Samford University Consolidated Financial Statements June 30, 2016 and 2015

Transcription

1 Consolidated Financial Statements

2 Index Page(s) Independent Auditor s Report Consolidated Financial Statements Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities and Changes in Net Assets Consolidated Statements of Cash Flows

3 Independent Auditor s Report The Board of Trustees Samford University We have audited the accompanying consolidated financial statements of Samford University ( the University ), which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, and the related consolidated statements of activities and changes in net assets and of cash flows for the years then ended. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the University s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers LLP, 569 Brookwood Village, Suite 851, Birmingham, AL T: (205) , F: (205) ,

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Samford University as of, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. September 9,

5 Consolidated Statements of Financial Position Assets Cash and cash equivalents $ 32,795,075 $ 37,360,929 Cash and cash equivalents of consolidated subsidiaries 2,549,735 4,559,693 Direct loans receivable 79,650 69,499 Accounts and other receivables, net 1,554,573 2,634,593 Inventories 428, ,257 Prepaid and other assets 1,955,609 1,440,148 Note receivable 4,290,000 - Other assets of consolidated subsidiaries 361, ,479 Marketable securities 202,241, ,195,048 Other investments 68,511,115 69,759,322 Pledges receivable, net 11,579,141 19,546,110 Student loans receivable, net 12,773,516 11,909,469 Property, plant, and equipment, net 250,094, ,556,476 Property, plant, and equipment of consolidated subsidiaries, net 29,835,930 30,365,310 Beneficial interest in perpetual trusts 9,345,188 9,516,122 Contributions receivable from trusts held by third parties 771, ,892 Total assets $ 629,166,485 $ 633,671,347 Liabilities and Net Assets Accounts payable $ 4,657,044 $ 4,316,912 Accrued liabilities 5,324,527 5,149,365 Deferred revenue 7,148,822 7,085,175 Other payables and liabilities 4,436,080 2,829,100 Deposits held on behalf of others 7,406,360 7,452,113 Annuities payable 7,317,174 7,968,431 Pension plan obligation 107,578,992 73,239,284 Notes payable of consolidated subsidiaries 29,839,415 30,765,000 Long-term debt, net 173,033, ,026,914 Total liabilities 346,742, ,832,294 Commitments and contingencies (Note 11) Net assets Unrestricted 53,671,688 98,482,858 Temporarily restricted 81,182,532 82,219,131 Permanently restricted 147,570, ,137,064 Total net assets 282,424, ,839,053 Total liabilities and net assets $ 629,166,485 $ 633,671,347 The accompanying notes are an integral part of these consolidated financial statements. 3

