u n iv e r s it y o f p u g e t s ound
2 0 1 3 f in a n c ia l r e p ort
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
un i ve rs i ty of p uget s o u n d | 2 0 1 3 f in a n c ia l r e p o rt
june 30, 2013
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
“It was the best of times, it was the worst of times.” The
famous opening to Charles Dickens’s Tale of Two Cities, the
historical novel about social and financial upheaval during the
reign of terror in post-Revolutionary France and London, provided the point of departure for my annual state of the university conversation with the faculty and staff at the beginning of
this year. The novel offers an equally appropriate start to our
annual financial report. Its juxtaposition of contrasting scenes
of progressive success and reactionary danger in two different
settings is as fitting a description for the times in which we
are living today as it was for early 19th-century Europe on the
verge of a new age and a new economy.
The past year has been an extraordinary one for the university by almost any measure—among the best of times we
have seen in admission, fundraising, campus development,
student achievement, national recognition, and program advancement. And yet, the broader economic environment still
presents significant challenges for us and for every college,
with unemployment still high, continued declines in median
family income nationwide, and very slow growth in the recovery from the economic trauma of the 2008 recession. Add to
that the shrinking market we foresee for colleges and universities due to demographic changes, the increasing challenges
in affordability for many families, the threat from disruptive
technologies, and there is no doubt that the current moment
is a very difficult one indeed for every sector of higher education. A new age in a new economy: at once the best of times
and the worst of times.
In Dickens’ novel, troubling events in difficult and violent historical circumstances also invoke unusual acts of virtue and
brilliance from certain individuals within cohesive communities with a clear sense of values. This has been true for Puget
Sound this year. In student recruitment, we countered national
trends, where more than half of the colleges in the country
failed to make their fall 2013 freshman class enrollment goals
by May 1, by which time our first-year deposits were already
more than 10% above our target number.
2
university of puget sound 2013 financial report
We also bucked industry trends by achieving a sharp decline in
Fundraising offered another area of extraordinary achieve-
the freshman discount rate—dropping from 42.6% in 2012–13
ment. We passed the $100 million threshold in our compre-
to approximately 38% in the current year, strengthening our
hensive capital campaign—an historic benchmark for Puget
net tuition revenue substantially and exceeding our most opti-
Sound in the strategic development of a culture of philanthro-
mistic revenue projections for the 2013–14 budget cycle (fig-
py, already exceeding the total raised in our most recent prior
ure 1). We saw increases in application numbers when many
campaign by more than $30 million, with two years still left to
colleges saw declines (as overall college enrollments declined
reach our ambitious $125 million goal. With $15.8 million in
1.4% nationally), an expansion of our market draw from out-
total new commitments recorded in 2012–13, we registered
side our home state (especially from California), and enrollment
our fourth highest fundraising year on record. Over the last
of 28% students of color—very nearly exceeding our best year
10 years, we have increased the average gift commitments
on record. The targeted investments we have made in our five-
per year by more than 50% over the previous decade (figure
year enrollment and marketing plan have begun to bear fruit.
2). In addition, we raised a record $2.43 million for the Puget
FIGURE 1 NACUBO Tuition Discounting Study
48%
46%
44%
FIGURE 2 Average Gift Commitments Per Year
Over Rolling 10-Year Periods
$16.0
$14.0
$14.0
$12.0
42%
38%
36%
$10.0
(In Millions)
40%
$8.0
$9.2
$6.0
34%
$4.0
32%
$2.0
30%
$0
1994–2003
2004–2013
University of Puget Sound 2013 Financial Report
3
Sound Fund, a 5.5% increase (and more than doubling in size
This year saw the completion of critical strategic investments
over the decade)—also running against declining national
to assist us in achieving these objectives. We implemented
trends in annual giving—with parents increasing their contri-
the “go-live” phase of a new, integrated enterprise resource
butions by 12.7% over the previous year. In this area, too, our
planning system campuswide. We completed the construction
investments are bringing strong returns.
of the remarkable new Commencement Hall, which houses
These developments were joined with a continuation of disciplined financial management and cost containment, especially
critical as family incomes and net worth have declined from
pre-recession levels and the prospects for future economic
growth remain uncertain. Though we have much to celebrate,
this is no time to rest on our laurels. In the best and the worst
of times, it is critical to continue to look to the future and be
strongly positioned for whatever threats the days ahead might
bring or opportunities they may present. We are doing so
through the lens of a clearly articulated strategic plan that has
successfully guided us for seven years, a specific set of priorities for the year ahead, and key strategic investments we are
making to ensure success.
The Defining Moments Strategic Plan has enabled us to
achieve significant progress over the recent years in each of
135 upper-division students in a living/learning center focused
upon five academic programs (as part of our efforts to enhance
the residential character of the Puget Sound experience and
retention) (figure 3). We launched a new branding and messaging platform for student recruitment to distinguish our position in the market and leverage our distinctive strengths. We
exceeded the 1,000 mark in actively engaged alumni working
on behalf of the university, and have now signed up more than
200 parents doing the same. We have done these things while
preserving our strong credit rating and seeing our endowment
exceed its highest ever market value due to generous contributions, wise investments, and prudent spending policies.
These accomplishments offer indications that we are at the
beginning of something quite monumental, and that in these
difficult days, our best days are still before us.
our key priorities: innovating through a distinctive educational
But we are not naïve. Especially in difficult financial times like
experience, building an inspiring environment for learning,
these, we recognize that families considering the significant
engaging our constituents in enduring relationships, and
investment that a college education requires have become
strengthening our financial position and philanthropic culture.
highly attuned to price and to the value proposition when
Our achievements this year provide ample evidence of the
they are selecting a college to attend. And well they should.
plan’s success. In the coming year, our overall objectives re-
College today is a major investment. The issue of whether a
main consistent with a particular focus on three specific areas
college education is worth the cost is all over the newspapers
within this larger framework:
these days, price calculators have become mandatory for col-
• Developing a strategic and mission-centered objective
for clearly defining Puget Sound’s market position in student recruitment for the new economy in which we find
ourselves
• Charting a course for sustainable financial equilibrium that
will ensure student success, competitive compensation for
faculty and staff members, and the university’s continued
thriving in a context of cost containment
• Advancing an innovative and entrepreneurial sense of pos-
colleges on affordability, and a proliferation of “best value”
rankings are published every year by Forbes, Kiplinger’s, US
News, and others.
