RANDOLPH-MACON COLLEGE FINANCIAL REPORT JUNE 30, 2012
RANDOLPH-MACON COLLEGE FINANCIAL REPORT June 30, 2012
CONTENTS Page INDEPENDENT AUDITOR’S REPORT....................................................................................................... 3 FINANCIAL STATEMENTS Statements of Financial Position................................................................................................................... 4 Statements of Activities ................................................................................................................................ 5 Statements of Cash Flows............................................................................................................................. 7 Notes to Financial Statements....................................................................................................................... 9
INDEPENDENT AUDITOR’S REPORT
To the Board of Trustees Randolph-Macon College Ashland, Virginia We have audited the accompanying statements of financial position of Randolph-Macon College as of June 30, 2012 and 2011, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the College’s 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. 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 College’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 Randolph-Macon College as of June 30, 2012 and 2011, and its changes in net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
CERTIFIED PUBLIC ACCOUNTANTS Roanoke, Virginia October 24, 2012
Your Success is Our Focus 319 McClanahan Street, S.W. • P.O. Box 12388 • Roanoke, VA 24025-2388 • 540-345-0936 • Fax: 540-342-6181 • www.BEcpas.com
RANDOLPH-MACON COLLEGE STATEMENTS OF FINANCIAL POSITION June 30, 2012 and 2011
2012 ASSETS Cash and cash equivalents Receivables and other assets Inventories Cash surrender value of life insurance policies Notes receivable, college and government student loans Contributions receivable (Note 2) Investments (Note 3) Deferred loan costs, net of accumulated amortization Funds designated for investment in land, buildings, and equipment Land, buildings, and equipment, net of accumulated depreciation (Note 4) Funds held in trust by others Total assets
$
6,689,171 2,057,810 208,487 275,175 4,442,750 7,066,957 119,933,141 438,192 11,621,829
2011 $
64,859,397 1,753,691
8,512,337 1,517,150 155,283 263,086 4,302,075 16,408,145 122,186,503 243,475 5,904,330 58,824,857 1,766,778
$
219,346,600
$
220,084,019
$
2,751,266 1,538,287 2,247,229 11,097,895 1,486,083 2,406,832 30,600,793
$
3,386,391 1,426,208 2,525,741 10,063,903 1,425,797 2,380,553 31,161,343
LIABILITIES AND NET ASSETS Accounts payable Accrued and other liabilities Student and other deposits Postretirement benefit obligation (Note 5) Trust and annuity obligations U.S. government grants refundable Debt (Note 6) Total liabilities Net assets (Note 7) Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets
The Notes to Financial Statements are an integral part of these statements.
$
4
52,128,385
52,369,936
87,460,804 35,312,673 44,444,738
88,825,395 37,754,478 41,134,210
167,218,215
167,714,083
219,346,600
$
220,084,019
RANDOLPH-MACON COLLEGE STATEMENT OF ACTIVITIES Year Ended June 30, 2012
Unrestricted OPERATING REVENUES Tuition and fees Less financial aid Net tuition and fees (Note 8) Contributions Investment income, endowment, and other (Note 3) Investment income, temporary investments (Note 3) Government and private grants Auxiliary services Other Net assets released from restrictions and reclassifications (Note 9) Total operating revenues OPERATING EXPENSES Educational and general: Instruction Academic support Student services Institutional support Auxiliary services
$ 39,458,827 (19,821,179) 19,637,648 1,434,960 4,854,404
2012 Temporarily Permanently Restricted Restricted $
443,598 1,957,334
$
-
Total $ 39,458,827 (19,821,179) 19,637,648 1,878,558
3,852
6,815,590
689
111,409 616,552 11,172,659 310,890
22,758 11,172,659 352,439
88,651 616,552 (42,238)
4,432,835
(4,432,835)
-
41,907,703
(1,368,938)
4,541
40,543,306
-
12,434,782 3,649,403 9,050,346 9,907,993 8,210,784
-
-
12,434,782 3,649,403 9,050,346 9,907,993 8,210,784
Total operating expenses (Note 10)
43,253,308
-
-
43,253,308
Change in net assets, operating
(1,345,605)
4,541
(2,710,002)
NON-OPERATING INCOME Contributions Investment income (Note 3) Investment return, net of amount available to support current operations (Note 3) Other Change in value of split interest agreements Change in postretirement benefit obligation (Note 5) Net assets released from restrictions and reclassifications (Note 9) Change in net assets, non-operating Change in net assets NET ASSETS Beginning Ending
The Notes to Financial Statements are an integral part of these statements.
220,300 13,006 (4,075,796) 543,665 (12,209) (1,033,992) 4,326,040
(1,368,938) 4,602,042 41,494 (1,353,299) (18,828) (28,292) (4,315,984)
3,323,550 17,942
8,145,892 72,442
(14,740) (10,205) (504)
(5,443,835) 514,632 (41,005)
-
(1,033,992)
(10,056)
-
(18,986)
(1,072,867)
3,305,987
(1,364,591)
(2,441,805)
3,310,528
88,825,395
37,754,478
41,134,210
167,714,083
$ 87,460,804
$ 35,312,673
$ 44,444,738
$ 167,218,215
5
2,214,134 (495,868)
RANDOLPH-MACON COLLEGE STATEMENT OF ACTIVITIES Year Ended June 30, 2011
Unrestricted OPERATING REVENUES Tuition and fees Less financial aid Net tuition and fees (Note 8) Contributions Investment income, endowment, and other (Note 3) Investment income, temporary investments (Note 3) Government and private grants Auxiliary services Other Net assets released from restrictions and reclassifications (Note 9) Total operating revenues OPERATING EXPENSES Educational and general: Instruction Academic support Student services Institutional support Auxiliary services Total operating expenses (Note 10) Change in net assets, operating NON-OPERATING INCOME Contributions Investment income (Note 3) Investment return, net of amount available to support current operations (Note 3) Other Change in value of split interest agreements Change in postretirement benefit obligation (Note 5) Net assets released from restrictions and reclassifications (Note 9)
$ 36,688,634 (17,736,379) 18,952,255 1,352,448 4,829,447
2011 Temporarily Permanently Restricted Restricted $
2,889,647 1,948,924
$
-
Total $ 36,688,634 (17,736,379) 18,952,255 4,242,095
4,020
6,782,391
14,266
122,255 723,737 9,778,495 357,789
20,579 9,778,495 383,129
101,676 723,737 (39,606)
4,605,521
(4,605,521)
-
39,921,874
1,018,857
18,286
40,959,017
-
11,650,584 3,357,352 8,767,580 9,719,010 6,796,204
-
-
11,650,584 3,357,352 8,767,580 9,719,010 6,796,204
40,290,730
-
-
40,290,730
(368,856)
1,018,857
18,286
668,287
832,225 10,499
12,727,080 37,062
1,731,046 17,063
15,290,351 64,624
7,406,635 (779,300) (3,057) (499,644)
8,090,481 (1,750) (228,006) -
63,584 154,762 (29,018) -
(499,644)
8,203,800
(8,100,410)
Change in net assets, non-operating
15,171,158
12,524,457
1,834,047
29,529,662
Change in net assets
14,802,302
13,543,314
1,852,333
30,197,949
74,023,093
24,211,164
39,281,877
137,516,134
$ 88,825,395
$ 37,754,478
$ 41,134,210
$ 167,714,083
NET ASSETS Beginning Ending
The Notes to Financial Statements are an integral part of these statements.