6 Consolidated Statement of Activities and Changes in Net Assets Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support Student income Undergraduate programs $ 90,654,150 $ - $ - $ 90,654,150 Graduate programs 54,125, ,125,071 Board and lodging 21,680, ,680,527 Scholarships and fellowships (42,052,761) - - (42,052,761) Total student income 124,406, ,406,987 Other income Alabama Baptist Convention contribution 4,076, ,076,782 Other contributions and pledges for operations (Note 1) 3,888,029 1,607,871-5,495,900 Grant and contract revenue 216,314 1,378,122-1,594,436 Sales and services of auxiliary enterprises 3,283,496 17,650-3,301,146 Other income 7,459, ,858-7,998,840 Total other income 18,924,603 3,542,501-22,467,104 Investment income (loss) Endowment income distributed for operations 8,533,370 7,715,061-16,248,431 Net loss from consolidated subsidiaries (951,234) - - (951,234) Income on operating investments 4,089,987 14,575-4,104,562 Total investment income used in operations 11,672,123 7,729,636-19,401,759 Net assets released from restrictions 10,393,111 (10,393,111) - - Total operating revenues, gains and other support 165,396, , ,275,850 Expenses Faculty and staff salaries 70,312, ,312,453 Student wages 1,787, ,787,085 Benefits 26,296, ,296,793 Professional and other outside services 6,930, ,930,609 Development and promotion 1,288, ,288,254 Dues, subscriptions and memberships 1,395, ,395,160 Facilities, maintenance and utilities 12,557, ,557,438 Insurance and liability coverages 1,299, ,299,591 Communication and technology 3,866, ,866,170 Postage, printing and production 1,129, ,129,932 Travel, lodging and registrations 6,085, ,085,910 Interest expense 5,136, ,136,173 Service and service auxiliary 7,108, ,108,887 Depreciation 12,097, ,097,612 Supplies and other expenses 5,893, ,893,252 Total expenses 163,185, ,185,319 Increase (decrease) in net assets from operating activities 2,211, ,026-3,090,531 Other changes Operating funds used/released for principal on debt service (3,433,039) - - (3,433,039) Operating funds used/released for purchase of capital items (2,109,881) (213,620) - (2,323,501) Pension liability adjustment (32,846,168) - - (32,846,168) Total change in operational resources (36,177,583) 665,406 - (35,512,177) Changes in finance capital Investment income (loss) 319, ,516 (15,587) 613,866 Draws from endowment for operations (8,657,397) (7,600,589) - (16,257,986) Capital gifts for loan, annuity funds and endowment funds 132,780 3,503 2,991,427 3,127,710 Change in value of split-interest agreements (21,368) (890,429) (280,467) (1,192,264) Transfers of funds for principal on debt service 3,433, ,433,039 Changes in loan funds - 1,470,286 50,231 1,520,517 Transfers between operating, endowment and other funds (1,864,573) 1,177, ,462 - Changes in capital facilities Changes in plant funds, net of gifts (4,248,886) 3,589,160 - (659,726) Capital gifts for plant funds 163,000 25, ,817 Operating funds used/released for purchase of capital items 2,109, ,620-2,323,501 Total capital changes (8,633,587) (1,702,005) 3,433,066 (6,902,526) Total change in net assets (44,811,170) (1,036,599) 3,433,066 (42,414,703) Net assets Beginning of year 98,482,858 82,219, ,137, ,839,053 End of year $ 53,671,688 $ 81,182,532 $ 147,570,130 $ 282,424,350 The accompanying notes are an integral part of these consolidated financial statements. 4

7 Consolidated Statement of Activities and Changes in Net Assets Year Ended June 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support Student income Undergraduate programs $ 84,430,044 $ - $ - $ 84,430,044 Graduate programs 47,914, ,914,119 Board and lodging 20,164, ,164,955 Scholarships and fellowships (37,974,250) - - (37,974,250) Total student income 114,534, ,534,868 Other income Alabama Baptist Convention contribution 4,301, ,301,430 Other contributions and pledges for operations (Note 1) 2,198,726 3,810,691-6,009,417 Grant and contract revenue 381, ,164-1,344,711 Sales and services of auxiliary enterprises 3,382,750 18,450-3,401,200 Other income 6,976, ,052-7,606,196 Total other income 17,240,597 5,422,357-22,662,954 Investment income Endowment income distributed for operations 7,896,297 7,149,847-15,046,144 Net income from consolidated subsidiaries 880, ,014 Income on operating investments 724,835 7, ,142 Total investment income used in operations 9,501,146 7,157,154-16,658,300 Net assets released from restrictions 12,587,678 (12,587,678) - - Total operating revenues, gains and other support 153,864,289 (8,167) - 153,856,122 Expenses Faculty and staff salaries 66,238, ,238,292 Student wages 1,739, ,739,981 Benefits 22,888, ,888,432 Professional and other outside services 6,740, ,740,669 Development and promotion 1,233, ,233,811 Dues, subscriptions and memberships 1,368, ,368,629 Facilities, maintenance and utilities 11,151, ,151,932 Insurance and liability coverages 1,384, ,384,093 Communication and technology 3,652, ,652,819 Postage, printing and production 1,199, ,199,285 Travel, lodging and registrations 5,823, ,823,596 Interest expense 4,925, ,925,333 Service and service auxiliary 6,849, ,849,195 Depreciation 11,761, ,761,087 Supplies and other expenses 5,449, ,449,923 Total expenses 152,407, ,407,077 Increase (decrease) in net assets from operating activities 1,457,212 (8,167) - 1,449,045 Other changes Operating funds used/released for principal on debt service (2,850,460) - - (2,850,460) Operating funds used/released for purchase of capital items (2,192,620) (424,379) - (2,616,999) Pension liability adjustment (16,142,842) - - (16,142,842) Total change in operational resources (19,728,710) (432,546) - (20,161,256) Changes in finance capital Investment income 1,511,150 1,562, ,900 3,359,330 Draws from endowment for operations (8,013,752) (7,040,884) - (15,054,636) Capital gifts for loan, annuity funds and endowment funds 211,693 (353,329) 3,726,214 3,584,578 Change in value of split-interest agreements 62,389 (1,086,579) (679,791) (1,703,981) Transfers of funds for principal on debt service 2,850, ,850,460 Changes in loan funds - 1,004,262 48,382 1,052,644 Transfers between operating, endowment and other funds (1,056,084) 1,056, Changes in capital facilities Changes in plant funds, net of gifts 2,349,632 (3,234,363) - (884,731) Capital gifts for plant funds 235, , ,166 Operating funds used/released for purchase of capital items 2,192, ,379-2,616,999 Total capital changes 343,111 (7,535,987) 3,380,705 (3,812,171) Total change in net assets (19,385,599) (7,968,533) 3,380,705 (23,973,427) Net assets Beginning of year 117,868,457 90,187, ,756, ,812,480 End of year $ 98,482,858 $ 82,219,131 $ 144,137,064 $ 324,839,053 The accompanying notes are an integral part of these consolidated financial statements. 5

