MILWAUKEE SCHOOL OF ENGINEERING
Milwaukee, Wisconsin
FINANCIAL STATEMENTS
Including Independent Auditors' Report
June 30.2011 and 2010
MILWAUKEE SCHOOL OF ENGINEERING
TABLE OF CONTENTS
Independent Auditors' Report
Financial Statements
Statements of Financial Position
Statements of Activities
Statements of Cash Flows
Notes to the Financial Statements
+
BAKER TILLY
Baker TillyVirchow Kraurc. LLP
115 S 84rh Sr.Src400
Milwaukee. WI 53214-1475
re1414777 5500
fax414777 5555
bakcrrilly.com
INDEPENDENT AUDITORS' REPORT
Board of Regents
Milwaukee School of Engineering
Milwaukee. Wisconsin
We have audited the accompanying statements of financial position of Milwaukee School of Engineering (the
"University"), as of June 30, 2011 and 2010, and the related statements of activities and cash flows for the years
then ended. These financial statements are the responsibility of the University's Board of Regents and
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards, issued by
the Comptroller General of the United States. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
University's internal control over financial reporting. Accordingly, we express no such opinion. An audit also
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, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the University as of June 30,2011 and 2010, 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.
Milwaukee, Wisconsin
October 21,201 1
Page 1
B*
; ;b;y;8diM[ i
INTERNATIONAL
An AGrmarive A~rionEyualOppcct~niry
Employer
MILWAUKEE SCHOOL OF ENGINEERING
STATEMENTS OF FINANCIAL POSITION
June 30,2011 and 2010
ASSETS
2011
2010
ASSETS
Cash and cash equivalents
Receivables
Accounts receivable, net
Contributions receivable, net
Loans to students, net
Inventories, at cost
Prepaid expenses and other assets
Investments
Cash surrender value of life insurance
Land, buildings and equipment, net
TOTAL ASSETS
LIABILITIES AND NET ASSETS
LIABILITIES
Accounts payable and accrued liabilities
Deferred revenues
Liabilities under split interest agreements
U.S. Government grants refundable
Long-term debt
Accumulated post-retirement benefit obligation
Asset retirement obligation
Total Liabilities
NET ASSETS
Unrestricted
Temporarily restricted
Permanently restricted
Total Net Assets
TOTAL LIABILITIES AND NET ASSETS
See accompanying notes to financial statements.
Page 2
MILWAUKEE SCHOOL OF ENGINEERING
STATEMENT OF ACTIVITIES
Year Ended June 30,201 1
Unrestricted
Temporarily
Restricted
2011
Permanently
Restricted
Total
Total
2010
OPERATING REVENUES
Student tuition and fees, gross
Less: Discounts and Allowances
Funded
Unfunded
Net Tuition and Fees
Auxiliary enterprises
Contribution revenue
Government grants and contracts
Applied Technology Center
Endowment payout
Interest earned on unrestricted loan funds
Other investment income
Other income
Net assets released from restrictions
Total Operating Revenues
OPERATING EXPENSES
Instructional
Student services
Institutional support
Academic support
Auxiliary enterprises
Research and amlied technoloav
-.
Total operating Expenses
Operating Revenues in Excess (Deficit) of
Operating Expenses
NONOPERATING ITEMS
Net realizedlunrealizedgains on investments
Unrealized oost-retirement benefit aains
Changes in'value of split interest agreements
Total Nonoperating items
CHANGE IN NET ASSETS
6.176.220
(5.382.835)
2,207,645
75.586
4,398,264
126,804
920.189
6,605.909
75.586
~,~ .
687.394
700,136
2,283.231
695.886
5.094.150
(8.492)
(8.492)
7.368.889
3.297.760
367.704
.. , 146.791
3.812.255
8,459.451
(288,685)
118.312
8,289,078
4,512,391
NET ASSETS - Beginning of Year
-
NET ASSETS END OF YEAR
$ 94.757.141 $ 20.785.91 1 8 32,551,264
$
63.490.841 $139,805,258
See accompanying notes to financial statements.
Page 3
MILWAUKEE SCHOOL OF ENGINEERING
STATEMENT OF ACTIVITIES
Year Ended June 30,2010
2010
Temporarily
Permanently
Restricted
Restricted
Unrestricted
OPERATING REVENUES
Student tuition and fees, gross
Less: Discounts and Allowances
Funded
Unfunded
Net Tuition and Fees
$
69,384,020 $
-
$
Total
-
(7,126.318)
(26.334.272)
35,923,430
$ 69.384.020
(7,126,318)
(26.334.272)
35.923.430
Auxiliary enterprises
Contribution revenue
Government grants and contracts
Applied Technology Center
Endowment payout
Interest earned on unrestricted loan funds
Other investment income
Other income
Net assets released from restrictions
Total Operating Revenues
OPERATING EXPENSES
Instructional
Student Services
Institutional support
Academic support
Auxiliary enterprises
Research and applied technology
Total Operating Expenses
5.012.718
-
62.200.196
Operating Revenues in Excess
(Deficit) of Operating Expenses
NONOPERATING ITEMS
Net realizedlunrealizedgains on
investments
Unrealized post-retirement benefit gains
Changes in value of split interest
agreements
Total Nonoperating items
(511.159)
39,816
1,017,041
2.280.719
1.171.479
NET ASSETS - Beginning of Year
$
28.988.511
8,977.134
10.787.810
2.608.063
5,825.960
5.012.71@
62.200.196
700.138
3.297.760
367,704
CHANGE IN NET ASSETS
NET ASSETS -END OF YEAR
-
28,988,517
8.977.1 34
10,787.810
2,608,063
5.825.960
367.704
1.384.745
228,214
2.508.933
(81.423)
(81.423)
146,791
3.812.255
873,586
2,548.749
1,090.056
4,512,391
85,424.104
18.525.847
31.342.916
135.292.867
32.432.972
$ 139.805.258
86.297.690
$
21.074.596
$
See accompanying notes to financial statements.
