temporarily Unrestricted Restricted Total Total Revenues: Investment income, net $ 3,420 $ - $ 3,420 $ 4,329 Net realized gains on investments 4,610-4,610 10,164 Net unrealized gains (losses) on investments (17,700) - (17,700) 39,692 Interest income on student loans 756-756 1,016 Grants - 359 359 1,750 Net assets released from restrictions 1,423 (1,423) - - Total revenues (7,491) (1,064) (8,555) 56,951 Expenses: Program services: Grants awarded, net 14,662-14,662 13,286 Program advancement 446-446 722 Program management expenses 2,838-2,838 2,717 Total program services 17,946-17,946 16,725 Administrative expenses 1,722-1,722 2,047 Depreciation and amortization 23-23 19 Student loan expenses: Loan servicing 231-231 279 Decrease in uncollectible loans (174) - (174) (108) Total expenses 19,748-19,748 18,962 Increase (decrease) in net assets (27,239) (1,064) (28,303) 37,989 Net assets, beginning 467,098 1,250 468,348 430,359 Net assets, ending $ 439,859 $ 186 $ 440,045 $ 468,348 See accompanying notes to the financial statements. 3
Statement of Activities and Changes in Net Assets Year Ended December 31, 2010 Temporarily Unrestricted Restricted Total Revenues: Investment income, net $ 4,329 $ - $ 4,329 Net realized gains on investments 10,164-10,164 Net unrealized gains on investments 39,692-39,692 Interest income on student loans 1,016-1,016 Grants - 1,750 1,750 Net assets released from restrictions 500 (500) - Total revenues 55,701 1,250 56,951 Expenses: Program services: Grants awarded, net 13,286-13,286 Program advancement 722-722 Program support expenses 2,717-2,717 Total program services 16,725-16,725 Administrative expenses 2,047-2,047 Depreciation and amortization 19-19 Student loan expenses: Loan servicing 279-279 Decrease in uncollectible loans (108) - (108) Total expenses 18,962-18,962 Increase in net assets 36,739 1,250 37,989 Net assets, beginning 430,359-430,359 Net assets, ending $ 467,098 $ 1,250 $ 468,348 See accompanying notes to the financial statements. 4
Statements of Cash Flows Years Ended December 31, 2011 2010 Cash flows from operating activities: Increase (decrease) in net assets $ (28,303) $ 37,989 Adjustments to reconcile increase (decrease) in net assets to net cash used in operating activities: Realized gains on investments (4,610) (10,164) Unrealized losses (gains) on investments 17,700 (39,692) Interest on student loans added to principal (8) (30) Depreciation and amortization 23 19 Amortization of student loan origination fees 31 31 Decrease in uncollectible student loans (174) (108) Changes in operating assets and liabilities: Accrued investment income 111 (10) Accrued student loan interest 30 63 Accounts payable, accrued expenses and other assets (250) 591 Grants payable 5,167 (700) Net cash used in operating activities (10,283) (12,011) Cash flows from investing activities: Principal collected on student loans 4,773 5,173 Purchase of equipment (162) (18) Purchases of investments (269,935) (202,165) Proceeds from sale of investments 275,276 204,698 Net cash provided by investing activities 9,952 7,688 Net decrease in cash and cash equivalents (331) (4,323) Cash and cash equivalents, beginning 3,506 7,829 Cash and cash equivalents, ending $ 3,175 $ 3,506 See accompanying notes to the financial statements. 5
Note 1 - Nature of Operations and Summary of Significant Accounting Policies Nellie Mae Education Foundation, Inc. (the Foundation ) is a Massachusetts not-for-profit corporation. The mission of the Foundation is, through its support of educational organizations, to stimulate transformative change of public education systems across New England by growing a greater variety of higher quality educational opportunities that enable all learners, especially and essentially underserved learners, to obtain the skills, knowledge and supports necessary to become civically engaged, economically self-sufficient life-long learners. A summary of significant accounting policies consistently applied in the preparation of the financial statements follows: Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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 vary from those estimates and assumptions. Significant management estimates included in the financial statements include reserve for uncollectible student loans and fair value of alternative investments. Financial Statement Presentation The accompanying financial statements of the Foundation have been prepared on the accrual basis of accounting. Net assets, revenues, expenses, gains and losses are classified based on the existence or absence of donorimposed restrictions in accordance with not-for-profit accounting. The Foundation currently has unrestricted and temporarily