Amidst the anxiety (and confusion) all this attention sometimes
creates, the real question—for us in higher education and
those who are planning to attend college-—should be how we
measure and deliver the value of a college education. It should
go without saying that, as with any investment, the best value
is the investment that yields the greatest reward. When Puget
sibility in the academic program by leveraging a framework
Sound was ranked one of only 40 “Colleges That Change
to integrate our distinctive experiential learning opportuni-
Lives” by the respected college guide with that name this past
ties into the curriculum
year, it affirmed clearly that this university offers a great value
• Positioning the university to bring the $125 million campaign goal within reach for its final year (2014–15) and
preparing a dynamic advancement plan to follow the campaign’s successful completion
4
lege websites, state and federal governments are pressing
university of puget sound 2013 financial report
for those who expect a college education to be a transformative experience and are prepared to make the investment. The
growing return on their investment our graduates are experiencing—earning 26 national fellowships, ranking in the top
FIGURE 3 Aerial view of Commencement Hall
10% going on to earn Ph.D.s in the nation, earning leadership
conditions of the market, ensuring that a Puget Sound educa-
roles in technology, medicine, finance, nonprofits, business,
tion remains an invaluable investment for a lifetime. Regard-
retail, education, and the arts—offers further evidence of the
less of how transformative the experience we provide may
claim. How do you put a price on the transformation of a life,
be, we must continue to make that experience accessible and
on living in an environment that enables you to meet your
affordable for those prepared to make the investment. That is
full human potential, on finding meaningful career path that
the challenge these times present to us in more pointed ways
inspires your best work, on realizing opportunities you never
than any time in history. It is a challenge we are committed to
imagined were opened to you? It’s priceless, and never more
address successfully. There is no better thing that we can do.
than in the challenging times in which we are living today.
In the characteristically sentimental conclusion to Dickens’ Tale
of Two Cities, the worst of times ends up calling out the best
of actions from certain individuals, most dramatically in the
book’s final pages when the conscience of a feckless English
attorney is awakened to the moment, rises to a fundamental
challenge to the principles of justice with which he is confronted, and declares his intention to do “a far far better thing than
I have ever done.” So these days, the best and worst of them,
call for us to do better than we have ever done in advancing
our transformative mission even as we are responsive to the
University of Puget Sound 2013 Financial Report
5
Report of the vice
President for finance
and administration
sherry b. mondou
Puget Sound is recognized as a college that changes lives. A
transformative educational experience requires strength in resources. At Puget Sound we have considerable resources. We
have strength in an exceptional faculty dedicated to teaching
and mentoring students; a talented and engaged student body
prepared to be challenged, to do the hard work, and to consider
the greater good; a staff that finds meaning and reward in supporting the educational process; an alumni body that actively
supports its alma mater; parents prepared to invest in their children’s future and in the success of the college; donors, friends,
and neighbors who partner with us and believe in what we are
doing; and a governing board of trustees that provides leadership and support to this exceptional enterprise. This strength
in human capital combines with strength in financial resources
and campus facilities, to provide Puget Sound students an extraordinary opportunity to engage, learn, discover, and succeed
to graduation well prepared to pursue their full potential in the
years ahead.
The enclosed 2012–13 consolidated financial statements
provide a snapshot of Puget Sound’s financial health, which I
supplement with the following commentary.
Consolidated Statement of Financial Position
Assets
Puget Sound has a strong asset base of $555.6 million at June
30, 2013, an all-time high. Total assets increased just shy of
10% over the prior year’s $506.4 million. Puget Sound’s asset
strength comes primarily from its cash and short-term investments, its endowment, and its campus facilities.
• Cash, cash equivalents, and short-term investments totaled
$41.4 million at June 30, 2013, as compared to $41.1 million the prior year. These resources provide essential liquidity to cover operating costs, maintain campus facilities, and
make debt service payments. As these funds are invested,
the objectives are preservation of capital, maintenance of
necessary liquidity, and maximization of investment return
within appropriate risk constraints.
6
university of puget sound 2013 financial report
• Endowment investments totaled $276.9 million as of June
The endowment is invested to provide a sustainable
30, 2013, comprising about half of the university’s total as-
maximum level of return consistent with prudent risk
set value. Figure 4 shows how the endowment has grown
levels and to generate a real return that supports current
over the last decade, including the sources of growth and
operations while preserving the purchasing power of the
level of distributions. A 13% pooled endowment invest-
endowment over the long term. With this objective in
ment return and new endowment gifts and additions of
mind and as the endowment has grown over time, the
$4.5 million, less the annual distribution, results in an en-
portfolio has become increasingly diversified (figure 5).
dowment that is up 10.6% for the year. $94.1 million or
When the endowment was $81.5 million in 1993, it was
34% of the endowment is quasi-endowment unrestricted
invested primarily in publicly traded U.S. equity large cap
as to use, providing valuable flexibility to the university. The
and fixed income. Today, it includes investments in glob-
vast majority of this unrestricted quasi-endowment has
al equity, global fixed income, real assets, private capital,
been designated by the board of trustees to support stu-
and hedge funds.
dent financial aid. In all, a little more than half of the endow-
• Campus facilities, net, totaled $180.4 million at June 30,
ment supports student financial aid and the remainder sup-
2013, up 4.1% or $7.2 million over the prior year. Recog-
ports faculty compensation and other operating expenses
consistent with donor restrictions and board designations.
FIGURE 5 Endowment Value and Diversification
$280
$260
FIGURE 4 Sources of Endowment Growth
$400
$155.3
$240
$220
($100.5)
$200
$350
(In Millions)
$300
$276.9
$250
$45.7
$8.8
$200
(In Millions)
$180
$160
$140
$120
$100
$80
$167.6
$60
$150
$40
$20
$100
$0
$50
$0
Endowment
Value 2003
Gifts
University Investment Amount Endowment
Distributed Value 2013
Designated
Return
for Operating
Transfers and
Activities
Other Additions
1993
2003
2013
U.S. Equity–Large Cap
Fixed Income and
Cash Equivalents
U.S. Equity–Small Cap
Real Estate, Natural Resources,
Private Equity, Hedge Funds
and Others
International Equity
University of Puget Sound 2013 Financial Report
7
nizing the importance of the physical campus to student
Liabilities
recruitment, learning, and success to graduation, and with
Puget Sound’s liabilities increased 12.3% over the prior year and
support from donors and tax-exempt bond financing, the
totaled $125.8 million at June 30, 2013. $78.7 million or 62.6%
university has strategically invested $143.3 million over
of liabilities is long-term debt utilized to finance campus facilities.
the past decade in the renewal of its facilities and the
implementation of its campus master plan (figure 6). These
investments have included a state-of-the art science center,
a new health sciences building, a new residential facility,
numerous improvements to academic, residential, and athletic facilities, an enhanced campus entry, and a featured
walkway that unifies the campus. The result is impressive
and a strong asset for the university.
As described in Note 6 to the financial statements, the university issued tax-exempt bonds in 2012–13 to finance construction of the new Commencement Hall residential facility and to
refinance a portion of existing debt. This was accomplished
while maintaining the university’s strong A1 and A+ long-term
credit ratings from Moody’s and S&P, respectively. The transaction moved the university’s debt portfolio from one that was
largely variable-rate bonds, synthetically fixed using interest
To protect its investment in campus facilities and to come
rate swap agreements, to a portfolio that is about half tradi-
closer to fully funding depreciation expense in the annual
tional fixed-rate and half synthetically fixed-rate. For a cost of
operating budget, the university has increased its annual
approximately 21 basis points, the university reduced interest
planned major maintenance budget by 10% per year since
rate risk, basis risk, and liquidity risk, and achieved an esti-
2005–06, and $3.6 million in all over the past decade. Our
mated portfolio cost of capital estimated at 4.79% within the
long-term financial plans continue to reflect steady increases
board’s risk comfort and with level debt service payments to
in this budget to advance toward full funding of deprecation.
smooth budget impact.
