wheaton college
STONEHILL COLLEGE, INC. Financial Statements June 30, 2014 and 2013
Indep pendent Aud ditor's Repo ort To the t Board of Trustees T of Sttonehill Colleg ge, Inc.: We have audited d the accompa anying financiial statementss of Stonehilll College, Inc. (the “Collegee”), which com mprise the statements of fin nancial position as of Junee 30, 2014 and d 2013, and th he related staatements of actiivities and of cash c flows forr the years theen ended. Ma anagement's s Responsib bility for the Financiall Statementts Man nagement is responsible r fo or the prepara ation and fairr presentation n of the financcial statementts in acco ordance with accounting principles p generally accepteed in the Unitted States of A America; this includes the design, impleementation, and a maintena ance of internaal control releevant to the p preparation an nd fair pressentation of financial f stateements that arre free from m material misstatement, wh hether due to ffraud or erro or. Aud ditor's Resp ponsibility Ourr responsibilitty is to expresss an opinion on the financcial statementts based on ou ur audits. Wee conducted ourr audits in acccordance with h auditing stan ndards generaally accepted in the United d States of Am merica. Tho ose standards require that we plan and perform p the aaudit to obtain n reasonable assurance about whether the financial stattements are frree from mateerial misstateement. An audit involves performing procedures to obtain audiit evidence ab bout the amou unts and discllosures in the financial stattements. Thee procedures selected s depen nd on our jud dgment, inclu uding the asseessment of the risks of mateerial misstatem ment of the financial statem ments, wheth her due to frau ud or error. IIn making thosse risk assessments, we consider internal control releevant to the C College's prep paration and ffair pressentation of the t financial statements s in order to desiign audit proccedures that aare appropriate in the circcumstances, but b not for thee purpose of expressing e an opinion on th he effectiveneess of the Colllege's inteernal control. Accordingly, we express no n such opiniion. An auditt also includess evaluating th he app propriateness of accounting g policies used and the reaasonableness o of significant accounting eestimates mad de by manageement, as welll as evaluatin ng the overall p presentation of the financiial statementss. We beliieve that the audit a evidencee we have obttained is suffiicient and app propriate to p provide a basis for our aud dit opinion. Opinion In our o opinion, the t financial statements s refferred to abovve present faiirly, in all matterial respectss, the fina ancial position n of the Colleg ge at June 30 0, 2014 and 20 013, and the cchanges in itss net assets an nd its cash flow ws for the years then ended d in accordancce with accou unting princip ples generallyy accepted in tthe United Stattes of America.
Octtober 22, 2014 4
PriccewaterhouseCoo opers LLP, Bostton, MA, 125 Hig gh St., Boston, M MA 02110 T: (6 617) 530-5000, F:(617) F 530-500 01, www.pwc.com m/us
STONEHILL COLLEGE, INC. STATEMENTS OF FINANCIAL POSITION JUNE 30, 2014 AND 2013
ASSETS Cash and cash equivalents Accounts receivable, net Other assets Pledges receivable, net Loans receivable, net Perpetual trusts held by third parties Restricted cash Investments Property, plant and equipment, net
2014 $ 9,231,884 254,825 1,640,332 2,997,798 1,563,940 2,114,560 1,321,312 205,669,426 135,224,507
2013 $ 16,780,569 285,424 1,767,666 3,943,031 1,684,925 1,871,998 6,941,184 178,293,334 137,341,788
Total assets
$ 360,018,584
$ 348,909,919
$
$
LIABILITIES Accounts payable Accrued payroll and other benefits Tuition received in advance Other liabilities Government advances for student loans Interest rate swap agreements Annuity obligations Note and bonds payable
1,406,862 3,414,158 1,019,189 4,848,544 1,029,327 8,594,967 287,288 83,124,019
2,043,364 4,058,527 1,312,772 4,943,849 1,086,079 8,382,940 297,913 91,778,175
Total liabilities
103,724,354
113,903,619
NET ASSETS Unrestricted Temporarily restricted Permanently restricted
200,505,465 23,024,524 32,764,241
184,464,406 19,537,159 31,004,735
Total net assets
256,294,230
235,006,300
$ 360,018,584
$ 348,909,919
Total liabilities and net assets
The accompanying notes are an integral part of the financial statements.
2
STONEHILL COLLEGE, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 (with comparative totals for 2013) Unrestricted Operating Revenues and other support Tuition and fees, net Federal and state grants Private gifts Short-term investment income Auxiliary services Other income Nonoperating assets used for operations Net assets released from restrictions
$51,930,526 707,860 684,979 1,444 31,654,649 2,420,007 4,745,792 3,099,568
Temporarily Restricted
Permanently Restricted
$3,099,568 (3,099,568 )
Total 2013
$51,930,526 707,860 684,979 1,444 31,654,649 2,420,007 7,845,360 -
$54,159,978 647,389 569,636 2,102 31,740,448 2,062,176 7,785,283 -
95,244,825
96,967,012
32,665,570 298,613 128,619 7,169,783 17,728,117 14,965,540 20,024,475
33,053,003 344,873 301,546 6,744,525 18,561,417 14,928,833 19,616,311
Total operating revenues and other support
95,244,825
Expenses Instruction Research Public service Academic support Student services Institutional support Auxiliary services
32,665,570 298,613 128,619 7,169,783 17,728,117 14,965,540 20,024,475
Total operating expenses
92,980,717
-
-
92,980,717
93,550,508
2,264,108
-
-
2,264,108
3,416,504
$1,516,944 242,562
3,737,658 25,105,500
13,992,927 17,577,533
(1,973,976) (7,845,360) -
2,942,668 (7,785,283) -
Increase in net assets from operations
-
Total 2014
Nonoperating revenues and expenses Private gifts and grants Investment return Realized/unrealized (loss) gain on interest rate swap agreements Nonoperating assets used for operations Net assets reclassed/released from restrictions
306,826 18,988,160
1,913,888 5,874,778
(1,973,976) (4,745,792) 1,201,733
(3,099,568) (1,201,733)
Increase in net assets from nonoperating activities
13,776,951
3,487,365
1,759,506
19,023,822
26,727,845
Total change in net assets
16,041,059
3,487,365
1,759,506
21,287,930
30,144,349
184,464,406
19,537,159
31,004,735
235,006,300
204,861,951
$200,505,465
$23,024,524
$ 32,764,241
$256,294,230
$235,006,300
NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR
The accompanying notes are an integral part of the financial statements. 3
STONEHILL COLLEGE, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 Unrestricted Operating Revenues and other support Tuition and fees, net Federal and state grants Private gifts Short-term investment income Auxiliary services Other income Nonoperating assets used for operations Net assets released from restrictions
Temporarily Restricted
Permanently Restricted
Total
$54,159,978 647,389 569,636 2,102 31,740,448 2,062,176 4,920,197 2,865,086
$2,865,086 (2,865,086)
Total operating revenues and other support
96,967,012
-
Expenses Instruction Research Public service Academic support Student services Institutional support Auxiliary services
33,053,003 344,873 301,546 6,744,525 18,561,417 14,928,833 19,616,311
Total expenses
93,550,508
-
-
93,550,508
3,416,504
-
-
3,416,504
Increase in net assets from operations
$54,159,978 647,389 569,636 2,102 31,740,448 2,062,176 7,785,283 -
96,967,012
33,053,003 344,873 301,546 6,744,525 18,561,417 14,928,833 19,616,311
Nonoperating revenues and expenses Private gifts and grants Investment return Realized/unrealized gain on interest rate swap agreements Nonoperating assets used for operations Net assets released from restrictions
4,202,692 13,766,060
4,071,686 3,668,253
$5,718,549 143,220
13,992,927 17,577,533
2,942,668 (4,920,197) 766,182
(2,865,086) (766,182)
-
2,942,668 (7,785,283) -
Increase in net assets from nonoperating activities
16,757,405
4,108,671
5,861,769
26,727,845
Total change in net assets
20,173,909
4,108,671
5,861,769
30,144,349
164,290,497
15,428,488
25,142,966
204,861,951
$184,464,406
$19,537,159
$31,004,735
$235,006,300
NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR
The accompanying notes are an integral part of the financial statements.
