AMERICAN UNIVERSITY | 2011–2012 ANNUAL REPORT
About the cover
The cover illustration shows a composite of architectural details for three current
building projects at American University: McKinley Building, on main campus, is
being renovated and expanded to house the School of Communication (back cover
and lower left); North Hall is a new student residence under construction on main
campus (top); and an existing building at 4401 Connecticut Avenue NW is being
refurbished as the future site for WAMU (right).
2 From the Chairman of the Board of Trustees
3 From the President
4 Year in Review
34 University Administration
34 Board of Trustees
35 Financial Statements 2011–2012
37 From the CFO, Vice President and Treasurer
38 Report of the Independent Auditors
39 Balance Sheets
40 Statements of Activities
42 Statements of Cash Flows
43 Notes to Financial Statements
From the Chairman of the Board of Trustees
This annual report, and the year it reflects, is testament to American
University’s strong foundation, steady financial performance, and strategic
plan that provides a road map for ongoing change.
Even with the recent challenges of the national economy, AU has
continued to invest in its greatest assets—our students and faculty—and
is creating a campus for the twenty-first century. While AU’s campus
appearance is about to change as guided by the recently approved
campus plan, our facilities improvements are prudently structured, are
programmatically precise, and will make AU an even more attractive draw
for future students and distinguished scholars while providing a more
powerful presence in the nation’s capital.
We have just completed the fourth year of our strategic plan, American
University and the Next Decade: Leadership for a Changing World, and we
are making steady progress on the plan’s 10 strategic and 6 enabling goals.
While holding the line on tuition costs and increasing our investment in
financial aid, over the plan’s first four years we invested some $100 million
in the plan’s objectives, which reflects the board’s confidence in our goals
and AU’s ability to achieve them.
This investment is already showing significant progress, with new faculty
hires, a stronger academic profile, teaching innovation through modern
technology, institutional prominence, and new campus buildings about
to emerge. As many of the nation’s finest universities have been forced to
retrench, AU has marched steadily forward.
Beyond AU’s astute financial planning, strategic direction, and dramatic
facilities improvements, the true strength of AU is our people—a
diverse campus community firmly rooted in the core values of academic
achievement, social responsibility, and service and the alumni whose
ongoing involvement and support is crucial to our future.
Enjoy the annual report, and we look forward to the ongoing progress.
Sincerely,
Jeffrey A. Sine
2
From the President
American University has just completed a remarkable year, one
that—in the words of our strategic plan—was transformational.
Our faculty, students, and staff continued to excel. In their fields of
study, our faculty continued to grow in stature and influence. Spurred
by outstanding teaching and support, our students were a source of
constant pride through their accomplishments in the classroom, in
service to our many communities, and on the fields of play. Our staff
members were repeatedly recognized by their professions for
distinguished achievements.
In the core elements of our institution’s mission, American University
is doing important work.
Our facilities future, built on the 2011 campus plan approved this year
by the D.C. Zoning Commission, will create more than one million new
square feet and provide as much new space as AU has developed over the
previous 25 years. The AU campus will change dramatically in a very
short time as we develop two eight-acre parcels into thriving parts of
campus and create modern housing, student amenities, unparalleled
teaching facilities, faculty offices, and new homes for WAMU 88.5 and
the schools of law and communication.
Externally, the spotlight shines on AU with an array of prominent guests
bringing the world to AU, capped this past year by former president Bill
Clinton accepting AU’s first Wonk of the Year award.
American University is and will continue to be a great resource for our
city, our nation, and the world. We are testimony to what a community
of smart, passionate, engaged, and active faculty, staff, and students
can accomplish.
Sincerely,
Cornelius M. Kerwin
3
American University has always pushed boundaries.
Whether it’s faculty uncovering the sociological causes
of the HIV/AIDS epidemic in D.C., students fighting to rid
the area’s rivers of pollution, or alums working tirelessly
to end poverty, the people at AU have never shied away
from challenging the status quo—or themselves.
Now, with the D.C. Zoning Commission’s approval of its
campus plan, the university enters a new phase of carefully
planned construction that will help create an environment
to push those intellectual boundaries even further.
“We will develop as much space in new facilities during
the next five years as we have in the last 25 years, and
the results will be truly transformational,” said Don
Myers, chief financial officer, vice president and treasurer.
A few highlights of that transformation:
North Hall construction and an addition to Nebraska Hall
will bring much-needed residential spaces to AU’s
main campus.
The School of Communication will move into the remodeled
and thoroughly modernized McKinley Building.
WAMU will move into a renovated 96,000-square-foot
building at 4401 Connecticut Avenue NW.
The Washington College of Law will move from Massachusetts
Avenue to AU’s eight-acre Tenley Campus, just a block from
the Tenleytown-AU Metro station. New buildings, with
underground parking for 400, will increase the law school’s
space by 50 percent.
East Campus development will incorporate a mixed-use
complex of six buildings, including three residence halls,
academic and administrative buildings, the Admissions
Welcome Center, and underground parking.
As AU president Neil Kerwin noted, “This outcome truly
will enable American University to begin a new chapter in
its history.”
5
16
6
NCAA DIVISION I
115,000+
ALUMNI
FUTURE OF
When it comes to pushing boundaries, there’s no
better example than the School of Communication’s new home—AU’s iconic McKinley Building.
McKinley will be transformed into a sophisticated hub of digital
classrooms, learning labs, and distinctive public spaces, all accessed
through a contemporary glass entrance. But the building’s historical façade
and up to 75 percent of its structure will be preserved. This pairing of past
and future, of legacy and state of the art, reflects SOC’s commitment to
providing students with the latest technology along with a solid foundation
in communication theory and practice.
The move to McKinley will more than triple SOC’s current space. And
because of AU’s dedication to sustainability, the highly ranked school will
strive for LEED* Silver certification.
SOC’s new home will contain several cutting-edge features:
•
Malsi Doyle and Michael Forman Theater. The 150-seat theater
will be a state-of-the-art space for film screenings, master classes,
and national conferences and symposia.
•
Media Innovation Lab. Advancing SOC’s educational philosophy
of convergence across disciplines, the multimedia lab will provide a
place where communication strategists, filmmakers, and journalists
come together to create content.
•
Digital classrooms. Faculty and students will meet in high-tech
classrooms and a focus group teleconference suite.
Former AU trustee Michael Forman generously donated $1.5 million
for the theater, and his earlier challenge fund was vital in underwriting
architectural plans for the building. The campaign to raise additional
funds for SOC will be ongoing during the construction phase.
“McKinley will provide a world-class home for a world-class community
of students, faculty, and staff,” said SOC’s new dean, Jeffrey Rutenbeck.
“For the first time in its history, the School of Communication will have a
dedicated place to bring together and amplify the innovative energy that
has defined SOC since its inception.”
*Leadership in Energy and Environmental Design
STUDENTS REPRESENTING ALL 50 STATES
7
They want to let
the election solve
some of these
issues, and so
nothing’s going
to happen.
"
DAVID GREGORY, SIS ’92
These [Olympic]
games are about
inspiring you guys
to move. That’s
what I want you all
to do with ‘Let’s
Move!’
"
MICHELLE OBAMA
DAVID GREGORY, SIS ’92 Speaking December 5, 2011, at the School of International Service, the host of
Meet the Press explained congressional inaction on the country’s vital challenges. Gregory also cautioned students not to
limit themselves to news slanted to one perspective.
MICHELLE OBAMA Accompanied by Samantha Cameron, wife of the British prime minister, the first lady came to
AU’s Bender Arena on March 13, 2012, for a mini-Olympics competition as part of her fitness campaign to combat
childhood obesity.
8
Peace and
stability can only
last if improving
the environment
is one of the
things you do to
shore up the
peace process.
JANE GOODALL
"
Teaching for the
test is exactly
what we should
do as long as the
test reflects what
we want them
to learn.
"
MICHAEL BLOOMBERG
JANE GOODALL Speaking at AU on September 21, 2011, International Peace Day, the world-famous primatologist and
anthropologist said a sense of urgency is what keeps her traveling 300 days a year to promote peace and conservation. Goodall
recalled that she had observed chimpanzees in the field a full year before one approached—and reached out to touch her.
MICHAEL BLOOMBERG Joining the mayors of Los Angeles and Chicago at AU, New York City’s mayor spoke March 2,
2012, during an education forum hosted by education secretary Arne Duncan and moderated by NBC’s Andrea Mitchell.
Bloomberg defended the role of testing in public education and the rights of parents to have access to data on school performance.
9
GREEN
10
HONOR ROLL
HOME BASE FOR
VETERANS
Almost 200 veterans of the armed forces call AU home base.
For the second year in a row, G.I. Jobs magazine named American
University a Military Friendly School, a designation honoring the top
20 percent of colleges, universities, and trade schools nationwide that
are doing the most to embrace U.S. veterans as students.
The ranking is based on stringent benchmarks that evaluate the
policies and support systems used to recruit and retain military and
veteran students.
A source of pride for the university is its support of the Yellow Ribbon
Program. This annual financial aid program, which AU joined
voluntarily, is an agreement with the Department of Veteran Affairs
to fund tuition expenses exceeding the Post-9/11 G.I. Bill benefit for
qualifying veterans. That amounts to as much as $17,500 per year for
each veteran.
AU also helps vets navigate the maze of paperwork needed to take
advantage of such benefits through its Veterans Liaison Network—
a go-to network of 15 individuals in different university offices.
Just as critical to adjusting to life on campus is the student group AU
Vets. John Kamin, a School of Public Affairs student who served two
tours in Iraq and is the group’s president, found the circle of veterans’
support vital in adjusting to life outside a war zone.
“Making that transition with other soldiers and marines, other people
who had been deployed to Iraq, offered me a kind of safe harbor,”
Kamin said.
Last fall, AU Vets widened the circle. Group members fanned out across
campus to address College Writing Program classes that were reading
David Finkel’s The Good Soldier, which offered vivid on-the-ground
reportage of the 2007–08 surge in Iraq.
“The first reporter I spoke to from the [student newspaper] said she
couldn’t focus in biology [class] after that lecture,” Kamin said. “To see
the kind of impact it made on students was a reward in itself.”
THIRD MOST
UNDERGRADUATE
alumni volunteers
11
145
AU ABROAD
PROGRAMS
12
GREENING HER
COMMUNITY
When it comes to protecting the environment and
boosting sustainability, recent AU graduate Carol Foster
walks the talk.
Foster, a School of Public Affairs graduate who earned a 3.96 grade point
average while pursuing a long list of volunteer and community service
activities, won the 2012 President’s Award.
AU’s highest official honor for undergraduates, the award recognizes
exceptional accomplishments that reflect American University’s ideals,
including service to the D.C. area.
Saying that Foster served her community is an understatement.
