University of Hartford Financial Statements June 30, 2012 and 2011

University of Hartford Index June 30, 2012 and 2011 Page(s) Report of Independent Auditors ...............................................................................................................1 Financial Statements Statements of Financial Position ................................................................................................................... 2 Statements of Activities ............................................................................................................................3–4 Statements of Cash Flows ...........................................................................................................................5 Notes to Financial Statements ............................................................................................................... 6–23

Report of Independent Auditors

To the Board of Regents University of Hartford

In our opinion, the accompanying statements of financial position and the related statements of activities and of cash flows present fairly, in all material respects, the financial position of the University of Hartford (the “University”) at June 30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

October 25, 2012

PricewaterhouseCoopers LLP, 185 Asylum Street, Suite 2400, Hartford, CT 06103 T: (860) 241 7000, F: (860) 241 7590, www.pwc.com/us

University of Hartford Statements of Financial Position June 30, 2012 and 2011 2012

(in thousands of dollars)

Assets Cash and cash equivalents Accounts receivable, net (Note 3) Student loans receivable, net (Note 3) Grants receivable Pledges receivable, net (Note 4) Funds held in trust by others, net Prepaid expenses and other assets Deposits with trustees Deferred bond issuance costs, net Perpetual trust (HAS, Inc.) Investments, at fair value (Note 5) Property and equipment, net (Note 6) Total assets Liabilities Accounts payable and accrued expenses Student deposits Deferred revenue Post-retirement benefit obligations (Note 7) Asset retirement obligations (Note 8) Advances from federal government for student loans Notes payable and other debt (Note 9)

$

29,603 6,356 4,868 824 1,803 1,271 1,648 4,964 2,920 11,469 106,386 142,977

$

32,969 5,965 4,870 1,088 2,116 544 1,626 10,118 4,086 11,811 101,125 146,427

$

315,089

$

322,745

$

16,371 1,818 8,902 23,632 4,285 4,866 111,654

$

12,468 1,645 8,955 21,389 4,071 4,447 115,735

Total liabilities

171,528

168,710

36,550 30,621 76,390

44,664 34,531 74,840

143,561

154,035

Net assets Unrestricted Temporarily restricted Permanently restricted (Note 11) Total net assets Total liabilities and net assets

$

315,089

The accompanying notes are an integral part of these financial statements.

2

2011

$

322,745

University of Hartford Statement of Activities Year Ended June 30, 2012, with Comparative Summarized Totals for 2011 (in thousands of dollars)

2012 Temporarily Permanently Restricted Restricted

Unrestricted Operating revenues and other support Student tuition and fees Less: student aid

$

Student tuition and fees, net Grants and contracts Gifts Investment income Endowment spending allocation Distribution from perpetual trust (HAS, Inc.) Organized activities Auxiliary enterprises Other sources Subtotal Net assets released from restrictions Total operating revenues and other support Operating expenses Instructional expenses Auxiliary enterprises Research and educational grants Organized activities Student services Libraries General institutional General administration and other Development

163,636 $ (68,699)

Total operating expenses

$

-

Total $

Total

163,636 $ (68,699)

161,980 (66,918)

94,937

-

-

94,937

95,062

6,384 1,139 420 970 4,963 45,709 5,188

2,947 89 2,488 351 -

-

6,384 4,086 509 3,458 351 4,963 45,709 5,188

7,155 3,769 764 3,275 343 4,793 44,653 5,273

159,710

5,875

-

165,585

165,087

7,252

(7,252)

-

-

-

166,962

(1,377)

-

165,585

165,087

-

-

82,151 36,536 3,620 7,344 13,275 3,345 10,631 9,223 3,692

78,592 36,785 3,735 6,785 12,790 3,076 10,066 9,299 4,013

-

-

169,817

165,141

82,151 36,536 3,620 7,344 13,275 3,345 10,631 9,223 3,692 169,817

Change in net assets from operations

-

2011

(2,855)

(1,377)

-

(4,232)

(54)

141 (356) 968 (1,629)

(1,957) 2,273 -

1,112 29 -

1,253 (2,313) 3,270 (1,629)

2,986 15,400 3,276 (116)

(1,055) (970) 4 (2,308) (16) (38)

(2,488) (235) (54) (110) 38

(1,055) (3,458) 27 (351) (235) (2,308) 557 -

(3,275) 1,949 (343) (860) 153 -

Change in net assets from non-operating activities

(5,259)

(2,533)

1,550

(6,242)

19,170

Change in net assets

(8,114)

(3,910)

1,550

(10,474)

19,116

Non-operating activities Gifts and gifts in kind Net realized and unrealized gains (losses) Investment income Actuarial change in post-retirement benefits Change in fair value of interest rate swap agreement Endowment spending allocation Change in value of perpetual trust (HAS, Inc.) Distribution from perpetual trust (HAS, Inc.) Pledges and deferred gifts, net Loss on defeasance of debt Change in value in split interest agreements Change in donor intention Reallocation for underwater endowments

Net assets at beginning of year Net assets at end of year

44,664 $

36,550

27 (351) (4) 627 110 -

34,531 $

30,621

74,840 $

76,390

The accompanying notes are an integral part of these financial statements.