4
STONEHILL COLLEGE, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2014 AND 2013 2014 Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Change in government advances for student loans Amortization of discounts, premiums and issuance costs Depreciation and other amortization Net realized and unrealized gains on investments Unrealized losses/(gains) on interest rate swap agreements Change in pledge discount/allowance and other
2013
$21,287,930
$30,144,350
(56,752) 134,102 6,818,667 (23,171,034) 212,027 (66,847)
(44,743) 105,066 6,710,566 (16,142,642) (4,724,797) 67,898
30,599 1,012,080 54,085 (592,831) (644,369) (297,109) (293,583) (3,888,213) 538,752
(68,305) (1,627,671) (204,595) 43,098 705,782 (1,865,601) (187,306) (7,207,598) 5,703,502
(183,260) 304,245 (4,714,843) (41,272,408) 36,824,789
(229,250) 277,398 (4,493,109) (13,977,074) 9,156,978
5,619,872 (3,421,605)
(4,767,961) (14,033,018)
Cash flows from financing activities Payments on long-term debt and capital lease obligations Net proceeds from long-term debt Debt issuance costs Contributions to be used for long-term investment Net cash (used)provided/by for financing activities
(8,554,045) 3,888,213 (4,665,832)
(3,922,920) 5,653,085 (192,279) 7,207,598 8,745,484
Net (decrease)/increase in cash and cash equivalents
(7,548,685)
415,968
Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental Disclosure: Cash paid for interest, net of capitalized interest Interest paid on interest rate swap agreements Amounts included in accounts payable and accrued expenses related to property, plant and equipment
16,780,569 $9,231,884
16,364,601 $16,780,569
$1,005,336 1,761,950
$1,285,806 1,782,128
644,482
688,153
Change in operating assets and liabilities Accounts receivable Pledges receivable Other assets Accounts payable Accrued payroll and other benefits Tuition received in advance Other liabilities Contributions to be used for long-term investment Net cash provided by operating activities Cash flows from investing activities Loans granted Loans collected Purchase of property, plant and equipment Purchase of investments Proceeds from sale of investments Change in restricted cash Net cash used for investing activities
The accompanying notes are an integral part of the financial statements. 5
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies Stonehill College, Inc. (the “College”) was founded in 1948 by members of the Congregation of Holy Cross. It is an independent, undergraduate, church-related institution in Easton, Massachusetts and offers Bachelor’s degrees in the Arts and Sciences. Basis of Presentation The accompanying financial statements have been prepared on the accrual basis and in accordance with the reporting principles of not-for-profit accounting. Certain information for the year ended June 30, 2013 has been reclassified to confirm with the presentation for the year ended June 30, 2014. The College has classified net assets and its revenues, expenses, gains and losses into three categories based on the existence or absence of externally-imposed restrictions. The categories unrestricted, temporarily restricted, and permanently restricted net assets, are defined as follows: Unrestricted - Net assets which are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees (the “Board”). Temporarily Restricted - Net assets whose use is limited by law or donor-imposed stipulations that will either expire with the passage of time or be fulfilled by actions of the College. Permanently Restricted - Reflects the historical value of gifts subject to donor-imposed stipulations, which require the corpus to be invested in perpetuity to produce income for general or specific purposes. Revenues are reported as increases in unrestricted net assets unless use of the related asset is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Realized and unrealized gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets are reclassified as “net assets released from restrictions” in the Statement of Activities. Gifts and investment return with donor-imposed restrictions, which are reported as temporarily restricted revenues, are reclassified to unrestricted net assets when an expense is incurred that satisfied that restriction. Gifts restricted for the purchase of property, plant and equipment are reported as temporarily restricted revenues and are reclassified to unrestricted net assets upon the asset being placed into service, or when a time restriction expires. Fundraising expenses totaled $2,174,962 and $2,127,924 in the years ended June 30, 2014 and 2013, respectively. Gifts received for annual operating purposes are recorded as operating revenues. Nonoperating revenues and expenses include all other gifts and grants, investment income, and realized and unrealized gains and losses on long-term investments held during the year and realized and unrealized gains and losses related to the College’s interest rate swap agreements. To the extent investment return is authorized by the Board and gifts are permitted by the donor to fund operations, they are reclassified as “nonoperating assets used for operations” on the Statement of Activities. All other activity is classified as operating revenue. 6
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Summary of Significant Accounting Policies (continued) The College recognizes tuition and fees revenue in the period in which the educational instruction is performed. Accordingly, tuition and fees received in advance are deferred until the educational instruction is provided and related expenses incurred. Auxiliary revenues include the operation of student housing and dining services. Use of Estimates The preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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 materially from those estimates. Cash and Cash Equivalents Cash and cash equivalents include operating cash accounts and short-term investments with maturities from date of purchase of three months or less. The carrying amount of these cash equivalents is a reasonable estimate of fair value due to their short-term nature. Income from these instruments is reflected in operating revenue under short-term investment income.
The remaining restricted cash represents amounts on deposit with the Trustee in accordance with bond requirements. These securities are primarily invested in money market funds and are recorded at cost which approximates fair value. Cash is deposited in several institutions; however, at times cash held in a single institution may exceed federally insured limits. The College has not experienced any losses in such accounts. A portion of money market funds are classified as cash and cash equivalents on the financial statements. These funds are classified as cash and cash equivalents as it is anticipated that they may be needed for immediate cash needs. The remaining balance of money market funds is classified as investments since it is anticipated that these funds are not to be used for immediate needs. Investments Investments are recorded at fair value. The value of securities listed on a national exchange is based upon quoted market prices and net asset values. The value of securities that represent interests in partnerships or other nonmarketable securities for which there are no market quotations available are valued by the managers of those entities and reviewed by management. The majority of alternative investments are carried at estimated fair value provided by the management of the alternative investment partnerships or funds as of June 30, 2014 and 2013. Purchases and sales of investments are recorded on a trade date basis. Gains or losses from the sale of investment securities are computed on the specific identification cost basis, or for pooled funds, on the average cost basis. 7
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Summary of Significant Accounting Policies (continued) Perpetual Trusts Held by Third Parties The College is the beneficiary of certain perpetual trusts held and administered by others. The estimated fair values of trust assets, which approximate the present values of expected future cash flows from the trusts, are recognized as assets and as gift revenue when the trusts are established. The College had $2,114,560 and $1,871,998 in perpetual trusts held by third parties at June 30, 2014 and 2013, respectively. Property, Plant and Equipment Property, plant and equipment are recorded at cost at the date of acquisition or at fair value at the date of gift for donated assets. Depreciation is computed on a straight-line basis over the estimated useful lives of the individual assets: land improvements (20 years), buildings (30-60 years) and equipment (5-15 years). Depreciation and amortization, totaling $6,924,872 and $6,794,075 for the years ended June 30, 2014 and 2013, respectively, has been allocated to functional expenses based on square foot usage calculations. Property, plant, and equipment are removed from the College’s records at the time of disposal and any resulting gain or loss is reflected in the Statement of Activities. Replacements and major improvements are capitalized; expenses for maintenance and repairs are charged as incurred. Operation and maintenance expense totaling $13,040,274 and $12,989,237 for the years ended June 30, 2014 and 2013, respectively, has been allocated to functional expenses based on square foot usage calculations. Contracts and Grants Government grants and contracts normally provide for the recovery of direct and indirect costs. These amounts are subject to government audits. The College recognizes revenue associated with direct costs as the related costs are incurred. Recovery of related indirect costs is generally recorded at fixed rates negotiated with the government. Collections The College maintains a collection of historical artifacts for public exhibition and education in furtherance of public service and not for financial gain. The College does not capitalize its collection of historical artifacts. The cost of collection items purchased is recorded as a decrease in the appropriate category of net assets in the non-operating section. Gifts Gifts, including unconditional promises to give (pledges), are recorded as revenue when the donor’s commitment is received. Unconditional pledges are recorded at the present value of their expected cash flows, net of allowances for unfulfilled pledges, using a discount factor based on the appropriate United States Treasury Bill rates adjusted for credit risk at the date of the pledge or June 30, 2014 and 2013.
8
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Summary of Significant Accounting Policies (continued) Accounts and Loans Receivable Accounts and loans receivable are stated net of allowances for doubtful accounts of $96,214 and $81,365 for the years ended June 30, 2014 and 2013, respectively. Loans receivable are principally amounts due from students under federally sponsored loan programs, which are subject to significant restrictions. The College regularly assesses the adequacy of the allowance for doubtful accounts related to Loans to Students by performing ongoing evaluations of the student loan portfolio, including such factors as the economic environment in which the borrowers operate and the level of delinquent loans. The College also performs a detailed review of the aging of the student loan receivable. The level of the allowance is adjusted based on the results of this analysis. The College considers the allowances recorded at June 30, 2014 and 2013 to be reasonable and adequate to absorb the potential credit losses inherent in the student loan portfolio. Federal Income Tax The College is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Service Code and, accordingly, does not provide for income taxes.
2. Fair Value Measurements The College applies the fair value measurements and disclosure guidance contained in Accounting Standards Codification (ASC) 820, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: • Level 1 - Observable inputs such as quoted prices in active markets for identical assets and liabilities; • Level 2 – Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly for similar assets and liabilities; and • Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 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. 9
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued) 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 other than quoted prices that are observable for the instruments, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). The quoted prices, observable inputs and calculations reflect the assumptions market participants would use in pricing the instruments. They are obtained from sources including dealers, brokers and market data providers and are independent of the College. 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. The College utilizes the best available information in measuring fair value. The following tables summarize the valuation of our financial instruments by the above ASC 820 pricing levels as of:
Total ASSETS Investments: Cash and equivalents Equities: Domestic International
June 30, 2014 Level 1 Level 2
Level 3
Liquidity
Day’s Notice
$18,115,564
$18,115,564
-
-
Daily
1
11,056,928 24,757,656
11,056,928 24,757,656
-
-
Daily Daily
1 1
Fixed Income Hedge Funds: Commingled
17,348,774
17,348,774
-
-
Daily
1
29,729,904
-
$29,729,904
-
Daily/Monthly
1
Alternative
91,180,875
-
43,741,868
$47,439,007
Monthly-Annually*
1-90 days
Private Equities
13,479,725
-
-
13,479,725
Subject to lock up
Not applicable
$205,669,426 2,114,560
$71,278,922 -
$73,471,772 -
$60,918,732 2,114,560
$71,278,922
$73,471,772
$63,033,292
-
$8,594,967
-
$8,594,967
-
Total Investments Perpetual Trusts Total Assets
$207,783,986
LIABILITIES Interest Rate Swap
$8,594,967
Total Liabilities
$8,594,967
-
Note * - Includes a new investment of approximately $7,000,000 which has an initial two year lockup.
10
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued)
June 30, 2013 Total ASSETS Investments: Cash and equivalents Equities: Domestic International Fixed Income
Level 1
Level 2
Level 3
Liquidity
Day’s Notice
$14,136,685
$14,136,685
-
-
Daily
1
16,993,406 9,126,471 15,800,865
16,993,406 9,126,471 15,800,865
-
-
Daily Daily Daily
1 1 1
Commingled
27,433,145
-
$27,433,145
-
Daily/Monthly
1
Alternative
82,676,804
-
41,073,867
$41,602,937
Monthly-Annually
1-90 days
Private Equities
12,125,958
-
-
12,125,958
Subject to lock up
Not applicable
Hedge Funds:
Total Investments Perpetual Trusts
$178,293,334 1,871,998
$56,057,427 -
$68,507,012 -
$53,728,895 1,871,998
Total Assets
$180,165,332
$56,057,427
$68,507,012
$55,600,893
LIABILITIES Interest Rate Swap
$8,382,940
-
$8,382,940
-
Total Liabilities
$8,382,940
-
$8,382,940
-
Investments included in Level 3 primarily consist of the College's ownership in alternative investments. The College’s total investment in comingled, alternative and private equity investments have an estimated fair market value of $134,390,504 and $122,235,907 in 2014 and 2013, respectively. As of June 30, 2014, the College is committed to investing an additional $8,051,361 in alternative investments. The net asset values (“NAV”) of the securities held by limited partnerships that do not have readily determinable fair values are determined by the general partner and are based on appraisals, or other estimates that require varying degrees of judgment. If no public market exists for the investment securities, the fair value is determined by the general partner taking into consideration, among other things, the cost of the securities, prices of recent significant placements of securities of the same issuer, and subsequent developments concerning the companies to which the securities relate. The College has performed due diligence around these investments to ensure NAV is an appropriate measure of fair value as of June 30, 2014 and 2013. Alternative investments with quarterly redemption provisions are classified as Level 2, others with redemption provisions exceeding three months are classified as Level 3.