Now a staff assistant to U.S. senator Ron Johnson (R-Wisc.), she
participated as a student in a yearlong study gauging the impact of
plastic bags on freshwater ecosystems. Because of her involvement, the
D.C. Council asked her to testify on behalf of the Anacostia River
Cleanup and Protection Act—legislation that resulted in D.C. businesses
charging customers five cents per disposable bag as a way to discourage
plastic bag use.
As director of the AU student government’s bike lending program,
Foster opened up the free service to faculty and staff. Now, it has more
than 550 registered users, annual sightseeing tours, a new locker site,
and new bikes. She was so successful that Tulane University, the bicycle
planning commission of Cleveland, Ohio, and other organizations sought
her advice.
She accomplished all this while volunteering at the Calvary Women’s
Shelter, Prevent Child Abuse America, Relay for Life, and Women for
Women International.
“Volunteering is so important in building and maintaining a strong
community because it really gets people to stop and think beyond
themselves and explore how we’re all intricately connected,” said Foster.
“People often think in terms of the individual, but I believe that true
success can’t occur unless we work in such a way that improves the lives of
those around us as well.”
13
14
CONTEMPORARY
LIVING SPACES
You never forget your college roommates.
Late-night discussions about the meaning of life. Insights into the ways
of another culture. The forging of lifelong friendships. Whatever the
particulars, living on campus is a big part of the college experience.
That’s why building new student housing, starting with the eight-story
North Hall, and expanding and improving existing facilities is a top
priority in American University’s campus plan.
“Where and how students live during their college years can make
substantial contributions to their learning and sense of connection with
the university,” said Gail Short Hanson, vice president of campus life.
“We want our residential facilities to provide communal spaces that
facilitate student engagement and personal living spaces that satisfy
students’ preferences for more privacy and multipurpose use.”
On a campus where the last major housing project was finished in 1987,
more student housing with contemporary designs is essential to meet
growing demand from undergraduates. Each fall, about 300 students
temporarily live in triples—converted from doubles—and 200 others live
in nearby apartments leased by the university. Additionally, about 500
students are housed on Tenley Campus, future home of the law school.
Construction of the $34 million North Hall, on the northwest corner
of main campus, will be completed in the summer of 2013. The suitestyle residence hall will provide 360 beds with shared living rooms for
upperclassmen, plus an 8,000-square-foot fitness center that features
exercise rooms and state-of-the-art equipment. By more than doubling
the fitness space on campus, this facility will support AU’s wellness goals.
A three-story addition to Nebraska Hall, also scheduled to be finished
in the summer of 2013, will add 150 new beds in apartment-style units.
Along with the recently completed renovation and modernization of
Letts Hall, these projects will significantly enhance the quality of AU’s
residential community.
Finally, on the East Campus complex, now site of the Nebraska Avenue
parking lot, three residence halls, constructed around a quad, will house
590 students in double rooms, each with a private bath. Ground will be
broken for the complex in the summer of 2014.
15
We’re talking
about significant
social change. It’s
about how do we
end poverty. . . .
So I try not to get
sidetracked into
anything else.
"
MARK BERGEL,
CAS/MS ’87, PHD ’96
Disability is
not often talked
about, and there’s
a lot of stigma
toward it. We’re
going to try to
break down those
barriers with
this club.
"
ALLIE CANNINGTON, SPA ’14
MARK BERGEL, CAS/MS ’87, PHD ’96 Bergel is founder of A Wider Circle, a nonprofit organization in Silver
Spring, Maryland, that collects and distributes furniture free of charge to poor people transitioning out of homeless shelters
and places like women’s crisis centers. Bergel works 16 hours a day, seven days a week, for his cause.
ALLIE CANNINGTON, SPA ’14 As president of the newly formed Disability Rights Coalition, Cannington is
working to raise awareness of the challenges faced by people with disabilities. In September 2011, Cannington served as an
official rapporteur to the United Nations Convention on the Rights of Persons with Disabilities.
16
People feel lost,
really confused.
A lot of people
tried to call banks
and couldn’t get
help. They’re glad
to know someone
cares.
"
ASHLY HINMON
Our candidates
benefit from the
application process
itself, which
encourages them
to reflect on
and refine their
academic and
career objectives.
PAULA WARRICK
"
ASHLY HINMON, RIGHT, WITH CHRISTINE LONERGAN As part of Washington College of Law’s Take Back
Your Home project, the two law students advise homeowners facing foreclosure on their legal rights and warn them about
scams. The project, founded last year, has 70 student volunteers. It is the only such organization of its kind in the D.C. area.
PAULA WARRICK As director of the Office of Merit Awards, Warrick, along with her Career Center colleagues, plays
a vital role in AU students’ perennial presence among the winners of top scholarships and awards, as evidenced in 2012 by AU’s
16 Presidential Management Fellowship finalists and a school record 14 Fulbright scholars and one alternate.
17
18
NEW STATION
LOCATION
WAMU 88.5 is American University’s boundary-pushing
news and information service.
Home of the nationally distributed Diane Rehm Show, WAMU has long
been a broadcasting star. Indeed, it has risen to become one of the nation’s
top three public radio stations.
That transformation is now complete with the award-winning station’s
impending move to 4401 Connecticut Avenue in northwest Washington,
D.C. As the building’s anchor, WAMU and its music service, Bluegrass
Country, will occupy more than half of the building’s 96,000 gross square
feet. The remaining space will be used for other university administrative
and academic purposes.
WAMU’s new home, ready for occupancy in early 2013, will allow the
station to double its current operating space in a world-class broadcasting
facility while offering first-floor, street-level visibility and underground
parking. The multiplatform station, with about 787,000 listeners in
the greater Washington area, has more than 120 employees and also
broadcasts from 88.3 in Ocean City, Maryland, on the Delmarva
Peninsula. Its websites host more than 350,000 visitors a month.
“We are pleased that WAMU will soon be housed in a facility that will
provide an environment for future programming growth to better serve
our listeners,” said AU president Neil Kerwin. “As a valuable service to
the region, WAMU is one of the best examples of American University’s
commitment to multiple audiences in our D.C. community and beyond.”
WAMU’s current home, a 23,000-gross-square-foot facility at 4000
Brandywine Street NW in D.C., has been the station’s home since 1993.
“A first-class radio station depends on a great staff and an appropriately
sized and outfitted facility,” said station general manager Caryn G.
Mathes, who last summer was elected to National Public Radio’s board
of directors. “Our intention to continue our growth into a broadcasting
powerhouse will be achievable, and our goal of truly being a community
institution can be more readily realized.”
RHODES SCHOLAR
2 FINALISTS
19
PATRIOT
20
Bill Clinton is now officially the number one wonk.
Speaking January 2012 at American University, the former president
accepted the Kennedy Political Union (KPU) honor of being AU’s
inaugural Wonk of the Year.
“I loved when people made fun of me for being wonkish because I figured
people wanted a president who actually knew something,” the 42nd
commander in chief quipped before thousands of onlookers crowding
AU’s Bender Arena.
The award, presented by KPU, a student organization, recognizes a wellknown person who embodies the characteristics AU students admire—
someone who is smart, passionate, focused, and engaged and who creates
meaningful change on our most important and challenging issues.
Clinton is certainly all those things. In 2005 his foundation created the
Clinton Global Initiative, an annual conference that convenes global
leaders to tackle the world’s most pressing problems. Those meetings have
brought together more than 150 heads of state, 20 Nobel Prize laureates,
as well as prominent CEOs, philanthropists, and others. Members have
made commitments to improving millions of people’s lives that, when
fully funded, will equal $69.2 billion in value.
Clinton epitomizes precisely what AU values through its wonk campaign,
a way of branding what the university represents—brainy, passionate,
engaged citizens committed to positive change.
The campaign has won the university a good deal of media notice
and a growing chorus of plaudits. Topping off those awards in June
2012 was an Emmy for best single spot commercial, which followed
nine national CASE Circle of Excellence Awards—the most prestigious
recognition a university can receive for work in higher education
advancement and communications.
AVERAGE
21
We kept telling
the students what
this was about
and who was on
the President’s
Committee. People
like Forest Whitaker
and Yo-Yo Ma
. . . I don’t think
they believed us.
KYLE DARGAN
We need to raise
our visibility in the
city and raise the
perception of our
quality among my
peers in other
business schools.
MICHAEL GINZBERG
"
KYLE DARGAN Last spring the AU creative writing professor and award-winning poet led a group of D.C. high school
students to read their poetry at the Library of Congress and later at a White House event. Dargan led workshops to prepare
the students, who also published a collection of their poetry.
MICHAEL GINZBERG After becoming dean of the Kogod School of Business in July 2011, Ginzberg set to work
building on a strong foundation of programs, faculty, students, staff, and facilities. Part of that task involves differentiating
Kogod—with its outstanding programs in such fields as international business, finance, and accounting—from its competitors.
22
"
The partnership
between the Post
and AU [is] a classic
win-win. We benefit
from the talent of
AU students, and
they benefit from
the real-world
experience we
can give them.
VERNON LOEB
"
American
University was
the perfect place
to house this
initiative because
they already had
a robust Russian
studies program.
SUSAN LEHRMAN
"
VERNON LOEB A local editor for the Washington Post, Loeb is a key player in an innovative partnership between
American University and one of the nation’s most prestigious newspapers. Seven School of Communication students have
written more than 200 bylined articles in the Post since fall 2011.
SUSAN LEHRMAN The businesswoman and philanthropist, who funds AU’s Initiative for Russian Culture (IRC), worked
with Sergey Kislyak (right), Russia’s ambassador to the United States, and Peter Starr (left), dean of AU’s College of Arts and
Sciences, to establish a program to connect American and Russian students. The IRC seeks to overcome Cold War stereotypes of
Russians and present a more accurate picture of their lives and culture.
23
24
LIFE SCIENCE
Industries that will dominate business—pharma,
biotech, health care, and IT—are shifting from the West
to nations like China, India, South Korea, and Brazil.
And that shift to global innovation is good, according to Kogod School
of Business professor Tomasz Mroczkowski.
Mroczkowski, author of The New Players in Life Science Innovation:
Best Practices in R&D from around the World, said, “We’re witnessing
a new phase in innovation, an expanded universe of global research
and development.”
This globalization of research and development occurred against the
backdrop of the U.S. and European financial meltdowns. Investment
funding shrank in the West but increased throughout Asia, where
national efforts focused on boosting research. China, for example, had
already begun its Torch program, which linked science and industry,
created tech markets, and promoted academic entrepreneurship.
This combination of financial strain and international technical expertise
has driven Western life science companies to collaborate with companies
from other nations.
Another effect has been outsourcing. In the pharmaceutical field, for
example, one study estimated that 32,000 French jobs may be at risk in
the near future unless new policy responses are adopted. Large companies
such as Lilly have outsourced most of their pharmaceutical functions, and
Merck has closed many of its European R&D labs, choosing to partner
with Indian companies for drug development.
Meanwhile, by 1990 the number of Asian students receiving engineering
degrees had exceeded that of the United States and Europe combined.