Puget Sound currently funds approximately 76% of depreciation in its annual operating budget, showing progress
from the 39% funded in 2001, and has supplemented its operating budget with gift, debt, and reserve funding to enable
significant improvements to campus facilities consistent
with its strategic plan and campus master plan. The strength
of these investments are reflected in Puget Sound’s average age of plant (accumulated depreciation divided by annual depreciation expense) of 8.07 years as compared to an
average age of 13.4 years for other A-rated colleges.
While we continue to be in a low interest rate environment
(and one that is lower than when the interest rate swap
agreements were entered), rates at the longer end of the
treasury yield curve rose during the year, reducing the unrealized negative mark-to-market valuation of the university’s
interest rate swap agreements to $10.9 million, down from
$16.1 million, as reflected in the Consolidated Statement of
Financial Position. The unrealized swap valuations adjust with
interest rate movement and will adjust to zero on the swap
FIGURE 6 Funding Sources of Campus Facilities Additions
FIGURE 7 Expendable Resources-to-Debt Ratio
$280
3.0
$240
2.69
2.5
2.44
(In Millions)
$200
2.0
$160
1.71
1.5
$120
1.0
$80
0.5
$40
$0
Campus
Facilities
Net 2003
Gifts
University
Reserves
Long-Term
Less
Campus
Debt
Depreciation Facilities
Net 2013
0.0
Puget Sound
2013
Puget Sound
2012
Moody's A Rated
2012
2012 is most current comparative data available
8
university of puget sound 2013 financial report
maturity dates. The university’s swap counterparties, The
and offset by a 4.4% increase in student financial aid. The total
Bank of New York Mellon and Societe Generale, are rated
fall and spring tuition discount rate rose to 39.59%, up from
Aa2/AA- and A2/A, respectively.
38.62% the prior year, in response to market conditions and
Puget Sound’s expendable resources-to-debt ratio was 2.44:1
student financial need.
at June 30, 2013, as compared to 2.69:1 the prior year, and
While operating funds come largely from student fees, en-
is above the 2012 median for Moody’s A-rated institutions of
dowment distributions and gift support are important revenue
1.71:1 (figure 7), demonstrating prudence in the use of debt.
diversifiers that subsidize the cost of a Puget Sound education for all students and provide individual student financial aid
Net Assets
Net Assets totaled $429.8 million at June 30, 2013, up $35.5
awards, as well (figure 9).
million or 9% for the fiscal year due in good measure to the
Endowment support for student financial aid, faculty compensa-
increase in endowment investments as discussed above.
tion, and other operating costs totaled $10.6 million in 2012–13,
Consolidated Statement of Activities
a decline of 1.8%, and comprised 9.8% of total operating
revenues and gains, as compared to 10.1% the prior year. The
Operations
university’s endowment spending policy is designed to smooth
In 2012–13, net assets declined from operating activities by
the ups and downs of market valuations. The policy provides
$412,000 as compared to an increase of $283,000 in the prior
a distribution that is 5% of a lagging 36-month average market
fiscal year. The change in net assets from operating activi-
value. This affords the university time to prepare for lower op-
ties includes depreciation, a non-cash expense that is not yet
erating support when markets decline, as we saw in 2008, and
fully funded within Puget Sound’s operating budget, and also
it also means that when markets rebound, as we’ve seen since
includes a one-time expense of $638,000 related to implemen-
2009, we do not immediately experience an increase in endow-
tation of a new enterprise resource planning system (People-
ment distributions. The 2012–13 distribution is based on average
Soft). These are the primary reasons for the decline in net as-
values between July 1, 2008, and June 30, 2011. The effective
sets from operating activities. Excluding depreciation and other
spending rate (distribution divided by beginning of the year mar-
non-cash items, the university generated $5.1 million in cash
ket value) was 4.2% in 2012–13 and 4.3% in 2011–12.
from operating activities in 2012–13, as reflected in the Statement of Cash Flows.
Donor contributions supporting operations (half of which were
unrestricted) totaled $5.4 million, up $1.3 million or 31.8% over
Operating Revenues
the prior year, while funding from governmental grants and
Operating revenues and gains totaled $108.5 million and were
contracts of $2.0 million declined $212,000 or 9.5% due to
$1 million or 1% greater than the prior year. Net tuition, fees,
fewer faculty research grants than in the prior year.
room, and board combined for $84.8 million in revenues and
accounted for 79% of all operating revenues and gains (figure
8). The increases in tuition of 4%, room fee of 3.4%, and board
fee of 4%, were offset by a decline of 54 students (full-time
equivalents) to 2,721 as we came closer to our target of 2,650,
FIGURE 8 Operating Revenues
Operating Expenses
Total operating expenses increased 1.6% in 2012–13, with
educational and general expenses increasing 2.3% and auxiliary enterprises’ operating expenses decreasing 1.6%. Compensation, the single largest expenditure, increased 1.4%.
FIGURE 9 Keeping Tuition Affordable
3%
17%
Student Room
and Board
62%
Net Tuition
and Fees
$4,679
Other Auxiliary
Enterprises
General
Subsidy*
2%
Governmental Grants
and Contracts
5%
$24,184
Net Tuition
Contributions
$15,856
10%
Student
Financial Aid
Endowment Income
and Gains Distributed
1%
Other Sources
$20,535
Total Average
Subsidy
*Includes
endowment, gifts,
and other
supplemental
sources
$40,040
“Sticker Price”
University of Puget Sound 2013 Financial Report
9
Depreciation and amortization increased 4.5% and accounted
• Auxiliary Enterprises, primarily student room and board,
for 11.8% of total operating expenses, as compared to 8.6%
comprises 18% of total operating expenses, and is compa-
a decade ago, reflective of the substantial capital investments
rable to the 17.7% median of national peer institutions and
made since 2003. Also impacting operating expenses in
lower than 20.7% two decades ago. Auxiliary expenses
2012–13 was a revision of policy to capitalize and depreciate
declined 1.6% in 2012–13 in alignment with the slightly
only those qualifying assets that are $5,000 or greater, up from
smaller student body noted above and the corresponding
$500 previously. The result is greater expense in the year of
declines in housing occupancy and meal purchases.
acquisition, but no future depreciation expense for these assets. As noted above, the university continues to make strides
in funding a greater proportion of depreciation in the annual
operating budget.