3

154,035 $

143,561

134,919 $

154,035

University of Hartford Statement of Activities Year Ended June 30, 2011 (in thousands of dollars)

2011 Temporarily Permanently Restricted Restricted

Unrestricted Operating revenues and other support Student tuition and fees Less: student aid

$

Student tuition and fees, net Grants and contracts Gifts Investment income Endowment spending allocation Distribution from perpetual trust (HAS, Inc.) Organized activities Auxiliary enterprises Other sources Subtotal Net assets released from restrictions

161,980 $ (66,918)

Total operating revenues and other support

Total operating expenses

$

-

$

161,980 (66,918)

95,062

-

-

95,062

7,155 634 502 873 4,793 44,653 5,273

3,135 262 2,402 343 -

-

7,155 3,769 764 3,275 343 4,793 44,653 5,273

158,945

6,142

-

165,087

(4,814)

-

-

163,759

1,328

-

165,087

78,592 36,785 3,735 6,785 12,790 3,076 10,066 9,299 4,013

-

-

78,592 36,785 3,735 6,785 12,790 3,076 10,066 9,299 4,013 165,141

4,814

Operating expenses Instructional expenses Auxiliary enterprises Research and educational grants Organized activities Student services Libraries General institutional General administration and other Development

-

Total

165,141

-

-

(1,382)

1,328

-

Non-operating activities Gifts and gifts in kind Net realized and unrealized gains Investment income Actuarial change in post-retirement benefits Endowment spending allocation Change in value of perpetual trust (HAS, Inc.) Distribution from perpetual trust (HAS, Inc.) Pledges and deferred gifts, net Change in value in split interest agreements Change in donor intention Reallocation for underwater endowments

898 2,078 922 (116) (873) (5) (1) 1,193

248 12,945 2,326 (2,402) (905) 121 (185) (1,193)

1,840 377 28 1,949 (343) 50 33 185 -

2,986 15,400 3,276 (116) (3,275) 1,949 (343) (860) 153 -

Change in net assets from non-operating activities

4,096

10,955

4,119

19,170

Change in net assets

2,714

12,283

4,119

19,116

Change in net assets from operations

Net assets at beginning of year Net assets at end of year

41,950 $

44,664

22,248 $

34,531

70,721 $

74,840

The accompanying notes are an integral part of these financial statements.

4

(54)

134,919 $

154,035

University of Hartford Statements of Cash Flows Years Ended June 30, 2012 and 2011 (in thousands of dollars)

2012

Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities Gifts in kind Bad debt expense Depreciation and amortization Loss on disposal of equipment Gifts of securities Gifts restricted for long-term investment Net unrealized and realized loss (gain) on investments Actuarial change in post-retirement benefits Change in fair value of interest swap agreement Loss on defeasance of debt (Increase) decrease in assets Accounts receivable Student loans receivable Prepaid expenses and other assets Grants receivable Pledges receivable Funds held in trust by others Perpetual trust (HAS, Inc.) Deposits with trustees Increase (decrease) in liabilities Accounts payable and accrued expenses Student deposits Deferred revenue Post-retirement benefit obligations Asset retirement obligations Advances from federal government for student loans

$

Net cash provided by operating activities Cash flows from investing activities Purchase of investments Proceeds from sale of investments Purchases of property and equipment Loans to affiliates collected Student loans advanced Student loans collected Net cash provided by (used in) investing activities Cash flows from financing activities Gifts restricted for long-term investment Proceeds from notes payable and other debt Payment of notes payable and other debt Bond issuance costs on issuance of new debt Net cash used in financing activities

(10,474)

2011

$

19,116

(141) 1,549 12,711 117 (227) (1,033) 2,313 1,629 1,055 2,308

(2) 1,101 12,908 28 (909) (1,759) (15,400) (116) -

(1,426) (419) (22) 263 (311) (727) 343 5,154

(1,348) (147) (140) 451 (94) (1,675) (106)

2,364 174 (53) 613 214 419

16 (107) (446) 722 195 -

16,393

12,288

(13,775) 6,429 (8,751) (608) 649

(15,310) 20,328 (2,640) 70 (576) 706

(16,056)

2,578

1,521 63,600 (67,727) (1,097)

2,287 11 (3,357) -

(3,703)

(1,059)

Net increase (decrease) in cash and cash equivalents

(3,366)

13,807

Cash and cash equivalents at beginning of year

32,969

19,162

Cash and cash equivalents at end of year

$

29,603

$

32,969

Cash paid during the year for interest

$

6,265

$

5,958

Noncash transactions: Construction related assets included in accounts payable

$

729

$

244

$

227

$

909

Supplemental disclosure of cash flow information

Gifts of securities

The accompanying notes are an integral part of these financial statements.

5

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) 1.

Organization and Operations The University of Hartford (the “University”) was established in 1957 as an independent, privately governed, non-profit, comprehensive coeducational institution of higher education. The University's main campus is located on approximately 320 acres in Hartford, West Hartford, and Bloomfield, Connecticut and comprises the following degree granting colleges and schools: Barney School of Business College of Arts and Sciences College of Education, Nursing and Health Professions College of Engineering, Technology, and Architecture Hartford Art School Hartt School Hillyer College

2.