Still, the United States will remain the most attractive high-tech market,
the best destination for R&D, innovation, and universities, Mroczkowski
maintained. Huge opportunities for partnering and collaborating with
global firms will present themselves.
“Innovation is in the network,” Mroczkowski said. “If it’s a global
network and it can collaborate and exchange information—that’s going to
give us some really new kinds of exciting innovations.”
25
26
NUCLEAR
NONPROLIFERATION
Following the collapse of the Soviet Union, keeping
nuclear, chemical, and biological weapon expertise from spreading to terrorists and hostile states has been a top U.S. priority.
Unfortunately, bureaucratic limitations often hobble attempts to tackle
such an enormously challenging task.
School of International Service professor Sharon Weiner reached
that conclusion after interviewing more than 150 scientists, program
managers, policy makers, and others in the United States, Russia,
Ukraine, and parts of central Asia for her book Our Own Worst Enemy?
Institutional Interests and the Proliferation of Nuclear Weapons Expertise.
Nonproliferation programs, Weiner found, have produced mixed results.
Between 1991 and 2008, for example, the U.S. government spent
more than $1.2 billion to discourage proliferation of weapons of mass
destruction (WMD) through a host of programs to find new industries to
employ WMD scientists. Yet at best those programs created jobs for only
one in five such experts.
Part of the problem was goal displacement, a tendency Weiner said all
organizations share. “If the goal doesn’t fit in with what they normally
would do, they make the goal look like what they would normally do.
Because they’re rational, they [change] the goal to something that they
can demonstrate success in or that they can measure more easily.”
And so some programs switched to the familiar goal of transparency.
Out of nowhere, the Russians were being asked to reveal the identities
of their key nuclear weapons scientists, a request unlikely to encourage
cooperation.
For all their shortcomings, however, the programs yielded the United
States invaluable benefits, said Weiner.
“Were these programs worth it? In terms of nonproliferation, probably
not,” she said. “But in terms of overall U.S.-Russia relations, I think they
were crucial to lay the foundation that means that Russia today still has
the potential to be a partner for the U.S. And that was worth it.”
27
These transitions
are very difficult.
It’s great on one
level, frustrating
on another. On the
one hand, a lot has
changed; on the
other hand, the
military is still
in control.
"
DIANE SINGERMAN
I want to make
sure that the
students are
connected with
the broader
community in the
fields we cover.
JAMES GOLDGEIER
"
DIANE SINGERMAN The School of Public Affairs professor was awarded a $250,000 Ford Foundation grant to study
alternative methods of housing, local governance, and urban development in Egypt. She is a leading expert on Egyptian
politics, gender issues, social movements, globalization, public space, protest, and urban politics.
JAMES GOLDGEIER Soon after becoming the new dean of the School of International Service in August 2011, Goldgeier,
an internationally known scholar, former director of George Washington University’s Institute for European, Russian, and
Eurasian Studies, and author or coauthor of four books, discussed his goals.
28
Courts care
what affected
communities think
about fair use. . . .
Now librarians are
on the record
with a powerful
statement of
their values.
PETER JASZI
"
If you have
hepatitis, which
is inflammation of
the liver, you’re
more prone to get
liver cancer.
"
KATHLEEN DECICCO-SKINNER
PETER JASZI In January 2012, the Washington College of Law professor, together with Patricia Aufderheide, director
of the School of Communication’s Center for Social Media, announced the release of the Code of Best Practices in Fair Use for
Academic and Research Libraries. The code spells out reasonable approaches to fair use of copyrighted materials.
KATHLEEN DECICCO-SKINNER In August 2011 the AU biology professor won a $381,871 NIH grant to
investigate a possible link between skin cancer in mice and a missing gene. Mice lacking that gene show more inflammation
than normal mice, and scientists have long hypothesized a connection between cancer and inflammation.
29
30
WOMEN PUSHING
BOUNDARIES
Twenty years ago, women pushed the boundaries of
national politics.
“The Year of the Woman” in 1992 saw a 70 percent increase in the
number of women in Congress. In March 2012, campaign veterans
of that heady time gathered on AU’s campus to show how things have
changed—though not necessarily for the better.
Among those veterans was AU alum Connie Morella, SPA/MA ’67, the
former congresswoman from Maryland, ambassador to the Organization
for Economic Co-operation and Development, and ambassador in
residence at AU’s Women and Politics Institute.
So why have women’s gains in Congress lost momentum since that
historic year?
“I think they lack the confidence factor,” Morella reflected. “They often
think they need 45 PhD degrees to be eligible to run, to be qualified.
Men have got more confidence. And I would add to that the poisonous
rhetoric, the environment of politics. They feel, ‘Do I want to expose my
family or myself to this?’”
Other veterans of 1992 also weighed in on the discussion at AU:
•
Sylvia Garcia, candidate for Congress in Texas: “While it’s great to
celebrate Women’s History Month and look back at 1992, isn’t it
regretful that 2012 will probably be remembered as the year of the
attack on women? Rather than celebrating successes, we’re having
to fight those elements in our country that are trying to turn back
the clock.”
•
Josie Heath, Senate candidate from Colorado: “In 1992 we thought
a woman’s place was in the House and the Senate. We think the
same thing in 2012.”
•
Claire Sargent, Senate candidate from Arizona: “Some of us were
accused of running because we were women in 1992. In fact some
said we campaigned on, ‘I’ve got breasts, vote for me.’ Well, I said
and I say again, ‘It’s about time we voted for someone with breasts.
After all, we’ve been voting for boobs long enough.’”
31
32
JOINING THE
FIGHT ON HIV
HIV/AIDS infects 3.2 percent of Washington, D.C.,
residents over the age of 12—a rate worse than in some
developing countries and among the nation’s highest.
So for AU, becoming an institutional partner in the District of Columbia
Developmental Center for AIDS Research (DC D-CFAR) was a chance
to help our community fight a persistent and deadly disease.
“Most people in the U.S. probably have no idea that there is somewhere
in this country where rates are so high,” says Professor Kim Blankenship,
AU’s representative to DC D-CFAR.
The center, funded by the National Institutes of Health, is a collaboration
between AU, Children’s National Medical Center, the Veterans Affairs
Medical Center, and area universities. Twenty other such centers across
the United States also work to create a multidisciplinary approach to
detecting, preventing, and treating HIV infection and AIDS.
“What makes AU unique among the other partner institutions is that
we have a lot of people studying HIV/AIDS from different social science
perspectives,” says Blankenship, chair of the Department of Sociology in
the College of Arts and Sciences.
“Whether that is an anthropologist studying migration, a sociologist
studying gentrification, or a scholar in the School of International Service
studying the ways these problems affect international relations, AU brings
something very important to this partnership.”
Such an approach is vital. While the biological aspect of health care is
extremely important, promoting its benefits without grasping the social
dimensions is bound to fail.
“A vaccine can work 100 percent of the time,” says Blankenship, “but if
people don’t to take it because of religion or suspicion of the government,
it won’t work in reality.”
Blankenship, whose research and publications focus on race, class, and
gender analyses of health, is also director of AU’s Center on Health, Risk,
and Society. The center is a multidisciplinary, university-wide group of
scholars interested in researching health-related issues.
33
UNIVERSITY ADMINISTRATION
Cornelius M. Kerwin,* President
Scott A. Bass, Provost
Donald L. Myers,* Chief Financial Officer, Vice President and Treasurer
Mary E. Kennard, Vice President and General Counsel
Thomas J. Minar, Vice President of Development and Alumni Relations
Gail S. Hanson, Vice President of Campus Life
Teresa Flannery, Vice President of Communication
David E. Taylor, Chief of Staff
Phyllis A. Peres, Senior Vice Provost and Dean of Academic Affairs
Michael J. Ginzberg, Dean, Kogod School of Business
James M. Goldgeier, Dean, School of International Service
Claudio M. Grossman, Dean, Washington College of Law
Barbara S. Romzek, Dean, School of Public Affairs
Jeffrey Rutenbeck, Dean, School of Communication
Peter Starr, Dean, College of Arts and Sciences
Carola Weil, Dean, School of Professional and Extended Studies
Nancy Davenport, Interim University Librarian
BOARD OF TRUSTEES
Jeffrey A. Sine,* Chair
Patrick Butler,* Vice Chair
Gary M. Abramson,* Chair Emeritus
Gina F. Adams*
Brett T. Atanasio*
Stephanie M. Bennett-Smith
D. Barlow Burke Jr.
Kim Cape
Jack C. Cassell*
Gary D. Cohn*
Pamela M. Deese*
David R. Drobis*
Marc N. Duber*
Hani M. S. Farsi*
C. A. Daniel Gasby
* alumna or alumnus of American University
34
James E. Girard
Thomas A. Gottschalk
Gisela B. Huberman*
C. Nicholas Keating Jr.*
Cornelius M. Kerwin*
Margery Kraus*
Gerald Bruce Lee*
Charles H. Lydecker*
Robyn Rafferty Mathias*
Marcus Matthews
Alan L. Meltzer*
Regina L. Muehlhauser*
Arthur J. Rothkopf
Peter L. Scher*
Mark L. Schneider
From the CFO, Vice President and Treasurer
In my 40-plus years at American University, I cannot think of a period
with more promise and excitement as we anticipate the changes before us.
Our strong financial position, cultivated over many years, has enabled us
to make a significant investment in our future—one that will redefine our
campus and the facilities and environment for learning and living at AU.
We have embarked on a capital expansion program that is an outgrowth of
both our strategic plan and the Board of Trustees’s vision for advancing the
university. The McKinley Building is being completely renovated and will
become the new home for the School of Communication. In addition, we
recently purchased and are renovating a 96,000-square-foot building on
Connecticut Avenue to become the new home for WAMU, the public radio
news and information station licensed to American University, together
with several academic institutes and administrative offices.
Following the D.C. Zoning Commission’s approval of our campus
plan earlier this year, we immediately began construction on two new
on-campus residence halls—North Hall and an addition to Nebraska Hall.
These facilities will replace 500 beds currently at Tenley Campus that will
be displaced as part of the development of the Tenley Campus as a new
Washington College of Law center. In addition, planning has begun for the
construction of the East Campus academic and residential complex. All of
these capital projects are being planned to receive LEED Gold certification.
Our credit ratings remain strong, with Moody’s Investors Service
reaffirming our A2 rating and upgrading our outlook from stable to
positive, and Standard and Poor’s reaffirming our A+ rating. S&P also
issued an A-1 short-term rating based on our strong liquidity position. Our
financial position, as shown on the following pages, remains strong, and we
continue to generate very positive annual operating results.
The lingering effects of the economy continue to put stress on family
finances, and we are doing as much as possible to help. This past year, the
university spent $110 million on direct aid to students, and that amount
has increased by 57 percent in the past five years. Additionally, we have
shifted $10 million in institutional aid from merit- to need-based aid to
increase affordability, and our tuition increases remain below the national
average, as they have for the last 10 years.