6
(103,390)
15,560,700 (626,288) (260,081)
-
RANDOLPH-MACON COLLEGE STATEMENTS OF CASH FLOWS Years Ended June 30, 2012 and 2011 2012 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash used in operating activities: Non-operating and noncash items: Contributions restricted for plant expansion and endowment Net realized and unrealized gains on investments Change in cash surrender value of life insurance policies Change in funds held in trust Loss on disposal of fixed assets Depreciation and amortization Noncash assets received as contributions Change in certain operating assets and liabilities: (Increase) decrease in: Receivables and other assets Inventories Contributions receivable (Decrease) increase in: Accounts payable, accrued, and other liabilities Student and other deposits Postretirement benefit obligation Trust and annuity obligations, net of payments U.S. government grants refundable
$
(495,868)
2011 $
30,197,949
(16,833,563) (288,996) (12,089) 13,087 21,925 2,491,204 (228,188)
(3,144,904) (21,007,102) (18,096) (148,000) 12,272 2,024,598 (1,377,506)
(540,660) (53,204) 9,341,188
(181,903) 54,088 (10,566,981)
(16,862) (278,512) 1,033,992 253,490 26,279 (5,566,777)
711,860 (91,683) 499,644 342,768 27,694 (2,665,302)
(140,675) (8,296,749) (506,184) (5,717,499) 2,550,246 (12,110,861)
4,065 (13,723,650) 10,047,854 1,639,233 (4,179) 5,251,870 3,215,193
Net cash provided by financing activities
16,833,563 (193,204) (560,550) (225,337) 15,854,472
3,144,904 (341,615) 10,047,854 (10,047,854) (545,703) (123,450) 2,134,136
Increase (decrease) in cash and cash equivalents
(1,823,166)
2,684,027
Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Change in notes receivable, net Purchases of land, buildings, and equipment Less new debt incurred on purchases Less change in accounts payable incurred on purchases Change in funds designated to investment in land, building, and equipment Change in investments, net of proceeds from sales Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from contributions restricted for plant expansion and endowment Payments of trust and annuity obligations Proceeds from issuance of debt Less new debt incurred to finance land, buildings, and equipment additions Payments of debt Payment for deferred loan costs
CASH AND CASH EQUIVALENTS Beginning
8,512,337
Ending
$
(Continued) The Notes to Financial Statements are an integral part of these statements.
7
6,689,171
5,828,310 $
8,512,337
RANDOLPH-MACON COLLEGE STATEMENTS OF CASH FLOWS Years Ended June 30, 2012 and 2011 2012 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash payments for interest
$
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Debt incurred to acquire land, buildings, and equipment
$
2011
1,113,944
-
$
765,356
$
47,854
Purchases of land, buildings, and equipment included in accounts payable
$
1,133,049
$
1,639,233
Noncash assets received as contributions
$
228,188
$
1,377,506
The Notes to Financial Statements are an integral part of these statements.
8
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies Randolph-Macon College (the “College”) is a private, undergraduate, coeducational, liberal arts college located in Ashland, Virginia. The College’s curriculum emphasizes the liberal arts and sciences and includes 31 major fields of study. Significant sources of revenue include tuition and fees, contributions, and investment returns. The significant accounting policies followed by the College are described below: Basis of financial statement presentation and accounting: The financial statements of the College have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying financial statements present information regarding the College’s financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. The three classes are differentiated based on the existence or absence of donor-imposed restrictions, as described below: Unrestricted net assets are free of donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Revenues, gains, and losses that are not temporarily or permanently restricted by donors are included in this classification. Expenses are reported as decreases in this classification. Temporarily restricted net assets are limited in use by donor-imposed stipulations that expire either by the passage of time or that can be fulfilled by action of the College pursuant to those stipulations. Permanently restricted net assets are amounts required by donors to be held in perpetuity; however, generally, the income on these assets is available to meet various restricted and other operating needs. These net assets primarily include permanent endowment funds and funds held in trust by others. Cash and cash equivalents: The College considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents. Cash equivalents are stated at cost, which approximates market value. Cash held for long-term investment is classified as investments or funds designated for investment in land, buildings, and equipment.
The College follows the common cash management practice of consolidating certain of its operating cash and cash equivalent accounts into one account, which includes various designated and restricted current operating and plant accounts. As a result of this practice, cash and cash equivalents specifically associated with the original gift of certain designated and restricted monies can be spent from the consolidated account. The College has sufficient unrestricted funds not included in the consolidated account to cover the designated or restricted monies spent. (Continued) 9
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Receivables: Student, grant, and other receivables are stated at the amount the College expects to collect from outstanding balances. The College provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its experience and other circumstances which may affect the ability of students and others to meet their obligations. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Inventories: Inventories are stated at the lower of cost or market, with cost determined primarily on the first-in, first-out method. Investments: Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values. The fair values of investments in equities, fixed income, and cash and cash equivalents are determined by reference to quoted market prices and other relevant information generated by market transactions. Net unrealized and realized gains or losses are reflected in the statements of activities. Certain land and other investments which are not readily marketable are carried at cost. Gifts of investments are recorded at their fair value (based upon quotations or appraisals) at the date of gift. Purchases and sales of investments are recorded on the trade date. The estimated fair value of most alternative investments is based on valuations provided by the external investment managers. The College believes the carrying amount of these financial instruments is a reasonable estimate of fair value. Because some alternative investments are not readily marketable, their estimated value is subject to uncertainty and therefore may differ from the value that would have been used had a ready market for such investments existed. Such a difference could be material. Income and realized and unrealized net gains on investments of endowment and similar net asset classes are reported as follows:
As increases in permanently restricted net assets if the terms of the gift require that they be added to the principal of a permanent endowment fund;
As increases in temporarily restricted net assets if the terms of the gift impose restrictions on the use of the income, including income earned on donor restricted endowment funds;
As increases in unrestricted net assets in all other cases.