8 Consolidated Statements of Cash Flows Years Ended Cash flows from operating activities Change in net assets $ (42,414,703) $ (23,973,427) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 12,097,612 11,761,087 Depreciation of consolidated subsidiaries 529, ,690 Net unrealized and realized (gains) on investments (1,477,536) (75,403) Loss on disposal of property, plant, and equipment 12 33,988 Pension liability adjustment 32,846,168 16,142,842 Change in value of split-interest agreements 1,192,264 1,703,981 Disbursement of interests in trusts 216,849 1,780,000 Cash contributions restricted for long-term purposes (2,991,427) (3,726,214) Changes in operating assets and liabilities Accounts and other receivables 326,666 (179,819) Pledges receivable 7,966,969 (246,639) Inventories, prepaid and other assets (269,540) (47,355) Other assets of consolidated subsidiaries 24,378 (385,479) Accounts payable 2,744,033 (212,268) Accrued liabilities and other payables and liabilities 3,132,970 (3,408,488) Deposits held on behalf of others (45,753) 235,412 Deferred revenue 63,647 1,252,644 Net cash provided by operating activities 13,941, ,552 Cash flows from investing activities Purchases of property, plant, and equipment (29,039,639) (27,267,819) Purchases of property, plant, and equipment of consolidated subsidiaries - (30,630,000) Purchases of investments (79,818,604) (85,146,049) Proceeds from sales of investments 81,857,513 92,025,513 Student direct lending receipts 60,991,968 53,795,816 Student direct lending disbursements (61,002,119) (53,827,347) Disbursements of loans to students (3,027,643) (2,920,734) Repayments of loans from students 2,163,596 1,698,145 Contributions to limited partnership interests (3,325,824) (13,605,840) Distributions from limited partnership interests 7,170,837 28,644,925 Net cash used in investing activities (24,029,915) (37,233,390) Cash flows from financing activities Cash contributions restricted for long-term purposes 2,991,427 3,726,214 Increase in annuity and split-interest obligations resulting from new gifts (34,733) (8,912) Payments of annuity obligations (1,505,956) (1,826,501) Increase (decrease) in notes payable of consolidated subsidiaries (925,585) 30,765,000 Issuance of long-term debt 6,420,000 24,580,000 Repayments of long-term debt (3,433,039) (2,850,460) Net cash provided by financing activities 3,512,114 54,385,341 Net (decrease) increase in cash and cash equivalents (6,575,812) 18,071,503 Cash and cash equivalents Beginning of year 41,920,622 23,849,119 End of year $ 35,344,810 $ 41,920,622 Supplemental cash flow data Cash paid for interest $ 5,831,628 $ 5,531,774 Supplemental noncash investing and financing activity Accounts payable related to property, plant, and equipment $ (2,403,901) $ 1,392,173 Note receivable from sale of land 4,290,000 - The accompanying notes are an integral part of these consolidated financial statements. 6