Significant Accounting Policies Basis of Presentation The financial statements of the University have been prepared on the accrual basis of accounting and include all of the University’s assets, liabilities, net assets, revenues and expenses which are separately captioned and presented in accordance with generally accepted accounting principles. The University’s measure of operations as presented in the statement of activities includes income from tuition and fees, grants and contracts, cash or stock gifts for operating programs, the allocation of endowment spending, and other revenues. Operating expenses are reported on the statement of activities by functional categories after allocating costs for interest on indebtedness, fringe benefits, operations and maintenance and depreciation expense. Resources are reported for accounting purposes in separate classes of net assets based on the existence or absence of donor-imposed restrictions. Brief definitions of the three classes of net assets follow: Unrestricted Net Assets Unrestricted net assets derived from tuition and other institutional resources are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Regents or may otherwise be limited by contractual agreements with outside parties. Temporarily Restricted Net Assets Temporarily restricted net assets are subject to donor-imposed restrictions to benefit specific schools, departments, or programs of the University that have not yet been met through the disbursement of such assets for their restricted purposes. Such assets and activity primarily include restricted, non-endowed gifts, and net total investment return generated from permanently restricted gifts to endowment as well as trusts and annuities whose ultimate purpose is not permanently restricted.

6

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) Permanently Restricted Net Assets Permanently restricted net assets are subject to donor-imposed restrictions and must be maintained permanently by the University. Generally, such assets represent the historic dollar value of endowment gifts, as well as trusts and annuities whose ultimate purpose is to be maintained in perpetuity. The University’s endowment consists of donor restricted endowment funds and board-designated endowment funds for a variety of purposes. The net assets associated with endowment funds, including funds designated by the Board of Regents to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. 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 investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or law. Net assets released from restrictions consist of the release of restriction on temporary restricted net assets due to the donor-imposed purpose being completed or met, the stipulated time period elapsing, or the University appropriating gains for spending. Certain items previously reported in the financial statements and the notes to financial statements have been reclassified to conform to the current financial statement presentation. Cash and Cash Equivalents Cash and cash equivalents include cash on deposit with banks, as well as short-term investments with maturities of ninety days or less at the date of purchase. As of June 30, 2012 and 2011, respectively, included in cash and cash equivalents is $0 and $4,200 of pooled endowment investment funds awaiting disbursement to new endowment investment managers. Investments Investments are recorded at fair value. Fair value is defined as the exchange price that would be received for an investment in the principal or most advantageous market for the investment in an orderly transaction between market participants on the measurement date. Investments in stocks and bonds which are traded on national securities exchanges are valued at year-end closing prices. Over-the-counter stocks are valued at closing bid prices. Investments in short-term securities are valued at cost, which approximates fair value. The University holds interests in certain funds, commingled funds, and other investment structures that invest in securities at the discretion of the investment managers, according to the University’s investment policy. The funds hold, among other investments, debt and/or equity securities of troubled or restructured companies and enter into transactions in financial futures, foreign exchange options, forward currency contracts (which are used for hedging and non-hedging purposes), securities purchased under agreements to resell, and securities sold under agreements to repurchase. Concentration of Market and Credit Risk Market risk represents the potential loss the University faces due to the decrease in the value of marketable securities. Credit risk represents the potential loss the University faces due to the possible non-performance by obligors and counterparties of the terms of their contracts. Financial instruments that potentially subject the University to concentrations of credit risk consist principally of cash equivalents and the investment portfolio. In order to limit credit risk, the 7

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) University invests its cash equivalents and investments in a number of financial institutions and mutual funds. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported. Endowment Spending Allocation Policy The Board of Regents of the University has adopted a spending allocation policy for endowment return to be utilized to support the annual unrestricted operations and restricted programs of the University. Under the University’s spending policy, donations made to the Pooled Endowment Fund are added in the quarter the gift or notification is received. The University’s endowment spending allocation is calculated based on 4 percent of the lesser of the calculated twelve-quarter moving market average or the ending quarterly market value on a unitized basis. The corresponding calculated spending allocations are distributed in quarterly installments. In establishing this policy, the Board considered the expected long term rate of return on its endowment. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to grow at least by the current spending rate and inflation annually, consistent with the objectives of providing resources for the underlying purpose of the endowment assets over the life of the endowment, as well as to provide additional growth through new gifts. Actual returns in any given year may vary from this amount. Charitable Gift Annuities A charitable gift annuity is an arrangement between a donor and the University in which the donor makes a contribution to the University and in return receives an annuity for a specified period of time, payable to the donor or to individuals or to organizations designated by the donor. The assets received are held as general assets of the University and the annuity liability is a general obligation of the University, calculated using discount rates ranging from .7 percent to 8.3 percent, and 3.0 percent to 8.3 percent for fiscal years 2012 and 2011, respectively. Student Loans Receivable Perkins student loans receivable are funded by the United States Government and by the University to the extent required by the Federal Perkins Loan Program. The University’s student loans receivable represents the amounts due from current and former students under the Federal Perkins Loan Program. Student Loans Allowance for Uncollectible Receivables The allowance for uncollectible receivables are assessed by performing an evaluation of the student loan portfolio, including the economic environment in which the borrowers operate, the level of delinquent loans, review of default rate and, where applicable, the existence of any guarantees or indemnifications. Loans disbursed under the Federal Perkins Loan Program are able to be assigned to the United States Government in certain non-repayment situations. In these situations the Federal portion of the loan balance is guaranteed. Pledges Receivable Documented unconditional promises to give are recognized as revenues in the period the promise is made. Donor restricted gifts whose restrictions are satisfied in the year received are reflected in temporarily restricted net assets when received and released from restriction when the related expense is incurred. Gifts other than cash are recorded at their estimated fair value. Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future