I look forward to the coming years with continued enthusiasm as we
complete the plans for “pushing boundaries” to accomplish our commitment
to academic excellence and to provide best-in-class university facilities.
Sincerely,
Donald L. Myers
37
REPORT OF INDEPENDENT AUDITORS
TO BOARD OF TRUSTEES OF AMERICAN UNIVERSITY:
In our opinion, the accompanying balance sheets and the related statements of activities and of cash flows
present fairly, in all material respects, the financial position of American University (the University) at April
30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America. These financial statements
are the responsibility of the University’s management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
AUGUST 31, 2012
38
BALANCE SHEETS APRIL 30, 2012 AND 2011
(IN THOUSANDS)
2012
2011
ASSETS
1
Cash and cash equivalents
2
57,743 $
41,360
Accounts and University loans receivable, net
27,242
26,673
3
Contributions receivable, net
10,130
8,576
4
Prepaid expenses and inventory
2,585
1,729
5
Investments
690,134
626,798
6
Deposits with trustees/others
418
43
7
Deposits for collateralized swaps
30,896
4,907
8
Property, plant, and equipment, net
437,076
434,090
9
Deferred financing costs
2,454
2,568
Interest in perpetual trust
14,597
14,683
10
Total assets
11
$
$ 1,273,275 $ 1,161,427
LIABILITIES AND NET ASSETS
Liabilities:
12
Accounts payable and accrued liabilities
13
Deferred revenue and deposits
14
Notes payable and long-term debt
15
Swap agreements
16
17
46,997 $
43,356
18,566
18,980
340,875
255,875
67,917
37,135
Assets retirement obligations
4,856
4,404
Refundable advances from the U.S. government
8,542
8,380
487,753
368,130
7,803
7,667
171,046
171,424
Total liabilities
18
$
Net assets:
Unrestricted
19
20
General operations
Internally designated
Capital
21
Designated funds functioning as endowments
320,564
309,476
22
Designated for plant
114,988
132,075
614,401
620,642
23
Total unrestricted
24
Temporarily restricted
80,124
87,930
25
Permanently restricted
90,997
84,725
785,522
793,297
26
Total net assets
27
Total liabilities and net assets
$ 1,273,275 $ 1,161,427
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
39
STATEMENTS OF ACTIVITIES YEAR ENDED APRIL 30, 2012
UNRESTRICTED NET ASSETS
(IN THOUSANDS)
GENERAL
OPERATIONS
INTERNALLY
DESIGNATED
$440,314
$ 1,224
CAPITAL
TEMPORARILY
RESTRICTED
NET ASSETS
TOTAL
PERMANENTLY
RESTRICTED
NET ASSETS
TOTAL
Operating revenues and support
1
Tuition and fees
$
- $441,538
$
-
$
- $441,538
2
Less scholarship allowances
(88,282)
(8,485)
-
(96,767)
-
-
(96,767)
3
Net tuition and fees
352,032
(7,261)
-
344,771
-
-
344,771
4
Federal grants and contracts
835
15,107
-
15,942
-
-
15,942
5
Private grants and contracts
8,516
9,055
-
17,571
-
-
17,571
6
Indirect cost recovery
1,546
-
-
1,546
-
-
1,546
7
Contributions
10,284
5,068
1,325
16,677
3,076
3,891
23,644
8
Endowment income
793
6,785
189
7,767
4,909
119
12,795
9
Investment income
6,015
360
11
6,386
146
-
6,532
Auxiliary enterprises
71,342
100
-
71,442
-
-
71,442
1,629
1,285
1
2,915
-
-
2,915
167
5,148
3,468
8,783
(8,783)
-
-
453,159
35,647
4,994
493,800
(652)
4,010
497,158
129,182
3,625
17,921
150,728
-
-
150,728
10
11
Other sources
12
Net asset release
13
Total operating
revenues and support
Operating expenses
14
Instruction
15
Research
24,028
15,270
-
39,298
-
-
39,298
16
Public service
19,472
633
753
20,858
-
-
20,858
17
Academic support
41,223
5,613
5,902
52,738
-
-
52,738
18
Student services
37,097
327
2,734
40,158
-
-
40,158
19
Institutional support
66,825
4,220
12,020
83,065
-
-
83,065
20
Auxiliary enterprises
38,649
7
27,879
66,535
-
-
66,535
21
Facilities operations
and maintenance
39,462
-
(39,462)
-
-
-
-
22
Interest expense
13,033
-
(13,033)
-
-
-
-
-
-
453,380
4,010
43,778
23
Total operating expenses
408,971
29,695
14,714
453,380
24
Total operating activities
44,188
5,952
(9,720)
40,420
(43,941)
4,268
39,673
-
-
-
-
-
-
-
-
24
24
2,453
1,133
25
Transfer among funds
(652)
Nonoperating items
26
Investment income
-
27
Other revenue and transfers
-
28
Realized and unrealized
net capital gains
(46,404)
(6,091)
(10,598)
(35,952)
(46,661)
(7,154)
2,262
(51,553)
(378)
(5,999)
(6,241)
(7,806)
6,272
(7,775)
620,642
87,930
84,725
$435,552 $ 614,401
$ 80,124
30
Change in net assets
136
Net assets at end of year
7,667
171,424
$ 7,803
$171,046
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
40
(1,063)
(36,312)
(111)
32
(257)
(9,981)
Total nonoperating
activities
Net assets at beginning of year
360
(111)
29
31
(617)
441,551
(215)
(52,710)
793,297
$ 90,997 $785,522
STATEMENTS OF ACTIVITIES YEAR ENDED APRIL 30, 2011
UNRESTRICTED NET ASSETS
(IN THOUSANDS)
GENERAL
OPERATIONS
INTERNALLY
DESIGNATED
$423,039
$ 1,107
CAPITAL
TEMPORARILY
RESTRICTED
NET ASSETS
TOTAL
PERMANENTLY
RESTRICTED
NET ASSETS
TOTAL
Operating revenues and support
1
Tuition and fees
$
-
$424,146
$
-
$
- $424,146
2
Less scholarship allowances
(83,268)
(8,931)
-
(92,199)
-
-
(92,199)
3
Net tuition and fees
339,771
(7,824)
-
331,947
-
-
331,947
4
Federal grants and contracts
733
18,129
-
18,862
-
-
18,862
5
Private grants and contracts
8,491
8,672
-
17,163
-
-
17,163
6
Indirect cost recovery
1,426
-
-
1,426
-
-
1,426
7
Contributions
9,880
4,013
1,333
15,226
1,926
621
17,773
8
Endowment income
763
6,922
64
7,749
5,438
173
13,360
9
Investment income
4,075
319
32
4,426
145
-
4,571
Auxiliary enterprises
61,937
94
7,965
69,996
-
-
69,996
2,093
1,411
6
3,510
-
-
3,510
215
5,018
1,606
6,839
-
-
429,384
36,754
11,006
477,144
670
794
478,608
124,834
4,298
12,786
141,918
-
-
141,918
10
11
Other sources
12
Net asset release
13
Total operating
revenues and support
(6,839)
Operating expenses
14
Instruction
15
Research
20,420
16,859
-
37,279
-
-
37,279
16
Public service
16,951
604
710
18,265
-
-
18,265
17
Academic support
38,138
4,897
5,683
48,718
-
-
48,718
18
Student services
34,983
374
5,683
41,040
-
-
41,040
19
Institutional support
61,694
3,972
7,105
72,771
-
-
72,771
20
Auxiliary enterprises
30,571
21
39,072
69,664
-
-
69,664
21
Facilities operations
and maintenance
38,986
-
(38,986)
-
-
-
-
22
Interest expense
10,287
-
(10,287)
-
-
-
-
23
Total operating expenses
376,864
31,025
21,766
429,655
-
-
429,655
24
Total operating activities
52,520
5,729
(10,760)
47,489
670
794
48,953
(51,881)
20,334
31,547
-
-
-
-
-
-
-
-
35
35
1,006
534
943
25
Transfer among funds
Nonoperating items
26
Investment income
-
27
Other revenue and transfers
-
28
Realized and unrealized
net capital gains
(675)
78
(597)
(113)
(8,106)
38,986
30,767
14,128
2,132
47,027
29
Total nonoperating
activities
(113)
(8,781)
39,064
30,170
15,134
2,701
48,005
30
Change in net assets
526
17,282
59,851
77,659
15,804
3,495
96,958
7,141
154,142
381,700
542,983
72,126
81,230
696,339
$ 7,667
$171,424
$441,551
$620,642
$ 87,930
31
Net assets at beginning of year
32
Net assets at end of year
$ 84,725 $793,297
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
41
STATEMENTS OF CASH FLOWS YEARS ENDED APRIL 30, 2012 AND 2011
(IN THOUSANDS)
2012
2011
CASH FLOWS FROM OPERATING ACTIVITIES
1
(Decrease) increase in net assets
$ (7,775)
$ 96,958
Adjustments to reconcile increase in net assets to net cash
provided by operating activities:
2
Contributed art and property
3
Net realized and unrealized capital losses (gains)
13,328
(56,622)
4
Change in fair value of interest rate swaps
30,782
(134)
5
Depreciation, amortization, and accretion
24,895
(923)
(153)
22,584
Changes in assets and liabilities
6
Increase in accounts and university loans receivable, net
7
(Increase) decrease in contributions receivable, net
8
(Increase) decrease in prepaid expenses
9
Increase (decrease) in accounts payable and accrued liabilities
(37)
(2,183)
(1,554)
1,440
(856)
242
3,641
(1,223)
10
Decrease in deferred revenue, deposits, and other refundable advances
(252)
(4,082)
11
Contributions collected and revenues restricted for long-term investment
(5,437)
(2,625)
55,812
54,202
(270,970)
(305,587)
12
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
13
Purchases of investments
14
Proceeds from sales and maturities of investments
194,392
140,803
15
Purchases of property, plant, and equipment
(26,392)
(28,324)
16
Decrease in deposits with trustees/other, net
(26,364)
(2,716)
(129,334)
(195,824)
Student loans issued
(1,800)
(1,600)
Student loans repaid
1,268
1,622
85,000
-
17
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
18
19
20
Issuance of debt
Proceeds from contributions restricted for
21
Investment in plant
2,275
1,599
22
Investment in endowment
3,162
1,026
23
Net cash provided by financing activities
89,905
24
Net increase (decrease) in cash and cash equivalents
16,383
25
26
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2,647
(138,975)
41,360
180,335
$ 57,743
$ 41,360
$ 13,314
$ 11,241
923
153
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
27
Cash paid during year for interest
28
Contributed art and property
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
42
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
1. AMERICAN UNIVERSITY
American University (the University) is an independent, coeducational university located on an 85-acre campus in northwest Washington, D.C. It was chartered by an Act of Congress in 1893 (the Act). The Act empowered the establishment and
maintenance of a university for the promotion of education under the auspices of the Methodist Church. While still maintaining its Methodist connection, the University is nonsectarian in all of its policies.