Nonoperating Activities
Net assets increased $35.9 million from nonoperating activities in 2012–13. Donor contributions restricted to facilities and
endowment totaled $8.1 million and endowment investment
Figure 10 shows how Puget Sound allocated resources in
earnings, net of distributions, increased $21.9 million. Further
2012–13 among its major programs and how this compares
increasing net assets was a $5.2 million mark-to-market im-
to peer institutions and to Puget Sound’s allocations of two
provement on the interest rate swap agreements as discussed
decades ago. Consistent with guidance in the AICPA Audit and
above and in Note 6 to the financial statements.
Accounting Guide, Not-for-Profit Entities (NFP Guide), operation
Closing Remarks
and maintenance of physical plant is not a separate functional
category for financial statement purposes and instead these
Puget Sound’s strength comes from its people, its inspiring
costs are allocated to programs based on square footage.
campus, its ability to change lives, and a solid financial footing
• Instruction and Academic Support costs comprise 52.8%
of total operating expenses, which is comparable to the
53% median of national peer institutions and greater than
the 51.7% allocation two decades ago. Instruction and Aca-
that enables it to fulfill its worthy purpose. In my 23 years at
Puget Sound, I have found it to be a place that sets its sights
high, cares deeply, courageously faces challenges, and makes
the difficult decisions, all with student success in mind.
demic Support expenses combine for a 3.3% increase in
2012–13 due to faculty compensation increase, as well as
increases in academic building maintenance and depreciation and other expenses.
FIGURE 10 Allocating Resources
100%
• Students Services comprise 16.3% of total operating
expenses, which is greater than the 13.4% median for
national peers and the 13.9% allocation two decades ago.
80%
In accordance with NACUBO Financial Accounting and Reporting Manual for Higher Education (FARM) and updated
by the NACUBO Accounting Principles Council (APC),
60%
Student Services includes social and cultural development,
health and wellness, career guidance, student financial
services, intercollegiate athletics, admission services, and
40%
student records. In the aggregate, these costs increased
2.3% in 2012–13 in large measure to increases in staff
compensation and in cultural events sponsored by student
20%
government.
• Institutional Support comprises 12.9% of total expenses as
compared to the 15.9% median of national peer institutions
0%
1993
2013
National Peers
2012
and to Puget Sound’s allocation of 13.7% two decades ago.
Institutional Support declined by 1.5% in 2012–13 largely
due to a decline in fundraising expenses following the pub-
Institutional Support
Auxiliary Enterprises
lic launch of the One [of a Kind] Campaign for University of
Student Services
Instruction and
Academic Support
Puget Sound in the prior year.
10
university of puget sound 2013 financial report
KPMG LLP
Suite 2900
1918 Eighth Avenue
Seattle, wa 98101
Independent Auditors’ Report
The Board of Trustees
University of Puget Sound:
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, 2013, 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 Consolidated 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, 2013, 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 2012 consolidated financial statements, and we expressed an unqualified audit opinion on those audited
consolidated financial statements in our report dated December 17, 2012. In our opinion, the summarized comparative information presented
herein as of and for the year ended June 30, 2012 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 17, 2013
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, 2013 (With Comparative Financial Information as of June 30, 2012)
(Dollars in Thousands)
2013
2012
$ 18,317
$ 23,496
23,066
17,584
ASSE TS:
Cash and cash equivalents (Note 1)
Short-term investments
Investment income receivable (Note 1)
Receivables, net
Contributions receivable, net (Note 2)
Inventories (Note 1)
Prepaid expenses and other assets
Student loans receivable, net (Note 1)
6
47
1,394
1,385
10,502
9,247
628
731
3,300
3,104
14,457
14,579
Beneficial interest in outside trusts (Note 1)
1,993
1,708
Assets held under split-interest agreements (Note 1)
6,265
6,042
276,927
250,468
7,494
3,889
Endowment investments (Notes 1, 3 and 4)
Intangibles, net (Notes 1 and 5)
Assets restricted for investment in campus facilities
Campus facilities, net (Notes 1 and 5)
Total assets
10,849
882
180,389
173,222
$555,587
$506,384
LIAB ILI TIE S AND NET ASS ETS:
Liabilities:
Accounts payable
$
Accrued payroll and other liabilities (Note 8)
3,920
$ 2,398
13,892
13,083
Advance deposits from students (Note 1)
1,860
2,912
Liabilities under split-interest agreements (Note 1)
2,400
2,391
12,502
12,827
Government advances for student loans (Note 1)
Asset retirement obligation (Notes 1 and 5)
1,650
1,611
Unrealized loss on interest rate swap agreements (Note 6)
10,864
16,052
Long-term debt (Note 6)
78,694
60,766
$125,782
$112,040
Total liabilities
Net Assets:
Unrestricted:
Available for operations
987
984
111,475
114,862
Endowment (Note 4)
94,148
86,394
Designated for other specific purposes
18,230
10,312
224,840
212,552
Invested in or designated for campus facilities
Total unrestricted
Temporarily restricted (Note 7)
84,157
67,271
Permanently restricted (Note 7)
120,808
114,521
429,805
394,344
$555,587
$506,384
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 financial report
University of Puget Sound
Consolidated Statement of Activites
For the Year Ended June 30, 2013 (With Summarized Financial Information for the Year Ended June 30, 2012)
Unrestricted
(Dollars in Thousands)
Temporarily
Restricted
Permanently
Restricted
Totals
2013
2012
Operating:
Revenues and gains:
Student tuition and fees
$109,911
$109,911
$ 108,072
Less student financial aid
(43,098)
(43,098)
(41,277)
Net tuition and fees
66,813
66,813
66,795
Student room and board
17,986
17,986
17,962
Other auxiliary enterprises
3,969
3,969
3,783
2,228
Governmental grants and contracts
901
$ 1,115
2,016
Contributions (Note 1)
2,738
2,669
5,407
4,102
Endowment income and gains distributed (Note 4)
3,533
7,092
10,625
10,819
Interest income
Other sources Total operating revenues and gains
198
15
213
501
1,471
3
1,474
1,276
97,609
10,894
108,503
107,466
46,760
Expenses:
Educational and general:
Instruction
48,142
48,142
Academic support
9,357
9,357
8,882
Student services
17,806
17,806
17,400
14,225
Institutional support
Total educational and general expenses
Auxiliary enterprises
Total operating expenses
14,010
14,010
89,315
89,315
87,267
19,600
19,600
19,916
108,915
108,915
107,183
Net assets released from restrictions
9,834
(9,834)
-
-
Increase (decrease) in net assets from operating activities (1,472)
1,060
(412)
283
Contributions (Note 1)
-
2,730
$ 5,389
8,119
17,209
Change in allowance for uncollectible promises (Note 2)
-
74
10
84
(2,071)
6,956
14,293
696
21,945
(13,105)
(386)
-
-
(386)
-
Other adjustments and changes
5,875
44
192
6,111
(8,477)
Net assets released from restrictions
Increase (decrease) in net assets from nonoperating
activities
1,315
(1,315)
-
-
-
13,760
15,826
6,287
35,873
(6,444)
Nonoperating:
Net gains (losses) and income on endowment investments,
net of distributions (Note 4)
Loss on debt extinguishment
Increase (decrease) in net assets Net assets at beginning of the year
Net assets at end of the year 12,288
16,886
6,287
35,461
(6,161)
212,552
67,271
114,521
394,344
400,505
$224,840
$84,157
$120,808
$429,805
$394,344
The accompanying notes are an integral part of the consolidated financial statements