restricted net assets which are defined as follows: Unrestricted net assets are those net assets not subject to restrictions by donor or by law. Unrestricted net assets may be designated for specific purposes by action of the Board or may otherwise be limited by contractual agreements with outside parties. Temporarily restricted net assets are those net assets subject to donor-imposed stipulations that may or will be met by actions of the Foundation and/or the passage of time. Grant Awards Grant awards are expensed when the grant is awarded and all significant conditions are met. Grants payable represents unpaid amounts under grants reflected as expended. Such amounts are generally payable in one year or less. 6
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Continued) Cash and Cash Equivalents The Foundation considers cash equivalents to include highly liquid investments that have a maturity of ninety days or less when purchased. The Foundation utilizes an overnight sweep account with its depository which invests in U.S. Treasury obligations and repurchase agreements secured by U.S. Treasury obligations. Cash held by investment managers is considered part of investments given the expectation of near term reinvestment. The Foundation monitors its exposure associated with cash and cash equivalents and has not experienced any losses in such accounts. Fair Value Measurements The Foundation reports required types of financial instruments in accordance with fair value accounting standards. The Foundation s investments are recorded on this basis. 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 Foundation 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 Foundation 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 ( NAV ) practical expedient rules, which allow for either Level 2 or Level 3 depending on lockup and notice periods associated with the underlying funds. 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 practical expedient investments with notice periods for redemption 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 practical expedient investments with notice periods for redemption of more than 90 days. In some instances, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such instances, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. 7
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Continued) Fair Value Measurements (Continued) Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument, as well as the effects of market, interest and credit risk. 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 change 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 Foundation s financial instruments, see Note 2 - Fair Values of Financial Instruments. Investment income is presented net of investment management and custodial fees. Student Loans and Loan Loss Allowance The Foundation holds uncollateralized student loans made by a predecessor institution. The Foundation makes no new loans. At December 31, 2011 and 2010, student loans, net of loan loss allowance represented 2.56% and 3.41% of total assets, respectively. Outstanding student loans are presented at their estimated net realizable value including unpaid principal balances, capitalized interest receivable, loan loss allowance and unamortized premiums. Interest income on student loans is recognized as it is earned. Additions to principal presented in the Statements of Cash Flows represents interest earned on the student loans which has been capitalized as student loans receivable in accordance with the student loan agreements. The loan loss allowance is established to provide for potential student loan losses resulting from credit risk, origination error and defective servicing. The allowance is based on the type of loan made and expected loss rates. Student loans are deemed nonperforming when 212 days past due, at which time they are charged off. Interest continues to accrue on defaulted loans but is not recognized as income until paid. Principal and interest recovered on nonperforming loans is recorded as a reduction of the loan loss allowance. Management believes the allowance levels are adequate, but because of the inherent uncertainty of the assumptions and the estimation process, the allowance levels may differ significantly from actual losses and the differences could be material. 8
