UNIVERSITY OF PUGET SOUND
2013–14 Financial Report
Mission Statement
University of Puget Sound is an independent, predominantly residential, undergraduate liberal
arts college with selected graduate programs building effectively on a liberal arts foundation. The
university, as a community of learning, maintains a strong commitment to teaching excellence,
scholarly engagement, and fruitful student-faculty interaction.
The mission of the university is to develop in its students capacities for critical analysis, aesthetic
appreciation, sound judgment, and apt expression that will sustain a lifetime of intellectual
curiosity, active inquiry, and reasoned independence. A Puget Sound education, both academic and
cocurricular, encourages a rich knowledge of self and others; an appreciation of commonality and
difference; the full, open, and civil discussion of ideas; thoughtful moral discourse; and the
integration of learning, preparing the university’s graduates to meet the highest tests of
democratic citizenship. Such an education seeks to liberate each person’s fullest intellectual and
human potential to assist in the unfolding of creative and useful lives.
OFFICE OF FINANCE AND ADMINISTRATION
1500 N. Warner St. #1083
Tacoma, WA 98416-1083
Telephone: 253.879.3204
Fax: 253.879.3398
UNIVERSITY OF PUGET SOUND | JUNE 30, 2014
2013–14 Financial Report
Contents
Report of the President.................................................................................................... 2
Report of the Vice President for Finance
and Administration............................................................................................................ 6
Independent Auditors’ Report......................................................................................... 11
Financial Statements
Consolidated Statement of Financial Position................................................................ 12
Consolidated Statement of Activities............................................................................. 13
Consolidated Statement of Cash Flows......................................................................... 14
Consolidated Supplemental Schedule of
Changes in Endowment Investments............................................................................ 15
Notes to Consolidated Financial Statements................................................................. 16
REPORT OF THE PRESIDENT | RONALD R. THOMAS
Returns on Investment
OVER THE PAST THREE YEARS, we have made a set of strategic investments at Puget
Sound in the face of the Great Recession and the turbulence it caused for student recruitment in the higher education marketplace. The reasons were clear: the recession’s effects on prospective students and families considering a college education had an impact
on their behavior, and in its wake—like other colleges—we saw rising discount rates,
increased student need, unreliable enrollments, and flat net tuition revenues. Accordingly, we devised a disciplined five-year plan designed to consistently hit our enrollment
targets, reduce discount rates, strengthen retention, and increase net tuition revenues by
investing in key strategies to solidify Puget Sound’s brand, increase the residential character of the campus, enhance the academic experience, and expand engagement with
campus among all constituents. We also set annual benchmarks to measure our performance in all of these areas.
Now in the second year of implementation, we have already seen significant returns on
those investments and a resultant strengthening of market position. After construction of
a new residential and learning complex for upper-division students last year, expansion of
our dining facilities this year, the launching of new interdisciplinary academic programs,
increasing alumni and parent volunteer activity in student recruitment, and implementing
an integrated branding and marketing program, we have seen two consecutive years of
meeting or exceeding first-year enrollment targets, notable growth in applications, impressive reductions in discount rate, stronger retention for continuing students, increased
revenues, and budget surpluses [Figures 1 and 2].
These investments were fortified by careful management of costs and expenditures, and
joined with successful efforts to develop a mature and effective fundraising operation
to diversify our revenue streams. Last year, we saw the third highest fundraising year
on record for the university (the top three are now all within our current comprehensive
campaign), the highest ever total for the annual fund, and the second highest total in cash
receipts—all while exceeding our goal for new gifts and pledges for the year by more
than $1.6 million.
Additionally, in order to maximize the performance of the university’s endowment, increase contributions to the operating budget, and expand the assurance of intergenerational equity, our board of trustees completed a process to transition management of the
endowment to an outsourced chief investment officer model (OCIO), selecting Perella
Weinberg Partners to oversee our investment portfolio under the direction of the board’s
investment committee. The results thus far have been promising, with the endowment
returns for last year coming in at 14.2% (boosting market value on June 30 to an estimated at $318.5 million) and tracking the next fiscal year above benchmarks [Figure 3].
2
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
725
50%
700
675
45%
650
FIGURE 1 First-Year Student
Enrollment and Discount Rate
First-Year Actual Enrollment
First-Year Target Enrollment
625
40%
Discount Rate – Actual
Discount Rate – Target
600
575
35%
550
525
30%
500
475
25%
450
Five-Year Plan
425
400
20%
2005–06
2006–07
2007–08
2008–09
2009–10
2010–11
2011–12
2012–13
2013–14
2014–15
2015–16
2016–17
2017–18
Recognition has come, too. We have been pleased to see both
perhaps no more pressing question for many of them than the
Moody’s and S&P affirm our strong financial ratings this year,
question of exactly what the financial return is on the consid-
at a time when the sector has been downgraded overall along
erable cost demanded today for a college education like the
with many prominent colleges. The Mellon, Luce, and Keck
one we offer at Puget Sound. An intense interest in the issue
foundations all awarded Puget Sound grants for new academic
has been evident in the media and in public policy since the
programs this past year, as well. And the honor the university
recession of 2008, deepened by the steep rises in tuition that
received almost two years ago for the extraordinary outcomes
preceded it, the weakening of public support that followed
of our educational experience, being named one of only 40
it, and the continued erosion of median family incomes that
“Colleges that Change Lives” by the highly respected college
has now stretched out over two decades—not to mention
guide of that name, provided a further endorsement of the
the disappointing employment data that persists in the face
valuable return on investment a Puget Sound education offers.
of a sustained period of economic growth in recent years. Is
This year, to make even more clear the practical value of a
liberal arts education at Puget Sound in the marketplace, we
have been making another investment: implementing the recommendations from a faculty and staff work group convened
college really worth it? Are we teaching the right things in the
right ways to prepare students to succeed in today’s world, get
jobs, get out of debt, serve the needs of our economy? These
are questions we take seriously at Puget Sound.
last fall to build into the experience of every student a clear set
Last January, I was invited to appear on a panel of college
of valuable experiences outside the classroom that will prepare
presidents at the College Board annual colloquium for enroll-
them well for life and careers after college. We are upgrading
ment professionals to address the topic of “The ROI of a Col-
and integrating the range of campus resources for internships,
lege Education.” My remarks began differently from the other
fieldwork, employment, independent research, international
presidents, who provided some of the compelling data we
experience, networking, civic engagement, postgraduate fel-
know well about how a liberal arts education really does pay
lowships, career exploration, and successful job searches in
off financially when you look across the arc of a career. Such
ways that will make these opportunities more visible to every
an education prepares graduates for adapting to a dynami-
student and an integrated and intentional part of their college
cally changing world economy—a fact often ignored in the
experience from their first year onward.
media more interested in sensational (and often misleading)
For good reasons, our students and their families are concerned about the return on their investment, as well. There is
headlines about college debt, first-year-after-graduation earnings, or anecdotes about unemployed philosophy majors who
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
3
dent thinking, which is what those
of us committed to liberal education
believe that it is supposed to do—and
what will be of more lasting demand
in the evolving knowledge economy
in which are living. Over the course
of the novel, Gradgrind learns a hard
lesson when the lives of his own children express the disastrous results
of a narrow training that abandons
imagination, feeling, and human compassion in favor of the cold, hard facts
of an economy that represses rather
than sustains the lives of its workers.
The educational philosophy of Hard
Times sounds very much like what
FIGURE 2 Commencement Hall
we hear in the press about college today, even the higher education press,
go from Commencement back to their old bedrooms in their
in the Harvard Business Review, from state legislators, from
parents’ home.
annual reports of major think tanks and foundations, and from
My presentation began, instead, by quoting from the opening
of Charles Dickens’ 1854 industrial novel, Hard Times, where
an educational reformer is introduced this way:
our own U.S. Department of Education. They tend to speak in
the language of modern utilitarians, where training in certain
technical skills to serve the economy is the primary measure
of success. The fact is, a treasure trove of data exists that
THOMAS GRADGRIND, Sir. A man of realities. A man of
bolsters the idea that a college education is well worth the
facts and calculations. A man who proceeds upon the prin-
investment from a monetary point of view. Much of it con-
ciple that two and two are four, and nothing over, and who
firms that a four-year degree will result, on average, in about
is not to be talked into allowing for anything over … With a
a million dollars of added earnings across the course of a
rule and a pair of scales, and the multiplication table always
career, will double the likelihood of gainful employment, will
in his pocket, Sir, ready to weigh and measure any parcel of
dramatically increase the odds of becoming a chief executive
human nature, and tell you exactly what it comes to. It is a
and constructively contributing as a community leader. This
mere question of figures, a case of simple arithmetic.
is impressive and important data. But is it all that we should
Gradgrind was what we might call a data-driven reformer, “a
man of facts and calculations”: he was convinced everything
of any value could be measured and have a number attached
to it. And that this should govern the way we understand
be measuring? Is it what we most value? The key for us who
are concerned about the value proposition of a higher education should be that we measure what we value, and value the
things we measure.
everything. As an agent of the parliament’s new policy mod-
A relatively small percentage of students pursuing higher edu-
eled after utilitarian thinkers, he advocated for measuring the
cation will choose to attend a liberal arts college—between 2%
return on investment in an education entirely “as a question
and 4%, at latest estimate. These colleges, like Puget Sound,
of simple arithmetic.”
make up only 6% of the postsecondary institutions in the coun-
Gradgrind believed in education as a form of getting facts
and skills “into the heads” of students so that they might
be more successful laborers in the emerging industrial
economy—in the local mills and mines that were springing
up across the once-pastoral English countryside. But he also
believed that an education’s object was to have students
be in all things “regulated and governed by fact” rather than
enabling them to be “liberated” for innovative and indepen-
4
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
try. Why is it that those who do decide to attend liberal arts
colleges end up making that choice and the investment it demands? The answer is straightforward: they become invested
in the promise of a liberal arts education: a broadly conceived
curriculum that educates the whole person, and prepares them
for lives of reasoned independence, leadership, and service.
It is no coincidence that about 25% of our nation’s presidents
attended liberal arts colleges—from Bowdoin and Amherst and
Kenyon to Occidental and Whittier and Eureka. If we were to
include American presidents who studied the liberal arts at the
an useful life, the satisfaction of a meaningful life well lived?
Ivies in the analysis, the number would be closer to 50%.