11
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued) The College’s interest rate swaps are valued using a model by an independent valuation consultant to the College. The value of the interest rate swaps depend upon the contractual terms of, and specific risks inherent in, the instruments 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. The inputs can be corroborated by market data and are therefore classified within Level 2. Perpetual trusts held by third parties are valued based upon quoted market prices of the underlying assets, which approximates the present value of the future distributions expected to be received over the term of the agreements. 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 materially different estimate of fair value at the reporting date. The following table is a rollforward of the Statement of Financial Position amounts for financial instruments classified by the College within Level 3 of the fair value hierarchy defined above.
Perpetual Trusts
Fair value, July 1, 2013 Net realized gains Net unrealized gains Purchases Sales Fair value, June 30, 2014
Investments
$ 1,871,998
242,562
$ 2,114,560
Total
$ 53,728,895
$ 55,600,893
1,958,637 2,816,542 9,790,212 (7,375,554)
1,958,637 3,059,104 9,790,212 (7,375,554)
$60,918,732
$ 63,033,292
The net unrealized gain on level three investments held on June 30, 2014 that were also held at June 30, 2013 was $ 2,477,258.
12
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued)
Perpetual Trusts
Fair value, July 1, 2012 Net realized gains Net unrealized gains Purchases Sales Fair value, June 30, 2013
Investments
$1,728,778
$49,929,616
Total
$51,658,394
256,026 2,139,273 2,911,747 (1,507,767)
143,220
$1,871,998
$53,728,895
256,026 2,282,493 2,911,747 (1,507,767) $55,600,893
The net unrealized gain on level three investments held on June 30, 2013 that were also held at June 30, 2012 was $2,105,555. All net realized and unrealized gains in the table above are reflected in the accompanying Statement of Activities in the investment return line item. Net unrealized gains relate to those financial instruments held by the College at June 30, 2014. 3. Pledges Receivable Pledges receivable as of June 30, 2014 and 2013 are expected to be realized in the following time frame:
In one year or less Between one year and five years Total Less: Discount to present value Allowance for unfulfilled pledges Pledges Receivable, net
2014 $1,829,716 1,326,745 3,156,461
2013 $1,522,715 2,645,826 4,168,541
(85,602) (73,061) $2,997,798
(130,113) (95,397) $3,943,031
The discount on pledges was calculated using the U.S. Treasury note rate, for the length of the pledge, for the date the pledge was made, plus a .5% premium to incorporate credit risk into the discount rate.
13
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
4. Endowments The College’s endowment consists of approximately 185 individual restricted endowment funds and 21 Board-designated endowment funds for a variety of purposes plus the following where the assets have been designated for endowment: pledges receivables and split interest agreements. The net assets associated with endowment funds including funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. The Board has interpreted the “Uniform Prudent Management of Institutional Funds Act” (“UPMIFA”) as requiring the preservation of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets, (a) the original value of gifts donated to the permanent endowment and (b) the original value of subsequent gifts to the permanent endowment. 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 College in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the College also considers the following factors in making a determination to appropriate endowment funds: 1) The duration and preservation of the fund; 2) The purposes 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; and 7) The investment policies of the College.
Endowment net asset composition by type of fund as of June 30, 2014 Unrestricted
Donor-restricted endowment funds Board-designated endowment funds Total endowment funds
$144,641,267 $144,641,267
Temporarily Restricted
Permanently Restricted
$16,254,919
$30,090,931
$46,345,850
-$16,254,919
-$30,090,931
144,641,267 $190,987,117
14
Total
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Endowments (continued) Endowment net asset composition by type of fund as of June 30, 2013 Unrestricted Donor-restricted endowment funds Board-designated endowment funds Total endowment funds
$ 130,713,619 $ 130,713,619
Temporarily Restricted
Permanently Restricted
$11,925,187
$28,583,987
$40,509,174
-$11,925,187
-$28,583,987
130,713,619 $171,222,793
Total
Changes in endowment net assets for the year ended June 30, 2014 Unrestricted Endowment net assets, beginning of year Investment return: Investment income Net appreciation (realized and unrealized) Total investment return Contributions Distribution of endowment assets for expenditure Endowment net assets, end of year
Temporarily Restricted
Permanently Restricted
$130,713,619
$11,925,187
1,488,711
459,809
-
1,948,520
17,512,321 19,001,032
5,406,970 5,866,779
-
22,919,291 24,867,811
32,380
2,500
(5,105,764)
$144,641,267
(1,539,547 )
$ 16,254,919
15
$28,583,987
Total
1,506,944
-
$ 30,090,931
$ 171,222,793
1,541,824
(6,645,311 )
$190,987,117
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Endowments (continued) Changes in endowment net assets for the year ended June 30, 2013 Unrestricted Endowment net assets, beginning of year Investment return: Investment income Net appreciation (realized and unrealized) Total investment return Contributions
Temporarily Restricted
Permanently Restricted
Total
$114,727,524
$9,109,044
$22,865,430
$146,701,998
1,226,006
200,659
-
1,426,665
12,611,322 13,837,328
3,417,303 3,617,962
-
16,028,625 17,455,290
7,038,519
500,000
5,718,557
13,257,076
(4,889,752)
(1,301,819)
$130,713,619
$11,925,187
Distribution of endowment assets for expenditure Endowment net assets, end of year
$28,583,987
(6,191,571) $171,222,793
Description of Amounts Classified as Permanently Restricted Net Assets and Temporarily Restricted Net Assets (Endowment Only) Permanently restricted net assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA: 2014 2013 Restricted for scholarship support $26,118,618 $24,823,658 Restricted for faculty support 2,808,867 2,802,867 Restricted for program support 1,163,446 957,462 Total endowment assets classified as permanently restricted net assets $30,090,931 $28,583,987 Temporarily restricted net assets The portion of temporary endowment funds that is required to be retained until spent according to explicit donor stipulation or by UPMIFA: Restricted for scholarship support Restricted for faculty support Restricted for program support Total endowment assets classified as temporarily restricted net assets
16
$14,660,372 550,217 1,044,330 $ 16,254,919
$10,846,649 225,761 852,777 $11,925,187
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Endowments (continued) Endowment Funds with Deficits From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the value of the initial and subsequent donor gift amounts (deficit). When donor endowment deficits exist, they are classified as a reduction of unrestricted net assets. Deficits of this nature reported in unrestricted net assets were immaterial as of June 30, 2014 and 2013. These deficits resulted from unfavorable market fluctuations that occurred shortly after the investment of newly established endowments, and authorized distribution that was deemed prudent. Return Objectives and Risk Parameters The investment objective of the endowment funds, through the careful management of assets, is designed to preserve the funds’ purchasing power and to ensure a total return (income plus capital appreciation) necessary to preserve and enhance (in real dollar terms) the principal of the funds, and at the same time provide a dependable source of income for current operations and programs. To accomplish this objective, the funds seek to generate a total return that will exceed not only its spending authority, but also the eroding effects of inflation and its operating expenses over the long term. To meet this long-term objective, all total return (interest income, dividends, realized gains and unrealized gains), above and beyond the amount approved for expenditure, will be reinvested in the funds.
Strategies Employed for Achieving Investment Objectives The funds have a long-term investment horizon with relatively low liquidity needs. For this reason the funds can tolerate short- and intermediate-term volatility provided that long-term returns meet or exceed its investment objective. Consequently, the funds can take advantage of less liquid investments, such as private equity, hedge funds, and other partnership vehicles, which typically offer higher risk-adjusted return potential as compensation for forfeiture of liquidity. Nonetheless, to ensure liquidity for distributions and to facilitate rebalancing, the maximum allocation to illiquid assets, defined as funds locked-up for greater than one year, shall be limited to 30% of the funds’ market value. Endowment Spending Allocation and Relationship of Spending Policy to Investment Objectives The Board of the College determines the method to be used to distribute endowment funds for expenditure. Under the College’s endowment spending policy for the years ended June 30, 2014 and 2013, the College applied a rate of 4.5% to a weighted average calculation based on the previous year’s ending endowment value and the previous year’s endowment spending. In establishing this policy, the Board considered the expected long term rate of return on its endowment. Accordingly, over the long term, the College expects the current spending policy to allow its endowment to grow, consistent with its intention to maintain the purchasing power of the endowment assets as well as to provide additional real growth through new gifts.
17
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
5. Investments The following schedule summarizes total investment return and its classification in the Statements of Activities for the years ended June 30: 2014
Investment income Net realized and unrealized gains on investments Total return on investment
2013
$1,934,466 23,171,034
$1,430,650 16,146,883
$25,105,500
$17,577,533
Management, custodial and performance fees for the endowment investments and other College investments are charged to the investment portfolios and were estimated to be $2,014,014 and $1,883,642 in the years ending June 30, 2014 and 2013, respectively. Net realized and unrealized results include these fees.