9 1. General Samford University (the University ) is an educational institution affiliated with the Alabama Baptist State Convention (the Convention ) and is governed by a Board of Trustees (the Board ). The University is comprised of the School of the Arts, Howard College of Arts and Sciences, Brock School of Business, Beeson School of Divinity, Orlean Bullard Beeson School of Education and Professional Studies, School of Health Professions, Cumberland School of Law, Ida V. Moffett School of Nursing, McWhorter School of Pharmacy and the School of Public Health. Auxiliary enterprise revenues and expenses include primarily the following operations: food service, student housing, bookstore, telecommunications and summer conferences. The food service and student housing revenues are included within board and lodging in the consolidated statement of activities and changes in net assets. During 2015, SPCAMPUS III LLC a single member wholly owned subsidiary of the University purchased property adjacent to the main campus consisting of approximately 27 acres of land and three office buildings. Subsequent to the purchase, the parcel was divided into four separate parcels, three of which contain a Class A office building. The University established three additional separate single member LLC entities of which the University is the sole owner and member. Three of the single member entities, SPCAMPUS I LLC ( SPC I ), SPCAMPUS II LLC ( SPC II ) and SPCAMPUS III LLC ( SPC III ), each own a parcel of land with one building and Samford Properties East ( SPE ) owns an outparcel of land consisting of approximately 8 acres. SPC III has a single third-party tenant in its building with a long-term lease. The real estate held by SPC III is held for investment as part of the University s endowment. The parcels owned by SPC I and SPC II each include a building to be used by the University to further its mission and are therefore consolidated into the University s consolidated financial statements. There are long-term leases in place between the University and these entities for the use of the buildings. SPE is also consolidated into the University's consolidated financial statements. Summary of Significant Accounting Policies and Basis of Presentation The accompanying consolidated financial statements include the accounts of the University and its wholly-owned subsidiaries SPC I, SPC II and SPE, after the elimination of intercompany balances and transactions and have been prepared in conformity with accounting principles generally accepted in the United States of America ( GAAP ). Management has chosen to separately reflect on the consolidated financial statements the balances and activities of its consolidated subsidiaries. The University presents its statement of activities and changes in net assets in order to provide an intermediate measure of operational performance. Management and the Board believe this presentation provides enhanced information for both internal and external users to measure and compare the operating performance of the University. The change in net assets from operating activities is intended to present all income and expenses used in current operations. Operating activities include providing instruction, academic support, libraries, and other supporting services, such as room and board, to undergraduate and graduate students of the University. Net assets released from restrictions represent temporarily restricted net assets available and used in the current period. Descriptions of changes shown below the change in net assets from operating activities follow. 7

10 Investment income in the operating statement includes endowment income distributed for operations, net income (loss) from consolidated subsidiaries after elimination of intercompany transactions, and income from operating investments, which is primarily income derived from University Park Holdings, LLC ( UPH ) an investment in rental real estate by the unrestricted operating fund of the University. Other Changes Operating Funds Used/Released for Principal on Debt Service and Transfer of Funds for Principal on Debt Service All debt service payments, consisting of principal and interest components, are expended from the operating fund. Operating funds used/released for principal on debt service includes amounts transferred from operating resources to finance capital resources for principal payments on long term debt. Principal payments on debt represent a reduction of cash and corresponding reduction in outstanding obligations. There is no net effect to the consolidated statement of activities and changes in net assets for these amounts. Operating Funds Used/Released for Purchase of Capital Items These amounts represent funds paid from operating sources to meet capital needs. Prior to obtaining more permanent capital financing, these amounts reduce the amount of cash available for current operations and may result in increased use of the line of credit to meet current cash operating needs. There is no net effect to the consolidated statement of activities and changes in net assets for these amounts. Pension Liability Adjustment This adjustment, determined annually, increases or decreases the pension plan obligation reported within the statement of net assets and represents the net change in the University s obligation to pay projected pension benefits and the assets held to meet that obligation. Changes in Finance Capital Investment Income (Loss) These amounts include the investment returns (losses) on financial assets held in endowed funds and are reported net of investment expense. Draws From Endowment for Operations These amounts reflect the transfer of investment earnings or accumulated earnings from endowed funds for current operations based on the Board approved spending policy. This amount may also include additional approved transfers to operations for the pension or other exceptional obligations. Capital Gifts for Loan, Annuity and Endowment Funds To provide a complete picture of the level of contributions and gifts, these amounts are separately identified from other revenue sources within the finance capital category and represent specified donor gifts, generally of long-term duration. Change in Value of Split-Interest Agreements These amounts include changes in three categories of contributed assets as follows: the change in contributions receivable from trusts held by third parties, the change in beneficial interest in perpetual trusts, and the change in gift annuities and split-interest agreements. Changes in these assets annually include the net earnings on investments held by the University, related interest expense on amounts owed to specified beneficiaries, and annual adjustments of any outstanding obligations to specified beneficiaries. 8