How do you put a price on what is priceless, what Immanuel
Kant called the “dignity” of a human life that is an end in itself?
The National Science Foundation offers a list of the top 50
undergraduate institutions producing doctoral degrees in the
It is critical that we recognize that we are functioning in a mar-
sciences. More than half of that list—28—are small liberal
ket, a very competitive one. We must engage it strategically
arts colleges. Right behind Cal Tech and MIT appear Reed,
and with discipline. To be successful in the market, we have
Swarthmore, and Carlton—colleges that rank above both
to manage costs, keep price competitive, meet the demands
Princeton and Harvard. Bryn Mawr, Haverford, Pomona, and
of the market, cultivate our brand, measure our performance,
Williams are all ranked higher than Yale, Stanford, or Johns
and maximize our efficiency. This is precisely why we have
Hopkins. Only three public universities cracked the top 50
implemented the strategic initiatives and investments at Puget
Ph.D. list, and only two of them are well-known: University
Sound with which I began this report.
of California at Berkeley and The College of William & Mary.
At the same time, we must be clear that the market does
University of Puget Sound is in the top 10% of baccalaureate
not drive our mission: our mission must drive our approach to
colleges in this category, second only to Reed in the Pacific
the market. Our mission at Puget Sound is an inspiring one: it
Northwest. It is clear from this measure that the more expen-
calls for us to provide an inspiring environment in which young
sive private colleges, especially the small liberal arts colleges,
people can meet their full intellectual and personal potential,
do offer a great return on investment from the perspective of
pursue creative and useful lives of reasoned independence and
scientific discovery and innovation.
enduring curiosity, and successfully meet the highest tests of
There are measurable outcomes like this we can identify that
democratic citizenship. These are investments in our students
reflect the things we value—leadership, engaged citizenship,
and in our collective future that will bring the highest possible
public service, scientific advancement, and research. But we
returns, upon which we can put no price and without which
must also learn the lesson of Hard Times that not everything of
any other earnings we take will be of little value.
value can be measured in simple arithmetic. How do we measure these things, the things we value and which bring value
not only to ourselves, to the student, but to the world in which
the graduate will live a lifetime—the realization of one’s full potential, a lifelong desire for learning, the unfolding of a creative
$350
25%
FIGURE 3 Endowment
Value and Return
20%
$300
15%
Total Endowment Value
Endowment Return
$250
10%
5%
$200
0%
$150
-5%
-10%
$100
-15%
$50
-20%
$0
-25%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
5
REPORT OF THE VICE PRESIDENT FOR FINANCE AND ADMINISTRATION | SHERRY B. MONDOU
I AM PLEASED TO PRESENT the enclosed 2013–14 consolidated financial statements,
which provide a snapshot of Puget Sound’s financial health. Recognizing that financial
statements alone do not communicate all that is needed to understand operating results and an organization’s prospects for the future, I offer the following insights and
commentary as a companion to the financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Puget Sound has a strong asset base of $604.2 million at June 30, 2014, an increase
of 8.8% over the prior year and an increase of 78% over the past 15 years as shown in
Figure 4.
Puget Sound’s asset strength comes primarily from its cash and short-term investments,
its endowment, and its campus facilities, which in the aggregate account for nearly 92%
of total assets.
• Cash, cash equivalents, and short-term investments increased 10.1% to $45.5 million at June 30, 2014, comprising 7.5% of total assets and providing the necessary
liquid resources to cover operating costs, maintain campus facilities, and make timely
debt service payments. These funds are pooled for investment purposes to achieve
economies of scale and internal operating efficiencies, and are invested consistent
with the following objectives, in order of priority: preservation of capital, maintenance
of necessary liquidity, and maximization of investment return within appropriate risk
constraints.
• Endowment investments grew 15% to $318.5 million as of June 30, 2014, accounting for 52.7% of the university’s total asset value. Figure 5 shows how the endowment has grown over the last decade, including the sources of growth and level of
distributions. $106.4 million of the endowment is quasi-endowment unrestricted
as to use, providing valuable flexibility to the board of trustees. The majority of unrestricted quasi-endowment has been designated by the board to support student
financial aid. In all, roughly half of the total endowment directly supports student financial aid, with the balance providing support for faculty compensation, faculty and
student research, academic programs, and other operating expenses. Puget Sound
has more than 550 individual endowment funds that are pooled for investment purposes to enable broad diversification and economies of scale. The board of trustees
has delegated to its Finance and Facilities Committee responsibility for endowment
oversight, including investment and spending policies. In exercising its responsibility
to execute the investment policy, the committee’s investment subcommittee re-
6
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
tained Perella Weinberg Partners, an external investment
manager under an outsourced chief investment officer
model (OCIO), in December 2013, to provide day-to-day
management of the endowment investments on a discre-
FIGURE 5 Sources of Endowment Growth
$450
$172.8
($103.5)
$400
tionary basis within the confines of the policy. The endowment is invested in a diversified portfolio. Figure 6 shows
the current allocation and how it has changed from 20 and
10 years ago.
• Campus facilities, net, totaled $188.3 million at June 30,
2014, up 4.4% over the prior year, and comprising 31.2%
of total assets. An inspiring physical campus is important
to successful student recruitment and the kind of high-
$350
$318.5
$300
$50.1
$250
$200
$8.9
$190.2
$150
quality teaching, learning, scholarship, and engagement
that takes place at a residential liberal arts college like
Puget Sound. With generous contributions from donors,
prudent use of debt, budget allocations, and designation
of unrestricted operating surplus, the university strategically invested $154.2 million over the past decade to
$100
$50
$0
implement its campus master plan and renew its facilities
Endowment
Value 2004
Gifts
Transfers Investment Distributed Endowment
and Other
Return for Operating Value 2014
Additions
Activities
(Figure 7). These investments have included a state-of-the
art science center, health sciences building, residential
FIGURE 6 Endowment Value and Diversification
FIGURE 4 Asset Growth Over Time
$340
$700
$320
$300
$600
$280
$260
$500
45.5%
$240
$220
$200
$400
$180
$160
$300
11.0%
$140
65.2%
$120
$80
$60
$100
$40
$20
13.1%
$0
17.6%
$100
$200
$0
1999
2004
2009
2014
48.1%
22.0%
25.9%
3.6%
40.5%
11.4%
1994
9.2%
2004
All Other Assets
Campus Facilities, net
U.S. and International
Equities
Real Assets
Cash, Cash Equivalents,
and Short Term Investments
Endowment Investments
Fixed Income and
Cash Equivalents
Private Capital,
Hedge Funds, and Other
2014
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
7
learning facility, expanded dining program, enhanced
with the balance synthetically fixed using interest rate swap
campus entry, and a central walkway through campus,
agreements. The unrealized negative mark-to-market valua-
as well as other improvements to academic, residential,
tion of the university’s three interest rate swap agreements
and athletic facilities and investments in equipment and
is shown as a liability in the Statement of Financial position
enterprise software. The result has been impactful and is
in the amount of $10.7 million, down from $16.1 million two
impressive. Puget Sound’s campus has been recognized
years prior. One of the swap agreements became an “or-
as one of the nation’s most beautiful campuses. Deferred
phaned swap” when a portion of the variable rate debt was
maintenance has been reduced to 5% of replacement
converted to traditional fixed-rate debt as part of a restructur-
value, producing a facilities condition index considered to
ing in 2012, and will be terminated when interest rates rise
be “good,” and the gap between depreciation expense
enough to generate an exit price near zero. The university’s
and amounts funded in the annual operating budget has
swap counterparties, The Bank of New York Mellon and So-
narrowed as that budget was strategically increased by
ciete General, are rated Aa2/AA- and A2/A, respectively.
10% in each of the past nine years and as asset lives
were refined to reflect the high quality of construction and
expected useful lives of the underlying assets. As a result
of our targeted efforts, Puget Sound’s operating budget is
now funding 97% of depreciation expense as compared
to 39% in 2001. Its average age of plant (accumulated depreciation divided by annual depreciation expense) of 11.2
years compares favorably to the median of 12.9 years for
Moody’s A-rated colleges.
In 2014, Moody’s and S&P affirmed the university’s A1 and
A+ long-term ratings, respectively, with stable outlooks, at
a time when rating agencies are negative on the sector as a
whole. Moody’s and S&P also affirmed the highest possible
short-term ratings associated with Puget Sound’s variable
rate demand obligations, reflecting the strong liquidity provided by its cash, short-term investments, and certain of its
endowment assets. These ratings enable Puget Sound to
maintain a low cost of capital and avoid overly restrictive debt
covenants.
Liabilities
Puget Sound’s total liabilities decreased .9% over the prior
year and totaled $124.6 million at June 30, 2014. $77.6 million, or 62.3% of total liabilities, consists of tax-exempt debt
utilized to finance improvements to campus facilities. Fortysevent percent (47%) of the debt portfolio is traditional fixed,
FIGURE 7 Funding Sources of Campus Facilities Additions
$280
As shown in Figure 8, Puget Sound’s expendable resourcesto-debt ratio is stronger than the median for Moody’s A-rated
institutions, demonstrating the university’s prudence in the
use of debt.
FIGURE 8 Expendable Resources-to-Debt Ratio
3.5
$47.5
$240
($57.6)
$63.0
$200
3.0
$188.3
$160
3.02
2.44
2.5
1.97
2.0
$37.0
$120
1.5
$91.7
$80
1.0
$40
0.5
Funding Sources of Additions
$0
8
Campus
Facilities
Net 2004
Gifts
Operating Long-Term
Less
Campus
Budget and
Debt
Depreciation Facilities
Reserves
Net 2014
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
0.0
Puget Sound 2014
Puget Sound 2013
Moody's A-rated 2013*
*2013 is most current comparative data available
Net Assets
While operating funds come largely from student fees, gift
Net Assets totaled $479.6 million at June 30, 2014, up $49.8
support and endowment distributions are critically important
million or 11.6% for the year due in good measure to the in-
revenue diversifiers that subsidize the cost of a Puget Sound
crease in endowment investments as discussed above.
education for all students and provide individual financial aid,
CONSOLIDATED STATEMENT OF ACTIVITIES
as well (Figure 10). Contributions supporting operating activities totaled $6.7 million in 2013–14, an increase of 24.7%
Operations
over the prior year. The total endowment distribution in sup-
In 2013–14, operating activities contributed $5.3 million to
port of operations was up 6.8%, totaled $11.3 million, and
the growth in net assets, an improvement over the prior year
accounted for 9.9% of total revenues, nearly unchanged from
decrease of $412,000, due to increases in net tuition, contri-
the prior year. The endowment distribution is based on a
butions, and endowment distributions in 2013–14 while oper-
spending formula that considers average market value over a
ating expenses were flat, made possible by a $3.1 million de-
lagging 36 months and resulted in an effective spending rate
cline in depreciation expense due to refinements in estimated
(distribution divided by beginning of the year market value) of
useful lives and by only moderate increases in operating
4.05% in 2013–14, based on 5% of the average market value
expenses. Excluding depreciation and other noncash items,
between July 1, 2009, and June 30, 2012. The average effec-
the university generated $6.6 million in cash from operating
tive spending rate over the past 15 years is 4.67%.
activities in 2013–14 as reflected in the Statement of Cash
Flows, compared to $5.1 million in 2012–13.