6. Property, Plant and Equipment Property, plant and equipment at June 30, 2014 and 2013 are as follows: 2014 Land Land improvements Buildings and improvements Leasehold improvements Equipment Construction in progress Less: Accumulated depreciation
2013
$752,119 18,205,363 162,631,981 485,032 35,322,172 1,399,589 $218,796,256 (83,571,749)
$ 752,119 17,155,502 159,804,327 485,032 34,947,018 1,294,220 $214,438,218 (77,096,430)
$135,224,507
$ 137,341,788
Included in property, plant and equipment as of June 30, 2014 are assets under capital lease for equipment with a cost of $918,983 and related accumulated amortization of $660,364. Capital lease obligations as of June 30, 2014 and 2013 were $265,835 and $426,800, respectively.
For the years ended June 30, 2014 and 2013, fully depreciated assets with an original cost of $312,793 and $3,046,239, respectively were written off.
18
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Property, Plant and Equipment (continued) The changes in the carrying value of the College’s asset retirement obligations for years ended June 30, 2014 and 2013 are as follows: 2014
2013
Beginning balance Settlement of liability Accretion expense
$ 858,061 (9,136) 39,350
$ 835,988 (16,500) 38,573
Ending balance
$888,275
$ 858,061
7. Note and Bonds Payable Note and bonds payable at June 30, 2014 and 2013 are as follows: 2014
2013
Series H, revenue, dated August 1, 2003, interest rates ranging from 3% to 5%. $ Series K, variable rate demand, dated April 1, 2008 interest rates ranging from .01% to .12% due serially from May 1, 2008 to July 1, 2037, inclusive (2) (Note 14)
-
58,935,000
Series L, revenue, dated July 14, 2010, interest rates ranging from 2.5% to 5.375% due serially on July 1, from July 1, 2011 to July 1, 2029, inclusive
J.P. Morgan direct placement loan, dated May 31, 2013, at an interest rate of 1.8% due serially from July 1, 2013 to July 1, 2020, inclusive
Less unamortized original issue discount
$ 5,505,000
60,345,000
19,500,000
20,355,000
4,708,075 $83,143,075
5,653,085 $ 91,858,085
(19,056) $83,124,019
(79,910) $91,778,175
In 2008, MHEFA Series J Variable Rate Revenue Bonds were issued in the amount of $30,000,000 to finance construction of a new science building. During 2008, the MHEFA Series J Variable Rate Revenue Bonds were redeemed with the issuance of MHEFA Series K Variable Rate Demand Bonds. In 2010, MHEFA Series L Variable Rate Revenue Bonds were issued in the amount of $22,000,000 to finance construction of a new residence building.
19
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Notes and Bonds Payable (continued) In 2013, the College entered into a seven year taxable note in the amount of $5,653,085 to partially refinance both a United States Department of Education Note Payable (paid off during fiscal year 2013) and the MHEFA Series H Variable Rate Revenue Bonds (paid off on July 1, 2013 – fiscal year 2014). All outstanding notes and bonds payable are collateralized by tuition receipts. At June 30, 2014, the approximate fair value of outstanding debt on the Statement of Financial Position is $85,079,721 based on estimates using current interest rates available for debt with similar remaining maturities. The valuation inputs used to value the debt are level 2 inputs. Under its bonds payable agreements, the College is subject to certain restrictive financial covenants, the most restrictive of which is that the College must maintain a 60% ratio of non-donor restricted fund balances to plant debt. In accordance with bond requirements for construction funds, the College has on deposit with the Trustee (classified as restricted cash) at June 30, 2014 and 2013 the following amounts: 2014 MHEFA
2013
$1,320,762
$6,938,846
Mandatory annual principal payments on long-term debt for the next five fiscal years and thereafter are as follows. 2015 2016 2017 2018 2019 Thereafter
$2,924,556 3,007,148 3,087,298 2,766,057 3,298,707 68,059,309 $83,143,075
Interest expense and fees on debt were $1,337,483 and $1,636,373 for the years ended June 30, 2014 and 2013, respectively. In addition, interest payments on our swap agreements were $1,761,950 and $1,782,128, respectively. These payments are included in realized/unrealizec (loss) gain on interest rate swap agreements in the statement of activities. Included in the College’s debt is $58,935,000 of variable rate demand bonds (VRDBs). The College has entered into a letter of credit (LOC) with J.P. Morgan, to secure bond repayment and interest obligations associated with its VRDBs. If the VRDBs are unable to be remarketed, the trustee for the VRDB will request purchase under the LOC scheduled repayment terms. Based on the existing repayment and maturity terms of the underlying LOC, the scheduled principal payments under the VRDB related LOC would be $14,733,750 for the next four years assuming all of the VRDBs failed to remarket.
20
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
8. Net Assets The net assets as of June 30, 2014 are summarized as follows: Detail of Net Assets Operating funds: Undesignated Investment in Plant College designated Donor restricted Total Operating Funds for facilities and student loans Annuity, and life income funds Endowment funds and other investments Total Net Assets
Unrestricted
Temporarily Restricted
Permanently Restricted
Total
$11,063,712 43,505,521 195,057 $4,811,311 $4,811,311 1,969,260 (10,965)
$2,673,310
$11,063,712 43,505,521 195,057 4,811,311 $59,575,601 3,061,297 2,662,345
144,649,138
16,254,918
30,090,931
190,994,987
$200,505,465
$23,024,524
$32,764,241
$256,294,230
Permanently Restricted
Total
$54,764,290 1,092,037
The net assets as of June 30, 2013 are summarized as follows: Detail of Net Assets Operating funds: Undesignated Investment in Plant College designated Donor restricted Total Operating Funds for facilities and student loans Annuity, and life income funds Endowment funds and other investments Total Net Assets
Unrestricted
Temporarily Restricted
$9,779,537 42,810,956 305,020
130,730,761
$6,451,264 $6,451,264 1,167,172 (6,464) 11,925,187
$2,420,748 28,583,987
$9,779,537 42,810,956 305,020 6,451,264 $59,346,777 2,005,304 2,414,284 171,239,935
$184,464,406
$19,537,159
$31,004,735
$235,006,300
$52,895,513 838,132
9. Scholarships and Other Awards Tuition and fees are presented net of tuition discounts, which include the following for the years ended June 30, 2014 and 2013: 2014 Institutional scholarships (funded by the College) Endowed scholarships (funded) External grants (federal) External grants (donor funded)
$34,788,655 1,180,340 177,694 397,485 $36,544 174
2013 $33,809,263 1,156,214 210,368 526,147 $35,701,992
In addition, a total of $2,203,181 and $2,078,794 of tuition remission expenses are included in functional expenses at June 30, 2014 and 2013, respectively.
21
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 10. Lease Commitments The College leases property for terms ranging from one to fifteen years. The annual minimum operating lease commitments through the year 2019 are as follows: 2015 2016 2017 2018 2019
$
298,008 332,912 282,485 286,722 291,023
Total rental expense for the College was $399,723 and $391,874 for the years ended June 30, 2014 and 2013, respectively. The following is a schedule of future minimum lease payments under capital leases included in other liabilities, together with the present value of the net minimum lease payments at June 30, 2014. 2015 2016 2017 2018 2019
$171,250 97,920 $269,170 (3,335) $265,835
Interest
11. Employee Benefit Plans The College offers its employees a defined contribution plan and participates in the Teachers Insurance and Annuity Association contributory retirement program. This program covers substantially all full-time employees of the College. The College made contributions of $3,278,397 and $3,137,098 for the fiscal years ended June 30, 2014 and 2013, respectively. The College also maintains a self-funded medical plan for its employees. The self-funded medical plan is funded by both employee and College contributions.
12. Related Parties Certain members of the Board are members, employees or officers of companies which do business with the College. The College engaged in these transactions as part of its normal course of business and substantially all are operating expenses. Related party transactions were $2,360,312 and $2,599,741for the fiscal years ended June 30, 2014 and 2013, respectively. The College had $48,428 recorded in accounts payable due to related parties as of June 30, 2014.
22
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
13. Commitments and Contingencies The College is engaged in numerous activities which expose the College to risk of litigation. These matters may include disputes with contractors, subcontractors, students and other claims arising from employment matters with the College. The College does not expect that these matters will require any amounts to be paid which, in the aggregate, will be material to the results of operations. As of June 30, 2014, the College has outstanding construction/engineering contracts of approximately $613,015.
14. Interest Rate Swap Agreements The College entered into an interest rate swap agreement with a financial institution counterparty in October 2005 on HEFA Series I variable rate bonds. The purpose of the agreement was to swap the variable rate on the HEFA Series I bonds for a fixed rate of 3.369% for the life of the bonds. The College entered into this agreement to manage the cash flows attributable to interest payments on the HEFA Series I bonds and does not use such instruments for speculative purposes. The swap’s fair value as of June 30, 2014 and 2013 of ($2,846,914) and ($2,934,374), respectively is reported on the Statement of Financial Position. On May 1, 2007, the College entered into a swap agreement with a financial institution counterparty on HEFA Series G variable rate bonds. The purpose of the agreement is to swap the variable rate on the HEFA Series G bonds for a fixed rate. The agreement is effective as of April 3, 2008 and provides for a fixed interest rate of 3.594% from May 1, 2008 to July 1, 2028. The swap’s fair value as of June 30, 2014 and 2013 of ($1,602,196) and ($1,584,609), respectively is reported on the Statement of Financial Position. On September 6, 2007, the College entered into a swap agreement with a financial institution counterparty on $19,000,000 of the $30,000,000 outstanding HEFA Series J variable rate bonds. The purpose of the agreement is to swap the variable rate on that portion of the HEFA Series J bonds for a fixed rate of 3.651% for the life of the bonds. The swap’s fair value as of June 30, 2014 and 2013 of ($4,145,857) and ($3,863,957), respectively is reported on the Statement of Financial Position. All of the swaps remain in place against HEFA Series K bonds which were issued during 2008 to refinance HEFA I and HEFA J and advance refund HEFA G. 15. Consideration of Subsequent Events In accordance with ASC 855, the College has reviewed subsequent events through October 22, 2014 which is the date the financial statements were issued. The College has concluded that no material events have occurred that are not accounted for in the accompanying financial statements or disclosed in the accompanying notes.