8

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) years are recorded at the present value of estimated future cash flows, less an allowance for uncollectible receivables. The discounts on those amounts are computed using a rate that discounts the asset to approximate fair value. Amortization of the discount is included in gift revenue. Conditional promises to give are not included as support until the conditions are substantially met. All gifts are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted. Gifts received that are awaiting designation by the donor are reported as temporarily restricted net assets. Funds Held in Trust by Others The University has been named as the sole or participating beneficiary in several charitable remainder trusts held by third party trustees. A charitable remainder trust is an arrangement wherein the donor has established a trust with specific distributions to be made to a designated beneficiary or beneficiaries over the trust's term. The University will receive its share of the assets remaining upon termination of the trust. The University has recorded the estimated present value of its interest in the trust assets as either temporarily or permanently restricted net assets, in accordance with the trusts’ terms, calculated using discount rates ranging from 1.7 percent to 3.4 percent, and 2.8 percent to 5.1 percent for fiscal years 2012 and 2011, respectively. Perpetual Trust (HAS, Inc.) In a state court decision dated January 4, 2002, legal title of the University’s Hartford Art School endowment assets was determined to belong to Hartford Art School, Inc. (“HAS, Inc.”), an organization affiliated with the University. As a result of this decision, the University discloses the HAS, Inc. endowment funds as a perpetual trust. Also included in the perpetual trust is an art collection valued at $528. The University’s Hartford Art School is the sole beneficiary of the perpetual trust held by HAS, Inc. A perpetual trust is an arrangement in which a donor establishes and funds a trust administered by an organization other than the beneficiary. Under the terms of the trust, the University has the irrevocable right to receive the income earned on the trust assets in perpetuity. Distributions received by the University are restricted to the benefit of the Hartford Art School. Distributions received from the perpetual trust for fiscal year 2012 and 2011 were $351 and $343, respectively. Changes in the fair value of the perpetual trust are recorded in the statement of activities as a change in value of perpetual trust (HAS, Inc.). Amortization Capitalized bond issuance costs of $2,920 and $4,086 at June 30, 2012 and 2011, respectively, relating to the Series E, Series G, Series H and Series I Revenue Bonds are being amortized using the straight-line basis over the time periods the bond will be outstanding. This method is not materially different from the interest method. The bond premium related to the Series E and Series G Revenue Bonds of $1,782 and $2,348 at June 30, 2012 and 2011, respectively, is reported as a bond valuation premium and is being amortized to interest income using the straight-line basis over the time period the bond will be outstanding. This method is not materially different from the interest method.

9

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) Property and Equipment Land, buildings, furniture and equipment, and library books are stated at cost at the date of purchase or at fair value on the date of donation in the case of gifts. The University depreciates property and equipment (excluding land) using the straight-line method beginning in the month of acquisition or capitalization for construction in progress. Useful lives assigned to assets are as follows: buildings 50-75 years, building improvements 10 years, furniture and equipment 3-10 years, and library books 5 years. Assets purchased under capital lease agreements are depreciated over the lesser of the estimated useful life of the asset or the term of the lease. Collections It is the University’s policy not to capitalize library and art collections. Purchases of such collections are recorded as decreases in unrestricted net assets in the period in which the items are acquired. Contributed collection items are not reflected as assets in the financial statements. Proceeds from the sale of collection items or insurance recoveries are reflected as increases in the applicable net asset class. Summer School Revenue Recognition The University recognizes revenues and expenditures from its two summer terms within the fiscal year in which the sessions are predominantly conducted. Included in accounts receivable and deferred revenue is $1,724 and $1,267 representing amounts billed for Summer Term II as of June 30, 2012 and 2011, respectively. Post-retirement Benefits Retirement benefits for full-time employees are individually funded and vested under a defined contribution program with the Teachers Insurance and Annuity Association and the College Retirement Equities Fund (“TIAA and CREF”). Under this agreement, the University and plan participants make monthly contributions to TIAA and CREF to purchase individual annuities equivalent to retirement benefits earned. The University provides post-retirement benefits that include retiree life insurance and a portion of medical and dental premiums. Asset Retirement Obligations The University recognizes the fair value of a liability for legal obligations associated with asset retirements in the period in which the obligation is incurred. When the liability is initially recorded, the cost of the asset retirement obligation is capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost associated with the retirement obligation is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the statement of activities. Tax Status The University has a letter of exemption from income tax from the Internal Revenue Service under Section 501(c)(3) of the Internal Revenue Code. Use of Estimates 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 and disclosure of contingencies at the date of

10

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. The University’s significant estimates include the collectability of accounts receivable, student loans receivable, pledges receivable, valuation of certain investments, the calculation of its accrued post-retirement benefit obligations, and asset retirement obligations. 3.

Accounts Receivable and Student Loans Receivable

Accounts receivable at June 30 consists of:

2012

Student accounts receivable Other accounts receivable

$

Less: allowance for uncollectible receivables Accounts receivable, net

Student loans receivable at June 30 consists of:

Student loans receivable, net

4.