Operating Expenses
Total operating expenses were held flat in 2013–14 at
Operating Revenues
$108.9 million. Excluding depreciation expense, which ac-
Operating revenues and gains totaled $114.2 million, an in-
counts for 9% of total operating expenses and declined $3.1
crease of 5.3% over the prior year. Net tuition, fees, room,
million in 2013–14 due to refined useful lives of campus
and board combined for $88.6 million in revenues and ac-
facilities, Puget Sound’s operating expenses increased 2.8%
counted for 77% of all operating revenues and gains (Figure
with educational and general expenses increasing 2.7% and
9). Tuition increased 4% while financial aid increased just
auxiliary enterprises’ operating expenses increasing 3.5%.
.6%, and enrollment declined by 48 students (full-time equiv-
Compensation, the university’s single largest expense,
alents) to 2,673 as the university came closer to its target of
increased approximately 3.8% to maintain competitive
2,650, resulting in a 3.2% increase in net tuition revenues. A
salaries and benefits for its faculty and staff, an important
3.75% increase in room and board fees and the opening of
strategic issue.
the new Commencement Hall residential learning facility resulted in a 9% increase in student room and board revenues.
FIGURE 10 Keeping Tuition Affordable
FIGURE 9 Operating Revenues
3%
17%
Student Room
and Board
60%
Net Tuition
and Fees
$21,883
Other Auxiliary
Enterprises
$5,627
General
Subsidy*
2%
Governmental Grants
and Contracts
6%
Contributions
10%
Endowment Income
and Gains Distributed
2%
Other Sources
$25,384
Net Tuition
Total Average
Subsidy
*Includes
endowment, gifts,
and other
supplemental
sources
$16,256
Student
Financial Aid
$41,640
“Sticker Price”
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
9
Figure 11 shows how Puget Sound allocated resources in
FIGURE 11 Allocating Resources
2013–14 among its major programs in comparison to its allocations of two decades ago and to the allocations of peer
100%
institutions. Puget Sound’s allocations are within 2–3 percent-
14.0%
13.3%
15.2%
13.9%
16.8%
13.6%
21.1%
18.6%
16.8%
51.0%
51.3%
54.4%
1994
2014
National Peers 2013*
age points of median peer allocations.
Nonoperating Activities
80%
Net assets increased $44.5 million from nonoperating activities in 2013–14. Endowment investment earnings, net of
the distribution for operations, increased $34.9 million. Donor
60%
contributions restricted to facilities and endowment totaled
$9.4 million for the year. As of June 30, 2014, donor commitments to the One [of a Kind] Campaign for University of
40%
Puget Sound totaled more than $116 million toward the campaign goal of $125 million. We are deeply grateful for the generosity of our donors and the investments they have made in
20%
our remarkable students and the programs that support their
success. We look forward to celebrating the successful conclusion of the campaign in 2015.
0%
*2013 is most current comparative data available
10
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
Institutional Support
Auxiliary Enterprises
Student Services
Instruction and Academic Support
KPMG LLP
Suite 2900
1918 Eighth Avenue
Seattle, wa 98101
Independent Auditors’ Report
The Board of Trustees
University of Puget Sound:
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of the University of Puget Sound (the University), which comprise the
consolidated statement of financial position as of June 30, 2014, and the related consolidated statements of activities and cash flows for the year then
ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally
accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the organization’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the organization’s internal control. Accordingly, we express
no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the University
as of June 30, 2014, and the changes in its net assets and its cash flows for the year then ended, in accordance with U.S. generally accepted
accounting principles.
Report on Summarized Comparative Information
We have previously audited the University’s 2013 consolidated financial statements, and we expressed an unmodified audit opinion on those audited
consolidated financial statements in our report dated December 17, 2013. In our opinion, the summarized comparative information presented
herein as of and for the year ended June 30, 2013 is consistent, in all material respects, with the audited consolidated financial statements from
which it has been derived.
Other Matter
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidated supplemental
schedule of changes in endowment investments is presented for purposes of additional analysis and is not a required part of the consolidated
financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting
and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in
the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly
to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements
themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our
opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.
Seattle, Washington
December 18, 2014
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
University of Puget Sound
Consolidated Statement of Financial Position
As of June 30, 2014 (With Comparative Financial Information as of June 30, 2013)
(Dollars in Thousands)
2014
2013
$ 21,836
$ 18,317
23,707
23,066
ASSETS:
Cash and cash equivalents (Note 1)
Short-term investments
Receivables, net
1,483
1,400
Contributions receivable, net (Note 2)
9,732
10,502
Inventories (Note 1)
Prepaid expenses and other assets
Student loans receivable, net (Note 1)
617
628
3,360
3,300
14,345
14,457
Beneficial interest in outside trusts (Note 1)
1,661
1,993
Assets held under split-interest agreements (Note 1)
5,979
6,265
318,501
276,927
Endowment investments (Notes 1, 3 and 4)
Intangibles, net (Notes 1 and 5)
7,992
7,494
Assets restricted for investment in campus facilities
6,703
10,849
188,329
180,389
$604,245
$555,587
$
$
Campus facilities, net (Notes 1 and 5)
Total assets
LIABILITIES AND NET ASSETS:
Liabilities:
Accounts payable
Accrued payroll and other liabilities (Note 8)
3,186
14,792
3,920
13,892
Advance deposits from students (Note 1)
2,050
1,860
Liabilities under split-interest agreements (Note 1)
2,396
2,400
12,261
12,502
Government advances for student loans (Note 1)
Asset retirement obligation (Notes 1 and 5)
1,639
1,650
Unrealized loss on interest rate swap agreements (Note 6)
10,696
10,864
Long-term debt (Note 6)
77,600
78,694
$124,620
$125,782
Total liabilities
Net Assets:
Unrestricted:
992
987
Invested in or designated for campus facilities
Available for operations
112,511
111,475
Endowment (Note 4)
106,371
94,148
20,911
18,230
Total unrestricted
240,785
224,840
Temporarily restricted (Note 7)
112,607
84,157
Permanently restricted (Note 7)
126,233
120,808
479,625
429,805
$604,245
$555,587
Designated for other specific purposes
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of the consolidated financial statements
12
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
University of Puget Sound
Consolidated Statement of Activites
For the Year Ended June 30, 2014 (With Summarized Financial Information for the Year Ended June 30, 2013)
Unrestricted
(Dollars in Thousands)
Temporarily
Restricted
Permanently
Restricted
Totals
2014
2013
Operating:
Revenues and gains:
$112,354
$ 112,354
$ 109,911
Less student financial aid
Student tuition and fees
(43,370)
(43,370)
(43,098)
Net tuition and fees
68,984
68,984
66,813
Student room and board
19,611
19,611
17,986
3,744
3,744
3,969
Other auxiliary enterprises
Governmental grants and contracts
292
$
1,776
2,068
2,016
Contributions (Note 1)
3,309
3,435
6,744
5,407
Endowment income and gains distributed (Note 4)
3,680
7,669
11,349
10,625
324
41
365
213
1,361
4
1,365
1,474
101,305
12,925
114,230
108,503
48,142
Interest income
Other sources Total operating revenues and gains
Expenses:
Educational and general:
47,233
47,233
Academic support
Instruction
8,661
8,661
9,357
Student services
18,315
18,315
17,806
Institutional support
Total educational and general expenses
Auxiliary enterprises
Total operating expenses
Net assets released from restrictions
Increase (decrease) in net assets from operating activities 14,449
14,449
14,010
88,658
88,658
89,315
20,276
20,276
19,600
108,934
108,934
108,915
11,583
(11,583)
-
-
3,954
1,342
5,296
(412)
30
5,288
4,072
9,390
8,119
-
(11)
4
(7)
84
10,611
22,455
1,831
34,897
21,945
-
-
226
500
(482)
244
6,111
1,124
(1,124)
-
-
-
11,991
27,108
5,425
44,524
35,873
Nonoperating:
Contributions (Note 1)
Change in allowance for uncollectible promises (Note 2)
$
Net gains (losses) and income on endowment investments,
net of distributions (Note 4)
Loss on debt extinguishment
Other adjustments and changes
Net assets released from restrictions
Increase (decrease) in net assets from nonoperating
activities
Increase (decrease) in net assets Net assets at beginning of the year
Net assets at end of the year (386)
15,945
28,450
5,425
49,820
35,461
224,840
84,157
120,808
429,805
394,344
$240,785
$112,607
$126,233
$479,625
$429,805
The accompanying notes are an integral part of the consolidated financial statements
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
13
University of Puget Sound
Consolidated Statement of Cash Flows
For the Year Ended June 30, 2014 (With Summarized Financial Information for the Year Ended June 30, 2013)
(Dollars in Thousands)
2014
2013
$49,820
$35,461
Cash flows from operating activities:
Change in net assets
Adjustments to reconcile change in net assets to net cash provided by operating activities:
Depreciation and amortization
9,775
12,857
Contributions restricted for long-term investment
(10,665)
(6,960)
Gifts of investments, property, and outside trusts
(340)
(22)
(43,754)
(29,885)
328
(276)
-
386
(143)
(59)
(Gains) losses on endowment investments and split-interest agreements
Actuarial adjustments of liabilities under split-interest agreements
Loss on debt extinguishment
Amortization of tax-exempt bond premium, discount, and issuance costs
Accretion, settlement, and adjustments to asset retirement obligations
Unrealized (gain) loss on interest rate swap agreements
(11)
39
(168)
(5,188)
Changes in:
Receivables, net
(83)
32
Contributions receivable, net
770
(1,255)
Inventories, prepaid expenses, and other assets
(77)
77
71
133
Accounts payable
Accrued payroll and other liabilities
900
809
Advance deposits from students
190
(1,052)
6,613
5,097
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sales and maturities of investments
450,104
92,947
Purchases of investments
Net (purchases) sales of short-term investments
(447,578)
(634)
(89,708)
(5,464)
Receipt (purchases) of assets restricted for investment in campus facilities
Purchases of campus facilities and intangibles
4,146
(9,967)
(18,651)
(22,236)
(2,256)
(2,388)
2,031
(12,838)
2,089
(34,727)
Disbursements of loans to students
Repayments of loans from students
Net cash used for investing activities
Cash flows from financing activities:
10,665
6,960
Investment income subject to split-interest agreements
Contributions restricted for long-term investment
101
206
New liabilities under split-interest agreements
231
126
(393)
(368)
Proceeds from long-term debt
-
67,577
Bonds cost of issuance
-
(583)
(956)
96
9,744
(49,563)
96
24,451
Payments to split-interest agreement beneficiaries
Repayments of long-term debt
Changes in government advances for student loans
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
3,519
(5,179)
18,317
23,496
$21,836
$18,317
$ 3,793
$ 2,777
Purchases of equipment and building construction on account
$ 2,018
$ 2,823
Student loan cancellations
$
$
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplemental cash flow information:
Interest paid (net of capitalized interest of $319 and $590 in 2014 and 2013, respectively)
Noncash investing and financing activities:
337
The accompanying notes are an integral part of the consolidated financial statements
14
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
421
University of Puget Sound
Consolidated Supplemental Schedule of Changes in Endowment Investments
For the Year Ended June 30, 2014 (With Comparative Financial Information for the Year Ended June 30, 2013)
(Dollars in Thousands)
2014
2013
$276,927
$250,468
6,158
3,159
519
1,355
Return on endowment investments
46,246
32,570
Amount distributed for operating activities
(11,349)
(10,625)
41,574
26,459
$318,501
$276,927
14.20%
13.00%
Endowment investments, beginning of the year
Gifts
Other transfers and additions
Net change in endowment investments
Endowment investments, end of the year
Total return on pooled endowment
Pooled investments and the allocation of income and gains are accounted for under the unit method.