11 Changes in Loan Funds These amounts represent receipt of additional institutional loan funds from third parties and various federal loan programs, such as nurse faculty loans, plus the net activities of previously received funds. Transfers Between Operating, Endowment and Other Funds These amounts represent the movement of funds between unrestricted, temporarily and permanently restricted funds for various purposes and in accordance with applicable donor restrictions. For example, when proceeds are received from a trust upon the death of the trust beneficiary and the Board designates the proceeds into the quasi endowment, a transfer would occur from temporarily restricted to unrestricted. Changes in Capital Facilities Changes in Plant Funds, Net of Gifts These amounts include the investment income (loss) on funds designated but not yet expended for capital facilities and amounts related to disposals of capital facilities. Capital Gifts for Plant These amounts represent contributions restricted for the purchase of capital items. Net Assets and Revenues, Expenses, Gains, and Losses Net assets and revenue, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the University and changes therein are classified and reported as follows: Unrestricted Net Assets These amounts represent net assets not subject to donor-imposed stipulations, but include Board or management designated appropriations. Temporarily Restricted Net Assets These amounts represent net assets subject to donor-imposed stipulations that may or will be met either by actions of the University and/or the passage of time. Permanently Restricted Net Assets These amounts represent net assets subject to donor-imposed stipulations that require the assets to be maintained in perpetuity by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on related investments for general or specific purposes. The University reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities and changes in net assets as net assets released from restrictions (Note 13). The University reports expirations of donor restrictions on net assets to be expended for specific capital projects when the acquired or constructed long-lived asset(s) are placed in service. The University reports gifts of property, plant, and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets designated by the donor to acquire long-lived assets are reported as restricted support. Absent 9

12 explicit donor stipulations regarding how long those long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. Cash and Cash Equivalents The University considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. The University maintains a sweep account with a financial institution in which the account balance is associated with both an operating line of credit and an institutional liquidity fund, primarily invested in government securities and repurchase agreements. On a nightly basis, any excess cash is invested in the institutional liquidity fund. In the event of a cash shortfall in the operating account, the bank will automatically pull cash from the institutional fund if funds are available or use the line of credit to cover amounts paid from the disbursement account. Any excess cash in the operating account automatically reduces the amount outstanding on the line of credit first, and then any remaining amount is invested in the institutional fund. The balance of the investment in the institutional fund was approximately $8,800,000 and $10,400,000 at, respectively, while the balance on the operating line of credit was $0 at. As of, the balance in cash and cash equivalents included $9,300,000 and $12,500,000 of cash managed by external investment managers as part of the endowment. Direct Loans, Accounts and Other Receivables The United States Department of Education requires all Title IV loans to be handled directly through the government ( Direct Lending ). As loans are processed through the Direct Lending program, the amounts are credited to each student s account. Subsequently, the University then draws from the Direct Lending pool funded by the government. The timing difference of disbursements to the student accounts and the draw from the government creates a temporary receivable. Included in accounts receivable are student receivables derived from the University s billing of tuition and fees. The amount of student receivables included in accounts receivable totaled approximately $885,000 and $1,189,000 at, respectively, which are presented net of an allowance for doubtful accounts of approximately $266,000 and $247,000, respectively. Also included in accounts receivable are amounts due from sales of securities that had not settled as of June 30 totaling approximately $217,000 and $970,000 in 2016 and 2015, respectively. Inventories Inventories, which consist of merchandise for the campus bookstore, are stated at the lower of cost or net realizable value. Note Receivable During the fiscal year ended June 30, 2016, the University sold some real estate held for investment to a developer and obtained a note which is secured by the property. The note bears interest at 5.0% and has a maturity date of March 2, Mandatory principal payments began in June 2016 and will continue quarterly until the maturity date. Marketable Securities and Other Investments Investments in equity securities, mutual funds, and debt securities are reported at fair value. Fair value for these investments is based on quoted market prices or dealer quotes, where available. 10