Page 4
MILWAUKEE SCHOOL OF ENGINEERING
STATEMENTS OF CASH FLOWS
Years Ended June 30,201 1 and 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Change in Net Assets
Adjustments to reconcile change in net assets to net cash flows from
operating activities
Depreciation and amortization
Contributions restricted for long-term investment
Gifts-in-kind - equipment
Actuarial (gain) loss on split interest agreements
Accretion of asset retirement obligations
Unrealized gain on investments
Realized gain on investments
Changes in assets and liabilities
Accounts receivable
Contributions receivable
Inventories
Prepaid expenses and other assets
Cash surrender value of life insurance
Accounts payable and aCCNed liabilities
Deferred revenues
Accumulated postretirement benefit obligation
Nel Cash Flows from Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments
Purchase of investments
Purchase of land, buildings, and equipment
Loans issued to students
Repayments received on loans to students
Net Cash Flows from Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from contributions restricted for long-term purposes
Payments to annuitants
Payments made on long-term debt
Net Cash Flows from Financing Activities
Net Change In Cash and Cash Equivalents
3.226.804
(163.658)
(1,775,000)
1.288.146
2.595.172
(117,369)
(1,720,000)
757.803
(3,557,737)
(1,201,086)
9.354.887
10.555.973
CASH AND CASH EQUIVALENTS - Beginning of Year
CASH AND CASH EQUIVALENTS -END OF Y W R
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
~urchesesof land, bildings, and equipment in accounts payable and
accrued liabilities
Acquisition of building through settlement of note and accrued interest
$
5.797.150
$
9.354.887
$
$
127,193
$
$
14.283
3,399.699
-
See accompanying notes to financial statements.
Page 5
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 1 Organization
Milwaukee School of Engineering (the "University") is a nonprofit, nonstock, nondenominational, private
institution of higher education whose mission is to provide a balanced education in technical and
nontechnical areas for men and women in the disciplines of engineering, engineering technology,
management systems, business, nursing, and technical communication. The University is accredited by
the North Central Association of Colleges and Schools and offers bachelor's degree, master's degree, and
certificate programs. The University is governed by a 52 member board of regents comprised of leaders
from business, industry, and other professions.
-
NOTE 2 Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are prepared on the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America.
Under current authoritative guidance, 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 that are not subject to donor imposed stipulations.
-
Temporarily restricted Net assets subject to donor imposed stipulations that will be met either by
actions of the University andlor passage of time.
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. Expenses are reported as decreases in unrestricted net assets. Gains and
losses on investmenk 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 andlor the stipulated time period has elapsed)
are reported as reclassifications from temporarily restricted net assets to unrestricted net assets
With respect to temporarily restricted net assets, the University follows these accounting policies:
Reporting as Temporarily Restricted Revenues - Contributions received with donor-imposed restrictions
that are met in the same year as received are reported as revenues of the temporarily restricted net asset
class, and a reclassification to unrestricted net assets is made to reflect the expiration of such restrict~ons.
Investment income that is earned from permanently restricted net assets or restricted by the donor is
recorded as temporarily restricted income.
Page 6
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 2 Summary of Significant Accounting Policies (continued)
Basis of Presentation (continued)
Release of Restrictions on Net Assets for Acquisition of Land, Buildings and Equipment - Contributions of
land, buildings and equipment are reported as revenues of the unrestricted net asset class absent specific
donor restrictions. Contributions of cash or other assets to be used to acquire land, buildings and
equipment are reported as revenues of the temporarily restricted net asset class; the restrictions are
considered to be released at the time such long-lived assets are placed in service.
Cash and Cash Equivalents
For financial statement purposes, the University considers all highly liquid investments, except for those
held for long-term investment, to be cash equivalents. The University is required to maintain funds
relating to the Perkins loan program in a separate account. At June 30, 2011 and 2010, the University had
$158,856 and $107,747, respectively, of cash for the Perkins loan program.
Interest bearing accounts at a bank are insured by the Federal Deposit Insurance Corporation up to
$250,000. The University has not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash
Receivables
Accounts receivable are carried at the unpaid balance of the original amount billed to students and loans
to students are carried at the amount of unpaid principal. Both receivables are shown less an estimate
made for doubtful accounts based on a review of all outstanding amounts. Management determines the
allowance for doubtful accounts by identifying troubled accounts and using historical experience applied to
an aging of accounts. Accounts receivable and loans to students are written-off when deemed
uncollectible. Recoveries of accounts receivable and loans to students previously written-off are recorded
when received. Receivables are generally unsecured.
After a student is no longer enrolled in an institution of higher education and after a grace period, interest
is charged on Perkins and institutional student loans receivable and is recognized as it is charged.
Perkins student loans receivable are considered to be past due if a. payment is not made within 30 days of
the payment due date, at which time, late fees are charged and recognized. The Perkins Loan Program
receivables may be assigned to the U.S. Department of Education. Students may be granted a
deferment, forbearance, or cancellation of their student loans receivable based on eligibility requirements
defined by the U.S. Department of Education.
Page 7
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.2011 and 2010
-
NOTE 2 Summary of Significant Accounting Policies (continued)
Contributions
Contributions are recognized as revenues in the period received or unconditionally pledged. Contributions
received are recorded as unrestricted, temporarily restricted, or permanently restricted revenue depending
on whether the donor imposes any restriction. Conditional promises to give are not recognized as
revenues until the conditions on which they depend are substantially met. Contributions of assets other
than cash, including technologies, patents, or software, are recorded at their estimated fair value at the
date of gift, except that contributions of works of art, historical treasures, and similar assets held as part of
collections are not recognized or capitalized. Contributions to be received after one year are discounted.
Amortization of the discount is recorded as additional contribution revenue. Allowance, if any, is made for
doubtful contributions receivable based upon management'sjudgment and analysis of the
creditworthiness of the donors, past collection experience, and other relevant factors. Contributions
determined not to be collectible are recorded as bad debt expense.
Inventories
lnventories consist of bookstore inventory and are valued at the lower of cost or market.
Government Grants and Contracts
Revenue from governments, private grants, and contract agreements is recognized as it is earned through
expenditures in accordance with the related agreement. Any advance funding received is recorded as
deferred revenue in the statements of financial position.