The College has various investment vehicles that the carrying value fluctuates with the financial markets. As a result, the value of such investments as of the date of this report may be materially different than year end values. (Continued) 10
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Split-interest agreements: The College participates in various split-interest agreements that are unconditional and irrevocable. These arrangements are established when a donor makes a gift to the College or a trust in which the College shares benefits with other beneficiaries. Generally, the College accounts for these agreements by recording its share of the related assets at fair market value (which approximates the present value of the estimated future cash receipts). Liabilities are recorded for any portion of the assets held for donors or other beneficiaries equal to the present value of the expected future payments to be made. The liabilities are adjusted annually for changes in the value of the assets, accretion of the discount, and other changes in the estimates of future benefits. Contribution revenues are recognized at the dates the agreements are established for the difference between the assets and the liabilities. If the College holds the assets or is the trustee, the assets are included in investments, and the liabilities are included in trust and annuity obligations. If a third party is the trustee until the termination of the trust and then the remaining assets are transferred to the beneficiaries, the assets less related liabilities are included in contributions receivable. If the donor establishes a perpetual trust with a third party as trustee (the College will never receive the principal of the trust), the assets less related liabilities are included in funds held in trust by others. The fair values of funds held in trust by others are determined by the present value of estimated future cash flows. Deferred loan costs: Deferred loan costs are being amortized on the straight-line basis over the term of the related financing agreement. Land, buildings, and equipment: Land, buildings, and equipment are stated at cost at the date of acquisition, or fair value at the date of gift, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. During 2011, the College changed the estimated useful lives of buildings from 40 years to 50 years. This change was accounted for on a prospective basis. The change resulted in a decrease to depreciation expense, and an increase to unrestricted net assets of approximately $350,000 for the year ended June 30, 2011. Equipment is removed from the records and any gain or loss is recognized at the time of disposal. Expenditures for new construction, major renewals and replacements, and equipment exceeding $5,000 are capitalized. The College capitalizes interest costs as part of the construction cost of buildings where it relates to the financing of major projects under development. Accrued compensation: The College accrues for salaries and all other compensation earned but not paid. Student and other deposits: Deposits and student fees applicable to academic sessions subsequent to the current year are deferred and recognized as revenues in subsequent periods.
(Continued)
11
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Postretirement benefits: The College makes available certain healthcare, dental, and life insurance benefits to employees who meet eligibility requirements. The College’s share of the estimated costs of benefits that will be paid after retirement is generally being accrued by charges to expense over the employees’ active service periods to the dates they are fully eligible for benefits. Notes receivable and U.S. government grants refundable: The College participates in the Federal Perkins Loan Program sponsored by the United States Government. Under this program, funds are loaned to qualified students and may be reloaned after collection. Student loan receivables related to this program are recorded as notes receivable. The portion of those funds contributed by the U.S. Government (that is, exclusive of the College’s match funds) is ultimately refundable to the government. The College accounts for its notes receivable at cost and recognizes interest income as it is earned. An allowance for doubtful accounts is based on prior collection history and individual circumstances of the borrower. Notes are considered past due after 30-45 days and accrue interest until written off when considered uncollectible. Asset Retirement Obligations (AROs): An asset retirement obligation is a legal liability to the College for the cost of retiring a tangible long-lived asset (e.g., a building containing asbestos) that results from the acquisition, construction, or development and/or the normal operation of the long-lived asset. A conditional ARO is a legal obligation in which the timing and/or method of retirement are conditional on a future event that may or may not be within the control of the College. To reasonably estimate these liabilities, the College must be able to determine (1) the settlement date – the estimated date or range of dates that disposal is anticipated or legally required, and (2) the settlement method – how the disposal will take place. The College follows the policy of recording the fair value of such liabilities when they can be reasonably estimated. Net asset classifications of institutional funds: The College holds institutional funds, principally endowment funds, subject to the Uniform Prudent Management of Institutional Funds Act (UPMIFA). “Endowment” is a commonly used term to refer to the resources, including trusts and annuities, that have been restricted by the donor or designated by the Board that will be invested to provide future revenue to support the College’s activities. The College’s endowment consists of individual funds established for a variety of purposes. As titled, UPMIFA provides guidance and applicable regulations relative to the management of applicable funds.
(Continued)
12
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Net asset classifications of institutional funds: (Continued) In response to UPMIFA, the College adopted the provisions of accounting guidance for net asset classification of donor-restricted endowment funds for an organization that is subject to UPMIFA and also required related financial statement disclosures. Interpretation of UPMIFA The Board of Trustees of the College has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. Accordingly, the College classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations of investment returns to the permanent endowment made in accordance with the direction of the applicable donor gift instrument, when applicable, at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the College 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 College and the donor-restricted endowment fund, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investments, (6) other resources of the College, and (7) the investment policies of the College. Return Objectives and Risk Parameters The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those of donor-restricted funds that organizations must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of a benchmark composed of a total return. The College expects its endowment funds to provide an average annual rate of return of 5.0% plus inflation (measured as the consumer price index). Actual returns in any given year may vary from this amount.
(Continued)
13
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Net asset classifications of institutional funds: (Continued) Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the College relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The College targets a diversified asset allocation that places emphasis on investments to achieve its long-term return objectives within prudent risk constraints as follows:
Asset class: U.S. equities Foreign equities Fixed income Marketable alternative assets Nonmarketable alternative assets
Target Allocation
Range
25.0% 25.0% 20.0% 15.0% 15.0%
15.0 – 35.0% 15.0 – 35.0% 15.0 – 25.0% 10.0 – 20.0% 7.5 – 22.5%
Spending Policy and How the Investment Objectives Relate to Spending Policy On College-held investments, the College employs a total return endowment spending policy that establishes the amount of endowment investment return that is available to support current needs and restricted purposes. This policy is designed to insulate program spending from capital market fluctuations and to increase the amount of return that is reinvested in the corpus of the fund in order to enhance its long-term value. For the years ended June 30, 2012 and 2011, the Board-approved spending formula for the endowment provided for an annual spending rate of 5.0% of the twelve-quarter trailing average of endowment market values through December of the previous fiscal year. If cash yield (interest and dividends) is less than the spending rate, realized gains can be used to make up the deficiency. Any income in excess of the spending rate is to be reinvested in the endowment. For the years ended June 30, 2012 and 2011, the Board approved supplemental spending of approximately $1.2 million and $1.25 million, respectively, for capital campaign and marketing activities. Funds with Deficiencies (“Underwater” funds)
(Continued)
From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the College to retain as a fund of perpetual duration. Deficiencies of this nature are reported in unrestricted net assets and were approximately $212,000 and $257,000 as of June 30, 2012 and 2011, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation of certain programs that were deemed prudent by the Board of Trustees. Subsequent gains that restore the fair value of the assets of the endowment fund to the required level are classified as an increase in unrestricted net assets. 14
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Contributions: Contributions, including unconditional promises to give or contributions receivable, are recognized as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions, in the period the donor’s commitment is received. Unrestricted, unconditional promises to give are recognized as temporarily restricted operating revenues unless the donor explicitly stipulates its use to support current period activities. Conditional promises to give are not recognized until they become unconditional – that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions to be received after one year are discounted at an appropriate discount rate commensurate with the risks involved. Amortization of the discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable is provided based upon management’s judgment, including such factors as prior collection history, type of contribution, and nature of the fundraising activity. 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 restrictions. Contributions of land, buildings, and equipment without donor stipulations concerning the use of such long-lived assets are reported as revenues of the unrestricted net asset class. Contributions of cash or other assets, to be used to acquire land, buildings, and equipment, with such donor stipulations are reported as revenues of the temporarily restricted net asset class; the restrictions are considered to be released at the time of acquisition of such long-lived assets. Operating results: Operating activities in the statements of activities illustrate a measure of how the College is maintaining the resources available for its “current operations.” Operations reflect all transactions increasing or decreasing unrestricted net assets except those of a capital nature – that is, capitalized for long-term investment or as land, buildings, and equipment – and the change relating to the postretirement benefit obligation. Temporarily restricted net assets released from restrictions which satisfy an operating purpose are also classified as operating. In accordance with the College’s total return policy, only the portion of total investment return available under this policy to meet operating needs is included in operating revenues. Additionally, the portion of total investment return available to support current operations under the College’s total return policy is excluded from cash flows from operating activities; only the actual cash yield is included in cash flows from operating activities. Costs related to the operation and maintenance of physical plant, including depreciation of plant assets, are allocated to operating programs and supporting activities based upon periodic inventories of facilities. Interest expense on external debt is allocated to the activities that have most directly benefited from the proceeds of the external debt. Employee and staff benefits are allocated to operating programs and supporting activities based upon salary expenses of these programs and activities.