13 The University also invests in alternative investments such as hedge funds, real estate funds, commingled investment funds, and limited partnerships which are reported at fair value. The University has adopted the authoritative guidance contained in ASC , Fair Value Measurements and Disclosures, for estimating the fair value of investments in investment funds that have calculated Net Asset Value ( NAV ) per share (or its equivalent) in accordance with ASC Financial Services-Investment Companies. According to this guidance, a reporting entity is permitted to estimate the fair value of an investment in an investment fund using the NAV per share of the investment (or its equivalent) without further adjustment, if the NAV per share of the investment is determined in accordance with ASC as of the reporting entity s measurement date. Accordingly, the University uses the NAV as reported by the fund managers as a practical expedient, to determine the fair value of investments in investment funds which (a) do not have a readily determinable fair value and (b) either have the attributes of an investment fund or prepare their financial statements consistent with the measurement principles of an investment fund. At, the fair value of these alternative investments has been determined by using NAV as a practical expedient. The University also considers authoritative investment guidance specific to not-for-profit organizations. For certain other investments, the University has elected the fair value option for entities in which the University is the sole member of a limited liability corporation that is the functional equivalent of a limited partnership. Both realized and unrealized gains and losses are reflected in the consolidated statement of activities and changes in net assets as changes in unrestricted or temporarily restricted net assets, unless permanently restricted by the donor, in accordance with the donor s stipulations concerning the purposes for which ordinary income may be used. During fiscal 2016 and 2015, the University made payments of approximately $1,978,000 and $2,051,000, respectively, to external investment managers. Investment returns are reported net of these fees. Additionally, in accordance with ASU , the University considers several additional factors in appropriately classifying the investment funds in the fair value hierarchy (Note 12). Pledges Receivable Unconditional promises to give are recognized as revenues at their fair values in the period they are received. Unconditional promises to give with payments due in future periods are discounted using a rate commensurate with the risks involved (Note 14). Student Loans Receivable Student loans receivable represents financial aid awarded to students primarily under the Perkins Title IV federal program. These are self-perpetuating funds, and the Federal contributions to the University s loan programs are considered refundable advances and are presented as a liability in deposits held on behalf of others in the consolidated statement of financial position (Note 3). 11

14 Property, Plant, and Equipment Property, plant and equipment are stated at cost at date of acquisition or fair value at date of donation in the case of gifts, less accumulated depreciation computed on a straight-line basis over the estimated useful lives of the assets. Gain or loss on disposition of assets is reflected in the statement of activities and changes in net assets, and the related asset cost and accumulated depreciation are removed from the respective accounts. Useful lives by major asset class are as follows: Land improvements Buildings Furniture, fixtures and computer equipment Library books years years 3 10 years 7 10 years Beneficial Interest in Perpetual Trusts Perpetual trusts are trusts under which the University will receive income distributions in perpetuity, but will never receive the corpus of the trust assets (principal). Perpetual trusts are initially recorded as permanently restricted contribution revenue at the fair value of the University s interest in the trust assets at the date of gift. Subsequent changes to the trust s fair value are recorded as a change in value of split interest agreements in the statement of activities and changes in net assets. Income received from perpetual trusts is recognized as temporarily restricted or unrestricted investment income, depending on donor-imposed purpose restrictions. The University s interest in these trusts was approximately $9,345,000 and $9,516,000 at June 30, 2016 and 2015, respectively. Contributions Receivable From Trusts Held by Third Parties The University is the beneficiary of various charitable remainder trust funds administered by unaffiliated organizations. Under the terms of the agreements, the University has the irrevocable right to receive the remaining assets of the trusts upon the death of a specified beneficiary or beneficiaries. The fair value of the remainder interest expected to be received from the trusts net of the present value of expected beneficiary payments, is approximately $772,000 and $929,000 at, respectively, and is reflected in the consolidated statement of financial position as contributions receivable from trusts held by third parties. Any change in value related to these trusts is recorded as a change in value of split-interest agreements in the statement of activities and changes in net assets. Long-Lived Assets The University recognizes impairment losses on long-lived assets used in operations when indicators of impairment are present and the carrying values of the assets exceed the asset s fair value. There were no such losses recognized during fiscal 2016 or Gift Annuities and Split-Interest Agreements The University enters into gift annuity agreements and other split-interest agreements that require an annuity to be paid to the donor or the donor s beneficiary, funded by the donated assets, over a designated period of time or the beneficiary s lifetime, with the remainder becoming a gift to the University. The difference between the present value of the estimated liability and the fair value of the gift is recognized as unrestricted or temporarily restricted contribution revenue at the date of gift, depending on donor-imposed purpose restrictions. The discount rate assumptions used to estimate the present value of the annuity liabilities range between 1.4% and 10.6% and do not change over the term of the agreement. During the term of the agreement, the actuarially determined liability is adjusted for revaluations of expected future payments to the beneficiaries based on changes in the life expectancy of the beneficiary. Any change in value related to 12