American University offers a wide range of graduate and undergraduate degree programs, as well as non-degree study. There are approximately 800 full-time faculty members in seven academic divisions, and approximately 12,000 students, of which 6,800
are undergraduate students and 5,200 are graduate students. The University attracts students from all 50 states, the District of Columbia, Puerto Rico, and nearly 140 foreign countries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements of the University have been reported on the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America.
CLASSIFICATION OF NET ASSETS
Net assets, revenues, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the University and changes therein are classified and reported as follows:
Unrestricted—Net assets not subject to donor-imposed stipulations.
Temporarily Restricted—Net assets subject to donor-imposed stipulations that either expire by
passage of time or can be fulfilled by actions of the University pursuant to those stipulations.
Permanently Restricted—Net assets subject to donor-imposed stipulations that they be maintained
permanently by the University.
Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed
restrictions. Contributions are reported as increases in the appropriate category of net assets. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or by law. Expirations of temporary restrictions recognized on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications
from temporarily restricted net assets to unrestricted net assets. Temporary restrictions on gifts to acquire long-lived assets are considered met in the period in which the assets are acquired or placed in service.
Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of gift. Contributions to be received after one year are discounted at a rate commensurate with the risk involved. Amortization of the discount is recorded as bad debt expense. Allowance is made for uncollectible contributions based upon management’s judgment and analysis of the creditworthiness of the donors, past
collection experience, and other relevant factors.
The University follows a practice of classifying its unrestricted net asset class of revenues and expenses as general operations, internally designated, or capital. Items classified as general operations include those revenues and expenses included in the
University’s annual operating budget. Items classified as capital include accounts and transactions related to endowment funds and plant facilities and allocation of facilities operations and maintenance, depreciation, and interest expense. All other accounts
and transactions are classified as internally designated.
Transfers consist primarily of funding designations for specific purposes and for future plant acquisitions and improvements.
Non-operating activities represent transactions relating to the University’s long-term investments and plant activities,
including contributions to be invested by the University to generate a return that will support future operations,
contributions to be received in the future or to be used for facilities and equipment, and investment gains or losses.
43
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
44
CASH AND CASH EQUIVALENTS
All highly liquid cash investments with maturities at date of purchase of three months or less are considered to be cash
equivalents. Cash equivalents consist primarily of money market funds.
RECEIVABLES
Receivables consist of tuition and fee charges to students and auxiliary enterprises’ sales and services. Receivables also include amounts due from the federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to grants and contracts. Receivables are recorded net of estimated uncollectible amounts. The University reviews the individual receivables as well as the history of collectability to determine the collectible amount as of the balance sheet date.
LOANS RECEIVABLE
Loans receivable are primarily related to donor-structured loans and federal student financial aid programs. The loans have stated interest rates and repayment terms. Loans receivable are evaluated annually by looking at both unsecured and secured loans.
DEPOSITS WITH TRUSTEES/OTHERS
Deposits with trustees consist of debt service funds and the unexpended proceeds of certain bonds payable. These funds
are invested in short-term, highly liquid securities and will be used for construction of, or payment of debt service on,
certain facilities.
INVESTMENTS
Equity securities with readily determinable fair values and all debt securities are recorded at fair value in the balance sheet. See Note 6 for an explanation as to methodology for determining fair value. Endowment income included in operating revenues consists of annual amounts allocated for spending of endowment funds in accordance with the University’s spending policy.
All realized and unrealized gains and losses from investments of endowment funds are reported as non-operating revenues.
Investment income included in operating revenues consists primarily of interest and dividends from investments of working
capital funds and unexpended plant funds.
The University has interests in alternative investments consisting of limited partnerships. Alternative investments are less liquid than the University’s other investments. Furthermore, the investments in these limited partnerships, as well as certain mutual
funds classified as equity securities, may include derivatives and certain private investments which do not trade on public markets
and therefore may be subject to greater liquidity risk.
Investment income is reported net of management fees and rental real estate property expenses.
PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment are stated at cost on the date of acquisition or at estimated fair value if acquired by gift, including interest capitalized on related borrowings during the period of construction, less accumulated depreciation. Certain costs
associated with the financing of plant assets are deferred and amortized over the terms of the financing. Depreciation of the
University’s plant assets is computed using the straight-line method over the asset’s estimated useful life, generally over 50 years for buildings, 20 years for land improvements, 5 years for equipment, 10 years for library collections, and 50 years for art collections.
The University’s capitalization policy is to capitalize all fixed assets and collection items that have a cost of $5,000 or more per unit and a useful life of two years or more.
REFUNDABLE ADVANCES FROM THE U.S. GOVERNMENT
Funds provided by the United States Government under the Federal Perkins Loan Program are loaned to qualified students and may be reloaned after collections. Such funds are ultimately refundable to the government. Approximately 48% and 50% of
net tuition and fees revenue for the years ended April 30, 2012 and 2011, respectively, was funded by federal student financial aid programs (including loan, grant, and work-study programs).
ASSET RETIREMENT OBLIGATIONS
The University records asset retirement obligations in accordance with the accounting standard for the Accounting for
Conditional Asset Retirement Obligations. This standard requires the fair value of the liability for the asset retirement
obligations (ARO) be recognized in the period in which it is incurred and the settlement date is estimable, even if the exact
timing or method of settlement is unknown. The ARO is capitalized as part of the carrying amount of the long-lived asset
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
retroactively to the time at which legal or contractual regulations created the obligation. The University’s ARO is primarily
associated with the cost of removal and disposal of asbestos, lead paint, and asset decommissioning. For the years ended April 30, 2012 and 2011, the accretion expenses were $231,000 and $199,000, respectively. No obligations were settled during the fiscal year ended April 30, 2012.
INCOME TAXES
The University has been recognized by the Internal Revenue Service as exempt from federal income tax under Section 501(c)(3) of the U.S. Internal Revenue Code, except for taxes on income from activities unrelated to its exempt purpose. Such activities
resulted in no net taxable income in fiscal years 2012 and 2011.
FUNCTIONAL EXPENSES
The University has developed and implemented a system of allocating expenses related to more than one function. These expenses are depreciation, interest, and operations and maintenance of plant. Depreciation is allocated by individual fixed assets to the function utilizing that asset. Interest is allocated based on the use of borrowed money in the individual functional category.
The operations and maintenance of plant is divided into expenses used for the total institution not charged back to the operating units, and those expenses charged to some units but not all units. The allocation was determined through a study of departmental
uses of the operations and maintenance budget within each category.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities; (2) disclosure of contingent assets and liabilities at the date of the financial statements; and (3) the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions are the value of alternative investments, the asset retirement
obligations, the postretirement benefit plan, and swap agreements. Actual results could differ materially, in the near term, from the amounts reported.
3. ACCOUNTS AND UNIVERSITY LOANS RECEIVABLE, NET
Accounts and loans receivable, net, at April 30, 2012 and 2011, are as follows (in thousands):
2012
2011
Accounts receivable
1
Student
2
Grants, contracts, and other
3
4
Accrued interest
Student loans
5
6
7
Less allowance for uncollectible accounts and loans
$
8,483
7,608
$
7,418
8,712
454
452
11,976
11,191
28,521
27,773
(1,279)
(1,100)
$ 27,242
$ 26,673
At April 30, 2012 and 2011, the University had an outstanding student loans receivable balance in the amount of $12.0 million and $11.2 million, respectively. Management does not believe it has significant exposure to credit risk related to the federal
student financial aid programs as these accounts receivable amounts are primarily due from the U.S. Government. Additionally, management has considered the credit and market risk associated with all other outstanding balances and believes the recorded cost of these loans approximates fair market value at April 30, 2012 and 2011.
45
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
4. CONTRIBUTIONS RECEIVABLE, NET
As of April 30, 2012 and 2011, unconditional promises to give were as follows (in thousands):
2012
2011
$ 11,023
$ 11,330
5,460
3,885
Amounts due in:
1
Less than one year
2
One year to five years
3
Over five years
4
5
Less unamortized discount
6
Less allowance for doubtful accounts
225
540
16,708
15,755
(854)
(5,724)
$ 10,130
7
(741)
(6,438)
$ 8,576
Contributions receivable over more than one year are discounted at rates ranging from 3% to 6.5%. New contributions received during fiscal years 2012 and 2011 were assigned a discount rate which is commensurate with the market and credit risk involved.
As of April 30, 2012 and 2011, the University had also received bequest intentions and conditional promises to give of $23.2 million and $24.1 million, respectively. These intentions to give are not recognized as assets. If the bequests are received, they will generally be restricted for specific purposes stipulated by the donors, primarily endowments for faculty support, scholarships, or general operating support of a particular department of the University. Conditional promises to give are recognized as
contributions when the donor-imposed conditions are substantially met.
Amortization of the discount is recorded as bad debt expense. An allowance is made for uncollectible pledges based upon
management’s judgment and analysis of the creditworthiness of the donors, past collection experience, and other relevant factors.
5. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment and related accumulated depreciation and amortization at April 30, 2012 and 2011, are as follows (in thousands):
8
Land and improvements
9
Buildings
10
11
12
15
46
2011
$ 51,069
$ 50,809
546,131
530,089
Equipment
97,888
95,627
Construction in progress
13,595
11,866
Library and art collections
90,525
84,013
799,208
772,404
13
14
2012
Less accumulated depreciation and amortization
(362,132)
(338,314)
$437,076
$434,090
Construction in progress at April 30, 2012 and 2011, relates to building improvements and renovations. For the years ended
April 30, 2012 and 2011, depreciation expense was approximately $24.6 million and $22.3 million, respectively.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
6. FAIR VALUE MEASUREMENTS
The University determines fair value in accordance with fair value measurement accounting standards. These standards establish
a framework for measuring fair value, a fair value hierarchy based on the observability of inputs used to measure fair value, and disclosure requirements for fair value measurements. Financial assets and liabilities are classified and disclosed in one of the
following three categories based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: Inputs other than Level 1 that are observable either directly or indirectly, such as quoted prices for similar assets or
liabilities, or quoted prices in markets that are not active; or inputs that are observable or can be corroborated by observable
market data for substantially the same term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets
or liabilities.