(Continued)
15
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Advertising costs: The College follows the policy of charging advertising costs to expenses as incurred. Advertising expense was approximately $121,000 and $383,000 for the years ended June 30, 2012 and 2011, respectively. Fair Value Measurements: The College carries various assets and liabilities at fair value. Fair value is defined as 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, a market-based approach is used which establishes that fair value is based on the “highest and best use.” Additionally, the College categorizes its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as reflected below. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 1 – Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities that management has the ability to access at the measurement date. Level 2 – Fair values are based on inputs other than quoted prices in Level 1 that are either for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that were observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 – Fair values are based on unobservable inputs for the asset or liability where there is little, if any, market activity for the asset or liability at the measurement date. The estimated fair value for specific groups of financial instruments is presented within the notes applicable to such items. If not specifically presented, fair value is estimated to approximate the related carrying value. It was not considered practical to determine fair value of notes receivable from students under the U.S. government loan programs and related government advances because the notes receivable are non-marketable and can only be assigned to the U.S. government or its designees. These installment notes are due over terms of ten years, with interest at 5% per annum, and are carried at face value. Credit risk concentrations: Financial instruments which potentially subject the College to concentrations of credit risk consist principally of cash and cash equivalents, investments, and student accounts receivable, and notes receivable. The College places its cash and cash equivalents with high-credit, quality financial institutions. A portion of the College’s bank deposits are in excess of federally insured limits. Concentration of credit risk for investments is limited by the College’s policy of diversification of investments. Concentration of credit risk for student accounts receivable and notes receivable are limited due to a large base and geographic dispersion.
(Continued)
16
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 1.
Nature of Operations and Significant Accounting Policies (Continued) Income taxes: The College is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. The federal Forms 990 of the College are subject to examination by the Internal Revenue Service, generally for three years after they are filed. Subsequent events: Subsequent events were considered through October 24, 2012, the date the financial statements were available to be issued. Reclassifications: Certain reclassifications have been made to prior year amounts in order to conform to the current year presentation.
Note 2.
Contributions Receivable Contributions receivable consist of the following as of June 30: 2012 Unconditional promises to give cash Various charitable trusts held by others
Expected to be collected in: Less than one year One to five years More than five years
2011
$
6,922,693 144,264
$
15,846,239 561,906
$
7,066,957
$
16,408,145
$
3,897,260 4,274,662 380,602
$
12,780,570 4,141,641 1,216,899
8,552,524 Less: Actuarial present value of future payments Discount to net present value at 1.0%-5.0% Allowance for uncollectible contributions
(175,714) (280,785) (1,029,068) $
(Continued)
17
18,139,110
7,066,957
(534,777) (253,706) (942,482) $
16,408,145
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 2.
Contributions Receivable (Continued) The ownership of contributions receivable for each class of net assets as of June 30 is as follows: 2012 Temporarily restricted Permanently restricted
2011
$
5,652,227 1,414,730
$
14,817,642 1,590,503
$
7,066,957
$
16,408,145
For the year ended June 30, 2012, the College recorded contributions from four donors that totaled approximately 30% of contributions. For the year ended June 30, 2011, the College recorded contributions from six donors that totaled approximately 20% of contributions. Note 3.
Investments Investments are comprised of the following as of June 30: 2012 U.S. equities Foreign equities Fixed income Marketable alternative assets Nonmarketable alternative assets Real estate and other Cash and cash equivalents
$
2011
41,091,425 23,755,862 23,427,181 16,894,499
34.2% 19.8 19.5 14.1
7,409,059 4,389,165 2,965,950
6.2 3.7 2.5
$ 119,933,141
100.0%
$
42,263,987 26,170,233 22,467,226 16,196,321
34.6% 21.4 18.4 13.3
6,946,821 3,694,318 4,447,597
5.7 3.0 3.6
$ 122,186,503
100.0%
The ownership of investments for each class of net assets as of June 30 is as follows: 2012 Unrestricted Temporarily restricted Permanently restricted
$
63,595,288 15,998,536 40,339,317
$ 119,933,141
(Continued)
18
2011 $
68,200,292 16,962,771 37,023,440
$ 122,186,503
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 3.
Investments (Continued) The market value of investment asset classifications are as follows as of June 30: 2012 Endowment Held by Trustees Held by College Trusts and annuities Unrestricted current funds Restricted current funds Loan funds Plant funds
2011
$ 114,066,740 19,019 3,471,219 49,074 74,773 1,768,176 484,140
$ 115,483,651 20,341 3,418,288 806,409 83,785 1,889,889 484,140
$ 119,933,141
$ 122,186,503
Investment activity for the years ended June 30 is reflected in the table below: 2012 Investments, beginning Funds available for investment
Investment returns (net of expenses: 2012 $696,942; 2011 $738,438): Dividends, interest, and other income Investment return, net of amount available to support current operations per statements of activities Add spending in excess of cash yield Net realized and unrealized gains Total return on investments Amounts appropriated for operations, net transfers to operational accounts, debt payments, and other activity Investments, ending
(Continued)
$ 122,186,503 4,150,116
$ 105,899,952 2,126,731
126,336,619
108,026,683
1,231,015
1,495,678
(5,443,835) 5,732,831
15,560,700 5,446,402
288,996
21,007,102
1,520,011
22,502,780
(7,923,489)
(8,342,960)
$ 119,933,141
19
2011
$ 122,186,503
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 3.