Bond Underwriting Costs
The costs related to the issuance of bonds are amortized using the pro rated balance effective interest
method over the lives of the three Series 1999 bonds and the straight line method over the life of the
Series 20038 bonds. These are included in prepaid expenses and other assets on the statements of
financial position.
lnvesfments
lnvestments are stated at fair value, primarily based on quoted market prices or quoted net asset values.
except for life insurance policies. Life insurance policies are reported at the cash surrender value of the
policies and approximate fair value. Closely held stock is valued at independent appraised values in the
absence of readily ascertainable market values. lnvestment transactions are recorded as of the trade
date. Realized gains and losses on the sale of investments are calculated on the basis of specific
identification of the securities sold. lnvestment management fees are classified as a reduction in
investment income for financial reporting purposes.
Page 8
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 2 Summary of Significant Accounting Policies (continued)
Land, Buildings, and Equipment
Land, buildings, and equipment are stated at cost as of the date of acquisition or at fair value at the date of
donation, if received as a contribution, less accumulated depreciation. Depreciation of buildings and
equipment is provided on the straight line basis over the estimated useful lives of the related assets as
follows:
Assets
Buildings
~qui~ment
Furniture, fixtures and other
Computer and technical equipment
Year
40 45
-
The University capitalizes collections at cost when purchased but does not record any collections that are
contributed. Collections that were purchased include paintings that are on display. The University does
not depreciate collections.
Impairment of Long-lived Assets
Long-lived assets (including land, buildings, and equipment) are evaluated for impairment whenever
events or changes in business circumstances indicate that the carrying amount of an asset may not be
fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the
use of the asset are less than the carrying amount of that asset. To date, there have been no such losses
Deferred Revenues
Student deposits and advance payments for tuition related to the summer term, or any other future term.
are deferred and reported as unrestricted revenue in the year in which the term is completed.
Split Interest Agreements with Donors
The University's split interest agreements with donors consist primarily of irrevocable charitable remainder
trusts and ~ooledincome funds for which the University has received documents indicating it is either the
remainderbeneficiary or both the trustee and remainder beneficiary.
Page 9
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,201 1 and 2010
-
-
-
NOTE 2 - Summaty of Significant Accounting Policies (continued)
Split lnterest Agreements with Donors (continued)
Assets held in trusts for which the University serves as trustee are included in investments. In addition, the
present value of the estimated future payments to be made to the donors or other beneficiaries is reported
as liabilities under split interest agreements. Such liabilities are adjusted during the term of the trusts for
changes in the value of the assets, accretion of the discount, and other changes in the estimates of future
benefits. The University has no assets being held in trust for which it does not serve as trustee.
Contribution revenue is recognized at the date the split interest agreement is established for the present
value of the expected remainder interest. Any subsequent changes in value of the split interest agreement
are recognized as a nonoperating change in net assets. The University did not recelve any annuity gifts
during the years ended June 30, 2011 and 2010. Adiscount rate of 2.8% and 5.0% was used to project
the liability as of June 30, 2011 and 2010. respectively. Investment assets held by the University under
deferred gift agreements totaled $4,239,756 and $3,706,550 at June 30, 2011 and 2010, respectively, and
are included in investments on the statements of financial position.
U.S. Government Grants Refundable
Funds provided by the United States Government under the Federal Perkins Student Loan program are
loaned to qualified students. Receipts of principal and interest payments are utilized to finance future loans
to students. These funds are ultimately refundable to the government and are included as liabilit~esin the
statements of financial position.
Conditional Asset Retirement Obligations
Current authoritative guidance clarifies the term "conditional" in regards to accounting for asset retirement
obligations. This interpretation refers to a legal obligation to be performed upon an asset retirement
activity even if the timing andlor settlement are conditional on a future event that may or may not be within
the control of an institution. Accordingly, the University records a liability for the conditional asset
retirement obligation at its estimated fair value because it owns several buildings that contain
encapsulated asbestos material and other contaminants. The liability for asset retirement obligation was
$291,993 and $280.763 as of June 30, 201 1 and 2010, respectively.
Fair Value of Financial Instruments
-
The University records financial instruments at cost, with the exception of investments (see Note 2 Fair
Value Measurements) in marketable equity and debt securities which are reflected in the financial
statements at fair value. Cash and cash equivalents, receivables, and accounts payable and accrued
liabilities are reflected in the financial statements at cost which approximates fair value because of the
short-term maturity of these instruments. The cash surrender value of life insurance is the the amount
reported by the insurance company and approximates fair value. The fair value of investments is based
upon values provided by custodians or quoted market values. In certain cases where such values are not
available, the University records the investment based on the most recent appraisal and reviews for
potential impairment based on annual distributions by the company. The carrying value approximates fair
value for these investments.
Page 10
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.201 1 and 2010
-
NOTE 2 Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
Liabilities under split interest agreements are calculated at the end of each fiscal year and the carrying
amount approximates fair value. The carrying amount of long-term debt approximates fair value because
these financial instruments bear interest at rates which approximate current market rates for notes with
similar maturities and credit quality.
lnvestments in securities traded on national or international securities exchanges are carried at fair value
based on values provided by external investment managers or quoted market values. lnvestments in
limited partnerships, hedge funds, private equity funds, real estate funds, venture capital funds,
commodity funds, offshore fund vehicles, funds of funds and similar nonmarketable equity interests
consist primarily of investments that are not readily marketable. lnvestments in these categories, which
are managed externally, are valued utilizing the most current information provided by the general partner
or investment manager. These valuations generally reflect discounts for illiquidity and consider variables
such as financial performance of investments, recent sales prices of investments and other pertinent
information. Where applicable, independent appraisers are utilized to assist in the valuation. These values
are determined under the direction of, and subject to approval by, management and the Investment
Committee of the Board of Regents.