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Continued) Fixed Assets Fixed assets are recorded at cost less accumulated depreciation. Depreciation of business equipment, furniture and fixtures, and software is computed on the straight-line method over the estimated useful life of each asset type, which ranges from five to seven years. Leasehold improvements are amortized over the term of the lease or useful life as described in the range above, whichever is shorter. Fixed assets are reported within Other Assets on the Statements of Financial Position. Income Taxes The Foundation is organized and operated as an organization exempt from taxation under IRC Section 501(c)(3). It is not a private foundation because it is a supporting organization as described in IRC Section 509(a)(3). Pursuant to its Articles of Organization, the Foundation operates exclusively for the benefit of, and to promote the charitable and educational purposes of, educational organizations, including universities, colleges, secondary schools, elementary schools, and other educational organizations which are described in IRC Section 501(c)(3) and which are not private foundations as described in IRC Section 509(a). The Foundation s activities include making grants to the public charities it supports and providing services to those organizations. A majority of the Foundation s directors are representatives of organizations that would be eligible to receive support from the Foundation. In addition, the committee that nominates board members is composed entirely of directors who are also officers, directors, key employees or persons serving in a leadership role in public charities that would be eligible to receive support from the Foundation. Such directors recuse themselves during votes that would grant monies to their respective organizations. Given the limited taxable activities of the Foundation, management has concluded that disclosures relative to tax provisions are not necessary. Uncertain Tax Positions The Foundation 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. Interest and penalties assessed, if any, are accrued as income tax expense. The Foundation 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 Foundation is not currently under examination by any taxing jurisdiction. Federal and state income tax returns are generally open for three years following the date filed. 9
Note 1 - Nature of Operations and Summary of Significant Accounting Policies (Continued) Subsequent Events The Foundation has evaluated subsequent events through March 13, 2012, the date the financial statements were issued. Reclassifications Certain reclassifications have been made to the prior year financial statements in order to conform with the current year presentation. Note 2 - Fair Values of Financial Instruments The valuation of the Foundation s instruments using the fair value hierarchy consisted of the following at December 31: Cost Fair Value Level 1 2011 Fair Value Level 2 Fair Value Level 3 Total Fair Value Cash equivalents $ 2,036 $ 2,036 $ - $ - $ 2,036 Domestic equity funds 105,527 83,373 36,226-119,599 Foreign equity funds 103,357 17,783 85,748-103,531 Fixed income - U.S. Treasury securities 46,361 49,924 - - 49,924 Fixed income - multi-sector 22,950 23,011 - - 23,011 Alternative strategies: Multi-strategy hedge funds-of-funds 44,500-23,552 24,065 47,617 Hedge funds - distressed credit 10,000-6,704 6,345 13,049 Hedge funds - fixed income 5,000 - - 6,499 6,499 Hedge funds - long/short equity 16,953-16,645-16,645 Hedge fund - multi-strategy 7,000-7,480-7,480 Real asset 20,580-21,436-21,436 Real estate funds (public and private) 3,013 - - 2,741 2,741 Direct real asset - timber 2,314 - - 3,385 3,385 Private commodity 4,150 - - 3,497 3,497 Natural resources fund-of-funds 7,876 - - 8,897 8,897 Trades pending settlement (real asset) 7,500-7,500-7,500 $ 409,117 $ 176,127 $ 205,291 $ 55,429 $ 436,847 10
Note 2 - Fair Values of Financial Instruments (Continued) Cost Fair Value Level 1 2010 Fair Value Level 2 Fair Value Level 3 Total Fair Value Cash equivalents $ 1,827 $ 1,827 $ - $ - $ 1,827 Domestic equity funds 107,639 88,254 34,281-122,535 Foreign equity funds 105,648 24,178 96,017-120,195 Fixed income - U.S. Treasury securities 54,577 57,351 - - 57,351 Fixed income - multi-sector 20,846 22,489 - - 22,489 Alternative strategies: Multi-strategy hedge funds-of-funds 44,500-25,035 24,475 49,510 Hedge funds - distressed credit 10,000-6,785 6,350 13,135 Hedge fund - fixed income 5,000 - - 5,558 5,558 Hedge funds - long/short equity 17,000-6,729 9,883 16,612 Hedge fund - multi-strategy 7,000-7,500-7,500 Real asset 17,363-19,705-19,705 Real estate fund (public and private) 3,855 - - 2,408 2,408 Direct real asset - timber 3,896 - - 4,846 4,846 Private commodity 3,375 - - 3,589 3,589 Natural resources fund-of-funds 7,324 - - 8,019 8,019 $ 409,850 $ 194,099 $ 196,052 $ 65,128 $ 455,279 Custodial investment portfolio activity was as follows for the years ended December 31: 2011 2010 Investments, at beginning of year $ 455,279 $ 407,956 Investment return: Interest and dividends collected 4,932 5,634 Net unrealized gains (losses) (17,700) 39,692 Net realized gains 4,610 10,164 Reinvested income and gains (losses) (8,158) 55,490 Transfer to operations (9,000) (7,100) Management fees and other deductions (1,274) (1,067) Investments, at end of year $ 436,847 $ 455,279 11