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
The following table displays the carrying value and estimated fair value of the University’s financial instruments as of
April 30, 2012 (in thousands):
QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS (LEVEL 1)
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS (LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS (LEVEL 3)
TOTAL FAIR
VALUE AS OF
APRIL 30, 2012
Assets
Investments
1
Cash and cash equivalents
$ 38,248
$
-
$
-
$ 38,248
2
Equity—corporate stocks
76,659
-
-
76,659
3
Equity—domestic funds
-
104,427
-
104,427
4
Equity—international funds
-
122,519
-
122,519
5
Equity—hedge funds
-
76,540
6,587
83,127
6
Equity—real asset funds
-
20,749
-
20,749
7
Equity—private equity funds
-
-
7,641
7,641
8
Fixed income—corporate bonds
-
13,491
-
13,491
9
Fixed income—government agency bonds
-
16,365
-
16,365
Fixed income—international bonds
-
38
-
38
Fixed income—domestic bond funds
-
206,870
-
206,870
418
-
-
418
10
11
12
13
14
Deposits with trustees
-
-
14,597
14,597
$115,325
$560,999
$ 28,825
$705,149
$
-
$ 67,917
$
-
$ 67,917
$
-
$ 67,917
$
-
$ 67,917
Interest in perpetual trust
Total assets at fair value
Liabilities
15
16
Swap agreements
47
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
The following table displays the carrying value and estimated fair value of the University’s financial instruments as of
April 30, 2011 (in thousands):
QUOTED PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL
ASSETS (LEVEL 1)
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS (LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS (LEVEL 3)
TOTAL
FAIR VALUE AS OF
APRIL 30, 2011
Assets
Investments
1
Cash and cash equivalents
$ 43,295
-
$ 43,295
2
Equity—corporate stocks
72,417
-
-
72,417
3
Equity—domestic funds
-
89,579
-
89,579
4
Equity—international funds
-
123,511
-
123,511
5
Equity—hedge funds
-
61,874
14,637
76,511
6
Equity—real asset funds
-
24,184
-
24,184
7
Equity—private equity funds
-
-
3,650
3,650
8
Fixed income—corporate bonds
-
19,637
-
19,637
9
Fixed income—government agency bonds
-
36,900
-
36,900
Fixed income—international bonds
-
2,786
-
2,786
Fixed income—domestic bond funds
-
134,328
-
134,328
43
-
-
43
-
-
14,683
14,683
$115,755
$492,799
$ 32,970
$641,524
$
-
$ 37,135
$
-
$ 37,135
$
-
$ 37,135
$
-
$ 37,135
10
11
12
Deposits with trustees
13
Interest in perpetual trust
14
Total assets at fair value
$
-
$
Liabilities
15
Swap agreements
16
The University determines a valuation estimate based on techniques and processes which have been reviewed for propriety and consistency with consideration given to asset type and investment strategy. In addition, the funds and fund custodians may also use established procedures for determining the fair value of securities which reflect their own assumptions. Management makes best estimates based on information available. The following estimates and assumptions were used to determine the fair value of the financial instruments listed above:
• Cash Equivalents—Cash equivalents primarily consist of deposits in money market funds and short-term investments.
These are priced using quoted prices in active markets and are classified as Level 1.
• Equity Investments—Equity investments consist of, but are not limited to, separate accounts, common trust funds, and hedge funds. These assets consist of both publicly traded and privately held funds.
48
o
Publicly Traded Securities—These investments consist of domestic and foreign equity holdings. Securities traded on active exchanges are priced using unadjusted market quotes for identical assets and are classified as Level 1. Securities that are traded infrequently or that have comparable traded assets are priced using available quotes and other market data that are observable and are classified as Level 2.
o
Privately Held Funds—These investments consist of domestic, international, hedge, real asset, and private equity funds which are privately held. The valuations of the funds are calculated by the investment managers based on valuation
techniques that take into account the market value of the underlying assets to arrive at a net asset value or interest in the fund shares. The funds are commingled funds and limited partnerships, and shares may not be readily redeemable. If an
active market exists for the fund and shares are redeemable at net asset value, these investments are classified as Level 2. If no active market exists for these investments and/or there are significant redemption restrictions, they are classified as Level 3.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
•
Fixed Income Investments—Fixed income securities include, but are not limited to, U.S. Treasury issues, U.S. Government Agency issues, corporate debt, and domestic and international bond funds. Fixed income securities assets are valued using quoted prices in active markets for similar securities and are classified as Level 2. If an active market exists for fixed income funds and shares are redeemable at net asset value, these investments are classified as Level 2. If no active market exists for
these investments and/or there are significant redemption restrictions, they are classified as Level 3.
• Deposits with Trustees—Deposits with trustees consist of debt service funds and the unexpended proceeds of certain bonds payable. These funds are invested in short-term, highly liquid securities and will be used for construction of, or payment of
debt service on, certain facilities.
• Interest in Perpetual Trust—Beneficial and perpetual trusts held by third parties are valued at the present value of the future distributions expected to be received over the term of the agreement
•
Swap Agreements—Interest rate swaps are valued using both observable and unobservable inputs, such as quotations received from the counterparty, dealers, or brokers, whenever available and considered reliable. In instances where models are used, the value of the interest rate swap depends upon the contractual terms of, and specific risks inherent in, the instrument
as well as the availability and reliability of observable inputs. Such inputs include market prices for reference securities, yield curves, credit curves, measures of volatility, prepayment rates, assumptions for nonperformance risk, and correlations of such inputs. Certain of the interest rate swap arrangements have inputs which can generally be corroborated by market data and are therefore classified within Level 2.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
CHANGES IN LEVEL 3 ASSETS
The following table is a roll-forward of the statement of financial position amounts for financial instruments classified by the
University within Level 3 of the fair value hierarchy defined above for the years ended April 30, 2012 and 2011 (in thousands):
INVESTMENTS
EQUITY—HEDGE
FUNDS
1
Beginning balance at May 1, 2011
2
Total gains or losses (realized/unrealized)
included in earnings
INVESTMENTS
EQUITY—PRIVATE
EQUITY FUNDS
$ 14,637
INTEREST IN
PERPETUAL
TRUST
$ 3,650
(171)
TOTAL
$ 14,683
23
(86)
$ 32,970
(234)
Purchases, issuances, sales, and settlements
3
Purchases
2,500
4,093
-
6,593
4
Issuances
-
-
-
-
5
Sales
-
Settlements
-
-
-
-
-
-
-
-
6
(125)
-
(125)
7
Transfers into Level 3
8
Transfers out of Level 3
-
-
9
Ending balance at April 30, 2012
$ 6,587
$ 7,641
$ 14,597
$ 28,825
Total gains or losses for the period included in
earnings attributable to the change in unrealized
gains or losses relating to assets still held at
period end
$
$
$
$ (234)
10
(10,379)
(171)
23
(86)
(10,379)
49
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
INVESTMENTS
EQUITY—HEDGE
FUNDS
1
Beginning balance at May 1, 2010
2
Total gains or losses (realized/unrealized)
included in earnings
INVESTMENTS
EQUITY—PRIVATE
EQUITY FUNDS
INTEREST IN
PERPETUAL
TRUST
TOTAL
$ 8,050
$ 1,135
$ 12,866
$ 22,051
1,711
254
1,817
3,782
2,280
-
11,280
-
-
Purchases, issuances, sales, and settlements
3
Purchases
9,000
4
Issuances
-
5
Sales
-
6
Settlements
-
-
-
-
-
-
-
-
(19)
-
-
(19)
-
7
Transfers into Level 3
8
Transfers out of Level 3
9
Ending balance at April 30, 2011
$ 14,637
$ 3,650
$ 14,683
$ 32,970
Total gains or losses for the period included in
earnings attributable to the change in unrealized
gains or losses relating to assets still held at
period end
$ 1,601
$
$
$
10
(4,124)
251
(4,124)
1,817
3,669
Transfers into and out of Level 3 are typically the result of a change in the availability and the ability to observe market data, which is considered a significant valuation input required by various models. Generally, as markets evolve, the data required to support valuations becomes more widely available and observable.
There were no significant transfers between Levels 1 and 2 for the year ended April 30, 2012.
INVESTMENTS THAT CALCULATE NET ASSET VALUE
Investments in certain entities that calculate net asset values at April 30, 2012 and 2011, are as follows (in thousands):
APRIL 30, 2012
FAIR VALUE
11
12
13
14
$
REDEMPTION
FREQUENCY
REDEMPTION
NOTICE PERIOD
-
daily
same day
International equity funds
122,519
-
daily, biweekly
same day—5 days
Domestic bond funds
206,870
-
daily
same day
Domestic equity funds
$104,427
UNFUNDED
COMMITMENTS
Real asset funds
20,749
-
daily, monthly
1–10 days
15
Hedge funds
83,127
-
monthly, annually
30–90 days
16
Private equity funds
7,641
16,647
N/A
N/A
17
Total
$545,333
$ 16,647
APRIL 30, 2011
FAIR VALUE
50
18
Domestic equity funds
19
$ 89,579
UNFUNDED
COMMITMENTS
$
REDEMPTION
FREQUENCY
REDEMPTION
NOTICE PERIOD
-
daily
same day
International equity funds
123,511
-
daily, biweekly
same day—5 days
20
Domestic bond funds
134,328
-
daily
same day
21
Real asset funds
24,184
-
daily, monthly
1–10 days
22
Hedge funds
76,511
-
monthly, annually
30–90 days
23
Private equity funds
3,650
16,615
N/A
N/A
24
Total
$451,763
$ 16,615
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
At April 30, 2012 and 2011, the assets of endowments and funds functioning as endowments were approximately $466 million
and $455 million, respectively.
Investments in debt securities and equity securities consist primarily of investments in funds managed by external
investment managers.
For the years ended April 30, 2012 and 2011, the University’s investment management fees were approximately $1.1 million
and $1.3 million, respectively.
INVESTMENT INCOME
Total net investment income for the years ended April 30, 2012 and 2011, consists of the following (in thousands):
2012
UNRESTRICTED
1
Endowment income
2
Investment income
3
Realized and unrealized net capital losses
4
Total
TEMPORARILY
RESTRICTED
$ 7,767
$ 4,909
6,386
146
PERMANENTLY
RESTRICTED
$
(46,404)
(6,091)
$ (32,251)
$ (1,036)
$
$ 6,386
$
$
TOTAL
119
$ 12,795
-
6,532
(215)
(52,710)
(96)
$ (33,383)
Operating
-
$ 6,532
2,482
119
4,112
6,256
2,427
-
8,683
(40,148)
(3,664)
5
Investment income
6
Endowment income
1,511
Allocated from non-operating
7
146
Non-operating
8
Realized and unrealized net capital losses
9
Allocation to operations
10
Total
(6,256)
(2,427)
$ (32,251)
$ (1,036)
(215)
$
(96)
(44,027)
(8,683)
$ (33,383)
2011
UNRESTRICTED
11
Endowment income
12
Investment income
13
Realized and unrealized net capital gains
14
Total
$ 7,749
TEMPORARILY
RESTRICTED
$ 5,438
PERMANENTLY
RESTRICTED
$
TOTAL
173
$ 13,360
4,426
145
-
4,571
30,767
14,128
2,132
47,027
$ 42,942
$ 19,711
$ 2,305
$ 64,958
$ 4,426
$
$
Operating
15
Investment income
16
Endowment income
17
Allocated from non-operating
-
$ 4,571
824
2,634
145
173
3,631
6,925
2,804
-
9,729
2,132
56,756
Non-operating
18
Realized and unrealized net capital gains
37,692
16,932
19
Allocation to operations
(6,925)
(2,804)
20
Total
$ 42,942
$ 19,711
$ 2,305
(9,729)
$ 64,958
51
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
7. NOTES PAYABLE AND LONG-TERM DEBT
The University classifies its notes payable and long-term debt into two categories: core debt and special purpose debt. Core debt represents debt that will be repaid from the general operations of the University and includes borrowings for educational
and auxiliary purposes. Special purpose debt represents debt that is repaid from sources outside of general operations and includes borrowings for buildings, which house some administrative offices, along with rental space.