23
Indep pendent Aud ditor's Repo ort To the t Board of Trustees T of Sttonehill Colleg ge, Inc.: We have audited d the accompa anying financiial statementss of Stonehilll College, Inc. (the “Collegee”), which com mprise the statements of fin nancial position as of Junee 30, 2014 and d 2013, and th he related staatements of actiivities and of cash c flows forr the years theen ended. Ma anagement's s Responsib bility for the Financiall Statementts Man nagement is responsible r fo or the prepara ation and fairr presentation n of the financcial statementts in acco ordance with accounting principles p generally accepteed in the Unitted States of A America; this includes the design, impleementation, and a maintena ance of internaal control releevant to the p preparation an nd fair pressentation of financial f stateements that arre free from m material misstatement, wh hether due to ffraud or erro or. Aud ditor's Resp ponsibility Ourr responsibilitty is to expresss an opinion on the financcial statementts based on ou ur audits. Wee conducted ourr audits in acccordance with h auditing stan ndards generaally accepted in the United d States of Am merica. Tho ose standards require that we plan and perform p the aaudit to obtain n reasonable assurance about whether the financial stattements are frree from mateerial misstateement. An audit involves performing procedures to obtain audiit evidence ab bout the amou unts and discllosures in the financial stattements. Thee procedures selected s depen nd on our jud dgment, inclu uding the asseessment of the risks of mateerial misstatem ment of the financial statem ments, wheth her due to frau ud or error. IIn making thosse risk assessments, we consider internal control releevant to the C College's prep paration and ffair pressentation of the t financial statements s in order to desiign audit proccedures that aare appropriate in the circcumstances, but b not for thee purpose of expressing e an opinion on th he effectiveneess of the Colllege's inteernal control. Accordingly, we express no n such opiniion. An auditt also includess evaluating th he app propriateness of accounting g policies used and the reaasonableness o of significant accounting eestimates mad de by manageement, as welll as evaluatin ng the overall p presentation of the financiial statementss. We beliieve that the audit a evidencee we have obttained is suffiicient and app propriate to p provide a basis for our aud dit opinion. Opinion In our o opinion, the t financial statements s refferred to abovve present faiirly, in all matterial respectss, the fina ancial position n of the Colleg ge at June 30 0, 2014 and 20 013, and the cchanges in itss net assets an nd its cash flow ws for the years then ended d in accordancce with accou unting princip ples generallyy accepted in tthe United Stattes of America.
Octtober 22, 2014 4
PriccewaterhouseCoo opers LLP, Bostton, MA, 125 Hig gh St., Boston, M MA 02110 T: (6 617) 530-5000, F:(617) F 530-500 01, www.pwc.com m/us
STONEHILL COLLEGE, INC. STATEMENTS OF FINANCIAL POSITION JUNE 30, 2014 AND 2013
ASSETS Cash and cash equivalents Accounts receivable, net Other assets Pledges receivable, net Loans receivable, net Perpetual trusts held by third parties Restricted cash Investments Property, plant and equipment, net
2014 $ 9,231,884 254,825 1,640,332 2,997,798 1,563,940 2,114,560 1,321,312 205,669,426 135,224,507
2013 $ 16,780,569 285,424 1,767,666 3,943,031 1,684,925 1,871,998 6,941,184 178,293,334 137,341,788
Total assets
$ 360,018,584
$ 348,909,919
$
$
LIABILITIES Accounts payable Accrued payroll and other benefits Tuition received in advance Other liabilities Government advances for student loans Interest rate swap agreements Annuity obligations Note and bonds payable
1,406,862 3,414,158 1,019,189 4,848,544 1,029,327 8,594,967 287,288 83,124,019
2,043,364 4,058,527 1,312,772 4,943,849 1,086,079 8,382,940 297,913 91,778,175
Total liabilities
103,724,354
113,903,619
NET ASSETS Unrestricted Temporarily restricted Permanently restricted
200,505,465 23,024,524 32,764,241
184,464,406 19,537,159 31,004,735
Total net assets
256,294,230
235,006,300
$ 360,018,584
$ 348,909,919
Total liabilities and net assets
The accompanying notes are an integral part of the financial statements.
2
STONEHILL COLLEGE, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 (with comparative totals for 2013) Unrestricted Operating Revenues and other support Tuition and fees, net Federal and state grants Private gifts Short-term investment income Auxiliary services Other income Nonoperating assets used for operations Net assets released from restrictions
$51,930,526 707,860 684,979 1,444 31,654,649 2,420,007 4,745,792 3,099,568
Temporarily Restricted
Permanently Restricted
$3,099,568 (3,099,568 )
Total 2013
$51,930,526 707,860 684,979 1,444 31,654,649 2,420,007 7,845,360 -
$54,159,978 647,389 569,636 2,102 31,740,448 2,062,176 7,785,283 -
95,244,825
96,967,012
32,665,570 298,613 128,619 7,169,783 17,728,117 14,965,540 20,024,475
33,053,003 344,873 301,546 6,744,525 18,561,417 14,928,833 19,616,311
Total operating revenues and other support
95,244,825
Expenses Instruction Research Public service Academic support Student services Institutional support Auxiliary services
32,665,570 298,613 128,619 7,169,783 17,728,117 14,965,540 20,024,475
Total operating expenses
92,980,717
-
-
92,980,717
93,550,508
2,264,108
-
-
2,264,108
3,416,504
$1,516,944 242,562
3,737,658 25,105,500
13,992,927 17,577,533
(1,973,976) (7,845,360) -
2,942,668 (7,785,283) -
Increase in net assets from operations
-
Total 2014
Nonoperating revenues and expenses Private gifts and grants Investment return Realized/unrealized (loss) gain on interest rate swap agreements Nonoperating assets used for operations Net assets reclassed/released from restrictions
306,826 18,988,160
1,913,888 5,874,778
(1,973,976) (4,745,792) 1,201,733
(3,099,568) (1,201,733)
Increase in net assets from nonoperating activities
13,776,951
3,487,365
1,759,506
19,023,822
26,727,845
Total change in net assets
16,041,059
3,487,365
1,759,506
21,287,930
30,144,349
184,464,406
19,537,159
31,004,735
235,006,300
204,861,951
$200,505,465
$23,024,524
$ 32,764,241
$256,294,230
$235,006,300
NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR
The accompanying notes are an integral part of the financial statements. 3
STONEHILL COLLEGE, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 Unrestricted Operating Revenues and other support Tuition and fees, net Federal and state grants Private gifts Short-term investment income Auxiliary services Other income Nonoperating assets used for operations Net assets released from restrictions
Temporarily Restricted
Permanently Restricted
Total
$54,159,978 647,389 569,636 2,102 31,740,448 2,062,176 4,920,197 2,865,086
$2,865,086 (2,865,086)
Total operating revenues and other support
96,967,012
-
Expenses Instruction Research Public service Academic support Student services Institutional support Auxiliary services
33,053,003 344,873 301,546 6,744,525 18,561,417 14,928,833 19,616,311
Total expenses
93,550,508
-
-
93,550,508
3,416,504
-
-
3,416,504
Increase in net assets from operations
$54,159,978 647,389 569,636 2,102 31,740,448 2,062,176 7,785,283 -
96,967,012
33,053,003 344,873 301,546 6,744,525 18,561,417 14,928,833 19,616,311
Nonoperating revenues and expenses Private gifts and grants Investment return Realized/unrealized gain on interest rate swap agreements Nonoperating assets used for operations Net assets released from restrictions
4,202,692 13,766,060
4,071,686 3,668,253
$5,718,549 143,220
13,992,927 17,577,533
2,942,668 (4,920,197) 766,182
(2,865,086) (766,182)
-
2,942,668 (7,785,283) -
Increase in net assets from nonoperating activities
16,757,405
4,108,671
5,861,769
26,727,845
Total change in net assets
20,173,909
4,108,671
5,861,769
30,144,349
164,290,497
15,428,488
25,142,966
204,861,951
$184,464,406
$19,537,159
$31,004,735
$235,006,300
NET ASSETS, BEGINNING OF YEAR NET ASSETS, END OF YEAR
The accompanying notes are an integral part of the financial statements.