$

(1,060) $

Student loans receivable Less: allowance for uncollectible receivables

5,707 1,709 7,416

2011

6,356

4,979 2,046 7,025 (1,060)

$

2012

5,965

2011

$

5,175 (307)

$

5,217 (347)

$

4,868

$

4,870

Pledges Receivable

Pledges receivable at June 30 are expected to be realized in the following periods: In one year or less Between two years and four years In five years or more

2012 $

Less: discount to present value allowance for uncollectible receivables Pledges receivable, net

666 767 1,108 2,541

2011 $

(80) (658) $

1,803

747 843 1,206 2,796 (101) (579)

$

2,116

Discount rates used to calculate the present value of pledges receivable ranged from 1.2 to 6.1 percent in 2012 and 2011. The University has been named as the beneficiary in various revocable trusts and wills. The amount of these conditional intentions to give cannot be estimated as of June 30, 2012 and 2011.

11

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) 5.

Investments and Fair Value The University records investments and derivatives at fair value. Fair value is defined as the exchange price that would be received for the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants on the measurement date. The University established a three-tier hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Input may be observable or unobservable. Observable inputs reflect market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entities own assumptions about how market participants would value the pricing of instruments based on the best information available in the circumstances. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier hierarchy of inputs is summarized below: Level 1 – Quoted prices in active markets that the University has the ability to access at the measurement date. Market price data is generally obtained from exchange or dealer markets. This level of the fair value hierarchy provides the most reliable evidence of fair value and is used to measure fair value whenever available. Level 2 – Inputs other than quoted prices included within Level 1 that are observable. These inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and inputs other than quoted prices that are observable for the instruments. These are inputs that are derived principally from or corroborated by observable market data by correlation or other means. Certain investments defined as Level 2 are in the form of commingled funds, the shares of which are not publicly traded, where the valuation of the underlying securities held in the fund is taken from quoted prices in active markets. Level 3 – Inputs that are unobservable inputs for the instruments that are used to measure fair value when observable inputs are not available. Unobservable inputs reflect the University’s or its instrument manager’s own assumptions about the assumptions that market participants would use in pricing the instrument. These inputs are developed based on the best information available in the circumstances. The University’s investment strategy includes alternative investments that have acceptable risk/return characteristics, and which can further the diversification of the investment program. Such investments may include, but are not limited to, global asset allocation strategies, bank loan funds, distressed mortgage debt, infrastructure investments, niche private investments, certain types of hedge funds, and convertible bonds.

12

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) The University’s financial asset and liabilities are shown below by their fair value hierarchy.

2012 Investments Short-term investments Stocks Bonds U.S. Government Corporate Foreign Foreign securities Global securities Real estate Alternative and other Total investments at fair value Charitable remainder trusts Perpetual trust (HAS, Inc.) Total investments and perpetual trust Liabilities Interest rate swap payable Total liabilities at fair value

Level 1 $ 3,415 13,230

Level 2 $

15,161

-

Total Fair Value $ 3,415 28,391

Level 3 $

271 25,223 252 16,960 8,570 333 68,254

3,120 350 3,036 4,410 26,077

5,247 6,808 12,055

271 28,343 602 19,996 12,980 5,247 7,141 106,386

-

10,941

1,271 -

1,271 10,941

$ 13,326

$ 118,598

$

68,254

$

37,018

$

-

$

1,055 1,055

$

-

$

1,055 1,055

-

Total Fair Value $ 1,258 29,505

2011

Short-term investments Stocks Bonds U.S. Government Corporate Foreign Foreign securities Global securities Real estate Alternative and other Total investments at fair value Charitable remainder trusts Perpetual trust (HAS, Inc.) Total investments and perpetual trust

Level 1 $ 1,258 12,945

$

Level 2 $

16,560

Level 3 $

309 25,040 255 18,445 9,208 67,460

351 2,771 4,460 338 24,480

3,498 5,687 9,185

309 25,040 606 21,216 13,668 3,498 6,025 101,125

-

11,284

544 -

544 11,284

9,729

$ 112,953

67,460

$

13

35,764

$

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) The following summarizes the University’s Level 3 activity. For fiscal year ending June 30, 2012 and 2011, there were no transfers in or out of Level 3. 2012 Realized Unrealized Gains Gains (Losses) (Losses) Purchases $ (270) $ 548 $ -

Fair Value 6/30/11 $ 3,498

Investment Income $ 136

Distressed mortgage program

2,070

36

112

Private equity partnerships

3,147

423

-

-

470

-

-

(9)

-

53

1

95

Real estate partnerships

Multi-strategy partnership Private REIT/operating partnership Charitable remainder trusts Total

$ 9,729

$

Real estate partnerships

Fair Value 6/30/10 $ 2,776

Investment Income $ 145

Realized Gains $ 85

544

-

(95)

-

648

$

1,266

Sales -

-

(593)

1,249

727

(157) $

$

1,530 4,819

-

(2)

459

1,200

(14)

1,335

$

Fair Value 6/30/12 $ 3,912

-

1,271

2,449

$ (609) $ 13,326

2011 Unrealized Gains (Losses) Purchases $ 492 $ -

Fair Value 6/30/11 $ 3,498

$

Sales -

Distressed mortgage program

2,229

34

217

66

-

Private equity partnerships

2,324

479

-

-

344

-

3,147

-

-

-

(3)

473

-

470

450

-

94

-

-

544

Multi-strategy partnership Charitable remainder trusts Total

$ 7,779

$

658

$

396

$

555

$

817

(476)

2,070

$ (476) $ 9,729

The following is additional Level 3 investment information relating to investments whose fair value is not readily determinable, excluding charitable remainder trusts.