University of Puget Sound 2013 Financial Report
13
University of Puget Sound
Consolidated Statement of Cash Flows
For the Year Ended June 30, 2013 (With Summarized Financial Information for the Year Ended June 30, 2012)
(Dollars in Thousands)
2013
2012
Cash flows from operating activities:
Change in net assets
$35,461
$(6,161)
Adjustments to reconcile change in net assets to net cash provided by operating activities:
Depreciation and amortization
12,857
12,299
Contributions restricted for long-term investment
(6,960)
(15,481)
Gifts of investments, property, and outside trusts
(22)
(12)
(29,885)
4,998
Actuarial adjustments of liabilities under split-interest agreements
(276)
240
Loss on debt extinguishment
386
-
(Gains) losses on endowment investments and split-interest agreements
Loss on disposition of fixed assets
6
-
(59)
39
38
48
Accounts receivable
(9)
916
Investment income receivable
41
9
(1,255)
76
77
1,204
Amortization of tax-exempt bond premium, discount, and issuance costs
Accretion, settlement, and adjustments to asset retirement obligations
Changes in:
Contributions receivable, net
Inventories, prepaid expenses, and other assets
Accounts payable
133
(936)
Accrued payroll and other liabilities
809
2,408
Advance deposits from students
(1,052)
(4)
Unrealized (gain) loss on interest rate swap agreements
(5,188)
6,961
5,103
6,603
Net cash provided by operating activities
Cash flows from investing activities:
92,947
91,526
(89,708)
(5,464)
(95,291)
1,515
Proceeds from sales and maturities of investments
Purchases of investments
Net (purchases) sales of short-term investments
Purchases of assets restricted for investment in campus facilities
Purchases of campus facilities and intangibles
(9,967)
(750)
(22,242)
(18,885)
(2,388)
(1,484)
2,089
(34,733)
1,881
(21,488)
Disbursements of loans to students
Repayments of loans from students
Net cash used for investing activities
Cash flows from financing activities:
6,960
15,481
Investment income subject to split-interest agreements
Contributions restricted for long-term investment
206
208
New liabilities under split-interest agreements
126
16
(368)
(384)
Payments to split-interest agreement beneficiaries
Proceeds from long-term debt
67,577
-
(583)
-
(49,563)
96
24,451
(1,580)
127
13,868
Bonds cost of issuance
Repayments of long-term debt
Changes in government advances for student loans
Net cash provided by financing activities
Net decrease in cash and cash equivalents
(5,179)
(1,017)
23,496
24,513
$18,317
$23,496
$ 2,777
$ 2,447
Purchases of equipment and building construction on account
$ 2,823
$ 1,434
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 $590 and $131 in 2013 and 2012, respectively)
Noncash investing and financing activities:
421
The accompanying notes are an integral part of the consolidated financial statements
14
university of puget sound 2013 financial report
422
University of Puget Sound
Consolidated Supplemental Schedule of Changes in Endowment Investments
For the Year Ended June 30, 2013 (With Comparative Financial Information for the Year Ended June 30, 2012)
(Dollars in Thousands)
2013
2012
$250,468
$251,291
Gifts
3,159
12,178
Other transfers and additions
1,355
104
5,146
4,479
(1,867)
Endowment investments, beginning of the year
Return on endowment investments:
Ordinary income
Less investment expenses
(2,370)
Realized gains
13,126
686
Change in cumulative unrealized gains (losses)
16,668
(5,584)
Total return on endowment investments
32,570
(2,286)
Amount distributed for operating activities
(10,625)
(10,819)
Net change in endowment investments
26,459
(823)
$276,927
$250,468
13.00%
(1.20%)
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
2013
2012
$63.1869
$55.9148
55.9148
56.5772
$ 7.2721
$ (0.6624)
Ordinary income
$ 0.5929
$ 0.5296
Distributed for operations
$ 2.4426
$ 2.5004
Gain (loss)
See accompanying Independent Auditor’s Report
University of Puget Sound 2013 Financial Report
15
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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 Organizations. 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 gains 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 to give, 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, 2012. 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, 2012, 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 2013 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 $7,909 and $530, respectively, at June 30, 2013 and 2012.
16
university of puget sound 2013 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Receivables
Investment income receivable includes earnings on cash and cash equivalents, short-term investments, and investment property.
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 $14,457 and $14,579 at June 30, 2013
and 2012, 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 $13,526
and $21,311 are recognized in the Consolidated Statement of Activities for the years ended June 30, 2013 and 2012, respectively, and include both
operating and nonoperating contributions.
Fundraising expenses of $3,730 and $4,025 are included in Institutional support in the Consolidated Statement of Activities for the years ended
June 30, 2013 and 2012, 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, 2013, was 1.20%.
University of Puget Sound 2013 Financial Report
17
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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 in exchange 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 $1,081 as of June 30, 2013, and $825 as of June 30, 2012. The
amount included in the liability under split-interest agreements to meet future payments under gift annuity contracts was $544 as of June 30, 2013,
and $435 as of June 30, 2012.
Intangible Assets and Campus Facilities
Intangible assets include software, website development costs, and electronic information resources, 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 three 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 years for land improvements, 25 to 40
years for buildings, 20 years for building improvements, four to seven years for equipment, and three 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, 2013. 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, 2007.
18
university of puget sound 2013 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 2 – CONTRIBUTIONS RECEIVABLE
June 30, 2013
June 30, 2012
$ 5,220
7,958
$ 4,241
7,901
More than five years
200
13,378
12,142
Allowance for uncollectable promises
(2,306)
(2,390)
Unconditional promises expected to be collected in:
Less than one year
One to five years
Discount to present value (discount rates of 0.51% to 3.34%) Contributions receivable, net
(570)
(505)
$10,502
$ 9,247
$ 8,273
$ 6,191
4,347
5,267
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
51
58
137
121
$12,808
$11,637
(2,306)
(2,390)
$10,502
$ 9,247
At June 30, 2013, the university did not have any conditional promises to give.
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 established
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. For the university, this level generally includes
mutual funds, listed equities, and other securities where quoted prices may be easily obtained.
Level 2 -- inputs other than quoted prices included within Level 1 that are observable market-based inputs or unobservable inputs that are
corroborated by observable market data. Assets and liabilities the university generally classifies as Level 2 include units held in commingled
pools and common trust funds, investments that may be priced using model-based valuation, including the university’s interest rate swap
agreements, and municipal and government agency obligations.