Notes payable and long-term debt at April 30, 2012 and 2011, consist of the following (in thousands):
2012
2011
Core debt
1
District of Columbia University Revenue Bonds, American University
$ 21,000
$ 21,000
37,000
37,000
99,975
99,975
60,900
60,900
Term loan maturing in 2021
75,000
-
Taxable commercial paper note program
10,000
-
303,875
218,875
Issue Series 1999 maturing in 2028
2
District of Columbia University Revenue Bonds, American University
3
District of Columbia University Revenue Bonds, American University
Issue Series 2003 maturing 2033
Issue Series 2006 maturing 2036
4
District of Columbia University Revenue Bonds, American University
Issue Series 2008 maturing 2038
5
6
Total core debt
7
Special purpose debt
8
Note payable due in full in 2021
22,000
22,000
9
Note payable due in full in 2020
15,000
15,000
Total special purpose debt
10
Total indebtedness
11
37,000
37,000
$340,875
$255,875
The principal balance of notes payable and long-term debt outstanding as of April 30, 2012, is due as follows (in thousands):
Year ending April 30:
12
2013
$ 10,000
13
2014
-
14
2015
-
15
2016
-
16
2017
17
Thereafter
18
52
330,875
$340,875
Due to the nature of certain variable rate bond agreements, the University may receive notice of an optional tender on its variable rate bonds. In that event, the University would have an obligation to purchase the tendered bonds if they were unable to be remarketed. The University has entered into a letter of credit and standby bond purchase agreements with various financial
institutions to support the $218.9 million of variable rate demand obligations all of which expire in fiscal year 2014. Under these agreements, the financial institutions have agreed to purchase the bonds if the bonds are unable to be remarketed. Should that
occur, payment would be accelerated and ultimately differ from the dates stated above. In accordance with the terms of the
agreements, $21.0 million would convert to a term loan with principal and interest payable over five years and $198.0 million would be payable in fiscal year 2013.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
The estimated fair value of the University’s notes payable and long-term debt at April 30, 2012 and 2011, was $340.9 million and $255.9 million, respectively, and was determined using quoted market prices.
DISTRICT OF COLUMBIA BONDS PAYABLE
In October 2008, the University refunded and reissued the Series 1985 and Series 1985A bonds as Series 2008 variable rate demand bonds with interest payable weekly. These bonds are general unsecured obligations of the University. The interest rate at April 30, 2012, was 0.28%.
The Series 1999 bonds are general unsecured obligations of the University and bear interest at a variable rate, payable weekly. The proceeds from the bonds were used to repay a mortgage note prior to its scheduled maturity. The interest rate at April 30, 2012, was 0.35%.
The Series 2003 bonds are general unsecured obligations of the University and bear interest at a variable rate, payable weekly. The proceeds were used to fund construction and renovation projects relating to the Katzen Arts Center and Greenburg Theatre. The interest rate at April 30, 2012, was 0.31%.
The Series 2006 bonds are general unsecured obligations of the University and bear interest at a variable rate, payable weekly. The proceeds were used to advance refund the Series 1996 bond issue, thus reducing the University’s overall interest costs, and to fund construction and renovation projects, including Nebraska Hall and the School of International Service building. The interest rate at April 30, 2012, was 0.31%.
TERM LOAN
In 2012, the University entered into a $75 million term loan with JPMorgan Chase Bank, N.A., to fund its facilities development projects. The term loan is due in full in June 2021 and has a fixed 4.19% interest rate, payable monthly.
TAXABLE COMMERCIAL PAPER NOTE PROGRAM
On December 15, 2011, the University established a $125 million taxable commercial paper note program which will be used
to fund long-term projects for a temporary period until long-term financing is implemented. The notes can be issued for a
maximum of 270 days and carry a floating taxable interest rate.
In 2012, the University issued two $5 million commercial paper notes. The notes are payable in full in May 2012 and June 2012 and bear interest rates at April 30, 2012, of 0.25% and 0.20%, respectively.
NOTES PAYABLE
In 2003, the University issued a $15.0 million note payable to replace a 1998 note incurred for the purchase of a building. The note is payable in full in April 2020 and bears an interest rate of LIBOR plus 0.45%, payable monthly. The interest rate at April 30, 2012, was 0.69125%.
In 2001, the University issued a $22.0 million note for the purchase of a building. The note is payable in full in September 2021 and bears an interest rate of LIBOR plus 0.45%, payable monthly. The interest rate at April 30, 2012, was 0.69125%.
8. INTEREST RATE SWAPS
The University has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. The interest rate swap agreements were not entered into for trading or speculative purposes. At April 30, 2012, the University had outstanding interest rate swap agreements with Bank of America and Morgan Stanley Capital Services.
The interest rate swap agreement with Bank of America effectively changes the interest rate to a 4.31% fixed rate for the Series
2008 bonds. Four interest rate swap agreements are in place with Morgan Stanley with a total notional principal amount of
approximately $141 million. These agreements effectively change the University’s interest rate to a 4.12% fixed rate for the Series 1999 bonds, fixed rates of 5.26% and 4.37% on portions of the Series 2006 bonds, and a fixed rate of 4.46% on a portion of the Series 2003 bonds. The interest rate swap agreements mature at the time the related notes mature. An interest rate swap with Morgan Stanley Capital Services on the $15 million term loan expired in September 2011.
The interest rate swap agreements contain provisions that require the University’s debt to maintain an investment grade credit
rating from each of the major credit rating agencies. If the University’s debt were to fall below investment grade, it would be in 53
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The University is currently in compliance with these provisions.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on April 30, 2012, is $68 million, for which the University has posted collateral of $31 million in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on April 30, 2012, the University would be required to post an additional $37 million of collateral to its counterparties. The University is also exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, the University does not anticipate nonperformance by the counter parties.
Derivatives at April 30, 2012 and 2011, are as follows (in thousands):
LIABILITY DERIVATIVES
2012
BALANCE SHEET
LOCATION
2011
FAIR VALUE
BALANCE SHEET
LOCATION
FAIR VALUE
Derivatives not designated as hedging instruments:
1
Interest rate contracts
Swap agreements
$ 67,917
LOCATION OF GAIN (LOSS) RECOGNIZED IN STATEMENT OF ACTIVITIES
Swap agreements
$ 37,135
AMOUNT OF GAIN (LOSS) RECOGNIZED IN
STATEMENT OF ACTIVITIES
2012
2011
Derivatives not designated as hedging instruments:
2
Interest rate contracts
Realized and unrealized net capital gains
$ (30,782)
$
134
9. ENDOWMENTS
54
The University’s endowment consists of approximately 400 individual funds established for scholarships and related academic
activities. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.
PERMANENTLY RESTRICTED NET ASSETS—INTERPRETATION OF RELEVANT LAW
The Board of Trustees has interpreted the District of Columbia enacted version of Uniform Prudent Management of Institutional Funds Act (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. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts to the permanent endowment, (b) the original value of
subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund not classified in permanently restricted net assets is classified as temporarily restricted net assets until purpose and timing restrictions are met and amounts are appropriated for expenditure by the Board of Trustees of the University in a manner consistent with the standard of prudence prescribed by UPMIFA.
In accordance with UPMIFA, the University considers the following factors 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 and deflation
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
(5) The expected total return from income and the appreciation of investments
(6) Other resources of the University
(7) The investment policies of the University
The endowment net assets composition by type of fund at April 30, 2012, is as follows (in thousands):
TEMPORARILY
RESTRICTED
UNRESTRICTED
1
Donor-restricted endowment funds
2
Board-designated endowment funds
3
Total endowment funds
$
(41)
PERMANENTLY
RESTRICTED
TOTAL
$ 60,529
$ 80,006
$140,494
283,111
-
-
283,111
$283,070
$ 60,529
$ 80,006
$423,605
The changes in endowment net assets for the year ended April 30, 2012, are as follows (in thousands):
TEMPORARILY
RESTRICTED
UNRESTRICTED
4
Endowment net assets, May 1, 2011
$280,758
PERMANENTLY
RESTRICTED
$ 66,641
TOTAL
$ 74,437
$421,836
Investment return:
5
Net depreciation on investments
6
Interest, dividends, and capital distributions
7
Total investment return
8
Contributions to endowment
9
Appropriation of endowment assets
for expenditure
(8,090)
(3,635)
1,604
2,625
(6,486)
(1,010)
(7,776)
(190)
(11,915)
(190)
-
4,229
(7,686)
5,759
(5,102)
5,759
-
(12,878)
Other changes:
10
11
Transfers to create board-designated
endowment funds
Endowment net assets, April 30, 2012
16,574
-
-
16,574
$283,070
$ 60,529
$ 80,006
$423,605
The endowment net assets composition by type of fund at April 30, 2011, is as follows (in thousands):
UNRESTRICTED
12
Donor-restricted endowment funds
13
Board-designated endowment funds
14
Total endowment funds
$
(18)
TEMPORARILY
RESTRICTED
PERMANENTLY
RESTRICTED
$ 66,641
TOTAL
$ 74,437
$141,060
280,776
-
-
280,776
$280,758
$ 66,641
$ 74,437
$421,836
55
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
The changes in endowment net assets for the year ended April 30, 2011, are as follows (in thousands):
TEMPORARILY
RESTRICTED
UNRESTRICTED
1
Endowment net assets, May 1, 2010
PERMANENTLY
RESTRICTED
TOTAL
$236,929
$ 52,575
$ 71,131
$360,635
36,433
16,940
1,810
55,183
Investment return:
2
3
Net appreciation on investments
Interest, dividends, and capital distributions
4
Total investment return
5
Contributions to endowment
6
Appropriation of endowment assets
for expenditure
893
2,813
-
3,706
37,326
19,753
1,810
58,889
-
-
1,496
1,496
(7,750)
(5,687)
-
(13,437)
Other changes:
7
8
Transfers to create board-designated
endowment funds
Endowment net assets, April 30, 2011
14,253
-
-
14,253
$280,758
$ 66,641
$ 74,437
$421,836
FUNDS WITH DEFICIENCIES
From time to time, the fair value of the assets associated with individual restricted endowments may fall below the level the donor or UPMIFA requires the University to retain as a fund of perpetual duration. In accordance with generally accepted accounting principles, deficiencies of this nature reported in unrestricted net assets were $41,000 and $18,000 at April 30, 2012 and 2011, respectively. These deficiencies resulted from market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs deemed prudent by the Board of Trustees.