Pooled endowment investment unit values are summarized as follows:
Market value, end of year
Market value, beginning of period
2014
2013
$73.4450
$63.1869
63.1869
55.9148
$10.2581
$ 7.2721
Ordinary income
$ 0.3809
$ 0.5929
Distributed for operations
$ 2.6063
$ 2.4426
Gain (loss)
See accompanying Independent Auditor’s Report
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
15
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The University of Puget Sound (the university, Puget Sound), established in 1888, is a nonprofit corporation organized under the laws of the
state of Washington. The university is an independent residential undergraduate liberal arts college with selected graduate programs building
effectively on a liberal arts foundation. The university, as a community of learning, maintains a strong commitment to teaching excellence, scholarly
engagement, and fruitful student-faculty interaction.
The mission of the university is to develop in its students capacities for critical analysis, aesthetic appreciation, sound judgment, and apt expression
that will sustain a lifetime of intellectual curiosity, active inquiry, and reasoned independence. A Puget Sound education, both academic and cocurricular, encourages a rich knowledge of self and others; an appreciation of commonality and difference; the full, open, and civil discussion of
ideas; thoughtful moral discourse; and the integration of learning, preparing the university’s graduates to meet the highest tests of democratic
citizenship. Such an education seeks to liberate each person’s fullest intellectual and human potential to assist in the unfolding of creative and
useful lives.
Basis of Accounting and Presentation
The accompanying financial statements are the consolidated statements of the university and its wholly owned subsidiaries CVI GVF Holdings 13
Ltd. and Rainier Heights Holdings, LLC. All material transactions between the university and its consolidated subsidiaries have been eliminated.
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and in accordance with the AICPA
Audit and Accounting Guide for Not-For-Profit Entities. While the underlying accounts of the university are maintained in accordance with the
principles of fund accounting to facilitate observance of specific restrictions placed on the resources available to the university, the consolidated
financial statements focus on the university as a whole.
The university’s activities and net assets are classified in the consolidated financial statements as unrestricted, temporarily restricted, or
permanently restricted based on the existence or absence of donor-imposed restrictions. These classifications are described below:
Unrestricted net assets - resources not subject to donor-imposed restrictions.
Temporarily restricted net assets - resources that can be expended subject to donor-imposed restrictions as to use or passage of time.
Permanently restricted net assets - resources that a donor requires the university to retain in perpetuity. Generally, the donor permits the
university to use all or a part of the income and appreciation earned on the contributed assets.
The Consolidated Statement of Activities presents expenses by functional classification in accordance with the overall educational mission of
the university. Depreciation and amortization expense is allocated directly to functional classifications based on the nature of the underlying
assets. Interest expense on long-term debt is allocated to the functional areas that have benefited from the proceeds. The cost of operating
and maintaining campus facilities is allocated to the functional areas based on occupancy square footage. The cost of supporting information
technology systems is allocated to the functional areas based on estimated utilization of system resources and support. The university has
defined nonoperating activities to include contributions added to endowment, contributions supporting major capital purchases, contributions
and other activity related to split-interest agreements, changes in the allowance for uncollectible promises, retirement plan actuarial adjustments,
interest rate swap agreement changes in fair value, and endowment income, losses on debt extinguishment, and gains or losses, net of amounts
distributed to support operations in accordance with the applicable spending policies. Certain other gains and losses that do not occur in the
normal course of operations are also included in nonoperating activity.
The Consolidated Statement of Activities includes comparative summarized information for the year ended June 30, 2013. Such information does
not include sufficient detail by net asset class to constitute a presentation in conformity with generally accepted accounting principles in the United
States of America (U.S. GAAP). Accordingly such information should be read in conjunction with the university’s consolidated financial statements
for the year ended June 30, 2013, from which the summarized information was derived. In addition, the notes to the consolidated financial
statements exclude comparative information for certain disclosures. Certain reclassifications of prior year amounts have been made to conform to
the 2014 classification. Such reclassifications had no effect on previously reported net assets, changes in net assets, or net cash flows.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased, except for those held for long-term
investment. Cash equivalents totaled $10,399 and $7,909, respectively, at June 30, 2014 and 2013.
16
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Receivables
A reasonable estimate of the fair value of student loans receivable, which are federally-sponsored student loans with U.S. government-mandated interest
rates and repayment terms, could not be made because the notes are not saleable and can only be assigned to the U.S. government or its designees.
The university participates in the Federal Perkins revolving loan program. The availability of funds for loans under the program is dependent on
reimbursements to the pool from repayments on outstanding loans. The outstanding loan balance was $14,345 and $14,457 at June 30, 2014
and 2013, respectively. Funds contributed to the program by the Federal government must ultimately be returned to the government so they are
classified as liabilities under “Government advances for student loans” in the Consolidated Statement of Financial Position. Outstanding loans
cancelled under the program result in a reduction of the funds available for loan and a decrease in the liability to the government.
Contributions
Contributions received, including unconditional promises to give, are recognized as revenues when the donor’s commitment is received.
Unconditional promises are recognized at the estimated present value of expected future cash flows. An allowance for uncollectible promises is
provided based on management’s judgment including but not limited to factors such as prior giving history, type of contribution, collection risk,
and nature of fundraising activity. Conditional promises are recorded when donor stipulations are substantially met. Total contributions of $16,134
and $13,526 are recognized in the Consolidated Statement of Activities for the years ended June 30, 2014 and 2013, respectively, and include both
operating and nonoperating contributions.
Fundraising expenses of $4,131 and $3,730 are included in Institutional support in the Consolidated Statement of Activities for the years ended
June 30, 2014 and 2013, respectively, and include direct expenses associated with fundraising activities and allocations for depreciation expense,
interest on long-term debt, operation and maintenance of campus facilities, and information technology support.
Inventories
Inventories are carried at cost using average cost, first-in first-out, and retail valuation methods. The cost of inventories is not in excess of net
realizable value.
Investments
Investments are stated at fair value according to U.S. GAAP (see Note 3), which requires that the valuation of investments reported at fair value be
made in the context of market conditions as of the valuation date. Whenever available, quotations from organized securities exchanges are used
as the basis for fair value. For investments not traded on organized exchanges, fair value estimates are provided by investment managers. For
applicable investments, manager-reported net asset value (NAV) is used as a practical expedient to estimate fair value. Valuations provided by fund
managers consider variables such as the financial performance and sales of underlying investments and other pertinent information. In addition,
actual market exchanges at year-end provide additional observable market inputs of the exit price. The university employs procedures to ensure
appropriate oversight of its investments. Procedures include onging monitoring and reviews of valuations and assumptions provided by investment
managers and the university believes that the carrying amounts of these financial instruments are reasonable estimates of the fair value.
For real estate or hard-to-value assets held for investment directly or in trust by the university or its subsidiaries, reported fair value is based on
a representative appraisal performed at intervals appropriate to establish current market values, with consideration given to the cost/benefit of
the appraisal. Investment transactions are recorded on a trade-date basis and the cost of securities sold is based on their weighted average cost.
Interest is accrued as earned, and dividends are recorded on the ex-dividend date.
Risk and Investment Performance
Cash, cash equivalents, and investments are exposed to various risks, such as interest rate, market, and credit. To minimize such risks, the
university has a diversified portfolio with a number of investment managers in a variety of asset classes. The university regularly evaluates its
investments including performance thereof. Due to inherent risks and potential volatility in investment valuations, the amounts reported in the
Consolidated Statement of Financial Position and Consolidated Statement of Activities can vary substantially from year to year.