The preparation of financial statements requires management to make estimates and assumptions about
the effects of matters that are inherently uncertain. The accounting policies considered potentially
significant in this respect are the valuation of the limited partnerships, hedge funds, private equity funds.
real estate funds, venture capital funds, commodity funds, offshore fund vehicles, funds of funds and
similar nonmarketable equity interests. Values for these instruments are often estimated using techniques
such as discounted cash flow analysis and comparisons to similar instruments. Estimates developed
using these methods are subjective and require judgment regarding significant matters such as the
amount and timing of future cash flows and the selection of discount rates that appropriately reflect market
and credit risks. Estimates, by their nature, are based on judgment and available information. Changes in
assumptions could have a significant affect on the fair value of the instruments. Actual results could differ
from these estimates and could have a material impact on the financial statements.
Page 11
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
NOTE 2 - Summary of Significant Accountlng Policies (continued)
Fair Value of Financial Instruments (continued)
The estimated carlying and fair values of the University's significant financial instruments are as follows:
2011
2010
Carwina
Estimated Fair
Carrying
Estimated Fair
vaiueValue
valueValue
Financial assets:
Investments
Financial liabilities
Debt
$
17.145.000 $
17.151.837 8
18.920.000 $
18.917.405
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In determining fair value, the University
uses various valuation methods including the market, income and cost approaches. The assumptions
used in the application of these various methods are developed from the perspective of market
participants pricing the asset or liability. Inputs used in the valuation methods can be either readily
observable, market corroborated, or generally unobservable inputs. Based on the observability of the
inputs used in the valuation methods, the University is required to provide the following information
according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the
information used to determine fair values. Assets and liabilities measured, reported andlor disclosed at fair
value will be classified and disclosed in one of the following three categories:
Level 1 -Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Observable market based inputs or unobservable inputs that are corroborated by
market data.
Level 3 Unobservable inputs that are not corroborated by market data.
-
Page 12
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.201 1 and 2010
-
NOTE 2 Summary of Significant Accounting Policies (continued)
Fair Value Measurements (continued)
The table below presents the balances of assets measured at fair value on a recurring basis by level
within the hierarchy.
June 30,201 1
Level 1
Level 2
Total
Investments:
Cash held in money market
$
funds
Short-term U.S.
Government securities
mutual funds
Bond mutual funds
U.S. Government securities
Corporate bonds
Mortgage backed securities
Stock mutual funds
Common stock in a closelv
held company
Total Investments
$
2,734.865
$
-
$
2,198.536
2,208,708
11,113,373
10,400,275
2,360,345
41,151.076
40,246,320
1.015.800
73.182.978 $
40,246.320 %
Total
2,734,865
Level 3
-
$
2,198,536
1,908,503
11,113,373
10,400.275
2,360,345
300,205
904,756
30.715.897 $
June 30,2010
Level 1
Level 2
1,015.800
2.220.761
Level 3
Investments:
Cash held in money market
funds
Short-term U.S.
Government securities
mutual funds
Bond mutual funds
U.S. Government securities
Corporate bonds
Mortgage backed securities
Stock mutual funds
Common stock in a closely
held company
Total lnvestments
Page 13
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,201 1 and 2010
NOTE 2 - Summary of Significant Accounting Policies (continued)
Fair Value Measurements(continued)
The University estimates fair value based on the following:
Level 1 -investments in stock mutual funds are actively and publicly traded on U.S. stock
exchanges.
Level 2 - investments in cash held in money market funds, short-term U.S. Government
securities mutual funds. U.S. Government securities, bond mutual funds, corporate bonds and
mortgage backed securities are not publicly traded on U.S. exchanges and the fair value is
based upon quoted prices for similar, but not identical, assets in active markets, and other inputs
that are observable for the asset, either directly or indirectly, for substantially the full term of the
financial instrument. This also includes quoted prices for identical or similar assets in markets
that are not active, inputs other than quoted prices that are observable for the asset, or inputs
that are derived principally from or corroborated by observable market data.
-
Level 3 investments in an off shore stock mutual fund and a fixed income mutual fund are
based on the net asset value of the fund as provided by the investment manager in the
Bahamas. The valuation date was June 30 and there are no withdrawal restrictions or unfunded
commitments related to these investments. The common stock in a closely held company is not
publicly traded, the valuation of which is determined by a market appraisal and subsequently
reviewed for potential impairment based on annual distributions by the company.
The investments in stock mutual funds are calculated based on a net asset value at June 30. There are
eiaht total stock mutual funds. They are all actively traded and listed on U.S. exchanges. The funds
in;estments include large caps, mid-caps, international, growth and high yield stocks: There are no
unfunded commitments or withdrawal restrictions related to any of the funds.
The Level 3 activity is as follows:
Balance at June 30,2009
Net investment loss presented in net
realizedlunrealized gains on
investments on the statements of
activities
Balance at June 30.2010
Net investment gain (loss) presented in
net realizedlunrealized gains on
investments on the statements of
activities
Balance at June 30,2011
Common stock in a
Bond mutual
Stock mutual
closelv held companv
fund
fund
$
1,768,000 $ 1,667,184 $
434,123
1,768.000
(752.200)
3
1.015.800 $
1891.701)
775.483
129.273
904.756 $
(148.831)
285,292
14.913
300.205
Page 14
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,201 1 and 2010
--
-
NOTE 2 Summary of Significant Accounting Policies (continued)
FunctionalAllocation of Expenses
The costs of providing the various programs and other activities have been summarized on a functional
basis in the statements of activities. Accordingly, certain expenses have been allocated among the
programs and supporting services benefited.
Income Taxes
The University has received a determination letter from the Internal Revenue Service indicating that it is a
tax-exempt organization as provided for in Section 501(c)3 of the Internal Revenue Code and is exempt
from federal and state income taxes, except for taxes pertaining to unrelated business income. No
provision has been made for income taxes in the accompanying financial statements because the
University does not have a significant amount of unrelated business income.
The University addresses the determination of whether tax benefits claimed on a tax return should be
recorded in the financial statements. Under current accounting guidance, the University may recognize the
tax benefit from an uncertain tax position only if there is substantial authority that the tax position will be
sustained on examination by taxing authorities, based on the technical merit of the position. Examples of
tax positions include the tax-exempt status of the University and various positions related to the potential
sources of unrelated business taxable income. There were no significant unrecognized tax expense
identified or recorded as liabilities during fiscal year 2011. Open tax years subject to examination by the
U.S. and state taxing authorities are for the years 2008 to 2010, which statutes expire in 201 1 to 2014,
respectively.