Investments (Continued) The following schedule summarizes total investment return and its classification in the statements of activities for the years ended June 30: 2012 Operating revenues – investment income, endowment, and other – amount distributed to support current operations pursuant to the endowment spending policy Operating revenues – investment income, temporary investments Non-operating income – investment income Investment return, net of amount available to support current operations Less non-investment related activity
$
6,815,590
2011
$
111,409 72,442
122,255 64,624
(5,443,835) (35,595) $
1,520,011
6,782,391
15,560,700 (27,190) $
22,502,780
The College has diversified its portfolio in order to moderate volatility by investing in certain “alternative investments.” These investments are comprised of funds with both public and private investment companies. The underlying investments of some of these funds are largely in public equities, but are also invested in financial instruments such as currencies, futures contracts, options, and other vehicles such as real estate. The College is exposed to potential risks through its investments in non-marketable alternative assets. Such potential risks include, but are not limited to, the following: Non-marketable securities: Certain private investment companies hold various types of securities that are not readily marketable. Such securities are valued using various methodologies including estimates of fair value as determined by the management of the private investment companies. Such estimates are subject to change with the passage of time and the occurrence of events and such changes could be material. The College believes the carrying value of these financial instruments is a reasonable estimate of fair value. Broker dealer risk: Certain private investment companies have clearing agreements with brokerage firms to carry accounts as customers. Such brokers have custody of the private investment companies’ securities and cash balances, which may be due from these brokers. These securities and/or cash positions serve as collateral for any amounts due to brokers as well as collateral for securities in their custody.
(Continued)
20
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 3.
Investments (Continued) Investments sold, not yet purchased: Certain private investment companies may sell securities that they do not own and, therefore, will be obligated to purchase such securities at a future date. These obligations are recorded on those private investment companies’ respective financial statements at the market value of the securities. There is an element of risk that, if the securities increase in value, it will be necessary to purchase the securities at a cost in excess of the obligation reflected in these private investment companies’ respective financial statements.
Note 4.
Land, Buildings, and Equipment Land, buildings, and equipment consist of the following at June 30: Estimated Useful Life Buildings and leasehold improvements Vehicles, furniture, and equipment
50 years 3-30 years
2012 $
Less accumulated depreciation
Land Construction in progress Art collection $
79,495,240 17,143,804
2011 $
65,121,423 15,972,924
96,639,044 (42,955,610)
81,094,347 (40,790,233)
53,683,434
40,304,114
4,319,610 5,478,865 1,377,488
4,319,610 12,858,353 1,342,780
64,859,397
$
58,824,857
At June 30, 2012, construction in progress represents work completed to date on the football field, library addition, Brock Commons, and various other projects. At June 30, 2011, construction in progress represents work completed to date on the construction of a new residence hall, baseball field renovations, and various other projects. Estimated costs to complete these projects approximate $21.3 million at June 30, 2012. These costs will be financed using a combination of gifts and cash reserves.
(Continued)
21
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 5.
Postretirement Benefits The College has a plan that makes available postretirement health, dental, and life insurance benefits to eligible employees and dependents who were hired prior to January 1, 2001 and who meet both a minimum age of 55 years and have a minimum service of 10 years of continuous service as an employee, and the sum of the employee’s age and years of service is at least 70. Generally, the plan pays a stated percentage of health and life insurance premiums on behalf of retired employees. The College accrues the cost of postretirement health, dental, and life insurance benefits within the employees’ active service periods. 2012 Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Plan participants’ contributions Actuarial (gain) loss Benefits paid Benefit obligation at end of year
2011
$
10,063,903 282,775 563,204 194,405 359,880 (366,272)
$
$
11,097,895
$
9,564,259 269,550 515,853 119,561 (19,780) (385,540) 10,063,903
Net periodic benefit costs reported as operating expense included the following components: 2012 Service cost Interest cost Amortization of prior service credit Recognized actuarial loss Net periodic postretirement benefit cost
2011
$
282,775 563,204 (421,214) 178,474
$
269,550 515,853 (421,214) 147,946
$
603,239
$
512,135
Assumptions used in determination of the costs of postretirement benefits consisted of the following for the years ended June 30: 2012
2011
Discount rate used in determining the accumulated postretirement benefit obligation
4.5%
5.7%
Assumed healthcare cost trend used in measuring the accumulated postretirement benefit obligation (declining to 5.00% in 2018)
9.0%
10.0%
The healthcare cost trend rate assumption can have a significant effect on the amounts reported. For example, if the healthcare cost trend rate assumptions were increased by 1.0%, the APBO would be increased by approximately $1.6 million. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefit cost would be an increase of approximately $112,000. (Continued)
22
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 5.
Postretirement Benefits (Continued) The items recognized in unrestricted net assets not yet recognized as a component of net periodic benefit cost are as follows: 2012 Net actuarial loss Prior service credit Total
2011
$
2,431,761 (1,421,260)
$
$
1,010,501
$
2,250,355 (1,842,474) 407,881
The net loss and the prior service credit that will be amortized into net periodic benefit cost during fiscal year 2013 are $540,394 and $421,214, respectively. Estimated future benefit premiums expected to be paid by the College over the next ten years is as follows: June 30, 2013 2014 2015 2016 2017 2018 – 2022 Note 6.
$ $ $ $ $ $
405,600 442,700 482,900 519,500 550,200 3,202,500
Debt The College’s debt consists of the following as of June 30: 2012
(Continued)
Unsecured Virginia College Building Authority Educational Facilities Revenue Bonds, payable to a bank, interest payable semi-annually at 4.125%. Principal is payable in 2013. During the year, the College secured financing of up to $10 million to refinance this debt when it comes due. The new debt contains a forward swap agreement. $
9,830,000
Unsecured Industrial Development Authority of the Town of Ashland Education Facilities Revenue Bonds, Series 2002A. Interest on the Series 2002A bonds is due semi-annually at 2.54%, with principal payments due annually in varying amounts ranging up to $470,000 in December 2027.
6,125,000
23
2011
$
9,830,000
6,425,000
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 6.
Debt (Continued) The College’s debt consists of the following as of June 30: (Continued) 2012
2011
Unsecured Industrial Revenue Authority of Town of Ashland Educational Facilities Revenue Debt Bonds, Series 2004A Bond. Principal is due annually in varying amounts ranging up to $275,000 in December 2029. Interest is due semi-annually at 2.60%. Proceeds used to renovate the north quad of the freshman village.