Beneficial Interest in Outside Trusts
Funds held in trust by others represent resources neither in the possession nor under the control of the university. These trusts are administered
by outside trustees, with the university deriving income and/or a residual interest from the assets. When an irrevocable trust is established or the
university is notified of its existence, the university recognizes its beneficial interest in the outside trust as a contribution at fair value, which is
measured as the present value of the estimated expected future benefits to be received when the trust assets are distributed. The contribution
revenue recognized is classified as an increase in either temporarily or permanently restricted net assets based on the time or use restrictions
placed by the donor upon the university’s beneficial interest in the assets. Periodic adjustments to the beneficial interest to reflect changes in the
fair value, life expectancy, and discount rate are recognized as actuarial gains or losses. The discount rate used at June 30, 2014 and June 30, 2013,
were 2.20% and 1.20%, respectively.
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
17
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Amounts held as Trustee or Agent Under Split-Interest Agreements
The university has legal title, either in the university’s name or as trustee, to charitable remainder and lead trusts. No significant financial benefit
can be realized until the contractual obligations are released. The university also receives contributions for charitable gift annuity contracts.
Actuarial methods are used to record these annuities and trusts using discount rates ranging from 1.20% to 9.40%. For charitable gift annuities
and charitable remainder trusts, when a gift is received, the present value of future expected payments to the beneficiaries is recorded as a liability
based upon life expectancy tables and current discount rate assumptions and the remainder is recorded as a contribution. For charitable lead
trusts, when a gift is received, the present value of future expected payments to the university, as lead beneficiary, is recorded as a contribution
and the remainder is recorded as a liability to the remainder beneficiaries. Contribution revenue recognized from charitable gift annuities and
charitable remainder and lead trusts is classified as an increase in unrestricted, temporarily restricted, or permanently restricted net assets based
on the existence or absence of time or use restrictions placed by the donor upon the university’s interest in the assets. Annuity and trust assets
are reported at fair value. Investment income and gains are credited, and beneficiary payments, direct costs of funds management, and investment
losses are charged to the liability accounts, with periodic adjustments made between the liability and the net assets to record actuarial gains or
losses resulting from changes in fair value and life expectancy.
The university maintains separate reserve funds adequate to meet future payments under its charitable gift annuity contracts as required by
governing states’ laws. The total amount held in separate reserve funds was $1,043 as of June 30, 2014, and $1,081 as of June 30, 2013. The
amount included to meet future payments under gift annuity contracts in liabilities under split-interest agreements was $474 as of June 30, 2014,
and $544 as of June 30, 2013.
Intangible Assets and Campus Facilities
Intangible assets include software, electronic library resources, and website development costs, and are recorded at cost. These assets have finite
useful lives and are amortized on a straight-line basis over their estimated useful lives, ranging from four to 20 years.
Campus facilities, including land, buildings, equipment, and library resources, are recorded at cost or, if received as a gift, at fair value on the date of
donation. In the absence of donor-imposed restrictions on the use of assets, gifts of long-lived assets are reported as unrestricted contributions. The
university’s natural history and other collections are capitalized but not depreciated. Maintenance and repairs are charged to operations when they
occur. Expenditures that significantly increase the value, performance, capacity, or service potential or extend the useful lives of campus facilities are
capitalized and depreciated. Depreciation is computed on a straight-line basis over estimated useful lives of 15 to 50 years for land improvements, 25
to 75 years for buildings, 20 years for building improvements, 40 years for major building renovations, four to ten years for equipment, and 15 years for
library resources.
The costs and accumulated depreciation and amortization of assets sold or retired are removed from the accounts, and the related gains and
losses are included in the Consolidated Statement of Activities.
Asset Retirement Obligations
Asset retirement obligations include legal obligations associated with the retirement of long-lived assets. These liabilities are recorded at fair value
when incurred and are capitalized by increasing the carrying amount of the associated long-lived asset. The fair value of the obligation is measured
based on the present value of estimated future retirement costs. Asset retirement costs are depreciated on a straight-line basis over the useful
life of the associated asset. Subsequent to the initial recognition, period-to-period changes in the carrying amount of the liability are recorded due
to the passage of time and revisions to either the timing or amount of the original estimated cash flows. The liability is removed when the related
obligation is settled.
Advance Deposits from Students
Payments from students received by the end of the current fiscal year that are for a term in the subsequent fiscal year have been deferred for
inclusion in unrestricted operating revenues in that subsequent year.
Federal Income Taxes
The university has been recognized by the Internal Revenue Service as exempt from federal income taxes under section 501(a) of the Internal
Revenue Code as an organization described in section 501(c)(3) of the Internal Revenue Code except to the extent of unrelated business taxable
income. Donations to the university are generally tax deductible. The university’s wholly-owned subsidiaries CVI GVF Holdings 13 Ltd. and Rainier
Heights Holdings, LLC are subject to federal income tax as applicable. The university had no unrecognized tax benefits that would have required an
adjustment to its net assets, and no unrecognized tax benefits at June 30, 2014. In general the university is no longer subject to U.S. federal and
state income tax examinations by tax authorities before its fiscal year ended June 30, 2008.
18
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 2 – CONTRIBUTIONS RECEIVABLE
June 30, 2014
June 30, 2013
$ 4,368
8,235
$ 5,220
7,958
More than five years
20
12,623
200
13,378
Allowance for uncollectable promises
(2,313)
(2,306)
Unconditional promises expected to be collected in:
Less than one year
One to five years
Discount to present value (discount rates of 0.69% to 3.34%) Contributions receivable, net
(578)
(570)
$ 9,732
$10,502
$ 6,586
$ 8,273
5,092
4,347
Contributions receivable are intended for the following uses, net of discount:
Endowment
Construction and improvement of campus facilities
Student financial aid
Other programs and activities, including unrestricted promises for future periods
Allowance for uncollectable promises
48
51
319
137
$12,045
$12,808
(2,313)
(2,306)
$ 9,732
$10,502
At June 30, 2014, the university had received one conditional promise to give in the amount of $300. The receipt of the gift is conditioned upon the
university meeting a certain fundraising goal. The promise will be recognized when the condition is substantially met.
NOTE 3 – FAIR VALUE MEASUREMENTS
The university discloses the fair value of assets and liabilities providing it is practicable to do so. Fair value measurements are determined based
on the assumptions that market participants, in the context of an orderly market, would use in pricing an asset or liability. U.S. GAAP establishes
a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in an active market for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 -- inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 -- inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. This
includes quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices
that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data.
Level 3 -- inputs that are unobservable supported by ittle or no market activity and that are significant to the fair value of the assets and liabilities.
Unobservable inputs relect an entity’s own determination about the assumptions that market participants would use in pricing the asset or liability.
An asset or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significatn to the fair value
measurement.
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
19
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 3 – FAIR VALUE MEASUREMENTS, CONTINUED
For assets and liabilities reported at fair value, the following table presents the fair value measurements used as of June 30, 2014:
Pooled endowment investments:
Total
Level 1
Level 2
Level 3
Redemption
Restrictions
Level 2 & 3
Days’
Required
Notice
Unfunded
Commitments
Global equity:
$ 47,747
$ 47,747
International
US
15,606
15,606
Commingled
80,636
Directional hedged equity
$
-
$
-
-
-
68,369
12,267
Level 2 - quarterly
- annual
Level 3 - Illiquid
Level 2 - 90
Level 3 - NA
quarterly - annual
100
Illiquid
NA
$ 9,610
$ 1,253
545
-
-
545
20,812
-
-
20,812
Mutual funds
22,156
22,156
-
-
Private debt
9,739
8,196
-
6,949
9,739
1,247
1,099
45,466
-
24,538
1,099
20,928
Private equity
Global fixed income/credit:
Commingled global fixed income
Absolute return hedge funds:
In liquidation
Other
Illiquid
NA
Level 2 - quarterly
- annual
Level 3 - Illiquid
Level 2 - 90
Level 3 - NA
In liquidation
NA
Level 2 - quarterly Level 2 - 90 - 95
Level 3 - NA
- annual
Level 3 - Illiquid
Real assets:
Private energy
Timber
Real estate
Commingled private capital
Cash and short-term investments
-
-
31,069
Illiquid
NA
8,904
-
-
8,904
Illiquid
NA
$
15,907
-
-
15,907
Illiquid
NA
$ 2,886
1,990
4,946
4,711
199
1,990
36
illiquid
NA
Level 2 - quarterly
- annual
Level 3 - Illiquid
Level 2 - 90
Level 3 - NA
-
Nonpooled endowment investments:
Cash and short-term investments
25
25
-
851
851
-
-
Real estate
68
-
-
68
Illiquid
NA
Private equity
27
-
-
27
Illiquid
NA
2,712
-
-
2,712
Illiquid
NA
318,501
91,096
100,055
127,350
-
Equity mutual funds
Perpetual trusts
Total endowment investments
Other assets
Marketable securities
Municipal/government agency obligations
Real estate
6,624
6,624
-
23,786
-
23,786
-
Daily
1-5
380
-
-
380
Illiquid
NA
Illiquid
NA
Daily
1-5
Beneficial interest in outside trusts
1,661
-
-
1,661
Split interest agreements
5,979
4,161
1,818
-
Total other assets
38,430
10,785
25,604
2,041
$356,931
$101,881
$125,659
$129,391
Asset retirement obligation
$
1,639
$
-
$
-
$
1,639
Unrealized loss on interest rate swap agreements
10,696
$ 12,335
$
-
10,696
$ 10,696
$
1,639
Total
Liabilities
Total
20
$ 11,575
31,069
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
57
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 3 – FAIR VALUE MEASUREMENTS, CONTINUED
For assets and liabilities reported at fair value, the following table presents the fair value measurements used as of June 30, 2013:
Level 1
Level 2
$ 57,484
$ 11,982
$ 45,502
International
42,982
15,332
Directional hedged equity
22,528
-
Private equity
22,615
-
-
22,615
Interest rate sensitive strategies
51,770
51,770
-
-
Private debt
10,169
-
-
10,169
554
18,176
-
-
554
18,176
20,197
-
-
8,455
-
-
14,467
-
4,732
Equity mutual funds
Fixed income mutual funds
Real estate
Pooled endowment investments:
Total
Level 3
Redemption
Restrictions
Level 2 & 3
Days’
Required
Notice
Unfunded
Commitments
Global equity:
US
$
-
Daily
1-5
27,650
-
Daily - monthly
1-44
14,627
7,901
Monthly - annual
6-100
Illiquid
NA
$ 10,487
Illiquid
NA
$
Global fixed income/credit:
2,011
Absolute return hedge funds:
In liquidation
Other
In liquidation
NA
Quarterly - semiannually
60-100
20,197
Illiquid
NA
$ 11,324
8,455
Illiquid
NA
$
58
-
14,467
Illiquid
NA
$
3,805
4,732
-
-
343
343
-
-
453
453
-
-
134
-
-
134
Illiquid
NA
24
-
-
24
Illiquid
NA
1,844
-
-
1,844
Illiquid
NA
276,927
84,612
87,779
104,536
Real assets:
Private energy
Timber
Real estate
Cash and short-term investments
Nonpooled endowment investments:
Private equity
Perpetual trusts
Total endowment investments
Other assets
Marketable securities
Fixed income mutual funds
Municipal/government agency obligations
Real estate
727
727
-
-
5,735
5,735
-
-
19,687
-
19,687
-
Daily
1-5
380
-
-
380
Illiquid
NA
Illiquid
NA
Daily
1-5
Beneficial interest in outside trusts
1,993
-
-
1,993
Split interest agreements
6,265
4,166
2,099
-
Total other assets
34,787
10,628
21,786
2,373
$311,714
$ 95,240
$109,565
$106,909
Asset retirement obligation
$ 1,650
$
-
$
-
$ 1,650
Unrealized loss on interest rate swap agreements
10,864
$ 12,514
$
-
10,864
$ 10,864
$ 1,650
Total
Liabilities
Total
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
21
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 3 – FAIR VALUE MEASUREMENTS, CONTINUED
Although the university uses its best judgment in determining the fair value of assets and liabilities, there are inherent limitations in any methodology.