Investment Strategy Private and public real estate

Fair Value $ 3,912

Distressed mortgage funds & credit mortgage market

1,530

Infrastructure investments in the U.S. and Canada

4,819

Multi-strategy diversified hedge fund Private REIT/operating partnership Total

Unfunded Commitments

670

Remaining Life N/A

Redemption Terms Quarterly withdrawals, 90 day notification

Redemption Restrictions Open ended fund

Redemption Restrictions at Year End As of 6/30/12, has exit queue

N/A

All distributions initiated by fund manager

None

None

8 to 12 years

None

None

None

459

N/A

Quarterly withdrawals, 45 day notification

1 year soft lockup

1,335

N/A

Quarterly withdrawals, 30 day notification

None

$ 12,055

$

670

14

6 month soft lockup None

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) A summary of the pooled endowment investment return is presented below:

6.

2012

Investment income Realized gains Unrealized gains (losses) Management fees and other costs

$

Total return on pooled endowment investments

$

3,106 252 (2,367) (325) 666

2011 $

3,152 364 14,165 (304)

$

17,377

Property and Equipment Property and equipment is comprised of the following: Land and land improvements Building and building improvements Furniture and equipment Library books Total property and equipment

2012 $

Less: accumulated depreciation Construction-in-progress

12,496 236,161 34,772 12,749 296,178

2011 $

(154,389) 1,188

Total net property and equipment

$

142,977

12,496 231,700 33,861 13,004 291,061 (145,492) 858

$

146,427

Depreciation expense was $12,709 and $12,855 in 2012 and 2011, respectively. During 2008, the University entered into an agreement with the State of Connecticut which restricts the use, sale, assignment, transfer, conveyance, or leasing of the Mort and Irma Handel Performing Arts Center without prior consent of the Commissioner of the Department of Community and Economic Development. 7.

Post-retirement Benefit Obligations Defined contribution retirement pension benefits are provided to full-time employees through payments to the TIAA and CREF. The University recorded an expense representing the benefit contributions made by the University during fiscal 2012 and 2011 of $4,670 and $4,630, respectively. The University provides certain retiree medical and life insurance benefits to certain salaried and hourly employees whose years of service plus age equals at least 75 and whose years of service are at least 10 as of December 31, 2005. The University is amortizing the transition obligation over twenty years.

15

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars)

Post-retirement health and life insurance plans: Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Plan participants' contributions Actuarial loss Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Employer contributions Plan participant contributions Benefits paid Fair value of plan assets at end of year

2012

$

21,389 13 1,042 604 2,340 (1,756)

$

20,783 13 1,014 529 690 (1,640)

$

23,632

$

21,389

$

1,152 604 (1,756)

$

1,111 529 (1,640)

$

Current year changes recognized in unrestricted net assets Change in net loss Amortization of transition obligation Amortization of net loss Total current year changes recognized in unrestricted net assets

2011

-

$

-

$

2,340 (374) (337)

$

690 (374) (201)

$

1,629

$

115

Funded status and amount recognized Post-retirement benefit obligation

(23,632)

(21,389)

Total funded status and amount recognized

$

(23,632)

$

(21,389)

Total amounts recognized in unrestricted net assets Unrecognized net actuarial loss Unrecognized transition obligation

$

5,615 1,121

$

3,612 1,494

Total amounts recognized in unrestricted net assets

$

6,736

$

5,106

$

13 1,042 374 337

$

13 1,014 374 201

Net periodic post-retirement benefit cost

$

1,766

$

1,602

Estimated cost amortizations for next fiscal year Amortization of transition obligation Amortization of net loss

$

374 744

$

374 337

Total estimated cost amortization for next fiscal year

$

1,118

$

711

Components of net periodic post-retirement benefit cost Service cost Interest cost Amortization of transition obligation Recognized net loss

16

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars)

Weighted-average assumptions Benefit obligation Discount rate Net periodic benefit cost Discount rate

3.84%

5.02%

5.02%

5.02%

For measurement purposes an 8.0 percent annual rate of increase in the per capita cost of covered health care benefits for medical costs was assumed for 2012 and the rate is assumed to decrease by .5 percent per year to an ultimate rate of 5.0 percent attained in 2018 and remain at this level thereafter. Contributions Expected contributions for 2012-2013 are $1,369. Estimated future benefit payments Estimated benefit payments, which reflect expected future service for fiscal year:

2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2022

1,369 1,425 1,467 1,521 1,549 7,550

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the health care cost trend rates would have the following effects: 1-Percentage Point Increase

Effect on total of service and interest cost components Effect on post-retirement benefit obligation

8.