4
STONEHILL COLLEGE, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2014 AND 2013 2014 Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Change in government advances for student loans Amortization of discounts, premiums and issuance costs Depreciation and other amortization Net realized and unrealized gains on investments Unrealized losses/(gains) on interest rate swap agreements Change in pledge discount/allowance and other
2013
$21,287,930
$30,144,350
(56,752) 134,102 6,818,667 (23,171,034) 212,027 (66,847)
(44,743) 105,066 6,710,566 (16,142,642) (4,724,797) 67,898
30,599 1,012,080 54,085 (592,831) (644,369) (297,109) (293,583) (3,888,213) 538,752
(68,305) (1,627,671) (204,595) 43,098 705,782 (1,865,601) (187,306) (7,207,598) 5,703,502
(183,260) 304,245 (4,714,843) (41,272,408) 36,824,789
(229,250) 277,398 (4,493,109) (13,977,074) 9,156,978
5,619,872 (3,421,605)
(4,767,961) (14,033,018)
Cash flows from financing activities Payments on long-term debt and capital lease obligations Net proceeds from long-term debt Debt issuance costs Contributions to be used for long-term investment Net cash (used)provided/by for financing activities
(8,554,045) 3,888,213 (4,665,832)
(3,922,920) 5,653,085 (192,279) 7,207,598 8,745,484
Net (decrease)/increase in cash and cash equivalents
(7,548,685)
415,968
Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental Disclosure: Cash paid for interest, net of capitalized interest Interest paid on interest rate swap agreements Amounts included in accounts payable and accrued expenses related to property, plant and equipment
16,780,569 $9,231,884
16,364,601 $16,780,569
$1,005,336 1,761,950
$1,285,806 1,782,128
644,482
688,153
Change in operating assets and liabilities Accounts receivable Pledges receivable Other assets Accounts payable Accrued payroll and other benefits Tuition received in advance Other liabilities Contributions to be used for long-term investment Net cash provided by operating activities Cash flows from investing activities Loans granted Loans collected Purchase of property, plant and equipment Purchase of investments Proceeds from sale of investments Change in restricted cash Net cash used for investing activities
The accompanying notes are an integral part of the financial statements. 5
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies Stonehill College, Inc. (the “College”) was founded in 1948 by members of the Congregation of Holy Cross. It is an independent, undergraduate, church-related institution in Easton, Massachusetts and offers Bachelor’s degrees in the Arts and Sciences. Basis of Presentation The accompanying financial statements have been prepared on the accrual basis and in accordance with the reporting principles of not-for-profit accounting. Certain information for the year ended June 30, 2013 has been reclassified to confirm with the presentation for the year ended June 30, 2014. The College has classified net assets and its revenues, expenses, gains and losses into three categories based on the existence or absence of externally-imposed restrictions. The categories unrestricted, temporarily restricted, and permanently restricted net assets, are defined as follows: Unrestricted - Net assets which are not subject to donor-imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees (the “Board”). Temporarily Restricted - Net assets whose use is limited by law or donor-imposed stipulations that will either expire with the passage of time or be fulfilled by actions of the College. Permanently Restricted - Reflects the historical value of gifts subject to donor-imposed stipulations, which require the corpus to be invested in perpetuity to produce income for general or specific purposes. Revenues are reported as increases in unrestricted net assets unless use of the related asset is limited by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Realized and unrealized gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets are reclassified as “net assets released from restrictions” in the Statement of Activities. Gifts and investment return with donor-imposed restrictions, which are reported as temporarily restricted revenues, are reclassified to unrestricted net assets when an expense is incurred that satisfied that restriction. Gifts restricted for the purchase of property, plant and equipment are reported as temporarily restricted revenues and are reclassified to unrestricted net assets upon the asset being placed into service, or when a time restriction expires. Fundraising expenses totaled $2,174,962 and $2,127,924 in the years ended June 30, 2014 and 2013, respectively. Gifts received for annual operating purposes are recorded as operating revenues. Nonoperating revenues and expenses include all other gifts and grants, investment income, and realized and unrealized gains and losses on long-term investments held during the year and realized and unrealized gains and losses related to the College’s interest rate swap agreements. To the extent investment return is authorized by the Board and gifts are permitted by the donor to fund operations, they are reclassified as “nonoperating assets used for operations” on the Statement of Activities. All other activity is classified as operating revenue. 6
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Summary of Significant Accounting Policies (continued) The College recognizes tuition and fees revenue in the period in which the educational instruction is performed. Accordingly, tuition and fees received in advance are deferred until the educational instruction is provided and related expenses incurred. Auxiliary revenues include the operation of student housing and dining services. Use of Estimates The preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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 materially from those estimates. Cash and Cash Equivalents Cash and cash equivalents include operating cash accounts and short-term investments with maturities from date of purchase of three months or less. The carrying amount of these cash equivalents is a reasonable estimate of fair value due to their short-term nature. Income from these instruments is reflected in operating revenue under short-term investment income.
The remaining restricted cash represents amounts on deposit with the Trustee in accordance with bond requirements. These securities are primarily invested in money market funds and are recorded at cost which approximates fair value. Cash is deposited in several institutions; however, at times cash held in a single institution may exceed federally insured limits. The College has not experienced any losses in such accounts. A portion of money market funds are classified as cash and cash equivalents on the financial statements. These funds are classified as cash and cash equivalents as it is anticipated that they may be needed for immediate cash needs. The remaining balance of money market funds is classified as investments since it is anticipated that these funds are not to be used for immediate needs. Investments Investments are recorded at fair value. The value of securities listed on a national exchange is based upon quoted market prices and net asset values. The value of securities that represent interests in partnerships or other nonmarketable securities for which there are no market quotations available are valued by the managers of those entities and reviewed by management. The majority of alternative investments are carried at estimated fair value provided by the management of the alternative investment partnerships or funds as of June 30, 2014 and 2013. Purchases and sales of investments are recorded on a trade date basis. Gains or losses from the sale of investment securities are computed on the specific identification cost basis, or for pooled funds, on the average cost basis. 7
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Summary of Significant Accounting Policies (continued) Perpetual Trusts Held by Third Parties The College is the beneficiary of certain perpetual trusts held and administered by others. The estimated fair values of trust assets, which approximate the present values of expected future cash flows from the trusts, are recognized as assets and as gift revenue when the trusts are established. The College had $2,114,560 and $1,871,998 in perpetual trusts held by third parties at June 30, 2014 and 2013, respectively. Property, Plant and Equipment Property, plant and equipment are recorded at cost at the date of acquisition or at fair value at the date of gift for donated assets. Depreciation is computed on a straight-line basis over the estimated useful lives of the individual assets: land improvements (20 years), buildings (30-60 years) and equipment (5-15 years). Depreciation and amortization, totaling $6,924,872 and $6,794,075 for the years ended June 30, 2014 and 2013, respectively, has been allocated to functional expenses based on square foot usage calculations. Property, plant, and equipment are removed from the College’s records at the time of disposal and any resulting gain or loss is reflected in the Statement of Activities. Replacements and major improvements are capitalized; expenses for maintenance and repairs are charged as incurred. Operation and maintenance expense totaling $13,040,274 and $12,989,237 for the years ended June 30, 2014 and 2013, respectively, has been allocated to functional expenses based on square foot usage calculations. Contracts and Grants Government grants and contracts normally provide for the recovery of direct and indirect costs. These amounts are subject to government audits. The College recognizes revenue associated with direct costs as the related costs are incurred. Recovery of related indirect costs is generally recorded at fixed rates negotiated with the government. Collections The College maintains a collection of historical artifacts for public exhibition and education in furtherance of public service and not for financial gain. The College does not capitalize its collection of historical artifacts. The cost of collection items purchased is recorded as a decrease in the appropriate category of net assets in the non-operating section. Gifts Gifts, including unconditional promises to give (pledges), are recorded as revenue when the donor’s commitment is received. Unconditional pledges are recorded at the present value of their expected cash flows, net of allowances for unfulfilled pledges, using a discount factor based on the appropriate United States Treasury Bill rates adjusted for credit risk at the date of the pledge or June 30, 2014 and 2013.
8
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Summary of Significant Accounting Policies (continued) Accounts and Loans Receivable Accounts and loans receivable are stated net of allowances for doubtful accounts of $96,214 and $81,365 for the years ended June 30, 2014 and 2013, respectively. Loans receivable are principally amounts due from students under federally sponsored loan programs, which are subject to significant restrictions. The College regularly assesses the adequacy of the allowance for doubtful accounts related to Loans to Students by performing ongoing evaluations of the student loan portfolio, including such factors as the economic environment in which the borrowers operate and the level of delinquent loans. The College also performs a detailed review of the aging of the student loan receivable. The level of the allowance is adjusted based on the results of this analysis. The College considers the allowances recorded at June 30, 2014 and 2013 to be reasonable and adequate to absorb the potential credit losses inherent in the student loan portfolio. Federal Income Tax The College is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Service Code and, accordingly, does not provide for income taxes.
2. Fair Value Measurements The College applies the fair value measurements and disclosure guidance contained in Accounting Standards Codification (ASC) 820, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: • Level 1 - Observable inputs such as quoted prices in active markets for identical assets and liabilities; • Level 2 – Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly for similar assets and liabilities; and • Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. 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. 9
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued) 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 other than quoted prices that are observable for the instruments, and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). The quoted prices, observable inputs and calculations reflect the assumptions market participants would use in pricing the instruments. They are obtained from sources including dealers, brokers and market data providers and are independent of the College. 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. The College utilizes the best available information in measuring fair value. The following tables summarize the valuation of our financial instruments by the above ASC 820 pricing levels as of:
Total ASSETS Investments: Cash and equivalents Equities: Domestic International
June 30, 2014 Level 1 Level 2
Level 3
Liquidity
Day’s Notice
$18,115,564
$18,115,564
-
-
Daily
1
11,056,928 24,757,656
11,056,928 24,757,656
-
-
Daily Daily
1 1
Fixed Income Hedge Funds: Commingled
17,348,774
17,348,774
-
-
Daily
1
29,729,904
-
$29,729,904
-
Daily/Monthly
1
Alternative
91,180,875
-
43,741,868
$47,439,007
Monthly-Annually*
1-90 days
Private Equities
13,479,725
-
-
13,479,725
Subject to lock up
Not applicable
$205,669,426 2,114,560
$71,278,922 -
$73,471,772 -
$60,918,732 2,114,560
$71,278,922
$73,471,772
$63,033,292
-
$8,594,967
-
$8,594,967
-
Total Investments Perpetual Trusts Total Assets
$207,783,986
LIABILITIES Interest Rate Swap
$8,594,967
Total Liabilities
$8,594,967
-
Note * - Includes a new investment of approximately $7,000,000 which has an initial two year lockup.
10
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued)
June 30, 2013 Total ASSETS Investments: Cash and equivalents Equities: Domestic International Fixed Income
Level 1
Level 2
Level 3
Liquidity
Day’s Notice
$14,136,685
$14,136,685
-
-
Daily
1
16,993,406 9,126,471 15,800,865
16,993,406 9,126,471 15,800,865
-
-
Daily Daily Daily
1 1 1
Commingled
27,433,145
-
$27,433,145
-
Daily/Monthly
1
Alternative
82,676,804
-
41,073,867
$41,602,937
Monthly-Annually
1-90 days
Private Equities
12,125,958
-
-
12,125,958
Subject to lock up
Not applicable
Hedge Funds:
Total Investments Perpetual Trusts
$178,293,334 1,871,998
$56,057,427 -
$68,507,012 -
$53,728,895 1,871,998
Total Assets
$180,165,332
$56,057,427
$68,507,012
$55,600,893
LIABILITIES Interest Rate Swap
$8,382,940
-
$8,382,940
-
Total Liabilities
$8,382,940
-
$8,382,940
-
Investments included in Level 3 primarily consist of the College's ownership in alternative investments. The College’s total investment in comingled, alternative and private equity investments have an estimated fair market value of $134,390,504 and $122,235,907 in 2014 and 2013, respectively. As of June 30, 2014, the College is committed to investing an additional $8,051,361 in alternative investments. The net asset values (“NAV”) of the securities held by limited partnerships that do not have readily determinable fair values are determined by the general partner and are based on appraisals, or other estimates that require varying degrees of judgment. If no public market exists for the investment securities, the fair value is determined by the general partner taking into consideration, among other things, the cost of the securities, prices of recent significant placements of securities of the same issuer, and subsequent developments concerning the companies to which the securities relate. The College has performed due diligence around these investments to ensure NAV is an appropriate measure of fair value as of June 30, 2014 and 2013. Alternative investments with quarterly redemption provisions are classified as Level 2, others with redemption provisions exceeding three months are classified as Level 3.