Level 3 -- inputs are unobservable because there is little or no market activity, and reflect an entity’s own determination about the assumptions
that market participants would use in pricing the assets or liabilities. For the university, assets and liabilities in Level 3 include units in hedge
funds, beneficial interests in outside trusts, interests in perpetual trusts, limited partnership interests, other private investments, and the
university’s asset retirement obligations.
An asset or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement.
University of Puget Sound 2013 Financial Report
19
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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:
Pooled endowment investments:
Global equity:
US
Total
Level 1
Level 2
Level 3
$
Redemption
Restrictions
Level 2 & 3
$ 57,484
$ 11,982
$ 45,502
-
Daily, 1-5 days’ notice
International
42,982
15,332
27,650
-
Daily and monthly, 1-44
days’ notice
Directional hedged equity
22,528
-
14,627
7,901
Monthly, quarterly, and
annual, 6-100
days’ notice
Private equity
22,615
-
-
22,615
Interest rate sensitive strategies
51,770
51,770
-
-
Private debt
10,169
-
-
Unfunded
Commitments
Illiquid
$ 10,487
10,169
Illiquid
$
$ 11,324
Global fixed income/credit:
2,011
Real assets:
Private energy
20,197
-
-
20,197
Illiquid
8,455
-
-
8,455
Illiquid
$
58
14,467
-
-
14,467
Illiquid
$
3,805
554
18,176
-
-
554
18,176
In liquidation
4,732
4,732
-
-
Equity mutual funds
343
343
-
-
Fixed income mutual funds
453
453
-
-
Real estate
134
-
-
134
Illiquid
24
-
-
24
Illiquid
-
-
-
-
Timber
Real estate
Absolute return hedge funds:
In liquidation
Other
Cash and short-term investments
Quarterly/Semi-annual
60-100 days’ notice
Nonpooled endowment investments
Private equity
Cash and short-term investments
Perpetual trusts
Total endowment investments
Other assets
Cash and cash equivalents held in split-interest
agreements
1,844
-
-
1,844
276,927
84,612
87,779
104,536
366
366
-
-
Illiquid
727
727
-
Equity mutual funds
2,373
2,373
-
-
Fixed income mutual funds
7,162
7,162
-
-
21,786
-
21,786
-
1,993
-
-
1,993
Illiquid
380
-
-
380
Illiquid
Marketable securities
Municipal/government agency obligations
Beneficial interest in outside trusts
Real estate
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
Total
10,864
$ 12,514
$
-
10,864
$ 10,864
$
1,650
Total
Liabilities
20
university of puget sound 2013 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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, 2012:
Total
Pooled endowment investments:
Global equity:
US
Level 1
Level 2
Level 3
$ 54,129
$ 16,795
$ 37,334
-
Daily, 1-5 days’ notice
International
33,848
10,633
23,215
-
Daily and monthly,
1-44 days’ notice
Directional hedged equity
21,430
-
11,621
9,809
Monthly, quarterly,
and annual, 6-100
days’ notice
Directional hedged equity-in liquidation
$
Redemption
Restrictions
Level 2 & 3
99
-
-
99
20,256
-
-
20,256
Interest rate sensitive strategies
54,627
54,627
-
-
Private debt
10,376
-
-
Private equity
Unfunded
Commitments
Illiquid
$ 10,865
10,376
Illiquid
$
Global fixed income/credit:
3,429
Real assets:
Private energy
11,957
-
-
11,957
Illiquid
$ 18,384
7,303
-
-
7,303
Illiquid
$
1,072
13,724
-
-
13,724
Illiquid
$
5,073
1,128
17,220
-
-
1,128
17,220
In liquidation
1,668
1,668
-
-
Equity mutual funds
308
308
-
-
Fixed income mutual funds
445
445
-
-
Real estate
134
-
-
134
Illiquid
21
-
-
21
Illiquid
8
8
-
-
Timber
Real estate
Absolute return hedge funds:
In liquidation
Other
Cash and short-term investments
Quarterly/Semi-annual
60-100 days’ notice
Nonpooled endowment investments
Private equity
Cash and short-term investments
Perpetual trusts
Total endowment investments
Other assets
Cash and cash equivalents held in split-interest
agreements
Marketable securities
1,787
-
-
1,787
250,468
84,484
72,170
93,814
251
251
-
-
2,639
2,639
-
-
Illiquid
Equity mutual funds
2,140
2,140
-
Fixed income mutual funds
7,034
7,034
-
12,444
-
12,444
-
1,708
-
-
1,708
Illiquid
380
-
-
380
Illiquid
Municipal/government agency obligations
Beneficial interest in outside trusts
Real estate
Total other assets
26,596
12,064
12,444
2,088
$ 277,064
$ 96,548
$84,614
$95,902
Asset retirement obligation
$
$
-
$
-
$ 1,611
Unrealized loss on interest rate swap agreements
Total
16,052
$ 17,663
$
-
16,052
$16,052
$ $1,611
Total
Liabilities
1,611
University of Puget Sound 2013 Financial Report
21
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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. Valuations of underlying assets which comprise the NAV are provided by fund managers and
consider variables such as comparable sales, income streams discounted for risk levels, and other pertinent information. In addition, actual market
exchanges of units of the investment fund at or near fiscal year-end provide observable market inputs of the exit price. 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. The fair value of endowment investments with liquidity of 90 days or greater was $104,495 at June 30, 2013, and $93,637
at June 30, 2012.
Global equities include marketable securities held in mutual funds and commingled pools, enhanced indexing, and directional hedge funds that are
benchmarked against equity indices. The fair value of assets held through commingled pools and common trusts, units of which are not publicly
traded, was $64,147 at June 30, 2013, and $53,247 at June 30, 2012. The university utilizes enhanced indexing strategies to gain exposure to the
S&P 500 through the use of futures contracts, allowing a portion of the large-cap domestic and international equity allocations to be invested in
fixed-income securities to enhance the index returns. The fair value of investments that employed enhanced indexing strategies was $9,005 at
June 30, 2013, and $7,301 at June 30, 2012. Directional hedged equities generally utilize both long and short positions in corporate securities and
derivatives to provide favorable risk-adjusted returns.
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, 2013
Assets
Balance, beginning of the year
Liabilities
Assets
Liabilities
$ 95,902
$1,611
$96,963
$ 1,563
Total realized and unrealized gains
12,818
-
2,284
-
Purchases
16,478
-
16,302
-
-
39
-
48
(18,289)
-
(19,647)
-
$106,909
$1,650
$95,902
$ 1,611
June 30, 2013
June 30, 2012
$ 10,946
$ 3,501
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, 2012
university of puget sound 2013 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 4 – ENDOWMENT INVESTMENTS AND NET ASSETS
At June 30, 2013, the university’s endowment consisted of approximately 546 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 purpose of the university’s pooled endowment is to provide 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 (net of fees and expenses), through appreciation and income, of at least 5% plus the rate of inflation (as
measured by the broad, domestic Consumer Price Index), thus protecting the assets against inflation. 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. Maintaining adequate
liquidity to meet operating and debt service requirements, to support desired credit ratings, and to provide a source of funds for rebalancing is also
considered when making investment decisions regarding asset allocation or changes in managers.