Operations
Operating results in the statements of activities reflect all transactions increasing or decreasing net assets
except those items of a long-term nature, that is, those associated with: realized and unrealized gains on
investments, unrealized post-employment benefit gains, and changes in value of split interest agreements.
Use of Esfimates
The preparation of the financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues, expenses, gains, and losses during the reporting period. Actual results
could differ from those estimates.
Page 15
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
NOTE 3 -Applied Technology Center
The University's Applied Technology Center ("ATC") conducts strategic research for business, industry.
and government. The ATC is involved in the transfer of new technologies to real business practices
through its Fluid Power Institute, Rapid Prototyping Consortium, and Center for Biomolecular Modeling.
More than 100 projects are processed annually for companies in conjunction with the University's various
academic programs, utilizing faculty and student expertise, as well as its laboratories and equipment.
Membership fees for the Rapid Prototyping Consortium are recognized as unrestricted revenue over the
membership term and cover, in part, related expenditures for research provided to its members.
NOTE 4 -Accounts Receivable
Accounts receivable comprise the following at June 30:
Tuition and fees
Other
Total
Less: allowance for doubtful accounts
Total accounts receivable
$
4,348,904 5
3,416.864
NOTE 5 -Contributions Receivable
Contributions receivable consist primarily of donor pledges for facility construction and the annual fund
raising campaign. Contributions receivable that are expected to be collected within one year are recorded
at net realizable value. Contributions that are expected to be collected in future years are recorded at the
present value of their estimated future cash flows. The discounts on those amounts are computed using
rates applicable to the years in which the contributions are received. Amortization of the discount is
included in contribution revenue. The discount rate was 0.48% for both 2011 and 2010. All contributions
are expected to be collected in fiscal year 2012. Net contributions receivable are summarized as follows:
Total contributions receivable
Less: unamortized discount
Net contributions receivable
Page 16
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
-
NOTE 6 Loans to Students
The University issues uncollateralized loans to students based on financial need. Student loans are
funded through Federal government loan programs and institutional funding. Allowances for uncollectible
accounts are established based on previous collections experience and current economic factors which, in
management's judgment could influence the ability to repay according to the loan terms. At June 30, 2011
and 2010, student loans represented 2.0% of total assets.
At June 30, student loans consisted of the following:
201 1
The University's Institutional Loans
Federal perkins Loans Program
Total
Less: allowance for uncollectible loans
Net loans to students
$
2,477,683 $
2010
2,982,786
Funds advanced by the Federal government under the Perkins Loan Program of $1,647.800 at both June
30. 2011 and 2010 are ultimately refundable to the government and are included as a liability in the
statements of financial position.
At June 30, 201 1 and 2010, the following amounts were past due under the student loan programs:
1-60 days
past due
June 30,
201 1
2010
$
$
825 $
1,075 $
60-90 days
past due
1,447 $
979 $
90+ days
past due
820,120 $
732.642 $
Total past
due
822,392
734,696
-
NOTE 7 Investments
Investments are segregated for investment management purposes as follows:
Endowment Investment Funds
Debt R e s e ~ eFunds
Other lnvestments
Total
Page 17
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.2011 and 2010
-
~
-~
-
NOTE 7 Investments and Note Receivable (continued)
The University's return on investments as reported in the financial statements under the total return
concept for the years ended June 30,2011 and 2010 is summarized as follows:
Year Ended June 30,2011
Interest and dividends
Unrealized gains
Realized gains
Total return on investments
Endowment payout
lnvestment return in excess of
endowment payout
736,206 $
2,275,109
8.122
3,019,437
$
Permanently
Restricted
372.399 $
5,488,510
131.752
5,992,661
g
3.019.437
Unrestricted
$
Endowment payout
Endowment payout in excess of total
return on investments
$
Total
-
-
4.398.264 $
$
Temporarily
Restricted
Permanently
Restricted
-
$
7.417.701
Total
$
1,123,813
4,273,908
9
6
.
2
0
6
5,493.927
-
11.547.467)
2.280.719
(1,594,397)
$
648,700 $
475,113 $
1,021,027
3,252.881
(3.986) 100.192
1,665,741
3,828.186
1.665.741 $
$ 1,108,605
7,763,619
139.874
9,012,098
(1.594.397)
Year Ended June 30,2010
Interest and dividends
Unrealized gains
Realized gains (losses)
Total return on investments
Temporarily
Restricted
Unrestricted
11,547.467)
$
3.946.460
The University's investment strategy incorporates a diversified asset allocation approach and maintains,
within defined limits, exposure to the world equity, fixed-income, commodities, real estate and private
equity markets. This strategy provides the University with a long-term asset mix that is most likely to meet
the University's long-term return goals with the appropriate level of risk.
The alternative investments were purchased to diversify the University's portfolio, to provide predictability
in overall earnings and to provide market neutral holdings. The University's management, the Investment
Committee of the Board of Regents and the University's external investment consultants review reports
provided by the general partners and hedge fund managers, and the University's external investment
consultants attend meetings of the various general partners and hedge fund managers in order to
evaluate the risk associated with these investments. In addition, the University monitors its portfolio mix to
ensure that it is in accordance with Board policy.
Investments are exposed to potential risks including interest rate risk, credit risk and overall market
volatility. Accordingly, it is reasonably possible that changes in the value of investments will occur in the
near term and such changes could be material in amount.
Page 18
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.201 1 and 2010
--
-
NOTE 8 Land, Buildings, and Equipment
Land, buildings, and equipment comprise the following assets at June 30:
Land
Buildings
Equipment
Furniture, fixtures and other
Art collection
Construction in progress
Less: accumulated depreciation
Net land, buildings, and equipment
Depreciation expense was $3,913,184 and $4,092,082 for the y e a s ending June 30, 201 1and 2010,
respectively.