11
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued) The College’s interest rate swaps are valued using a model by an independent valuation consultant to the College. The value of the interest rate swaps depend upon the contractual terms of, and specific risks inherent in, the instruments 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. The inputs can be corroborated by market data and are therefore classified within Level 2. Perpetual trusts held by third parties are valued based upon quoted market prices of the underlying assets, which approximates the present value of the future distributions expected to be received over the term of the agreements. 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 materially different estimate of fair value at the reporting date. The following table is a rollforward of the Statement of Financial Position amounts for financial instruments classified by the College within Level 3 of the fair value hierarchy defined above.
Perpetual Trusts
Fair value, July 1, 2013 Net realized gains Net unrealized gains Purchases Sales Fair value, June 30, 2014
Investments
$ 1,871,998
242,562
$ 2,114,560
Total
$ 53,728,895
$ 55,600,893
1,958,637 2,816,542 9,790,212 (7,375,554)
1,958,637 3,059,104 9,790,212 (7,375,554)
$60,918,732
$ 63,033,292
The net unrealized gain on level three investments held on June 30, 2014 that were also held at June 30, 2013 was $ 2,477,258.
12
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Fair Value Measurements (continued)
Perpetual Trusts
Fair value, July 1, 2012 Net realized gains Net unrealized gains Purchases Sales Fair value, June 30, 2013
Investments
$1,728,778
$49,929,616
Total
$51,658,394
256,026 2,139,273 2,911,747 (1,507,767)
143,220
$1,871,998
$53,728,895
256,026 2,282,493 2,911,747 (1,507,767) $55,600,893
The net unrealized gain on level three investments held on June 30, 2013 that were also held at June 30, 2012 was $2,105,555. All net realized and unrealized gains in the table above are reflected in the accompanying Statement of Activities in the investment return line item. Net unrealized gains relate to those financial instruments held by the College at June 30, 2014. 3. Pledges Receivable Pledges receivable as of June 30, 2014 and 2013 are expected to be realized in the following time frame:
In one year or less Between one year and five years Total Less: Discount to present value Allowance for unfulfilled pledges Pledges Receivable, net
2014 $1,829,716 1,326,745 3,156,461
2013 $1,522,715 2,645,826 4,168,541
(85,602) (73,061) $2,997,798
(130,113) (95,397) $3,943,031
The discount on pledges was calculated using the U.S. Treasury note rate, for the length of the pledge, for the date the pledge was made, plus a .5% premium to incorporate credit risk into the discount rate.
13
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
4. Endowments The College’s endowment consists of approximately 185 individual restricted endowment funds and 21 Board-designated endowment funds for a variety of purposes plus the following where the assets have been designated for endowment: pledges receivables and split interest agreements. The net assets associated with endowment funds including funds designated by the Board to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. The Board has interpreted the “Uniform Prudent Management of Institutional Funds Act” (“UPMIFA”) as requiring the preservation of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets, (a) the original value of gifts donated to the permanent endowment and (b) the original value of subsequent gifts to the permanent endowment. 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 College in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the College also considers the following factors in making a determination to appropriate endowment funds: 1) The duration and preservation of the fund; 2) The purposes 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; and 7) The investment policies of the College.
Endowment net asset composition by type of fund as of June 30, 2014 Unrestricted
Donor-restricted endowment funds Board-designated endowment funds Total endowment funds
$144,641,267 $144,641,267
Temporarily Restricted
Permanently Restricted
$16,254,919
$30,090,931
$46,345,850
-$16,254,919
-$30,090,931
144,641,267 $190,987,117
14
Total
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Endowments (continued) Endowment net asset composition by type of fund as of June 30, 2013 Unrestricted Donor-restricted endowment funds Board-designated endowment funds Total endowment funds
$ 130,713,619 $ 130,713,619
Temporarily Restricted
Permanently Restricted
$11,925,187
$28,583,987
$40,509,174
-$11,925,187
-$28,583,987
130,713,619 $171,222,793
Total
Changes in endowment net assets for the year ended June 30, 2014 Unrestricted Endowment net assets, beginning of year Investment return: Investment income Net appreciation (realized and unrealized) Total investment return Contributions Distribution of endowment assets for expenditure Endowment net assets, end of year
Temporarily Restricted
Permanently Restricted
$130,713,619
$11,925,187
1,488,711
459,809
-
1,948,520
17,512,321 19,001,032
5,406,970 5,866,779
-
22,919,291 24,867,811
32,380
2,500
(5,105,764)
$144,641,267
(1,539,547 )
$ 16,254,919
15
$28,583,987
Total
1,506,944
-
$ 30,090,931
$ 171,222,793
1,541,824
(6,645,311 )
$190,987,117
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Endowments (continued) Changes in endowment net assets for the year ended June 30, 2013 Unrestricted Endowment net assets, beginning of year Investment return: Investment income Net appreciation (realized and unrealized) Total investment return Contributions
Temporarily Restricted
Permanently Restricted
Total
$114,727,524
$9,109,044
$22,865,430
$146,701,998
1,226,006
200,659
-
1,426,665
12,611,322 13,837,328
3,417,303 3,617,962
-
16,028,625 17,455,290
7,038,519
500,000
5,718,557
13,257,076
(4,889,752)
(1,301,819)
$130,713,619
$11,925,187
Distribution of endowment assets for expenditure Endowment net assets, end of year
$28,583,987
(6,191,571) $171,222,793
Description of Amounts Classified as Permanently Restricted Net Assets and Temporarily Restricted Net Assets (Endowment Only) Permanently restricted net assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA: 2014 2013 Restricted for scholarship support $26,118,618 $24,823,658 Restricted for faculty support 2,808,867 2,802,867 Restricted for program support 1,163,446 957,462 Total endowment assets classified as permanently restricted net assets $30,090,931 $28,583,987 Temporarily restricted net assets The portion of temporary endowment funds that is required to be retained until spent according to explicit donor stipulation or by UPMIFA: Restricted for scholarship support Restricted for faculty support Restricted for program support Total endowment assets classified as temporarily restricted net assets
16
$14,660,372 550,217 1,044,330 $ 16,254,919
$10,846,649 225,761 852,777 $11,925,187
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Endowments (continued) Endowment Funds with Deficits From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the value of the initial and subsequent donor gift amounts (deficit). When donor endowment deficits exist, they are classified as a reduction of unrestricted net assets. Deficits of this nature reported in unrestricted net assets were immaterial as of June 30, 2014 and 2013. These deficits resulted from unfavorable market fluctuations that occurred shortly after the investment of newly established endowments, and authorized distribution that was deemed prudent. Return Objectives and Risk Parameters The investment objective of the endowment funds, through the careful management of assets, is designed to preserve the funds’ purchasing power and to ensure a total return (income plus capital appreciation) necessary to preserve and enhance (in real dollar terms) the principal of the funds, and at the same time provide a dependable source of income for current operations and programs. To accomplish this objective, the funds seek to generate a total return that will exceed not only its spending authority, but also the eroding effects of inflation and its operating expenses over the long term. To meet this long-term objective, all total return (interest income, dividends, realized gains and unrealized gains), above and beyond the amount approved for expenditure, will be reinvested in the funds.
Strategies Employed for Achieving Investment Objectives The funds have a long-term investment horizon with relatively low liquidity needs. For this reason the funds can tolerate short- and intermediate-term volatility provided that long-term returns meet or exceed its investment objective. Consequently, the funds can take advantage of less liquid investments, such as private equity, hedge funds, and other partnership vehicles, which typically offer higher risk-adjusted return potential as compensation for forfeiture of liquidity. Nonetheless, to ensure liquidity for distributions and to facilitate rebalancing, the maximum allocation to illiquid assets, defined as funds locked-up for greater than one year, shall be limited to 30% of the funds’ market value. Endowment Spending Allocation and Relationship of Spending Policy to Investment Objectives The Board of the College determines the method to be used to distribute endowment funds for expenditure. Under the College’s endowment spending policy for the years ended June 30, 2014 and 2013, the College applied a rate of 4.5% to a weighted average calculation based on the previous year’s ending endowment value and the previous year’s endowment spending. In establishing this policy, the Board considered the expected long term rate of return on its endowment. Accordingly, over the long term, the College expects the current spending policy to allow its endowment to grow, consistent with its intention to maintain the purchasing power of the endowment assets as well as to provide additional real growth through new gifts.
17
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
5. Investments The following schedule summarizes total investment return and its classification in the Statements of Activities for the years ended June 30: 2014
Investment income Net realized and unrealized gains on investments Total return on investment
2013
$1,934,466 23,171,034
$1,430,650 16,146,883
$25,105,500
$17,577,533
Management, custodial and performance fees for the endowment investments and other College investments are charged to the investment portfolios and were estimated to be $2,014,014 and $1,883,642 in the years ending June 30, 2014 and 2013, respectively. Net realized and unrealized results include these fees.