3,890,000
4,090,000
Unsecured Economic Development Authority of the Town of Ashland Educational Facilities Revenue Note, Series 2011. Principal is due annually in varying amounts ranging up to $690,000 in April 2036. Interest is due semi-annually at 3.21% through April 2021, at which time it can be reset.
10,000,000
10,000,000
Note payable to a bank. Principal is due annually in varying amounts ranging up to $56,608 through December 15, 2027. Interest is due semi-annually at 3.79%. The debt is unsecured.
660,000
5.75% note payable to a bank, principal and interest of $32,218 payable semi-annually through January 2031. Secured by a building. Other
-
-
670,457
95,793
145,886
$
30,600,793
$
10,389,172 596,352 587,718 626,353 897,308 17,503,890
$
30,600,793
$
31,161,343
Debt matures as follows: Year ending June 30, 2013 2014 2015 2016 2017 2018 and later years Interest expense for the years ended June 30 is as follows: 2012 Expensed Capitalized
(Continued)
24
2011
$
1,083,682 41,123
$
826,429 62,417
$
1,124,805
$
888,846
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 7.
Net Assets Net assets as of June 30 consisted of the following: 2012 Unrestricted Funds functioning as endowment: Quasi endowment $ Accumulated losses resulting in “underwater” funds Amounts held for trust and annuity payments Investment in land, buildings, and equipment, net of debt College contributions to student loan funds Other
Temporarily restricted Funds functioning as endowment: Accumulated endowment investment return, net of amounts spent Amounts held for trust and annuity payments Restricted for future operations Restricted for buildings and equipment
Permanently restricted Restricted in perpetuity; only the income is expendable: Endowment principal Trusts and annuities Funds held in trust by others Contributions receivable Student loan funds
60,830,483 (212,000) 229,543
$
64,575,909 (257,088) 191,387
35,958,770 641,524 (9,987,516)
32,171,904 631,206 (8,487,923)
87,460,804
88,825,395
14,760,362 1,643,410 5,579,200 13,329,701
16,086,568 1,693,376 7,239,452 12,735,082
35,312,673
37,754,478
38,053,896 112,183 1,753,691 1,414,730 3,110,238
34,563,504 107,728 1,766,778 1,590,503 3,105,697
44,444,738
41,134,210
$ 167,218,215
Total net assets
2011
$
167,714,083
Temporarily restricted net assets are subject to both purpose and time restrictions. Temporarily restricted accumulated endowment investment return, net of amounts spent, is restricted for future operations, financial aid, and maintenance and acquisition of land, buildings, and equipment. Management determined that renovations to the Estes Dining Hall and related unearned revenue were not recorded in prior years. The 2011 financial statements have been restated to reflect this adjustment.
(Continued)
25
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 8.
Tuition and Fees, Net of Financial Aid Tuition and fees include regular session tuition for the College’s undergraduate regular and summer sessions as well as miscellaneous fees, such as application, graduation, automobile, and interest. Revenues received for student tuition and fees, net of financial aid, consist of the following for the years ended June 30: 2012 Tuition and fees
$
Less financial aid: Institutional, non-funded Funded: Endowed and other Grants $
2011
39,458,827
100.0%
(18,100,399)
36,688,634
100.0%
(45.9)
(15,919,773)
(43.4)
(1,629,559) (91,221)
(4.1) (0.2)
(1,718,936) (97,670)
(4.6) (0.3)
(19,821,179)
(50.2)
(17,736,379)
(48.3)
19,637,648
49.8%
$
$
18,952,255
51.7%
Financial aid is awarded to students based upon need and merit and is applied to billed tuition and fees, and room and board. Financial aid does not include payments made to students for services rendered to the College. However, the College does participate in work study programs; these expenses, which totaled $359,240 and $311,622 for the years ended June 30, 2012 and 2011, respectively, are included in institutional support on the statements of activities. Of these amounts, the federal government contributed $122,354 and $150,802, respectively. Note 9.
Net Assets Released from Restrictions and Reclassifications Net assets were released from donor restrictions when expenses were incurred to satisfy the restricted purposes, or by occurrence of other events as specified by donors. Restrictions were satisfied as follows for the years ended June 30: 2012 Operating: Financial aid General operations and maintenance Expiration of time restrictions
$
Total operating Non-operating: Buildings and equipment Recovery of “underwater” endowments Changes in donor designations and other reclassifications
1,400,246 2,662,630 369,959
$
4,605,521
4,270,896 45,088
5,520,977 2,679,433 (100,000)
4,315,984 $ 26
1,552,703 2,722,733 330,085
4,432,835
-
Total non-operating
(Continued)
2011
8,748,819
8,100,410 $
12,705,931
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 9.
Net Assets Released from Restrictions and Reclassifications (Continued) Reclassifications to permanently restricted net assets occurred during the year as donors explicitly amended original gift instruments. Significant reclassifications from temporarily restricted net assets occurred as donor intentions changed.
Note 10.
Operating Expenses Operating expenses incurred for the years ended June 30 are as follows: 2012 Salaries and wages Employee benefits, including payroll taxes
Utilities Miscellaneous supplies Travel Food services Postage and printing Depreciation and amortization Interest Professional and other services Bookstore purchases Repairs and maintenance Other
Program services Support services
(Continued)
$ 19,371,247
2011 44.8%
$ 18,967,093
47.1%
5,242,797
12.1
4,942,851
12.2
24,614,044
56.9
23,909,944
59.3
1,810,418 902,569 950,606 3,413,114 383,928 2,491,204 1,083,682 2,547,364 580,489 1,158,303 3,317,587
4.2 2.1 2.2 7.9 0.9 5.7 2.5 5.9 1.3 2.7 7.7
1,753,202 870,036 866,105 3,176,660 354,646 2,024,598 826,429 2,547,111 576,724 695,484 2,689,791
4.4 2.2 2.2 7.9 0.9 5.0 2.0 6.3 1.4 1.7 6.7
$ 43,253,308
100.0%
$ 40,290,730
100.0%
$ 36,805,220 6,448,088
85.0% 15.0
$ 33,901,020 6,389,710
84.1% 14.9
$ 43,253,308
100.0%
$ 40,290,730
100.0%
27
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 10.