RETURN OBJECTIVES, RISK PARAMETERS, AND STRATEGIES
The University’s objective is to earn a respectable, long-term, risk-adjusted total rate of return to support the designated
programs. The University recognizes and accepts that pursuing a respectable rate of return involves risk and potential volatility. The generation of current income will be a secondary consideration. The University has established a policy portfolio, or normal asset allocation. The University targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. While the policy portfolio can be adjusted from time to time, it is designed to serve for long-time horizons based upon long-term expected returns.
SPENDING POLICY AND HOW THE INVESTMENT OBJECTIVES RELATE TO SPENDING POLICY
The University has a policy of appropriating for distribution each year 5% of the endowment fund’s average fair value calculated on an annual basis over the preceding three fiscal years. In establishing this policy, the University considered the long-term expected return on its endowment. Accordingly, over the long term, the University expects the current spending policy to
allow its endowment to grow at an average of 3% annually. This is consistent with the University’s objective to provide additional real growth through new gifts and investment return.
10.EMPLOYEE BENEFIT PLANS
56
Eligible employees of the University may participate in two contributory pension and retirement plans, one administered by the Teachers Insurance and Annuity Association and College Retirement Equities Fund and the other administered by Fidelity Investments. Under these plans, contributions are fully vested and are transferable by the employees to other covered employer plans. Participating employees contribute a minimum of 1% up to a maximum of 5% of their base salary. The University
contributes an amount equal to twice the employee’s contribution.
The University’s contribution to these plans was approximately $14.4 million and $13.4 million for the years ended April 30, 2012 and 2011, respectively.
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
POSTRETIREMENT HEALTHCARE PLAN
The University provides certain healthcare benefits for retired employees. The plan is contributory and requires payment of deductibles. The University’s policy is to fund the cost of medical benefits on the pay-as-you-go basis. The plan’s measurement dates are April 30, 2012, and April 30, 2011, respectively.
Net periodic postretirement benefit cost for the years ended April 30, 2012 and 2011, includes the following components
(in thousands):
2012
1
Service cost
2
Interest cost
3
4
5
$
2011
701
$
611
1,041
1,037
Amortization of transition obligation over 20 years
667
667
Amortization of net loss
174
100
$ 2,583
$ 2,415
Net periodic postretirement benefit cost
The following table sets forth the postretirement benefit plan’s funded status and the amount of accumulated postretirement benefit plan costs for the years ended April 30, 2012 and 2011, using a measurement date of April 30 (in thousands):
2012
2011
Change in accumulated postretirement benefit obligation:
$ 21,434
$ 19,801
7
Service cost
701
611
8
Interest cost
1,041
1,037
9
Net actuarial loss
2,883
1,348
502
465
6
10
11
12
Accumulated postretirement benefit obligation at beginning of year
Plan participants’ contributions
(1,692)
Benefits paid
Accumulated postretirement benefit obligation at end of year
(1,828)
$ 24,869
$ 21,434
$
$
Change in fair value of plan assets:
13
14
Fair value of plan assets at beginning of year
Plan participants’ contributions
15
Employer contributions
16
Benefits paid
17
-
Fair value of plan assets at end of year
$
-
502
465
1,190
1,363
(1,692)
(1,828)
-
$
-
Reconciliation of funded status:
18
Funded status
19
Postretirement benefit liability
(24,869)
(21,434)
$ (24,869)
$ (21,434)
The following table sets forth the amounts not recognized in the net periodic benefit cost for the years ended April 30, 2012 and 2011 (in thousands):
2012
2011
Amounts not recognized in net periodic benefit cost:
20
Net actuarial loss
21
Transition obligation
22
Amounts included in unrestricted net assets
$ 7,448
$ 4,739
503
1,170
$ 7,951
$ 5,909
57
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
The amounts expected to be amortized from unrestricted net assets into net periodic benefit cost for the year ending April 30, 2013, are as follows (in thousands):
1
Net actuarial loss
2
Transition obligation
3
Total
332
503
$
835
Other changes in benefit obligations recognized in unrestricted net assets are as follows (in thousands):
$ (2,883)
4
Actuarial loss
5
Amortization of transition obligation
6
Total other changes in benefit obligations recognized in unrestricted net assets
677
$ (2,206)
The weighted discount rate used in the actuarial valuation at the April 30, 2012, and April 30, 2011, measurement dates is as follows:
7
8
2012
2011
End of year benefit obligation
4.00%
5.00%
Net periodic postretirement benefit cost
5.00%
5.40%
An 8% healthcare cost trend rate was assumed for fiscal year 2012, with the rate decreasing 1% the following fiscal year and
decreasing in every subsequent fiscal year by 0.5% until reaching an ultimate rate of 5% in fiscal year 2017, and thereafter. An increase in the assumed healthcare cost trend rate of 1% would increase the aggregate of the service and interest cost by
approximately $171,000 and $149,000 for 2012 and 2011, respectively, and the accumulated postretirement benefit obligation at April 30, 2012 and 2011, by approximately $1,455,000 and $1,117,000, respectively. A decrease in the assumed healthcare cost trend rate of 1% would decrease the net periodic postretirement benefit cost by approximately $146,000 and $126,000 for 2012 and 2011, respectively, and the accumulated postretirement benefit obligations at April 30, 2012 and 2011, by
approximately $1,267,000 and $983,000, respectively.
The expected contributions by the University to the plan are as follows:
YEAR ENDING APRIL 30
PAYMENT WITH
MEDICARE
PART D SUBSIDY
PAYMENT
WITHOUT
MEDICARE
PART D SUBSIDY
MEDICARE
PART D SUBSIDY
RECEIPTS
9
2013
$1,305,617
$1,469,927
$164,310
10
2014
1,447,563
1,639,496
191,933
11
2015
1,522,409
1,733,037
210,628
12
2016
1,534,770
1,765,578
230,808
13
2017
1,553,936
1,800,245
246,309
14
2018-2022
8,920,209
9,319,277
399,068
58
$
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
11. EXPENSES
For the years ended April 30, 2012 and 2011, the University’s program services and supporting services were as follows
(in thousands):
2012
2011
Program services
$150,728
$141,918
Research
39,298
37,279
1
Instruction
2
3
Public service
20,858
18,265
4
Academic support
52,738
48,718
5
Student services
40,158
41,040
303,780
287,220
83,065
72,771
6
Total program services
Supporting services
7
Institutional support
8
Auxiliary enterprises
9
66,535
69,664
$453,380
$429,655
For the years ended April 30, 2012 and 2011, the University’s fundraising expenses totaled approximately $16.3 million and $14.6 million, respectively. The expenses are included in institutional support in the accompanying statements of activities.
12.NET ASSETS
Temporarily restricted net assets consist of the following at April 30, 2012 and 2011 (in thousands):
2012
10
Unspent contributions and related investment
income for instruction and faculty support
11
Term endowment
12
Gifts received for construction of facilities
13
2011
$ 71,660
$ 78,153
1,200
1,200
7,264
8,577
$ 80,124
$ 87,930
Permanently restricted net assets were held, the income of which will benefit the following at April 30, 2012 and 2011
(in thousands):
2012
14
Permanent endowment funds, for scholarships
and related academic activity
15
Interest in trust assets
16
Student loans
17
2011
$ 70,544
$ 64,201
14,597
14,683
5,856
5,841
$ 90,997
$ 84,725
59
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2012 AND 2011
13.OPERATING LEASE
The University leases office space and buildings used for student housing with terms ranging from three to ten years. The leases
for student housing will expire at various times throughout 2013 and 2014. The office space lease does not expire until 2018.
Minimum lease payments under these agreements are as follows (in thousands):
Year ending April 30:
1
2013
$ 5,945
2
2014
2,841
3
2015
319
4
2016
657
5
2017
248
6
Thereafter
168
$ 10,178
7
Rent expense in 2012 and 2011 was approximately $11.8 million and $10.0 million, respectively.
14.COMMITMENTS AND CONTINGENCIES
At April 30, 2012 and 2011, commitments of the University under contracts for construction of plant facilities amounted to approximately $11.4 million and $13.2 million, respectively. Subsequent to April 30, 2012, the University entered into
commitments with various investment fund managers totaling $3.0 million.
Amounts received and expended by the University under various federal programs are subject to audit by governmental agencies. In the opinion of the University’s administration, audit adjustments, if any, will not have a significant effect on the financial position, changes in net assets, or cash flows of the University.
The University is a party to various litigations, arising out of the normal conduct of its operations. In the opinion of the
University’s administration, the ultimate resolution of these matters will not have a materially adverse effect on the University’s financial position, changes in net assets, or cash flows.
15.RELATED PARTIES
Members of the University’s Board of Trustees and their related entities contributed approximately $731,000 and $1.2 million during the years ended April 30, 2012 and 2011, respectively, which is included in contribution revenue in the accompanying statements of operations. Also for the years ended April 30, 2012 and 2011, approximately $5.3 million and $5.9 million,
respectively, were included in contribution receivable in the accompanying balance sheets.
16.SUBSEQUENT EVENTS
60
On June 7, 2012, the University replaced the letters of credit for the 2006 and 2008 bonds that were held as of April 30, 2012,
with new letters of credit from JPMorgan Chase. The 2003 letter of credit and the 1999 standby bond purchase agreements held as of April 30, 2012, were replaced with new letters of credit from Wells Fargo on June 28, 2012, and August 15, 2012, respectively.
The University has performed an evaluation of subsequent events through August 31, 2012, which is the date the financial
statements were issued. No events were noted which affect the financial statements as of April 30, 2012.
NONDISCRIMINATION NOTICE
American University does not discriminate on the basis of race, color, religion, national
origin, sex, age, marital status, personal appearance, sexual orientation, gender identity and
expression, family responsibilities, political affiliation, disability, source of income, place of
residence or business, and certain veteran status in its programs and activities. The following
persons, located at 4400 Massachusetts Avenue, NW, Washington, DC 20016, have been
designated to handle inquiries regarding the university’s nondiscrimination policies:
Dean of Students, 202-885-3300
Executive Director for Human Resources, 202-885-2451
Provost, 202-885-2127
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Contributors
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Sarah Stankorb
Ariana Stone
Mike Unger
Illustration
Cover and pages 6, 14, 18, Luc Herbots
Additional Photo Credits
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p. 29, bottom, Vanessa Robertson
Infographics
Information is accurate for the 2011–12 academic year, unless
otherwise noted. Sources for outside rankings and data are as follows:
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p. 18, Arbitron Inc., Winter 2012 Survey
p. 26, left, U.S. News and World Report, 2012
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p. 33, Google Analytics, May 2011 to April 2012
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