6. Property, Plant and Equipment Property, plant and equipment at June 30, 2014 and 2013 are as follows: 2014 Land Land improvements Buildings and improvements Leasehold improvements Equipment Construction in progress Less: Accumulated depreciation
2013
$752,119 18,205,363 162,631,981 485,032 35,322,172 1,399,589 $218,796,256 (83,571,749)
$ 752,119 17,155,502 159,804,327 485,032 34,947,018 1,294,220 $214,438,218 (77,096,430)
$135,224,507
$ 137,341,788
Included in property, plant and equipment as of June 30, 2014 are assets under capital lease for equipment with a cost of $918,983 and related accumulated amortization of $660,364. Capital lease obligations as of June 30, 2014 and 2013 were $265,835 and $426,800, respectively.
For the years ended June 30, 2014 and 2013, fully depreciated assets with an original cost of $312,793 and $3,046,239, respectively were written off.
18
STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Property, Plant and Equipment (continued) The changes in the carrying value of the College’s asset retirement obligations for years ended June 30, 2014 and 2013 are as follows: 2014
2013
Beginning balance Settlement of liability Accretion expense
$ 858,061 (9,136) 39,350
$ 835,988 (16,500) 38,573
Ending balance
$888,275
$ 858,061
7. Note and Bonds Payable Note and bonds payable at June 30, 2014 and 2013 are as follows: 2014
2013
Series H, revenue, dated August 1, 2003, interest rates ranging from 3% to 5%. $ Series K, variable rate demand, dated April 1, 2008 interest rates ranging from .01% to .12% due serially from May 1, 2008 to July 1, 2037, inclusive (2) (Note 14)
-
58,935,000
Series L, revenue, dated July 14, 2010, interest rates ranging from 2.5% to 5.375% due serially on July 1, from July 1, 2011 to July 1, 2029, inclusive
J.P. Morgan direct placement loan, dated May 31, 2013, at an interest rate of 1.8% due serially from July 1, 2013 to July 1, 2020, inclusive
Less unamortized original issue discount
$ 5,505,000
60,345,000
19,500,000
20,355,000
4,708,075 $83,143,075
5,653,085 $ 91,858,085
(19,056) $83,124,019
(79,910) $91,778,175
In 2008, MHEFA Series J Variable Rate Revenue Bonds were issued in the amount of $30,000,000 to finance construction of a new science building. During 2008, the MHEFA Series J Variable Rate Revenue Bonds were redeemed with the issuance of MHEFA Series K Variable Rate Demand Bonds. In 2010, MHEFA Series L Variable Rate Revenue Bonds were issued in the amount of $22,000,000 to finance construction of a new residence building.
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STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
Notes and Bonds Payable (continued) In 2013, the College entered into a seven year taxable note in the amount of $5,653,085 to partially refinance both a United States Department of Education Note Payable (paid off during fiscal year 2013) and the MHEFA Series H Variable Rate Revenue Bonds (paid off on July 1, 2013 – fiscal year 2014). All outstanding notes and bonds payable are collateralized by tuition receipts. At June 30, 2014, the approximate fair value of outstanding debt on the Statement of Financial Position is $85,079,721 based on estimates using current interest rates available for debt with similar remaining maturities. The valuation inputs used to value the debt are level 2 inputs. Under its bonds payable agreements, the College is subject to certain restrictive financial covenants, the most restrictive of which is that the College must maintain a 60% ratio of non-donor restricted fund balances to plant debt. In accordance with bond requirements for construction funds, the College has on deposit with the Trustee (classified as restricted cash) at June 30, 2014 and 2013 the following amounts: 2014 MHEFA
2013
$1,320,762
$6,938,846
Mandatory annual principal payments on long-term debt for the next five fiscal years and thereafter are as follows. 2015 2016 2017 2018 2019 Thereafter
$2,924,556 3,007,148 3,087,298 2,766,057 3,298,707 68,059,309 $83,143,075
Interest expense and fees on debt were $1,337,483 and $1,636,373 for the years ended June 30, 2014 and 2013, respectively. In addition, interest payments on our swap agreements were $1,761,950 and $1,782,128, respectively. These payments are included in realized/unrealizec (loss) gain on interest rate swap agreements in the statement of activities. Included in the College’s debt is $58,935,000 of variable rate demand bonds (VRDBs). The College has entered into a letter of credit (LOC) with J.P. Morgan, to secure bond repayment and interest obligations associated with its VRDBs. If the VRDBs are unable to be remarketed, the trustee for the VRDB will request purchase under the LOC scheduled repayment terms. Based on the existing repayment and maturity terms of the underlying LOC, the scheduled principal payments under the VRDB related LOC would be $14,733,750 for the next four years assuming all of the VRDBs failed to remarket.
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STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
8. Net Assets The net assets as of June 30, 2014 are summarized as follows: Detail of Net Assets Operating funds: Undesignated Investment in Plant College designated Donor restricted Total Operating Funds for facilities and student loans Annuity, and life income funds Endowment funds and other investments Total Net Assets
Unrestricted
Temporarily Restricted
Permanently Restricted
Total
$11,063,712 43,505,521 195,057 $4,811,311 $4,811,311 1,969,260 (10,965)
$2,673,310
$11,063,712 43,505,521 195,057 4,811,311 $59,575,601 3,061,297 2,662,345
144,649,138
16,254,918
30,090,931
190,994,987
$200,505,465
$23,024,524
$32,764,241
$256,294,230
Permanently Restricted
Total
$54,764,290 1,092,037
The net assets as of June 30, 2013 are summarized as follows: Detail of Net Assets Operating funds: Undesignated Investment in Plant College designated Donor restricted Total Operating Funds for facilities and student loans Annuity, and life income funds Endowment funds and other investments Total Net Assets
Unrestricted
Temporarily Restricted
$9,779,537 42,810,956 305,020
130,730,761
$6,451,264 $6,451,264 1,167,172 (6,464) 11,925,187
$2,420,748 28,583,987
$9,779,537 42,810,956 305,020 6,451,264 $59,346,777 2,005,304 2,414,284 171,239,935
$184,464,406
$19,537,159
$31,004,735
$235,006,300
$52,895,513 838,132
9. Scholarships and Other Awards Tuition and fees are presented net of tuition discounts, which include the following for the years ended June 30, 2014 and 2013: 2014 Institutional scholarships (funded by the College) Endowed scholarships (funded) External grants (federal) External grants (donor funded)
$34,788,655 1,180,340 177,694 397,485 $36,544 174
2013 $33,809,263 1,156,214 210,368 526,147 $35,701,992
In addition, a total of $2,203,181 and $2,078,794 of tuition remission expenses are included in functional expenses at June 30, 2014 and 2013, respectively.
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STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 10. Lease Commitments The College leases property for terms ranging from one to fifteen years. The annual minimum operating lease commitments through the year 2019 are as follows: 2015 2016 2017 2018 2019
$
298,008 332,912 282,485 286,722 291,023
Total rental expense for the College was $399,723 and $391,874 for the years ended June 30, 2014 and 2013, respectively. The following is a schedule of future minimum lease payments under capital leases included in other liabilities, together with the present value of the net minimum lease payments at June 30, 2014. 2015 2016 2017 2018 2019
$171,250 97,920 $269,170 (3,335) $265,835
Interest
11. Employee Benefit Plans The College offers its employees a defined contribution plan and participates in the Teachers Insurance and Annuity Association contributory retirement program. This program covers substantially all full-time employees of the College. The College made contributions of $3,278,397 and $3,137,098 for the fiscal years ended June 30, 2014 and 2013, respectively. The College also maintains a self-funded medical plan for its employees. The self-funded medical plan is funded by both employee and College contributions.
12. Related Parties Certain members of the Board are members, employees or officers of companies which do business with the College. The College engaged in these transactions as part of its normal course of business and substantially all are operating expenses. Related party transactions were $2,360,312 and $2,599,741for the fiscal years ended June 30, 2014 and 2013, respectively. The College had $48,428 recorded in accounts payable due to related parties as of June 30, 2014.
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STONEHILL COLLEGE INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013
13. Commitments and Contingencies The College is engaged in numerous activities which expose the College to risk of litigation. These matters may include disputes with contractors, subcontractors, students and other claims arising from employment matters with the College. The College does not expect that these matters will require any amounts to be paid which, in the aggregate, will be material to the results of operations. As of June 30, 2014, the College has outstanding construction/engineering contracts of approximately $613,015.
14. Interest Rate Swap Agreements The College entered into an interest rate swap agreement with a financial institution counterparty in October 2005 on HEFA Series I variable rate bonds. The purpose of the agreement was to swap the variable rate on the HEFA Series I bonds for a fixed rate of 3.369% for the life of the bonds. The College entered into this agreement to manage the cash flows attributable to interest payments on the HEFA Series I bonds and does not use such instruments for speculative purposes. The swap’s fair value as of June 30, 2014 and 2013 of ($2,846,914) and ($2,934,374), respectively is reported on the Statement of Financial Position. On May 1, 2007, the College entered into a swap agreement with a financial institution counterparty on HEFA Series G variable rate bonds. The purpose of the agreement is to swap the variable rate on the HEFA Series G bonds for a fixed rate. The agreement is effective as of April 3, 2008 and provides for a fixed interest rate of 3.594% from May 1, 2008 to July 1, 2028. The swap’s fair value as of June 30, 2014 and 2013 of ($1,602,196) and ($1,584,609), respectively is reported on the Statement of Financial Position. On September 6, 2007, the College entered into a swap agreement with a financial institution counterparty on $19,000,000 of the $30,000,000 outstanding HEFA Series J variable rate bonds. The purpose of the agreement is to swap the variable rate on that portion of the HEFA Series J bonds for a fixed rate of 3.651% for the life of the bonds. The swap’s fair value as of June 30, 2014 and 2013 of ($4,145,857) and ($3,863,957), respectively is reported on the Statement of Financial Position. All of the swaps remain in place against HEFA Series K bonds which were issued during 2008 to refinance HEFA I and HEFA J and advance refund HEFA G. 15. Consideration of Subsequent Events In accordance with ASC 855, the College has reviewed subsequent events through October 22, 2014 which is the date the financial statements were issued. The College has concluded that no material events have occurred that are not accounted for in the accompanying financial statements or disclosed in the accompanying notes.
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