Therefore, the values presented herein are not necessarily indicative of the amount the university could realize in a current transaction. Future
confirming events could affect the estimates of fair value and could be material to the consolidated financial statements. These events could also
affect the amount realized upon liquidation of the investments. Carrying amounts for cash and cash equivalents approximate fair value because of the
short maturity of these instruments. Perpetual trusts and some charitable remainder trusts are managed by outside trustees and are not subject to the
university’s investment policies.
Redemption terms and restrictions and unfunded commitments are presented for investments when manager-reported net asset value (NAV) is
used as a practical expedient to estimate fair value. Endowment investments valued at NAV are categorized as Level 2 or Level 3 investments
in the fair value hierarchy. Endowment investments categorized as Level 2 on June 30, 2014, are in a commingled multi-manager pool with near
term redemption on a quarterly basis, up to 25% per quarter, with 90 days’ notice and subject to a 5% charge if redeemed prior to the end of the
one-year period following the initial investment. Endowment investments categorized as Level 3 cannot be redeemed in the near term and/or
the future redemption dates are unknown. Valuations of underlying assets which comprise the NAV are provided by fund managers and consider
observable market-based inputs, observable market data, valuation models, comparable sales, recent known financing transactions, and income
streams discounted for risk levels, among other valuation methodologies. Based on its review of assumptions and valuations provided by fund
managers, the university believes the carrying amount of these financial instruments are reasonable estimates of fair value.
Global equities include marketable US and international securities held in exchange traded funds and one commingled multi-manager pool. The
investments consisit of primarily equity-oriented securities from developed and emerging markets globally. The exchange traded funds are passive
strategies designed to closely track specified equity benchmarks. The commingled pool includes exposure to passive strategies to closely track
specified equity benchmarks and active strategies that attempt to deliver above-market performance. Directional hedged equities generally utilize
both long and short positions in corporate securities and derivatives to provide favorable risk-adjusted returns.
Fixed income investments provide diversification to reduce the overall volatility and generate predictable cash flows that can be used in support of
annual spending requirements. Fixed income is diversified across various sub-classes by investment style and strategy.
Private capital funds are not generally available for liquidation by the university and depend on fund managers’ decisions about exit timing to
provide distributions. In addition, the university has minimal ability to influence the operating decisions affecting these investments. The fair values
of private capital funds have been estimated using the most current information available and as applicable, adjusting for cash flows since the
valuation date. Unfunded commitments to private capital may be called at any time during the fund investment periods, which generally range from
three to seven years.
Absolute return hedge funds utilize strategies designed to generate long-term capital appreciation with low volatility and little correlation with
equity and bond markets. Some absolute return funds may invest a small portion of assets in private capital funds or other illiquid vehicles.
The following table presents changes for assets and liabilities measured at fair value using significant unobservable inputs (Level 3):
June 30, 2014
Assets
Liabilities
Assets
$106,909
$ 1,650
$ 95,902
Total realized and unrealized gains
21,246
-
12,818
-
Purchases
29,459
-
16,478
-
-
(11)
-
39
(28,223)
-
(18,289)
-
1,639
$106,909
Balance, beginning of the year
Issues
Sales
Balance, end of the year
Unrealized gains related to Level 3 assets held at the end of the
year included in “Net gains (losses) and income on endowment
investments, net of distributions” in the Consolidated Statement
of Activities
22
June 30, 2013
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
$129,391
$
June 30, 2014
June 30, 2013
$ 12,639
$ 10,946
Liabilities
$
$
1,611
1,650
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 4 – ENDOWMENT INVESTMENTS AND NET ASSETS
At June 30, 2014, the university’s endowment consisted of approximately 557 individual funds established for a variety of purposes. The
endowment includes both donor-restricted endowments and funds designated by the board of trustees to function as endowments (quasiendowments). Quasi-endowment funds may be expended at the discretion of the university’s board of trustees. As required by U.S. GAAP, net
assets associated with endowment funds, including quasi-endowment funds, are classified and reported based on the existence or absence of
donor-imposed restrictions.
Endowment Investment and Spending Policies
To enable broad diversification and economies of scale, the university’s policy is to pool endowment assets for investment purposes to the fullest
extent possible as permitted by gift agreements and applicable government regulations. In the rare cases when a donor has prohibited a gift from
being pooled for investments purposes, such endowments (referred to as non-pooled endowments) are separately invested and managed.
The university’s pooled endowment provides ongoing financial support for operations that will remain stable (or grow) in real or inflation-adjusted
terms, as adjusted for new additions to the pooled endowment. The primary investment objective of the pooled endowment is to provide a
sustainable maximum level of return consistent with prudent risk levels. The overall, long-term investment goal of the pooled endowment is to
achieve an annualized total return of at least 5% over the long term, that balances short-term spending needs with the preservation of the real
(inflation-adjusted) value of assets. Investments are diversified across a wide range of asset classes, including those providing return premiums for
illiquidity, so as to provide a balance that will enhance total return under a range of economic scenarios, while avoiding undue risk concentrations
in any single asset class or investment category. Sufficient liquidity in the endowment portfolio to meet the spending policy and operational needs,
preserve the university’s desired credit ratings, and maintain compliance with any debt agreements, is also considered when making investment
decisions regarding asset allocation.
In accordance with the Washington State Uniform Prudent Management of Institutional Funds Act (UPMIFA), the university considers the
following factors, among others, in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and
preservation of the fund; (2) the purposes of the university and the donor-restricted endowment fund; (3) general economic conditions; (4) the
possible effect of inflation or deflation; (5) the expected total return from income and the appreciation of investments; (6) other resources of the
university; and (7) the investment policies of the university.
Pooled endowment spending is determined using the total return concept. The board of trustees approved a spending rate of 5% of a trailing
36-month average market value for the years ended June 30, 2014 and 2013. For a few donor-restricted endowment funds, the university honors
and adheres to donor-stipulated spending limitations.
At June 30, 2014, nearly 99% of the university’s endowment investments were pooled.
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
23
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 4 – ENDOWMENT INVESTMENTS AND NET ASSETS, CONTINUED
Interpretation of Relevant Law
Consistent with its understanding of donor intent, the board of trustees of the university has interpreted UPMIFA as requiring the preservation of
the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. The
university classifies as permanently restricted net assets: (a) the original value of gifts to donor-restricted endowments and (b) any other amounts
added to donor-restricted endowments that donors have stipulated are not expendable. The remaining portion of the donor-restricted endowment
fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are
appropriated for expenditure by the university in a manner consistent with the standard of prudence prescribed by UPMIFA. Temporarily restricted
board-designated quasi-endowment funds were established with expendable restricted bequests and gifts.
As of June 30, 2014, endowment net assets consisted of the following:
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
$ 91,544
$118,523
$210,067
518
-
518
210,585
Donor-restricted endowment funds:
True endowments -
Term endowments
-
Total donor-restricted endowment funds
Board-designated quasi-endowment funds 92,062
118,523
$106,371
-
1,545
-
107,916
106,371
93,607
118,523
318,501
Total endowment investments
Unconditional promises to endowment
Total endowment net assets -
198
4,201
4,399
$106,371
$ 93,805
$122,724
$322,900
Temporarily
Restricted
Permanently
Restricted
Total
$ 70,062
$ 110,914
$180,973
462
-
462
70,524
110,914
181,435
As of June 30, 2013, endowment net assets consisted of the following:
Unrestricted
Donor-restricted endowment funds:
True endowments Term endowments
Total donor-restricted endowment funds
Board-designated quasi-endowment funds Total endowment investments
Unconditional promises to endowment
Total endowment net assets 24
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
$
(3)
(3)
94,151
1,341
-
95,492
94,148
71,865
110,914
276,927
-
150
5,932
6,082
$ 94,148
$ 72,015
$ 116,846
$283,009
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 4 – ENDOWMENT INVESTMENTS AND NET ASSETS, CONTINUED
Changes to endowment net assets for the year ended June 30, 2014 are as follows:
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
$ 94,148
$71,865
$110,914
$276,927
-
150
5,932
6,082
94,148
72,015
116,846
283,009
Gifts added to endowment investments -
476
5,682
6,158
Change in unconditional promises, net
-
48
(1,731)
(1,683)
Endowment net assets, June 30, 2013:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
Contributions:
Total contributions
Transfers and other additions
Net assets released from restrictions
-
524
3,951
4,475
337
86
96
519
1,275
(1,275)
-
-
Return on investments:
Investment income
Net appreciation realized and unrealized
Total return on investments
598
1,275
58
1,931
13,693
28,849
1,773
44,315
14,291
30,124
1,831
46,246
Amount distributed for operating activities (3,680)
(7,669)
-
(11,349)
Total return, net of operating distribution
10,611
22,455
1,831
34,897
106,371
93,607
118,523
318,501
-
198
4,201
4,399
$106,371
$93,805
$122,724
$322,900
Temporarily
Restricted
Permanently
Restricted
$86,394
$ 57,263
$106,811
-
-
3,990
3,990
86,394
57,263
110,801
254,458
Endowment net assets, June 30, 2014:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
Changes to endowment net assets for the year ended June 30, 2013 are as follows:
Unrestricted
Total
Endowment net assets, June 30, 2012:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
$250,468
Contributions:
Gifts added to endowment investments -
-
3,159
3,159
Change in unconditional promises, net
-
150
1,942
2,092
-
150
5,101
5,251
Transfers and other additions
102
1,005
248
1,355
Net assets released from restrictions
696
(696)
-
-
Total contributions
Return on investments:
Investment income
Net appreciation realized and unrealized
Total return on investments
881
1,852
43
2,776
9,608
19,533
653
29,794
10,489
21,385
696
32,570
Amount distributed for operating activities (3,533)
(7,092)
-
(10,625)
Total return, net of operating distribution
6,956
14,293
696
21,945
94,148
71,865
110,914
276,927
-
150
5,932
6,082
$94,148
$ 72,015
$116,846
$283,009
Endowment net assets, June 30, 2013:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
25
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 5 – INTANGIBLE ASSETS AND CAMPUS FACILITIES
Intangible Assets
Intangible assets include software, electronic library resources, and website development costs. The weighted average amortization period for
assets acquired in the current period is 17 years.