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, 2013 and 2012. For a few donor-restricted endowment funds, the university honors
and adheres to donor-stipulated spending limitations.
At June 30, 2013, nearly 99% of the university’s endowment investments were pooled.
University of Puget Sound 2013 Financial Report
23
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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, 2013, endowment net assets consisted of the following:
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
$70,062
$110,914
$180,973
462
-
462
181,435
Donor-restricted endowment funds:
True endowments $
Term endowments
-
Total donor-restricted endowment funds
Board-designated quasi-endowment funds Total endowment investments
70,524
110,914
94,151
(3)
1,341
-
95,492
94,148
71,865
110,914
276,927
Unconditional promises to endowment
Total endowment net assets (3)
-
150
5,932
6,082
$94,148
$72,015
$116,846
$283,009
Temporarily
Restricted
Permanently
Restricted
Total
$55,511
$106,811
$162,302
437
-
437
55,948
106,811
162,739
As of June 30, 2012, 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 financial report
$
(20)
(20)
86,414
1,315
-
87,729
86,394
57,263
106,811
250,468
-
-
3,990
3,990
$86,394
$57,263
$110,801
$254,458
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 4 – ENDOWMENT INVESTMENTS AND NET ASSETS, continued
Changes to endowment net assets for the year ended June 30, 2013 are as follows:
Temporarily
Restricted
Permanently
Restricted
$86,394
$ 57,263
$106,811
-
-
3,990
3,990
86,394
57,263
110,801
254,458
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
Total contributions
102
1,005
248
1,355
Net assets released from restrictions
696
(696)
-
-
881
1,852
43
2,776
4,205
8,661
260
13,126
Return on investments:
Ordinary income, net of investment expenses
Realized gains
Change in cumulative unrealized gains
Total return on investments
5,403
10,872
393
16,668
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
Temporarily
Restricted
Permanently
Restricted
$91,364
$65,139
$ 94,788
$251,291
-
162
2,871
3,033
91,364
65,301
97,659
254,324
Endowment net assets, June 30, 2013:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
Changes to endowment net assets for the year ended June 30, 2012 are as follows:
Unrestricted
Total
Endowment net assets, June 30, 2011:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
Contributions:
Gifts added to endowment investments -
197
11,981
12,178
Change in unconditional promises, net
-
(162)
1,119
957
Total contributions
-
35
13,100
13,135
Transfers and other additions
2
(12)
114
104
Ordinary income, net of investment expenses
816
1,668
128
2,612
Realized gains
223
444
19
686
(2,217)
(3,148)
(219)
(5,584)
(1,178)
(1,036)
(72)
(2,286)
Amount distributed for operating activities (3,794)
(7,025)
-
(10,819)
Total return, net of operating distribution
(4,972)
(8,061)
(72)
(13,105)
86,394
57,263
106,811
250,468
-
-
3,990
3,990
$86,394
$57,263
$110,801
$254,458
Return on investments:
Change in cumulative unrealized losses
Total return on investments
Endowment net assets, June 30, 2012:
Endowment investments
Unconditional promises to endowment
Total endowment net assets
University of Puget Sound 2013 Financial Report
25
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 5 – INTANGIBLE ASSETS AND CAMPUS FACILITIES
Intangible Assets
Intangible assets include software, electronic information resources, and website development costs. The weighted average amortization period for
intangible assets is 17 years.
June 30, 2013
June 30, 2012
Amortized intangible assets:
Gross carrying amount
$9,066
$6,508
Accumulated amortization
(1,572)
(2,619)
$ 7,494
$3,889
Net carrying amount
The gross carrying amount included $71 of software placed in service subsequent to year-end and considered in progress at June 30, 2013.
Aggregate amortization expense:
2013
$ 824
Estimated amortization expense for each of the next five years and thereafter is as follows:
2014
$ 948
2015
744
2016
498
2017
362
2018
352
Thereafter
Total
4,519
$ 7,423
Campus Facilities
Campus facilities consisted of the following:
June 30, 2013
Land and improvements
Building and improvements
Equipment
Library resources
Collections
Construction in progress
Accumulated depreciation
Campus facilities, net
June 30, 2012
$ 29,770
$ 28,488
210,611
210,332
17,502
17,412
1,158
1,433
547
544
17,906
2,602
277,494
260,811
(97,105)
(87,589)
$180,389
$173,222
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, 2013
Asset retirement obligation, beginning of the year
$ 1,611
$ 1,563
(28)
(43)
-
8
Accretion expense
68
67
Revisions in estimated cash flows
(1)
16
$ 1,650
$ 1,611
Obligations settled
Obligations Incurred
Asset retirement obligation, end of the year
26
June 30, 2012
university of puget sound 2013 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 6 – LONG-TERM DEBT
Long-term debt consisted of the following:
Final Maturity/
Refunding Date
June 30, 2013
June 30, 2012
WHEFA Revenue Bonds, 2012A
2042
$38,295
WHEFA Revenue Bonds, 2012B
2036
29,195
$
-
WHEFA Revenue Bonds, 2006A
2012
-
19,615
WHEFA Revenue Bonds, 2006B
2012
-
29,505
WHEFA Revenue Bonds, 2001
2031
10,425
10,460
WHEFA Revenue Bonds, 1998
2014
773
1,127
2013-2014
6
59
$78,694
$60,766
Capital lease obligations
Total
Principal due within the next five fiscal years and thereafter is as follows:
2014
$
956
2015
990
2016
1,040
2017
1,085
2018
Thereafter
1,125
70,010
75,206
Unamortized net premium
Unamortized net discount
Total
3,490
(2)
$78,694
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 2006 the university entered into a loan agreement with WHEFA whereby WHEFA issued tax-exempt Variable Rate Demand Refunding Bonds
in the amount of $21,930 (Series 2006A) and Variable Rate Demand Revenue Bonds in the amount of $30,000 (Series 2006B). The proceeds from
the Series 2006B Revenue Bonds were used to fund the renovation and improvement of campus facilities and the proceeds from the Series 2006A
Refunding Bonds were used to advance refund outstanding WHEFA 1998 bonds. Pursuant to the loan agreements, both the WHEFA 2006A and
2006B variable rate bonds bore interest at a rate that was determined weekly through the remarketing process, with the maximum annual rate capped
initially at 10%. The university maintained irrevocable letters of credit equal to the principal amount plus 40 days accrued interest while the Series
2006A and 2006B bonds were outstanding. These bonds were refunded on October 1, 2012, and the associated letters of credit were terminated.
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, 2013, the WHEFA 1998 bonds that remain outstanding are those that were used to advance refund other WHEFA revenue bonds.
University of Puget Sound 2013 Financial Report
27
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 6 – LONG-TERM DEBT, continued
For the year ended June 30, 2013, the university incurred total interest costs related to long-term debt of $3,715, of which $590 was capitalized.