Operating Expenses (Continued) Costs related to the operations and maintenance of the physical plant, including depreciation and interest expense are allocated to operating programs and supporting activities, as follows: Year Ended June 30, 2012 Expenses Before Allocation Education and general: Instruction Academic support Student services Institutional support Auxiliary services Operations and maintenance of physical plant Depreciation and amortization Interest expense Staff benefits
$
8,258,735 2,376,820 6,220,767 8,326,376 4,914,988
Total Expense Allocation $
4,337,939 2,491,204 1,083,682 5,242,797 $
43,253,308
4,176,047 1,272,583 2,829,579 1,581,617 3,295,796
Final Allocated Expenses $
(4,337,939) (2,491,204) (1,083,682) (5,242,797) $
-
12,434,782 3,649,403 9,050,346 9,907,993 8,210,784 -
$
43,253,308
Year Ended June 30, 2011 Expenses Before Allocation Education and general: Instruction Academic support Student services Institutional support Auxiliary services Operations and maintenance of physical plant Depreciation and amortization Interest expense Staff benefits
$
$
3,305,254 2,024,598 826,429 4,942,851 $
(Continued)
8,035,125 2,255,868 6,263,142 8,177,459 4,460,004
Total Expense Allocation
28
40,290,730
3,615,459 1,101,484 2,504,438 1,541,551 2,336,200
Final Allocated Expenses $
(3,305,254) (2,024,598) (826,429) (4,942,851) $
-
11,650,584 3,357,352 8,767,580 9,719,010 6,796,204 -
$
40,290,730
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 10.
Operating Expenses (Continued) Allocation of costs related to staff benefits and the operation and maintenance of the physical plant, including depreciation and interest expense to functional expense categories for the years ended June 30, 2012 and 2011 approximated: 2012 Instruction Academic support Student services Institutional support Auxiliary
2011
31.7% 9.7 21.5 12.0 25.1
32.6% 9.9 22.6 13.9 21.0
100.0%
100.0%
Fundraising costs totaled $2.5 million and $2.3 million for the years ended June 30, 2012 and 2011, respectively. Note 11.
Employee Benefits Retirement benefits are provided for eligible faculty and staff employees by a contributory pension plan for annuity contracts with Teachers Insurance and Annuity Association, MetLife Resources, and/or College Retirement Equities Fund. All participants have a fully vested interest in the total contributions made on their behalf. Under the plan, the College contributed approximately $1.4 million in 2012 and 2011 which was charged to operating expenses. The College provides health insurance benefits to its employees through its membership in the CICV Healthcare Consortium (the “Consortium”). The Consortium includes a group of private colleges and universities in Virginia and has contracted with Anthem to provide medical benefits to all plan members. Membership in the Consortium allows the member institutions to achieve more flexibility in plan design, greater cost control, enhanced benefit offerings, and increased negotiation power with the carrier community. The College makes monthly premium payments to the Consortium based on its claims history, with the monthly amount determined annually. The Consortium also has the right to make special assessments in addition to the monthly premiums. Premium payments to the Consortium totaled $2,320,628 and $2,187,931 for the years ended June 30, 2012 and 2011, respectively. The College was instrumental in establishing the Consortium and a representative from the College is a member of the board of the Consortium.
(Continued)
29
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 12.
Commitments and Contingencies Final expenditure reports of grants and contracts submitted to certain granting agencies in current and prior years are subject to audit by such agencies. As a result, the reimbursed expenditures are subject to adjustment. The effect of such adjustments, if any, is not determinable at this time. Management is of the opinion that the liability, if any, would not have a material effect on the College’s financial position. The College’s students receive a substantial amount of support from state and federal Student Financial Assistance Programs. A significant reduction in the level of this support, if this were to occur, may have an adverse effect on the College’s programs and activities. The College has a contract with an outside party for its food service for a ten-year term which expires June 30, 2019. Costs are expected to be approximately $3.1 million for the year ending June 30, 2013. Costs are determined each year based on student purchases of meal plans. The College is unable to estimate the range of settlement dates and the related probabilities for certain asbestos remediation asset retirement obligations (AROs). These conditional AROs are primarily related to encapsulated asbestos that is not subject to abatement unless the buildings containing them are demolished and non-encapsulated asbestos that the College would remediate only if it performed major renovations of the applicable buildings. Because these conditional obligations have indeterminate settlement dates, the College could not develop a reasonable estimate of their fair values. The College will continue to assess its ability to estimate fair values at each future reporting date. The related liability, if any, will be recognized once sufficient additional information becomes available.
(Continued)
30
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 13.
Endowment A summary of assets, liabilities, and net assets of the endowment, including trust and annuity funds, is as follows as of June 30: 2012 ASSETS Contributions receivable Investments Cash surrender value of life insurance policies Funds held in trust by others Total assets LIABILITIES AND NET ASSETS Trust and annuity obligations Due to other funds Total liabilities Net assets: Unrestricted: Quasi endowment Accumulated losses resulting in “underwater” funds Trust and annuities
Temporarily restricted: Accumulated endowment investment return, net of amounts spent Trusts and annuities
Permanently restricted: True endowment funds Trusts and annuities Funds held in trust by others Contributions receivable
Total net assets Total liabilities and net assets
(Continued)
31
$
1,414,730 117,556,978 111,790 1,753,691
2011 $
1,590,503 118,922,280 108,908 1,766,778
$ 120,837,189
$ 122,388,469
$
$
1,486,083 764,808
1,425,797 644,007
2,250,891
2,069,804
60,830,483
64,575,909
(212,000) 229,543
(257,088) 191,387
60,848,026
64,510,208
14,760,362 1,643,410
16,086,568 1,693,376
16,403,772
17,779,944
38,053,896 112,183 1,753,691 1,414,730
34,563,504 107,728 1,766,778 1,590,503
41,334,500
38,028,513
118,586,298
120,318,665
$ 120,837,189
$ 122,388,469
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 13.
Endowment (Continued) Endowment net assets consist of the following at June 30, 2012: Temporarily Restricted
Permanently Restricted
(212,000) $ 16,403,772
$ 41,334,500
Unrestricted Donor-restricted endowment funds Board-designated endowment funds Total endowment net assets
$
61,060,026 $ 60,848,026
$ 16,403,772
$ 41,334,500
Total $ 57,526,272 61,060,026 $ 118,586,298
Endowment net assets consist of the following at June 30, 2011: Temporarily Restricted
Permanently Restricted
(257,088) $ 17,779,944
$ 38,028,513
Unrestricted Donor-restricted endowment funds Board-designated endowment funds Total endowment net assets
(Continued)
$
64,767,296 $ 64,510,208
32
$ 17,779,944
$ 38,028,513
Total $ 55,551,369 64,767,296 $ 120,318,665
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 13.
Endowment (Continued) Changes in the College’s endowment are as follows: Year Ended June 30, 2012 Unrestricted
Temporarily Restricted
Permanently Restricted
$ 64,510,208
$ 17,779,944
$ 38,028,513
$ 120,318,665
Total investment return
785,888
654,542
4,959
1,445,389
Contributions
349,463
3,323,550
3,673,013
Endowment net assets, beginning
Appropriation for expenditure
(4,854,404)
(1,957,334)
(3,852)
(6,815,590)
Change in value of split-interest agreements
(12,209)
(28,292)
(504)
(41,005)
Other activity and reclassifications
69,080
(45,088)
(18,166)
Endowment net assets, ending
$ 60,848,026
Investment return: Investment income $ Realized and unrealized gains (losses) $
(Continued)
-
Total
589,328
$ 16,403,772
$ 41,334,500
$ 118,586,298
$
$
$
196,560 785,888
33
5,826
533,305 121,237
$
654,542
19,699 (14,740)
$
4,959
1,142,332 303,057
$
1,445,389
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 13.