15 actuarial adjustments of the annuity and split-interest obligations is recorded as a change in value of split-interest agreements in the statement of activities and change in net assets. Annuities payable were approximately $7,317,000 and $7,968,000 at, respectively. Tuition Discount The University presents amounts expended for scholarships and fellowships as a reduction of tuition and fees revenue in the statement of activities and changes in net assets. Scholarships and fellowships are funded from both unrestricted and temporarily restricted net assets of the University. During fiscal 2016, approximately $42,000,000 was expended for scholarships and fellowships, of which approximately $37,400,000 and $4,600,000 was funded from unrestricted and temporarily restricted net assets, respectively. During fiscal 2015, approximately $38,000,000 was expended for scholarships and fellowships, of which approximately $33,700,000 and $4,300,000 was funded from unrestricted and temporarily restricted net assets, respectively. Other Significant Policies Gifts are recorded at fair value at date of donation. Deferred revenue consists primarily of student tuition and fees that relate to future fiscal years and grant funds received for which the grant term extends beyond the current fiscal year. The University is exempt from federal income taxes under Section 501(c) (3) of the Internal Revenue Code, except for income taxes on any unrelated business income, if applicable. Real estate to be used by the University is stated at cost at the date of acquisition or appraised value at the date of donation in the case of gifts. Real estate held for investment is carried at its fair value. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. See Note 9 for disclosures regarding estimates related to the University s sponsored pension plan. Concentration of Credit Risk The University maintains cash and cash equivalents with various major financial institutions. Cash equivalents include investments in commercial paper of companies with high credit ratings, investments in money market securities, investments in securities backed by the U.S. government, and repurchase agreements with major financial institutions. At times, such amounts may exceed the Federal Deposit Insurance Corporation insured limit of $250,000 per bank. The University believes no significant concentration of credit risk exists with respect to these cash investments. Recently Issued Accounting Pronouncements The University adopted ASU related to disclosure requirements of investments in certain entities that calculate net asset value per share. This guidance removes the requirement to categorize within the fair value hierarchy certain investments whose fair value measurement is based on the unadjusted fair market value per share or its practical expedient. Accordingly, such investments have not been classified in the fair value hierarchy. Fair value of the investments held by the University and in the University s pension plan are discussed in Note

16 In May 2014, the FASB issued authoritative guidance to change the criteria for revenue recognition. The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, several new revenue recognition disclosures will be required. This guidance is effective for reporting periods beginning after December 15, The University is currently assessing the potential impact the guidance will have upon adoption. In August 2016, the FASB issued authoritative guidance (ASU ) to improve the current net asset classification requirements and the information presented in financial statements and notes about a not-for-profit entity s (NFP s) liquidity, financial performance, and cash flows. The ASU streamlines net asset reporting by replacing the existing three category classification of net assets with a simplified model that combines temporarily restricted and permanently restricted net assets into a single category called net assets with donor restrictions. The ASU also requires new disclosures associated with these donor restrictions and imposes several new requirements related to reporting expenses. The guidance is effective for annual financial statements issued for fiscal years beginning after December 15, Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets at are available for the following functional purposes: Education and general Instruction $ 6,693,242 $ 8,389,288 Public service 30,428 8,740 Academic support 10,548,267 10,238,516 Libraries 1,134,622 1,093,949 Student services 1,392,738 1,343,629 Scholarships and fellowships 25,458,940 28,967,508 Institutional support 18,061,790 19,188,089 Operation and maintenance of plant 8,853,713 5,213,253 Other 9,008,792 7,776,159 Total temporarily restricted net assets $ 81,182,532 $ 82,219,131 14