$

116 2,552

1-Percentage Point Decrease

$

(100) (2,203)

Asset Retirement Obligations The change in asset retirement obligations are summarized as follows: Change in asset retirement obligations Asset retirement obligations at beginning of year Asset liability additions (retirement) Accretion expense Asset retirement obligations at end of year

17

2012

2011

$

4,071 7 207

$

3,876 (3) 198

$

4,285

$

4,071

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) 9.

Notes Payable and Other Debt Notes payable and other debt at June 30 consists of the following: 3.75% Campus Center building bonds due serially in principal amounts ranging from $35 to $70, annually to 2015; collateralized by the property and a pledge of the net revenues to be derived from Campus Center operations in accordance with the trust indenture

2012

$

2011

205

$

270

3.00% Dormitory building bonds due serially in principal amounts ranging from $55 to $105, annually to 2018; collateralized by the property and first lien on the net revenues from operation of the dormitories in accordance with the trust indenture

-

660

Series E revenue bonds, coupon rates ranging from 3.00% to 5.63% due in installments including interest ranging from $3,824 to $3,431, semi-annually to 2033; collateralized by various University assets in accordance with the trust indenture

-

64,640

Sale of future revenues accounted for as debt, amortized to interest income through 2022

-

330

Series G revenue bonds, coupon rates ranging from 4.00% to 5.25% due in installments including interest ranging from $2,628 to $2,417, semi-annually to 2036; collateralized by various University assets in accordance with the trust indenture

46,524

47,450

Series H revenue bonds, with TD Bank, N.A. and CHEFA, original principal $30,000, due in monthly principal and interest installments of approximately $163 to 2032, with a Tender Date of April 2022, interest rate of 2.76%; collateralized by various University assets in accordance with the loan agreement

30,000

-

Series I revenue bonds, with People's United Bank and CHEFA, original principal $28,600, due in monthly principal and interest installments of approximately $156 to 2032, with a Tender Date of April 2022, 10 year fixed interest rate of 2.81%; collateralized by various University assets in accordance with the loan agreement

28,600

-

3.20% CHEFA Easyloan, original principal $5,000, due in semi-annual principal and interest installments of $291 to 2021 Obligations for leases Revolving line of credit; collateralized by unrestricted assets, as defined. The interest rate is equal to the LIBOR rate plus one and a half percent. No compensating balances are required. The line expires on January 31, 2013. The total line of credit was $10,000 at June 30, 2012 and 2011.

Plus unamortized premium

4,526

-

17

37

-

-

109,872

113,387

1,782

Total notes payable and other debt

$

18

111,654

2,348 $

115,735

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) Principal payments required to be paid, and premium amortized, by the University over a five year period on notes payable and other debt existing as of June 30, 2012 are as follows:

2013 2014 2015 2016 2017 Thereafter

$

3,576 3,875 4,003 4,063 4,206 91,931

Total principal payments

$

111,654

The estimated fair value of notes payable and other debt is $113,225 and $110,983 as of June 30, 2012 and 2011, respectively. Under the terms of its Series G, Series H and Series I Revenue Bond agreements, the University is required to satisfy certain financial covenants related to long term debt service coverage, short term indebtedness, disposals of property, and other non-financial covenants. In addition, the University is precluded from obtaining additional debt without the prior consent of the State of Connecticut Health and Educational Facilities Authority (“CHEFA”). The University’s non-financial covenants with respect to the Campus Center bonds include requirements to file the audited financial statements within 90 days of fiscal year end. In fiscal year 2012, the University will utilize the 60-day grace period provided by U.S. Bank to allow the University’s Board of Regents to meet and approve the audited financial statements, and will issue final audited financial statements within that timeframe. In July 2011, the University entered into a Master Financing Agreement with CHEFA for an Easyloan in the amount of $5,000. The proceeds of the loan are being used for replacing dormitory furniture and to fund energy improvements. In April 2012, the University issued $30,000 in Series H and $28,600 in Series I Revenue Bonds with CHEFA. The bonds were a direct bank issue through TD Bank, N.A. and People’s United Bank for Series H and Series I, respectively. The proceeds from these issuances were used to refinance the existing CHEFA Series E Bond Issue and to cover cost of issuance. The release of previously required Series E Debt Service Reserve funds reduced the amount of the refinance by $4,385. The University recorded a loss of $2,308 associated with the defeasance of Series E as a loss on defeasance of debt. The purpose of the refinancing was to generate annual debt service savings. In connection with the issuance of Series H, the University entered into an interest rate swap agreement with TD Bank, N.A. for the notional amount of $30,000. Under the terms of the agreement, the University will pay a fixed rate of 2.76%, and receive a variable rate of 75% of the 1-month London Interbank Offer Rate (“LIBOR”) with a spread of 111.65 basis points. Payments under the swap agreement commenced in May 2012 and will end in April 2022. The fair value of the interest rate swap was a liability of $1,055 as of June 30, 2012. This amount is reflected in accounts payable and accrued expenses on the statement of financial position, with the change in fair value reflected separately in non-operating activities on the statement of activities. 19

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) In April 2012, the University paid down in full the Dormitory bonds through U.S. Bank. In addition, the University terminated the Forward Sale Agreement with JP Morgan originally agreed upon in 1996. 10.