Interest costs include debt interest payments, swap agreement interest, remarketing and letter of credit fees, and amortization of bond premium,
discount and costs of issusance.
The fair value of long-term debt was estimated to be $75,124 and $60,774 at June 30, 2013 and 2012, 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, 2013, 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
$18,920
The Bank of New York Mellon
$28,990
Societe Generale, New York Branch
$10,425
Swap
Counterparty
Effective
Date
Swap
Fixed Rate
Final
Maturity Date
5/25/06
4/1/08
3.875%
10/1/2030
5/25/06
6/30/06
3.855%
10/1/2036
8/9/05
9/1/05
3.426%
10/1/2031
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, 2013 and 2012, included an “Unrealized loss on interest rate swap agreements” of $10,864 and $16,052, 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, 2013 and
2012, was a net unrealized gain of $5,188 and loss of $6,961, 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 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(Dollars in Thousands)
NOTE 7 – RESTRICTIONS ON NET ASSETS
Restrictions on net assets consisted of the following:
June 30, 2013
June 30, 2012
Temporarily restricted:
Time restrictions:
Unappropriated earnings from donor-restricted endowments
$ 70,062
$ 55,511
462
437
70,524
55,948
Unconditional promises to give
4,570
5,257
Split-interest agreements
1,845
1,580
Term endowment
Total donor-restricted endowments
488
466
77,427
63,251
Construction of campus facilities
4,809
2,585
Educational programs and activities
1,921
1.435
Cash surrender value of life insurance policies
Total time restrictions
Purpose restrictions:
Total purpose restrictions
Total temporarily restricted
6,730
4,020
$ 84,157
$ 67,271
$ 116,846
$ 110,801
3,957
3,715
Permanently restricted:
Endowment funds
Split-interest agreements
Loan funds
Total permanently restricted
5
5
$120,808
$114,521
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 $4,647 and $4,402 for the years ended June 30, 2013 and 2012,
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 Financial Report
29
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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, 2013 and 2012, and in the Consolidated Statement of
Activities for the years then ended are as follows:
Faculty Early Retirement
and Career Change Plan
2013
2012
$ 5,618
Post-Retirement
Medical Plan
2013
2012
$ 4,945
$ 2,695
$ 1,608
(92)
(210)
(115)
(139)
Service cost
300
269
109
55
Interest cost
222
240
107
76
-
-
-
40
226
226
99
27
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:
Amortization of transition obligation
Amortization of actuarial loss
Total net benefit expense
748
735
315
198
(435)
148
(228)
1,028
$ 5,839
$ 5,618
$ 2,667
$ 2,695
$
$
$
$
(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
347
333
166
158
5,492
5,285
2,501
2,537
$ 5,839
$ 5,618
$ 2,667
$ 2,695
$(5,839)
$(5,618)
$(2,667)
$(2,695)
The weighted-average assumptions used to determine plan benefit obligations as of June 30, 2013 and 2012, and the net benefit expense for the
years then ended, included:
Faculty Early Retirement
and Career Change Plan
2013
2012
Post-Retirement
Medical Plan
2013
2012
Benefit obligation (post-retirement benefit liability):
Discount rate
4.47%
4.08%
4.43%
4.08%
Rate of compensation increase
5.00%
5.00%
N/A
N/A
Net benefit expense:
30
Discount rate
4.08%
5.01%
4.08%
4.92%
Rate of compensation increase
5.00%
5.00%
N/A
N/A
university of puget sound 2013 financial report
University of Puget Sound
Notes to Consolidated Financial Statements
June 30, 2013
(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
2014
$ 347
$ 166
2015
$ 372
$ 185
2016
$ 351
$ 205
2017
$ 399
$ 225
2018
$ 467
$ 238
2019-2023
$2,186
$1,009
Estimated university contributions to the plans that are expected to be paid during the next fiscal year include $347 for the faculty early retirement
and career change plan and $166 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 $198 for the faculty early retirement and career change plan and a net loss of $84 for the post-retirement
medical plan.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The university allocates a portion of its pooled endowment to investments in natural resources, private equity and real estate asset classes. At
June 30, 2013, an outstanding commitment of $27,685 remains to be invested in these asset classes.
As of June 30, 2013, the university had outstanding commitments in the amount of $13,730 related to the 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, 2013, 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 17, 2013, the date these consolidated financial statements were issued, and
concluded there were no events requiring recording or disclosure.
University of Puget Sound 2013 Financial Report
31
University of Puget Sound
Board of Trustees and Officers
As of December 2013
Trustee Officers
Richard M. Brooks ‘82, Chair
Gwendolyn H. Lillis P’05 , Vice Chair
Ronald R. Thomas, President
Kenneth W. Willman ‘82, Treasurer
Trustees
Carl G. Behnke
President, REB Enterprises, Inc., Seattle, Washington
Richard M. Brooks ‘82 CEO/Director, Zumiez, Inc., Lynnwood, Washington
Mitzi W. Carletti ‘78 Investment Advisor and Research Analyst, Badgley Phelps and Bell, Inc., Seattle, Washington
Marvin H. Caruthers P’02Distinguished 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 A. Duncan ‘82 Trustee, Thomas and Dorothy Leavey Foundation, Los Angeles, California
Rolf Engh P’14
EVP, General Counsel & Secretary, The Valspar Corporation, Minneapolis, Minnesota
Randolph C. Foster ‘74 Partner, Stoel Rives, Portland, Oregon
Bruce W. Hart P’09 Principal, Jacobs, San Francisco, California
Matthew M. Kelleher ‘79 Senior Vice President, Smith Barney, Seattle, Washington
Thomas E. Leavitt ‘71, J.D.‘75, P’10 President, Leavitt Capital Companies, Seattle, Washington
Gwendolyn H. Lillis P’05
Trustee, Lillis Foundation, Castle Rock, Colorado
Eric Lindgren Professor Emeritus of Biology, University of Puget Sound, Tacoma, Washington
Janeen Solie McAninch ‘77, P’06 President/CEO, Becker Capital Management, Portland, Oregon
Kenneth C. McGill ‘61 CEO (retired), Northwest Kinetics, Tacoma, Washington
William C. Nelson ‘69 Vice Chairman (retired), Bank of Hawaii, Portland, Oregon
Jill T. Nishi ‘89 Deputy Director-Strategy, Planning & Management and Special Initiatives, Postsecondary Success,
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
Lyle Quasim ‘70, Hon.’05 Public Service Executive (Retired), Tacoma, Washington
Allan D. Sapp ‘78, P’10 Private Investor, Gardnerville, Nevada
Robert T. Shishido ‘72, P’09 Senior Software Engineer, The Boeing Company, 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
William T. Weyerhaeuser Chairman of the Board, Columbia Banking System, Inc., Tacoma, Washington
Kenneth W. Willman ‘82, P’15
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 financial report
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