-
NOTE 9 Long-term Debt
The long-term debt of the University as of June 30 is comprised of the following:
Description
Redevelopment Authority of
the City of Milwaukee
Revenue Refunding
Bonds, Series 1999A
Redevelopment Authority of
the City of Milwaukee
Revenue Refunding
Bonds, Series 19998
Wisconsin Health and
Educational Facilities
Authority Revenue Bonds.
Series 19996
Redevelopment Authority of
the City of Milwaukee
Revenue Refunding
Bonds. Series 20038
Interest Rate
Due Date
4.10% to 4.70% Annual maturities on October 1
of each year through 2017 in
amounts ranging from
$615.000 to $915,000
4.40% to 5.0% Annual maturities on October 1
of each year through 2017 in
amounts ranging from
$465.000 to $720.000
4.55% to 5.13% Annual maturities on October 1
of each year through 2017 in
amounts ranging from
$120.000 to $185.000
3.8% to 5.35% Annual maturities on July 1 of
each year beginning in 2010
through 2023 in amounts
from $465.000 to $470,MH]
2011
$
5,595,000
2010
$
6.260.000
4,345,000
4,855,000
1.135.000
1,270.000
6.070.000
6.535.000
Total Debt
Page 19
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.2011 and 2010
NOTE 9 - Long-term Debt (continued)
In 1999, $7,845,000 and $8,895.000 Redevelopment Authority of the City of Milwaukee ("RACM")
Revenue Refunding Bonds (Series 1999A and 19998 Bonds, respectively) and $2,315.000 Wisconsin
Health and Education Facilities Authority Revenue Bonds (Series 1999C Bonds) were issued on behalf of
the University to refinance previously issued bonds, fund a Debt Service Reserve Fund, pay a portion of
the issuance costs and to finance various equipment purchases and capital improvements to its facilities.
The Series 1999 Bonds are collateralized by a pledge of a Mortgage Note on all of the University's land
and buildings, with the exception of the Kern Center building and property, in an aggregate principal
amount equal to the aggregate principal amount of the Bonds. The Bond indentures for Series 1999A.
19998 and 1999C Bonds established Debt Service Reserve Funds, amounting to $1,908,503 and
$1,908,487 as of June 30, 201 1 and 2010, respectively, which are included in investments on the
statements of financial position.
In July 2003, $8,000.000 RACM Variable Rate Demand Redevelopment Revenue Bonds (Series 2003A)
and $7,000,000 RACM Redevelopment Revenue Bonds (Series 20038) were issued on behalf of the
University. Both issues were for the purpose of partially financing a $31,000,000 building project,
consisting of a 215.000 square foot recreation and education center named the Kern Center, to be owned
and operated by the University. In May 2009, the Series 2003A outstanding amount of $7,250.000 was
paid from unrestricted funds and the bonds were called. The remaining RACM bond obligations are
provided for by indenture under terms of a loan agreement and promissory note from the University. All
principal and interest payments are collateralized by a letter of credit from a bank which expires July 15,
2012, with renewable provisions if approved by the bank. A Credit Agreement to provide reimbursement
for amounts owed to the bank under the letter of credit is collateralized with a mortgage and an
assignment of leases and rents on the Kern Center property and operation. In the event that the Bond
Remarketing Agent is unable to remarket the Bonds, the Bonds will become a demand note under the
irrevocable letter of credit. The Credit Agreement requires the University to maintain a Minimum Liquidity
Ratio in excess of 1.0 and requires the University to own and maintain a Minimum Liquid Asset Balance of
$8,000,000.
Both the 1999 and 2003 Agreements have covenants that require the University to maintain certain annual
operating results and balance sheet liquidity ratios. The University has reported its compliance with these
covenants to the respective Trustees.
Future maturities of long term debt at June 30. 2011 are as follows:
Amount
Years ending June 30:
2012
2013
2014
2015
2016
Subsequent to 2016
Interest expense was approximately $828,000 and $915,000 for the years ended June 30,2011 and 2010.
respectively.
Page 20
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 10 Unemployment Compensation Deposit
As of June 30, 2011 and 2010, the University had a letter of credit of $642,835 that is designated for the
reimbursement of unemployment benefits paid by the State of Wisconsin to former University employees.
-
NOTE 11 Employee Benefit Plans
All eligible full time personnel may elect to participate in a defined contribution, multi-employer, individual
annuity plan for retirement benefits. The University has neither administrative responsibilities nor any
financial liabilities under this plan except for an annual matching contribution equal to the amount
contributed by the participants, which may not exceed 6% of the annual wages of the participants. In
addition, voluntary contributions by participants may be made, subject to IRS limitations. All benefits under
this plan are provided solely through individually owned, fully funded annuity contracts. For 201 1 and
2010, the University's matching contributions to this plan were $1,226,060 and $1,171,675, respectively.
The University provides certain postretirement benefits other than pensions, primarily health care, for
retired employees that have attained specified years of service. The University accrues the estimated cost
of retiree benefit payments during the years the employee provides services. The measurement date for
the plan is June 30. The status of the postretirement benefit liability for this plan as of June 30, is as
follows:
2011
Retirees
$
Active employees currently eligible to retire
Other active employees
Accumulated postretirement benefit obligation
Fair value of plan assets
Unfunded status
Current and unamortized actuarial losses
Accrued postretirement benefit obligation recognized in
the statements of financial position
$
2010
286,674 $
1,071.035
1.370.577
2,728,286
357,413
922,373
1.253.737
2,533,523
2,728.286
2,533,523
(2.728.286) $
(2.533.523)
The following is a reconciliation of the benefit obligation and the value of plan assets at June 30:
2011
Change in projected benefit obligation
Benefit obligation at beginning of year
Interest cost
Sewice cost
Actuarial gain
Benefits paid
Benefit obligation at end of year
$
9
2,533,523 $
117,546
185.541
(75,588)
(32.736)
2,728,286 $
2010
2,610,652
130,533
198,467
(367,704)
(38.425)
2.533.523
The plan participants made no contributions to the plan assets during 2011 and 2010. The plan has no
assets at June 30,201 1 and 2010.