Endowment (Continued) Changes in the College’s endowment are as follows: (Continued) Year Ended June 30, 2011
Endowment net assets, beginning Total investment return Contributions Appropriation for expenditure Change in value of split-interest agreements
Unrestricted
Temporarily Restricted
Permanently Restricted
$ 54,376,313
$ 12,554,291
$ 36,194,466
$ 103,125,070
12,265,348
10,081,485
80,647
22,427,480
1,731,046
1,986,950
255,904 (4,829,447)
(1,948,924)
(4,020)
(6,782,391)
(3,057)
(228,006)
(29,018)
(260,081)
55,392
(178,363)
Other activity and reclassifications
2,445,147
Endowment net assets, ending
$ 64,510,208
Investment return: Investment income $ 753,144 Realized and unrealized gains 11,512,204 $ 12,265,348
(Continued)
-
Total
34
(2,678,902) $ 17,779,944
$ 38,028,513
$ 120,318,665
$
$
$
626,945 9,454,540
$ 10,081,485
$
17,063
1,397,152
63,584
21,030,328
80,647
$ 22,427,480
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 14.
Fair Value of Financial Instruments The carrying value of trade receivables and accounts payable is a reasonable estimate of their fair value due to the short-term nature of these instruments. Fair values of assets and liabilities measured on a recurring basis are as follows: Year Ended June 30, 2012 Fair Value Financial assets: Contributions receivable Investments: U.S. equities Foreign equities Fixed income Marketable alternative assets Nonmarketable alternative assets Cash and cash equivalents Real estate/other Cash surrender value of life insurance policies
(Continued)
$
144,264
Level 1
$
41,091,425 23,755,862 23,427,181
25,604,929 7,338,629 23,427,181
Level 2
$
15,486,496 16,417,233 -
Level 3
$
144,264 -
16,894,499
-
-
16,894,499
7,409,059
-
-
7,409,059
-
3,905,025
2,965,950 3,905,025
2,965,950 -
275,175
-
Funds held in trust by others
1,753,691
-
Total financial assets
$ 121,622,131
$ 59,336,689
35
275,175 $ 32,178,904
1,753,691 $ 30,106,538
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 14.
Fair Value of Financial Instruments (Continued) Year Ended June 30, 2011 Fair Value Financial assets: Contributions receivable Investments: U.S. equities Foreign equities Fixed income Marketable alternative assets Nonmarketable alternative assets Cash and cash equivalents Real estate/other Cash surrender value of life insurance policies
$
561,906
Level 1
$
42,263,987 26,170,233 22,467,226
25,776,830 7,925,552 22,467,226
Level 2
$
16,487,157 18,244,681 -
Level 3
$
561,906 -
16,196,321
-
-
16,196,321
6,946,821
-
-
6,946,821
-
3,210,178
4,447,597 3,210,178
4,447,597 -
263,086
-
Funds held in trust by others
1,766,778
-
Total financial assets
$ 124,294,133
$ 60,617,205
263,086 $ 34,994,924
1,766,778 $ 28,682,004
The fair values of investments in equities, fixed income securities, and cash and cash equivalents are determined by reference to quoted market prices and other relevant information generated by market transactions. The fair value of investments in alternative investments is determined by reference to the net asset value allocated to the College at the measurement date, typically by fund managers. The fair values of funds held in trust by others and certain contributions receivable are determined by the present value of estimated future cash flows. The fair value of the postretirement benefit obligation is based on actuarial calculations provided by an independent actuary based on various discount rates and on census information provided by the College.
(Continued)
36
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 14.
Fair Value of Financial Instruments (Continued) The following is a reconciliation of the Level 3 inputs for which significant unobservable inputs were used to determine fair values as follows: Year Ended June 30, 2012 Contributions Receivable Balance, beginning
$
Net change in value Balance, ending
561,906
Investments $ 26,353,320
(417,642) $
144,264
Funds Held in Trust by Others $
1,855,263 $ 28,208,583
1,766,778 (13,087)
$
1,753,691
Total $ 28,682,004 1,424,534 $ 30,106,538
Year Ended June 30, 2011 Contributions Receivable Balance, beginning
$
Net change in value Balance, ending
(Continued)
$
Funds Held in Trust by Others
Investments
503,449
$ 24,278,902
58,457
2,074,418
561,906
$ 26,353,320
37
$
$
Total
1,618,778
$ 26,401,129
148,000
2,280,875
1,766,778
$ 28,682,004
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 14.
Fair Value of Financial Instruments (Continued) The following table summarizes by major category the alternative investments valued at net asset value per share: June 30, 2012: Major Category a) Venture Capital Fund of Funds
Fair Value $
b) Private Equity Fund of Funds
4,192,837
Unfunded Commitments $
3,163,378
c) Real estate
3,496,756 $ 10,852,971
3,344,242
Illiquid
818,044
Illiquid
$
Redemption Frequency
Quarterly with 90 days notice
4,162,286
June 30, 2011: Major Category a) Venture Capital Fund of Funds
Fair Value $
4,182,767
b) Private Equity Fund of Funds
3,123,879
c) Real estate
3,126,393 $ 10,433,039
Unfunded Commitments $
857,942
Illiquid
1,190,544
Illiquid
$
Redemption Frequency
Illiquid
2,048,486
a) This category includes venture capital programs which invest in partnerships offered by venture capital managers that aim to earn long-term capital appreciation by investing primarily in early stage, high growth private companies, principally in the information technology, life sciences/healthcare, and cleantech fields worldwide. These funds are categorized as nonmarketable alternative assets. b) This category includes private equity programs which invest in partnerships offered by U.S. private equity managers that aim to earn long-term capital appreciation by investing in private equity transactions, such as growth equity financing, management buyouts, corporate restructurings, turnaround/distressed situations, consolidations, and recapitalizations. These funds are categorized as nonmarketable alternative assets. c) This category includes real estate investments across a wide spectrum of the real estate market, including direct real estate investments, REIT Securities, etc. The strategy focuses on developing the best allocation approach given the current real estate environment, identifying real estate market leaders, and implementing this through these market leaders. These funds are categorized as real estate/other. (Continued)
38
RANDOLPH-MACON COLLEGE NOTES TO FINANCIAL STATEMENTS June 30, 2012 Note 15.
Capital Campaign In April 2011, the College formally announced a new $100 million capital campaign, Building Extraordinary: The Campaign for Randolph-Macon College. Priorities for the campaign include upgrading and building state-of-the-art facilities, increasing the endowment, and enhancing student outcomes through career and graduate school preparation.
39