June 30, 2014
June 30, 2013
Amortized intangible assets:
Gross carrying amount
$
9,958
$
(1,966)
Accumulated amortization
$
Net carrying amount
9,066
(1,572)
7,992
$
7,494
The gross carrying amount included $148 of software placed in service subsequent to year-end and considered in progress at June 30, 2014.
Aggregate amortization expense:
2014
$ 545
Estimated amortization expense for each of the next five years and thereafter is as follows:
2015
$ 571
2016
552
2017
531
2018
493
2019
Thereafter
Total
466
5,230
$ 7,843
Campus Facilities
Campus facilities consisted of the following:
June 30, 2014
Land and improvements
June 30, 2013
$ 31,531
$ 29,770
238,398
210,611
Equipment
17,218
17,502
Library resources
1,469
1,158
Building and improvements
Collections
Construction in progress
Accumulated depreciation
Campus facilities, net
881
547
2,297
17,906
291,794
277,494
(103,465)
(97,105)
$188,329
$180,389
Asset Retirement Obligations
Under U.S. GAAP, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the liability can be
reasonably estimated. For the university, these obligations are primarily for the disposal of asbestos and certain other regulated materials generally
found in pre-1980 campus facilities. Though these materials do not currently pose a health hazard in any of these facilities, appropriate remediation
procedures are required to remove these materials upon renovation or demolition.
The following schedule summarizes the university’s asset retirement obligation activity:
June 30, 2014
Asset retirement obligation, beginning of the year
$
Obligations settled
Accretion expense
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
$
1,611
(28)
-
-
70
68
2
Revisions in estimated cash flows
26
$
(83)
Obligations Incurred
Asset retirement obligation, end of the year
1,650
June 30, 2013
1,639
(1)
$
1,650
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 6 – LONG-TERM DEBT
Long-term debt consisted of the following:
Final Maturity
June 30, 2014
June 30, 2013
WHEFA Revenue Bonds, 2012A
2042
$38,121
$38,295
WHEFA Revenue Bonds, 2012B
2036
28,655
29,195
WHEFA Revenue Bonds, 2001
2031
10,390
10,425
WHEFA Revenue Bonds, 1998
2014
400
773
Capital lease obligations
2023
Total
34
6
$77,600
$78,694
Principal due within the next five fiscal years and thereafter is as follows:
2015
$
993
2016
1,043
2017
1,088
2018
1,129
2019
1,584
Thereafter
68,448
74,285
Unamortized net premium
Unamortized net discount
Total
3,316
(1)
$77,600
The Washington Higher Education Facilities Authority (WHEFA) is a financing conduit provided by the State of Washington for private higher
education facility acquisition and construction in the state. The tax-exempt bonds are obligations solely of the university and are not guaranteed by
the state. The WHEFA bond agreements contain covenants relating to maintenance of facilities, insurance, and other general items. In addition,
the WHEFA 2001 and WHEFA 2012B bond agreements contain covenants that the university will comply with certain liquidity requirements. The
university’s underlying long-term rating is “A1” by Moody’s Investors Service, Inc., and “A+” by Standard & Poor’s Rating Services.
In October 2012 the university entered into loan agreements whereby WHEFA issued tax-exempt Revenue and Refunding Revenue Bonds in the
amount of $34,805 at a net premium of $3,577 (Series 2012A) and Refunding Revenue Bonds in the amount of $29,195 (Series 2012B). The bonds are
general obligations of the university. The proceeds from the Series 2012A bonds were used to finance the construction of a 135-bed residence hall,
and to refund outstanding WHEFA 2006A bonds. The proceeds from Series 2012B were used to refund outstanding WHEFA 2006B bonds. The 2012A
bonds bear interest at fixed rates ranging from 3.0% to 5.0%. The 2012B bonds were sold through a direct purchase transaction with a bank, who
will hold the bonds for an initial seven year term, after which the university will remarket the bonds. The bonds bear interest at 70% of the one-month
London Interbank Offer Rate (LIBOR) plus a credit spread. The university is subject to certain financial covenants.
During 2001 the university entered into a loan agreement with WHEFA whereby WHEFA issued $10,620 of tax-exempt Variable Rate Demand
Revenue Bonds, Series 2001. The proceeds were used to finance the construction of a new student residence hall. Pursuant to the loan agreement,
the bonds bear interest at a rate that is determined weekly through the remarketing process, with the maximum annual rate capped at 12%.
During 1998 the university entered into a loan agreement with WHEFA whereby WHEFA issued $34,870 of tax-exempt Revenue and Refunding
Revenue Bonds, Series 1998, at a net discount of $54. The bonds bear interest at fixed rates ranging from 3.9% to 5.2%. The proceeds were used in
part to advance refund outstanding WHEFA revenue bonds, and the balance was used to finance the construction and renovation of campus facilities.
As of June 30, 2014, the WHEFA 1998 bonds that remain outstanding are those that were used to advance refund other WHEFA revenue bonds.
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
27
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 6 – LONG-TERM DEBT, CONTINUED
For the year ended June 30, 2014, the university incurred total interest costs related to long-term debt of $3,966 of which $319 was capitalized.
Interest costs include debt interest payments, swap agreement interest, remarketing, amortization of bond premium, discount and costs of
issuance.
The fair value of long-term debt was estimated to be $76,511 and $75,124 at June 30, 2014 and 2013, respectively, based on quoted market prices
for publicly traded debt with similar characteristics.
The university has a $5,000 unsecured line of credit in the form of a demand note with a bank. The agreement provides for interest at the bank’s
prime rate with no additional fees. As of June 30, 2014, the bank’s prime rate was 3.25%. This line of credit has not been drawn on but is available
for operating expenses or to provide liquidity for the Series 2001 bonds should the need arise.
Interest Rate Swap Agreements
During 2005 and 2006, in an effort to manage the fluctuations in cash flows resulting from variable interest rates and to lower its overall borrowing
costs, the university entered into three separate interest rate swap agreements to convert its variable rate bonds to a substantially fixed rate
through maturity. Under the terms of the swap agreements, the university pays the swap counterparties fixed amounts of interest over the term
of the contracts and receives variable interest payments based on 67% of the one-month LIBOR. Additional key terms of the agreements are as
follows:
Outstanding
Notional
Trade
Date
The Bank of New York Mellon
$18,195
5/25/06
4/1/08
3.875%
10/1/2030
The Bank of New York Mellon
$28,455
5/25/06
6/30/06
3.855%
10/1/2036
Societe Generale, New York Branch
$10,390
8/9/05
9/1/05
3.426%
10/1/2031
Swap
Counterparty
Effective
Date
Swap
Fixed Rate
Final
Maturity Date
The university accounts for its interest rate swap agreements in accordance with U.S. GAAP. The fair value of the interest rate swap agreements
is the estimated amount that the university would receive or pay to transfer the agreements as of the reporting date, net of credit valuation
adjustments, and is recognized as either an unrealized gain or loss, as appropriate. Amounts reported in the Consolidated Statement of Financial
Position as of June 30, 2014 and 2013, included an “Unrealized loss on interest rate swap agreements” of $10,696 and $10,864, respectively also
known as the mark-to-market value. The net changes in the fair value of the interest rate swap agreements for the years ended June 30, 2014
and 2013, were net unrealized gains of $168 and $5,188, respectively, recognized within “Other adjustments and changes” in the Consolidated
Statement of Activities. Providing the university holds the swaps to maturity, the fair value of the derivatives will be zero. The university retains the
option to terminate, cancel, and cash settle the interest rate swap agreements at any time.
The university utilizes its interest rate swap agreements solely as a cash flow hedge and does not use derivative instruments for trading
or speculative purposes. The university seeks to diversify counterparty risk and executes credit-sensitive derivative transactions only with
counterparties with strong credit ratings. The university is not required to post collateral for its swaps unless its credit rating drops below Baa2
by Moody’s Investors Service, Inc or BBB by Standard & Poor’s Rating Services on the Societe Generale Swap and Baa3 by Moody’s Investors
Service, Inc or BBB- by Standard & Poor’s Rating Services on the Bank of New York Mellon swaps. The amount of the collateral would be the markto-market loss exposure at the time the credit rating dropped below the required level.
28
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 7 – RESTRICTIONS ON NET ASSETS
Restrictions on net assets consisted of the following:
June 30, 2014
June 30, 2013
Temporarily restricted:
Time restrictions:
Unappropriated earnings from donor-restricted endowments
$ 91,544
$ 70,062
518
462
92,062
70,524
Unconditional promises to give
5,531
4,570
Split-interest agreements
1,680
1,845
Term endowment
Total donor-restricted endowments
524
488
99,797
77,427
Construction of campus facilities
8,479
4,809
Educational programs and activities
4,331
1,921
Cash surrender value of life insurance policies
Total time restrictions
Purpose restrictions:
Total purpose restrictions
Total temporarily restricted
12,810
6,730
$112,607
$ 84,157
$122,724
$116,846
3,504
3,957
Permanently restricted:
Endowment funds
Split-interest agreements
Loan funds
Total permanently restricted
5
5
$126,233
$120,808
NOTE 8 – RETIREMENT PLANS
Defined Contribution Plan
The university contributes to a defined contribution retirement plan for the benefit of eligible faculty and staff (participants), with funding vehicles
available through Teachers Insurance Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), (together TIAACREF). University contributions for participants begin after one year of service to the university or one year of service at an eligible employer
during the twelve months immediately prior to their employment at the university. Contributions are 10% or 12% of salaries, depending upon
position classifications and are fully vested. The university’s contributions totaled $4,768 and $4,647 for the years ended June 30, 2014 and 2013,
respectively.