Page 21
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 11 Employee Benefit Plans (continued)
Net periodic post retirement benefit expense for 2011 comprised the following:
Service cost
Interest cost
Amortization of unrecognized
net gains
.
Net gain
Net periodic postretirement cost
$
$
185,541
117,546
(192.749)
. .
(367.704)
(257.368)
The University contributed $32,736 to the postretirement plan in fiscal 2011. The University expects to
contribute $31,674 to its postretirement plan in fiscal 2012. These payments have been estimated based
on the same assumptions used to measure the University's benefit obligation. Benefit payments, which
reflect expected future sewice, as appropriate, are expected to be paid as follows:
2012
2013
2014
2015
2016
2017-2021
Total
The estimated service cost, interest cost and net gain for fiscal year 2012, are as follows:
$
Service cost
Interest cost
Net gain
Amortization of unrecognized net gains
Net periodic postretirement benefit cost $
207.133
126,133
(75,588)
(192.749)
64.929
A 4% rate of increase in the per capita costs of covered health care benefits was assumed at June 30.
201 1 and June 30, 2010. A discount rate of 5% was used to determine the accumulated postretirement
benefit obligation for 201 1 and 2010. A decrease of one percentage point in the discount rate causes an
increase of approximately 9% in the liability.
The University has a deferred compensation agreement with its President that provides for the deferral of
$75,500 of compensation for each year of service until retirement. The deferred compensation agreement
allows the President to have the University pay for various insurance policies and the amount paid by the
University reduces the amount of deferred compensation to be paid to the President. The amount of
deferred compensation is to be paid in two equal annual installments afler the President retires. The
amount of deferred compensation owed to the President at June 30, 2011 and 2010 is approximately
$1,330,000 and $1,290,000, respectively, and the amounts are included in accounts payable and accrued
liabilities on the statements of financial position. Deferred compensation expense for the years ending
June 30, 2011 and 2010 was approximately $40.000.
Page 22
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.201 1 and 2010
NOTE 11 -Employee Benefit Plans (continued)
In addition to the deferred compensation agreement, the University has an agreement with the President
that allows for the University to advance the President amounts to be used for personal insurance and the
advances are to be repaid upon retirement. The advanced amounts to the President at June 30,2011
and 2010 were approximately $1,330,000 and $1,290,000, respectively, and are recorded in prepaid
expenses and other assets on the statements of financial position. The President has assigned a life
insurance policy to the University to secure the payment of the loan.
-
NOTE 12 Self-funded Employee Medical Plan
The University has medical, dental and vision benefits coverage by participating in the Wisconsin
Association of Independent Colleges and Universities Benefit Consortium ("WBC"). As a charter member.
along with 8 other universities in the association ("WAICU"), the University has agreed to remain a
member until December 31. 2013. The WBC is a separate entity formed as a Voluntary Employee
Beneficiary Association ("VEBA") under federal tax code IRC 501 (c)(9) and is incorporated under Chapter
181 of the Wisconsin statutes. The members included in the WBC, by sharing the cost of medical claims
and administrattve costs, operate as an Associated Health Plan ("AHP). The WBC has adopted a multiemployer health plan approved by its Board of Directors and meets the requirements of the Employee
Retirement Security Act of 1974 ("ERISA"). The University is entitled to a position on the WBC's Board of
Directors along with one member each from the other eight charter members. As a member, the
University pays fees to the WBC for coverage under the WBC's Health Plan in amounts determined by the
various plan coverage options chosen by the participating employees. The University pays approximately
two thirds of the total membership fees as determined by the WBC and the employees contribute the
remainder.
Under the WBC Health Plan employees who work at least 1,000 hours per year are eligible. Employees
are eligible for retiree benefits if they are a participant for a one year period prior to retirement, and are at
least 55 years of age with 15 years of continuous service with the University, or are over 55 years of age
and the sum of the age and years of full-time service equals at least 70. A surviving spouse who is a planeligible dependant can remain in the Health Plan until remarriage or age 65.
Fees paid to the WBC exceeded claims paid by $1,509,411 and $1,312.003 at June 30,2011 and 2010,
respectively, and is included in prepaid expenses and other assets on the statements of financial position.
-
NOTE 13 Lease Commitments
The University is committed under operating leases for various equipment, automobiles and laptop
computers.
Page 23
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 13 Lease Commitments (continued)
Future minimum lease payments for the years ended June 30 are as follows:
2012
2013
2014
2015
Total
Lease payments charged to expense were $2,003,973 and $2,106,650 for the years ended June 30,
2011 and 2010. respectively.
The University provides its full-time students with a mandatory technology plan for which it charges a fee.
The plan includes a laptop computer which the University leases for two-year terms. Upon reaching junior
status, each full-time student receives the current model replacement which he or she is entitled to own
upon graduation. As of June 30, 201 1 the University had 2,370 laptop computers on lease under the plan.
At the expiration of each two-year lease, the University has an option to purchase the computers or return
them. On an annual basis, prior to the start of each school year, the University enters into new lease
agreements to obtain the required computers to accommodate incoming freshman, new transfer students,
and students enrolled in their junior year.
The University acquires capital equipment at times through lease/purchase agreements. The gross
amount of these assets under capital leases is $154,250, which is included in fixed assets. Amortization of
the capital lease is included in depreciation expense. The future minimum lease obligations and the net
present value of these minimum lease payments included in accounts payable and accrued liabilities on
the statements of financial position at June 30, 2011, are as follows:
Year ending June 30.2012
Less: Interest
Present value of minimum lease payments
$
9
Amount
42,951
(1.074)
41.877
-
NOTE 14 Net Assets
Unrestricted net assets consist of the following as of June 30:
Unrestricted, undesignated
Page 24
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 14 Net Assets (continued)
Donor restrictions on temporarily restricted net assets consist of the following at June 30:
Split interest annuity agreements
Donor imposed restrictions:
Art collection and related buildings
Capital expenses
Scholarships
Instructional programs and other operating purposes
$
676,500 $
1,193,837
5
4,810,503
2,713,305
903,010
11,682,593
20.785.911 9
8,853,934
4,918,571
1,016.467
5,091.787
21.074.596
Permanently restricted net assets consist of the following at June 30:
Scholarships
Instructional Programs
Operational
NOTE 15 - Endowment
The University's endowment consists of approximately 150 individual funds established for a variety of
purposes. Its endowment includes only donor-restricted funds. As required by Generally Accepted
Accounting Principles ("GAAP"), net assets associated with endowment funds are classified and reported
based on the existence of donor-imposed restrictions.