Note 2 - Fair Values of Financial Instruments (Continued) Management fees and other deductions in the custodial investment portfolio activities represent cash expenditures only in 2011 and 2010. At December 31, 2011 and 2010, investment income on the Statements of Activities and Changes in Net Assets is net of accrued management and consulting fees which result in total fees of $1,512 and $1,305, respectively. Under the Foundation s policy, the annual distribution for grants and support of operations will fall between 4.0% and 4.5% of a 12 quarter trailing net asset average. The grant distribution level will not fall below the three-year trailing average of 85% of net income. Net income includes the sum of interest and dividend income, net student loan income and short-term capital gains. The Foundation funds spending with available cash flow from student loan collections and interest earned, and as necessary the remaining amounts are transferred to operations from its investment portfolio. Investment portfolio transfers totaled $9.0 million and $7.1 million in 2011 and 2010, respectively. Level 3 investment activity was as follows for the years ended December 31: Hedge Funds Real Direct Multi- Distressed Fixed Long/Short Estate Real Private Natural Strategy Credit Income Equity Funds Asset Commodity Resources Total Balance as of January 1, 2010 $ 20,829 $ 11,630 $ - $ - $ 2,690 $ 4,513 $ 2,613 $ 6,600 $ 48,875 Net unrealized gains (losses) 1,646 345 558 (117) 829 333 572 220 4,386 Net realized gains (losses) - - - - (471) - 797 211 537 Net investment expenses - - - - - - - - - Net purchases 2,000-5,000 10,000 - - 949 1,350 19,299 Net (sales) - - - - (640) - (1,342) (362) (2,344) Transfers in (out) - (5,625) - - - - - - (5,625) Balance as of December 31, 2010 24,475 6,350 5,558 9,883 2,408 4,846 3,589 8,019 65,128 Net unrealized gains (losses) (410) (5) 941 479 1,175 121 (867) 326 1,760 Net realized gains (losses) - - - (47) (956) - 562 94 (347) Net investment expenses - - - - - - - - - Net purchases - - - - 2,600-1,119 850 4,569 Net (sales) - - - - (2,486) (1,582) (906) (392) (5,366) Transfers in (out) - - - (10,315) - - - - (10,315) Balance as of December 31, 2011 $ 24,065 $ 6,345 $ 6,499 $ - $ 2,741 $ 3,385 $ 3,497 $ 8,897 $ 55,429 Transfers out of Level 3 during 2011 include an amount of $5,207 representing an investment for which a oneyear lockup expired in March 2011 and an amount of $5,108 for which redemption terms were modified by the manager. These investments are now included in Level 2. 12
Note 2 - Fair Values of Financial Instruments (Continued) A summary of Level 2 and 3 investments of the significant categories of investments utilizing the net asset value practical expedient and their attributes are as follows: Redemption Frequency (if Redemption Unfunded Currently Notice Fair Value Commitments Eligible) Period Domestic equity fund $ 36,226 $ - quarterly 60 days Foreign equity funds 85,748 - monthly 5-15 days Multi-strategy hedge funds-of-funds 47,617 - quarterly; rolling 3 year 65; 90 days Hedge funds - distressed credit 13,049 - quarterly; 25% per quarter 65; 90 days Hedge fund - fixed income 6,499 - quarterly (one-third per year) 60 days Hedge fund - long/short equity 6,330 - annually 90 days Hedge funds - long/short equity 10,315 - quarterly 30-45 days Hedge fund - multi-strategy 7,480 - annually 45 days Real assets 28,936 - monthly 8-35 days Real estate funds (public and private) 2,741 7,400 n.a. n.a. Direct real asset - timber 3,385 - n.a. n.a. Private commodity 3,497 12,921 n.a. n.a. Natural resources fund-of-funds 8,897 1,475 n.a. n.a. $ 260,720 $ 21,796 Domestic equity fund includes investments in a single manager strategy in which the manager has the flexibility to invest in public equities on either a long or short basis. The focus is primarily in the United States. The majority of the investments across the underlying manager strategies are in publicly traded securities but managers have the flexibility to invest in private/non-marketable investments. The redemption restriction period for these investments was quarterly at December 31, 2011. Foreign equity funds includes investments in a diversified portfolio of international equity and equityrelated securities of companies whose principal business activities are conducted primarily in countries other than the United States of America. These funds are redeemable on a monthly basis with between 5 and 15 days notice. 13