Guarantee of Downtown Housing The University has an agreement with 18 Temple Street LLC (the “Corporation”) for a nine year period commencing fiscal year 2008 to refer prospective tenants to the Corporation. The tenants, broadly defined as students past and present, full and part-time, and other individuals who have a direct and indirect affiliation with the University, have the opportunity to enter into individual ninemonth leases each year. The leases will be between the Corporation and the individual tenants. In the event that fewer than 136 spaces are leased, the University will be responsible for all rent payments due for those spaces not leased in a given nine-month period. The University’s outstanding liability will not exceed in the aggregate $2 million over the life of the agreement. As of June 30, 2012 and 2011, respectively, $58 and $160 was recorded as a liability for the shortfall in dorm occupancy rates related to this agreement. These amounts are included in accounts payable and accrued expenses in the statement of financial position.

11.

Endowment Net Assets The University’s endowment net assets consist of donor restricted endowment funds and boarddesignated endowment funds for a variety of purposes, plus the following where the assets have been designated for endowment: pledges receivable, split interest agreements, and other net assets. The net assets associated with endowment funds including funds designated by the Board of Regents to function as endowments, are classified and reported based on the existence or absence of donor imposed restrictions. The University understands Connecticut law to require that donor-restricted endowment gifts be maintained in perpetuity as provided by UPMIFA. The University 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 to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate endowment funds: The duration and preservation of the fund The purposes of the University and donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the University

20

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) The investment policies of the University The University had the following endowment activities during the year ended June 30, 2012 and 2011 delineated by net asset class and donor-restricted versus Board-designated funds.

2012

Endowment net assets, beginning of year

Board Underwater Designated Endowments Unrestricted

Total Unrestricted

Donor-restricted Temporarily Permanently

$

$

$

Net total investment return Gifts Pledges Perpetual Trust (HAS, Inc.) Endowment spending allocation Donor redesignation Underwater endowments Endowment net assets, end of year

16,443

$

(68)

541 19 (970) -

$

16,033

(38)

$

(106)

16,375 541 19 (970) (38)

$

15,927

24,616

$

157 40 (2,488) (88) 38

$

22,275

74,840

Total

$

656 1,112 (4) (324) 110 -

$

76,390

115,831 1,354 1,171 (4) (324) (3,458) 22 -

$

114,592

2011

Endowment net assets, beginning of year

Board Underwater Designated Endowments Unrestricted

Total Unrestricted

Donor-restricted Temporarily Permanently

$

$

$

Net total investment return Gifts Pledges Perpetual Trust (HAS, Inc.) Endowment spending allocation Donor redesignation Underwater endowments Endowment net assets, end of year

9,139

$

(1,261)

2,909 5,268 (873) -

$

16,443

1,193

$

(68)

21

7,878 2,909 5,268 (873) 1,193

$

16,375

12,798

$

15,223 526 (2,402) (336) (1,193)

$

24,616

70,721

Total

$

438 1,840 50 1,606 185 -

$

74,840

91,397 18,570 7,634 50 1,606 (3,275) (151) -

$

115,831

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) The components of permanently and temporarily restricted net assets are as follows (endowments only): Permanently restricted net assets

2012

Restricted for program services Restricted for supporting services Total endowment funds classified as permanently restricted net assets

2011

$

73,484 2,906

$

72,049 2,791

$

76,390

$

74,840

Temporarily restricted net assets

2012

Restricted for program services Restricted for supporting services Total endowment funds classified as temporarily restricted net assets

2011

$

19,376 2,899

$

21,624 2,992

$

22,275

$

24,616

The components of temporarily restricted net assets are as follows: Temporarily restricted net assets

2012

Restricted for program services Restricted for supporting services Total temporarily restricted net assets

2011

$

24,891 5,730

$

28,884 5,647

$

30,621

$

34,531

Endowment Funds with Deficits From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the value of the initial and subsequent donor gift amounts (deficit). When donor endowment deficits exist, they are classified as a reduction of unrestricted net assets. Deficits of this nature reduced unrestricted net assets by $106 and $68 as of June 30, 2012 and 2011, respectively. These deficits resulted from unfavorable market fluctuations that occurred shortly after the investment of newly established endowments.

Endowment Investment Objectives and Strategies The University has adopted endowment investment and spending policies that attempt to provide a predictable stream of funding to programs supported by the endowment while seeking to maintain the permanent nature of endowment funds. Under this policy, the return objective for the endowment assets, measured over a full market cycle, shall be to maximize the return against a blended index, based on the endowment’s target allocation applied to the appropriate individual benchmarks. To achieve 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 (realized and unrealized

22

University of Hartford Notes to Financial Statements June 30, 2012 and 2011 (in thousands of dollars) gains) and current yield (interest and dividends). The University targets a diversified asset allocation to achieve its long-term objectives within prudent risk constraints. 12.

Operating Leases The University is party to a number of operating lease contracts. Future minimum lease payments under existing operating lease contracts for the years ending June 30 are as follows:

2013 2014 2015 2016 2017 Thereafter

$

Total future payments

$

252 247 69 9 577

Rental, lease and service contract expense for the fiscal years ended June 30, 2012 and 2011 was $1,337 and $1,250, respectively. 13.

Commitments and Contingencies The University is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, changes in net assets, or cash flows of the University.

14.

Subsequent Events The University has performed an evaluation of subsequent events through October 25, 2012 which is the date the financial statements were issued.

23