The University is subject to the Uniform Prudent Management of Institutional Funds Act ("UPMIFA"). The
University's governing Board of Regents has interpreted UPMIFA in the State of Wisconsin as requiring
the preservation of the historical 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 the gifts donated 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.
Page 25
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,201 1 and 2010
NOTE I 5 -Endowment (continued)
The remaining portion of the donor-restricted endowment fund that is not classified as permanently
restricted net assets is classified as temporarily restricted net assets until those amounts are released for
expenditure by the University in a manner consistent with the standards required by the donor. The
University considers the following factors in making a determination to appropriate or accumulated donorrestricted endowment funds:
.
The duration and preservation of the fund
The purposes of the University and the donor-restricted endowment fund
General economic conditions
The possible effect of inflation and deflation
The expected total return from income and the appreciation of the investments
Other resources of the University
The investment policies of the University
The University includes in its endowment gifts received from donors of cash and cash equivalents and
investments. The University's endowment excludes pledges receivable and split interest agreements.
Endowment net asset composition by type of fund consists of the following at June 30:
June 30. 201 1
Donor-restricted endowment funds
June 30. 2010
Donor-restricted endowment funds
Unrestricted
Temporarily
Restricted
-
$ 10.135.575
Unrestricted
Temporarily
Restricted
Permanently
Restricted
-
$ 5.831.494
$ 31,666.557
9
$
Permanently
Restricted
Total
$ 31.793.361 $ 41.928.936
Total
$
37,498,051
Changes in endowment net assets for the year ended June 30,2011 and 2010 are as follows:
Endowment Net Assets June 30,2010
Contributions
Investment gain
Appropriated for expenditure
Endowment Net Assets June 30,2011
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
-
$ 5,831,494
$ 31,666,557
$ 37,498,051
$
126,804
-
$
-
126.804
5,858,313
5,858,313
(1.554.232)
(1.554.232)
$ 10.135.575 $31.793.361 $ 41.928.936
Page 26
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30,2011 and 2010
-
NOTE 15 Endowment (continued)
Unrestricted
Endowment Net Assets June 30.2009
Contributions
Investment gain
Appropriated for expenditure
Endowment Net Assets June 30.2010
$
-
$
Temporarily
Restricted
Permanently
Restricted
$ 3,227,353 $30,495.078
-
1,171,479
3,828,186
(1.224.045)
$ 5.831.494 $31.666.557
Total
33,722,431
1,171,479
3,828,186
(1.224.045)
$ 37.498.051
$
The University has adopted investment and spending policies for the endowment assets that attempt to
provide a predictable stream of funding to the programs supported by its endowment while seeking to
maintain the purchasing power of the endowment assets. Endowment assets include those assets of
donor-restricted funds that the University must hold in perpetuity. Under this policy, as approved by the
Board of Regents, the endowment assets are invested in a manner that is intended to produce results,
while assuming a moderate level of investment risk. The University expects its endowment funds, over
time, to provide an average annual rate of at least 5% annually. Actual returns in any given year may vary
from this amount.
To satisfy its long-term rate of return objectives, the University relies on a total return strategy in which
investment returns are achieved through both capital appreciation, both realized and unrealized, and
current yields from interest and dividends. The University targets a diversified asset allocation that places
a greater emphasis on equity based investments to achieve its long term return objectives.
The University has a policy of appropriating for distribution each year 5% of its endowment fund's average
book (donated) value over the prior two 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 remain at least intact at donated value at the date of
the gift. This is consistent with the University's objective to maintain the purchasing power of the
endowment assets held in perpetuity as well as to provide additional real growth through new gifts.
Page 27
MILWAUKEE SCHOOL OF ENGINEERING
NOTES TO FINANCIAL STATEMENTS
June 30.201 1 and 2010
-
NOTE 16 Government Grants and Contracts
Sources of government grant and contract revenues are not segregated in the financial statements. The
primary sources for the years ended June 30,201 1 and 2010 are as follows:
Unrestricted government contracts:
TRIO Droarams
~esearch'andother
Unrestricted government grants:
Federal PELL Grant
Federal Supplemental Education Opportunity Grant
Federal Work Study
Wisconsin Tuition Grant
Other Wisconsin Programs
Total government grants and contracts
$
2,565,752
209,127
314,618
1,917,994
173.683
5.181.174
8.074.408 $
2,415,945
207,747
322,624
1,870,143
133.277
4.949.736
7.332.474
-
NOTE 17 Fundraising and Advertising Expenses
Fundraising expenses of $830,695 and $816,102 are included in institutional support for the years ended
June 30, 2011 and 2010, respectively. Advertising expenses approximated $808,000 and $523,000 for the
years ended June 30, 201 1 and 2010, respectively. Advertising costs are expensed when incurred.
-
NOTE 18 Contingencies
The University is currently planning a major building project in 2012, consisting of a 780 car parking
garage, a competition grade athletic field for soccer and lacrosse located on top of the structure, and a
small community park. Total cost of the project is estimated at $30,000,000. The project has received
preliminary
from local governmental units but is also subject to a vacant land purchase involving
. approvals
..
Milwaukee County and a local bank. It is expected that purchase negotiations and final government
approvals will be completed by early 2012 with construction commencing in spring of 2012. The project is
td be financed with ddnor contributibns of approximately $20,000,000 and the balance from issuing
additional RACM bonds throuah the Citv of Milwaukee, who has provided initial approval. Related legal
and other professional fees todate of approximately$275,000 have been recorded as construction in
progress in land, buildings, and equipment and have been funded by payments received from donors.
~
~~
.
NOTE 19 -Subsequent Events
The University has evaluated subsequent events through October 21, 2011 which is the date that the
financial statements were issued.
Page 28