Note 2 - Fair Values of Financial Instruments (Continued) Multi-strategy hedge funds-of-funds investments in a broadly diversified portfolio of hedge funds (20-30 each). Underlying manager strategies will vary but include long/short equity, event driven, merger arbitrage, distressed and multi-strategy. Position sizes are limited so that no one manager represents more than 15% of the fund. The majority of the investments across the underlying manager strategies are in publically traded securities but managers have the flexibility to invest in private/non-marketable investments. The redemption restriction period for these investments was quarterly or rolling three-year lockup at December 31, 2011. Hedge funds - distressed credit includes investments in single manager strategies focused on the distressed and deep value areas of the credit market. Investments include public and private opportunities on both a long or short basis. The redemption restriction period for these investments was quarterly (limited to 25% per quarter) or quarterly at December 31, 2011. Hedge fund - fixed income includes investments in a single manager strategy where the manager seeks to profit from price discrepancies within the fixed income market on both a long and short basis. This alpha potential is combined with the beta of a particular market selected by the client to generate a beta plus alpha strategy. The majority of the investments are in publically traded securities but the manager has the flexibility to invest in private/non-marketable investments. The redemption restriction period for these investments was quarterly (limited to one third of investment each year) at December 31, 2011. Hedge funds - long/short equity includes investments in single manager strategies where the manager has the flexibility to invest in public equities on either a long or short basis. The focus is primarily in the United States. The majority of the investments across the underlying manager strategies are in publically traded securities but managers have the flexibility to invest in private/non-marketable investments. The redemption restriction period for these investments was annual or quarterly at December 31, 2011. Hedge fund - multi-strategy includes investments in a single manager strategy where the manager employs a multi-strategy approach. Investments can be made in long/short equity, credit investments, real estate, merger arbitrage, value, etc. The majority of the investments across the underlying manager strategies are in publically traded securities but managers have the flexibility to invest in private/non-marketable investments. The redemption restriction period for this investment was annual at December 31, 2011. Real assets includes investments in energy equities, metals and mining equities, commodities, and inflation-protected core bonds. These funds are redeemable on a monthly basis with between 8 and 35 days notice. Real estate funds (public and private) includes investments in a real estate fund that accesses real estate exposure through public real estate (REITs) managers, open end core real estate funds, and direct asset holdings. The fund is diversified geographically and by real estate property type. One fund has restricted redemptions to investors given the real estate environment and it is estimated that the underlying assets of the fund will be liquidated over the next one to five years to meet redemptions. It is estimated that the underlying assets of the second fund will be liquidated in total over the next one to ten years. 14
Note 2 - Fair Values of Financial Instruments (Continued) Direct real asset - timber includes investments in a single manager fund that invests in a diversified portfolio of trees and timberlands. The nature of the investments in this category is that distributions will be received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the fund will be liquidated in total over the next one to five years. Private commodity includes investments in a single manager fund that invests in a diversified portfolio of energy infrastructure, natural resources and power. The nature of the investments in this category is that distributions will be received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the fund will be liquidated in total over the next one to ten years. Natural resources fund-of-funds includes investments in a natural resources fund-of-funds manager that allocates capital to several strategies focused on oil, natural gas and timberlands. The nature of the investments in this category is that distributions will be received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of the fund will be liquidated in total over the next one to ten years. The categories of Level 2 and 3 investments at December 31, 2010 were composed of substantially similar investments as in the current year. Fair value of financial instruments, including cash and cash equivalents, accounts payable and grants payable approximates carrying value due to the short-term nature of these instruments. Management has not determined the fair value of its student loan receivables as management believes the cost outweighs the benefits associated with this additional data and management does not intend to liquidate. Net realizable values could be materially different from the recorded amounts. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of the Foundation. Note 3 - Financing Receivables Included in student loans at December 31, 2010 is an $850,000 receivable from a former service provider associated with a settlement agreement that was reached on December 30, 2010 and formally approved by the court overseeing this matter on January 28, 2011. These amounts were paid in full in 2011. In addition, the Foundation obtained an unsecured claim in the amount of $415,000 which management has fully reserved given the uncertainties associated with ultimate collection. Unsecured claim payments of $66,400 in 2011 reduced the reserve balance of the unsecured claim to $348,600 at December 31, 2011. The Foundation outsources certain aspects of the servicing of student loans to SLM Corporation ( Sallie Mae ). Sallie Mae is liable for certain losses incurred by the Foundation due to servicing errors. Service fees to Sallie Mae approximated $169 and $211 during 2011 and 2010, respectively, including accrued service fees of approximately $13 and $10 at December 31, 2011 and 2010, respectively. These expenses are included in the caption Loan servicing on the Statements of Activities and Changes in Net Assets. 15
Note 3 - Financing Receivables (Continued) Loan Loss Allowance The Foundation has established an allowance to cover estimated losses on loans. This allowance for uncollectible student loans is netted against student loans on the Statements of Financial Position and is summarized as follows: 2011 2010 Balance at beginning of year $ 605 $ 797 Additions: Decrease in uncollectible student loans (174) (108) Recoveries 267 723 Funds from recourse agreements (2) 12 Deductions: Loan write-offs (428) (819) Balance at end of year $ 268 $ 605 At June 30, 2011 and 2010, the following amounts were past due under student loan programs: December 31 31-60 Days Past Due 60-90 Days Past Due 90+ Days Past Due Total Past Due 2011 $ 404 $ 120 $ 232 $ 756 2010 534 151 431 1,116 16
Note 4 - Other Assets Other assets consist primarily of fixed assets and prepaid expenses. Fixed assets consisted of the following at December 31: 2011 2010 Business equipment and software $ 319 $ 170 Furniture and fixtures 504 490 Leasehold improvements 44 44 867 704 Less accumulated depreciation and amortization (625) (602) Total $ 242 $ 102 Depreciation expense totaled approximately $23 and $19 for the years ended December 31, 2011 and 2010, respectively. Note 5 - Temporarily Restricted Net Assets Temporarily restricted net assets were available for a specified program at December 31, 2011 and 2010 under various grants from a Private Foundation. Net assets released for program purposes from this grant were $1,423 and $500 for the years ended December 31, 2011 and 2010, respectively. Note 6 - Commitments Office Lease The Foundation leases office space under an operating lease which expires December 31, 2019. The lease payments are subject to annual escalations for increase in real estate taxes and operating expenses. Total rent expense amounts to approximately $291 and $299 for the years ended December 31, 2011 and 2010, respectively. Future minimum rental commitments under the lease are as follows: 2012 $ 282 2013 289 2014 301 2015 307 2016 313 Thereafter 644 $ 2,136 17
Note 7 - Retirement Plan The Foundation sponsors a qualified 401(k) defined contribution plan (the Plan ) for its employees. Employees are eligible to participate in the plan upon meeting criteria of age, service, and minimum hours of work, among other criteria. Under the Plan, the Foundation matches salary reduction contributions to the Plan dollar for dollar, up to 6% of annual compensation. The Foundation also contributes to the Plan an amount equal to 8% of compensation and may make additional contributions under a discretionary formula. The Foundation s policy is to fund all costs on a current basis. Expenses incurred related to the Plan were $283 and $262 for the years ended December 31, 2011 and 2010, respectively. 18