Defined Benefit Plans
The university has in place an unfunded early retirement and career change plan for eligible members of the faculty. The university also accrues
post-retirement medical benefits available to certain active faculty under the faculty early retirement and career change policy (pre-65 benefits) and
certain retired faculty and staff under a discontinued medical benefits plan for retirees (post-65 benefits). Plan expenses and liabilities are valued
based on actuarial methods and are reflected in the consolidated financial statements. U.S. GAAP requires employers to recognize the overfunded
or underfunded status of a defined benefit post-retirement plan as an asset or liability in their statement of financial position and to recognize
changes in that funded status in the year in which the changes occur. As a not-for-profit organization, the university recognizes such changes
through changes in unrestricted net assets.
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
29
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 8 – RETIREMENT PLANS, CONTINUED
Defined Benefit Plans, Continued
Amounts recognized in the Consolidated Statement of Financial Position as of June 30, 2014 and 2013, and in the Consolidated Statement of
Activities for the years then ended are as follows:
Faculty Early Retirement
and Career Change Plan
Post-Retirement
Medical Plan
2014
2013
2014
2013
$ 5,839
$ 5,618
$ 2,667
$ 2,695
(185)
(92)
(115)
(115)
Service cost
304
300
109
109
Interest cost
253
222
114
107
Amortization of actuarial loss
197
226
84
99
754
748
307
315
(16)
(435)
25
(228)
$ 6,392
$ 5,839
$ 2,884
$ 2,667
$
$
$
$
Projected and accumulated post-retirement benefit obligations:
Beginning of the year
Benefits paid
Amounts recognized in the Consolidated Statement of Activities:
Components of net benefit expense recognized as operating
expense:
Total net benefit expense
(Gain) loss recognized within other adjustments and changes
End of the year
Post-retirement benefit liability recognized within accrued payroll
and other liabilities in the Consolidated Statement of Financial Position:
Current portion
Noncurrent portion
Total
Plan funded status
372
347
185
166
6,020
5,492
2,699
2,501
$ 6,392
$ 5,839
$ 2,884
$ 2,667
$(6,392)
$(5,839)
$(2,884)
$(2,667)
The weighted-average assumptions used to determine plan benefit obligations as of June 30, 2014 and 2013, and the net benefit expense for the
years then ended, included:
Faculty Early Retirement
and Career Change Plan
Post-Retirement
Medical Plan
2014
2013
2014
2013
Discount rate
3.88%
4.47%
3.85%
4.43%
Rate of compensation increase
5.00%
5.00%
N/A
N/A
Benefit obligation (post-retirement benefit liability):
Net benefit expense:
30
Discount rate
4.47%
4.08%
4.43%
4.08%
Rate of compensation increase
5.00%
5.00%
N/A
N/A
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2014
(Dollars in Thousands)
NOTE 8 – RETIREMENT PLANS, CONTINUED
Defined Benefit Plans, Continued
The benefits expected to be paid in each of the next five years, and in the aggregate for the five years thereafter, were estimated based on the
same assumptions used to measure the benefit obligations and are as follows:
Faculty Early Retirement
and Career Change Plan
Post-Retirement
Medical Plan
2015
$ 372
$185
2016
$ 351
$205
2017
$ 399
$225
2018
$ 467
$238
2019
$ 522
$207
2020-2024
$2,001
$961
Estimated university contributions to the plans that are expected to be paid during the next fiscal year include $372 for the faculty early retirement
and career change plan and $185 for the post-retirement medical plan.
Amounts recognized as changes in unrestricted net assets that are expected to be recognized as amortization components of net benefit
expense in the next fiscal year include a net loss of $200 for the faculty early retirement and career change plan and a net loss of $87 for the postretirement medical plan.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The University has allocated a portion of its pooled endowment to investments in natural resources, private real estate and equity and fixed income
asset classes. At June 30, 2014, an outstanding commitment of $25,381 remains to be invested in these asset classes.
As of June 30, 2014, the university had outstanding commitments in the amount of $3,439 related to the construction, renovation and
improvement of campus facilities.
In the normal course of activities, the university from time to time is the subject of various claims and also has claims against others. In the opinion
of management, the results of these matters will not have a significant impact on the consolidated financial statements.
Federally funded programs, including financial aid, research and development, and other programs, are routinely subject to special audit. The
reports on examinations, which are conducted pursuant to specific regulatory requirements by the auditors for the university, are required to be
submitted to both the university and the Federal Audit Clearinghouse. Federal oversight agencies have the authority to determine liabilities as well
as to limit, suspend, or terminate federally funded programs. In the university’s opinion, no material instances of noncompliance have occurred
during the year ended June 30, 2014, related to the university’s federally funded student financial aid, research and development, and other
programs.
NOTE 10 – SUBSEQUENT EVENTS
The university evaluated subsequent events through December 18, 2014, the date these consolidated financial statements were issued, and
concluded there were no events requiring recording or disclosure.
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
31
University of Puget Sound
Board of Trustees and Officers
As of December 2014
Trustee Officers
Richard M. Brooks ‘82, Chair
Gwendolyn H. Lillis P’05 , Vice Chair
Ronald R. Thomas, President
Kenneth W. Willman ‘82, P’15, P’17, Treasurer
Trustees
Carl G. Behnke
President, REB Enterprises, Inc., Seattle, Washington
Richard M. Brooks ‘82 CEO/Director, Zumiez, Inc., Lynnwood, Washington
William M. Canfield ‘76, P’08
Chairman, Cytovance Biologics, Oklahoma City, Oklahoma
Mitzi W. Carletti ‘78 Investment Advisor and Research Analyst, Badgley Phelps, Seattle, Washington
Marvin H. Caruthers P’02
Distinguished Professor of Biochemistry and Chemistry, University of Colorado, Boulder, Colorado
Michael J. Corliss ‘82, P’13 CEO, Investco Financial Corporation, Sumner, Washington
Hollis S. Dillon ‘84, J.D.’88 Owner and Co‐President, HeidiSays.com, Mercer Island, Washington
Kathleen M. Duncan ‘82 Trustee, Thomas and Dorothy Leavey Foundation, Los Angeles, California
Rolf Engh P’14
EVP, General Counsel & Secretary, The Valspar Corporation, Minneapolis, Minnesota
Frederick W. Grimm ‘78
CEO, Triad Development, Seattle, Washington
Bruce W. Hart P’09 Principal, Jacobs Engineering, San Francisco, California
Laura C. Inveen ’76
Judge, King County Superior Court
Thomas E. Leavitt ‘71, J.D.‘75, P’10 President, Leavitt Capital Companies, Seattle, Washington
Gwendolyn H. Lillis P’05
Trustee, The Lillis Foundation, Castle Rock, Colorado
Eric Lindgren Professor Emeritus of Biology, University of Puget Sound, Tacoma, Washington
Janeen Solie McAninch ‘77, P’06 CEO, Becker Capital Management, Portland, Oregon
Kenneth C. McGill ‘61 CEO (retired), Northwest Kinetics, Tacoma, Washington
Sunshine A. Morrison ’94
Principal & Founder, Radiance Communications, Seattle, Washington
William C. Nelson ‘69 Vice Chairman (retired), Bank of Hawaii, Portland, Oregon
Jill T. Nishi ‘89 Director, Office of the President and Chief of Staff for US Programs, Bill & Melinda Gates Foundation,
Seattle, Washington
Deanna W. Oppenheimer ‘80, P’11, P’14 CEO, CameoWorks, Seattle, Washington
Wade H. Perrow ‘73, P’02 CEO, Wade Perrow Construction, Gig Harbor, Washington
Beth M. Picardo ‘83, J.D.‘ 86
Community Volunteer, Mercer Island, Washington
Robert C. Pohlad P’07
Principal, Pohlad Family Companies, Minneapolis, Minnesota
Lyle Quasim ‘70, Hon.’05 Public Service Executive (Retired), Tacoma, Washington
Allan D. Sapp ‘78, P’10 Private Investor, Gardnerville, Nevada
Erin E. Shagren ’88
Executive Director, Names Family Foundation
Robert T. Shishido ‘72, P’09 Senior Software Engineer (Retired), Boeing North America, Wailuku, Hawai’i
Ronald R. Thomas President, University of Puget Sound, Tacoma, Washington
Bruce L. Titcomb ‘80, P’13
Partner, KayBru Property Management, Lake Forest Park, Washington
Gillian Neukom Toledo ‘94 Teacher, Seattle, Washington
Nicholas D. Vasilius ‘07
Financial Analyst, PACCAR, Inc., Bellevue, Washington
Barbara S. Walker P’05, P’07 Bookkeeper, Meridian Dental Clinic; Manager, JR & JA LLC, Kent, Washington
Guy N. Watanabe ‘75, M.B.A.‘76 President/Founder, GW Capital, Inc., Bellevue, Washington
Kenneth W. Willman ‘82, P’15, P’17
Chief Legal Officer, Russell Investments, Seattle, Washington
Non-Trustee Officers
Kristine M. Bartanen Academic Vice President and Dean of the University
David R. Beers P’11
Vice President for University Relations
Mary Elizabeth Collins ’81, P’02
Secretary of the Corporation and Director of the Office of the President
Lorin D. Gobble
Associate Vice President for Finance
Janet S. Hallman ‘84
Associate Vice President for Financial Planning and Analysis
Sherry B. Mondou
Vice President for Finance and Administration
Jennifer J. Rickard
Vice President for Enrollment
J. Michael Segawa Vice President for Student Affairs and Dean of Students
32
UNIVERSITY OF PUGET SOUND 2013–14 FINANCIAL REPORT
pugetsound.edu