17 Permanently restricted net assets at are restricted to the following functional purposes: Education and general Instruction $ 39,074,035 $ 38,920,025 Public service 157, ,230 Academic support 5,828,788 5,756,602 Libraries 284, ,710 Student services 371, ,913 Scholarships and fellowships 78,421,725 75,828,756 Institutional support 20,881,143 20,344,389 Operation and maintenance of plant 2,102,309 2,102,309 Other 448, ,130 Total permanently restricted net assets $ 147,570,130 $ 144,137, Student Loans Receivable and Deposits Held on Behalf of Others Student Loans Receivable Student loans receivable represents financial aid awarded to students primarily under Title IV federal programs. Federal contributions to the University s loan programs are considered refundable advances and are presented as a liability in deposits held on behalf of others in the consolidated statement of financial position. For the long-term student loans receivable, the University records an allowance for uncollectible loans (credit losses) as follows: Receivable Related Receivable Related Balance, Net Allowance Balance, Net Allowance Perkins, net $ 4,321,622 $ 153,792 $ 4,763,009 $ 153,757 Other student loans, net 8,451, ,546 7,146, ,618 $ 12,773,516 $ 430,338 $ 11,909,469 $ 377,375 Management regularly assesses the adequacy of the allowance for uncollectible loans by performing ongoing evaluations of the student loan portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the economic environment in which the borrowers operate, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or indemnifications. Management also reviews loans in default compared to prior years. The University s Perkins receivable represents the amounts due from current and former students under the Federal Perkins Loan Program. Loans disbursed under the Federal Perkins Loan Program are able to be assigned to the Federal Government in certain nonrepayment situations. In these situations, the Federal portion of the loan balance is guaranteed. 15

18 It is the University s policy to send loans to a collection agency when they are delinquent 120 days or more, and appropriate notification has been made to the student that the loan is considered in default. Loans less than 120 days delinquent are deemed to have a minimal delay in payment and are generally not sent to collections. No allowance is made for loans not in collection. Considering the factors already discussed herein, management considers the allowance for credit losses to be prudent and reasonable. Deposits Held on Behalf of Others Deposits held on behalf of others at, which includes student loans receivable for financial aid awarded to students primarily under Title IV federal programs are comprised of the following: Agency funds $ 586,125 $ 484,489 Student deposits 342, ,355 Federal funds 6,477,776 6,618,269 $ 7,406,360 $ 7,452, Marketable Securities and Other Investments The University reviews the investments in marketable securities and other investments to determine the appropriate fair value of each class of assets. The assumptions used by the University are disclosed in Note 12. Marketable Securities Marketable securities at consist of the following: Fair Fair Cost Value Cost Value U.S. Treasury securities $ 2,393,908 $ 2,513,506 $ 7,596,312 $ 7,625,624 Corporate stocks 105,782, ,339, ,247, ,151,410 U.S. Government obligations 1,814,413 1,786,389 1,947,075 1,944,817 Commingled fixed income funds 28,823,037 28,099,833 12,679,196 11,843,400 Commingled equity funds 11,011,147 10,678,800 8,469,117 7,998,444 Corporate debt securities 3,983,266 4,000,628 11,804,591 11,669,581 Hedge funds 23,045,033 40,029,986 26,605,533 46,152,978 Municipal obligations 556, ,759 1,840,189 1,907,168 Real estate (REIT) funds 153, , , ,012 Asset-backed securities 1,962,406 1,959,680 2,734,770 2,621,614 $ 179,525,032 $ 202,241,452 $ 180,134,694 $ 209,195,048 The University s investments in commingled investment funds provide the University with exposure to equities, fixed income, currency, and commodities investments. The University holds investment units, representing an undivided interest in the underlying net assets of the commingled fund. The purchase or redemption price of the units is determined periodically by the fund manager, based on the current market values of the underlying assets of the fund, less fund liabilities. 16

19 The University s hedge fund investments include (i) investments in hedge funds that invest both long and short primarily in U.S. and non-u.s. common stocks, as well as (ii) investments in hedge funds that pursue multiple strategies to diversify risks and reduce volatility, such as investments in credit-oriented securities and merger arbitrage investments. The University s hedge fund investments contain various redemption restrictions with required notice periods. The following table summarizes the composition of such investments by redemption and notice period at June 30, 2016: Redemption Provision Notice Fair Value Quarterly 30 days $ 6,482,687 Quarterly 45 days 5,219,901 Quarterly 65 days 6,786,670 Quarterly 90 days 10,975,574 Semi-Annual 60 days 3,622,496 Annual 45 days 6,942,658 $ 40,029,986 Other Investments Other investments consist of the following at : Limited partnership interests $ 46,123,262 $ 49,176,936 Special situations funds 2,343,390 2,127,700 Real estate 19,973,019 18,345,773 Life insurance contracts 35,162 72,631 Other 36,282 36,282 $ 68,511,115 $ 69,759,322 During 2014, the University formed a single member LLC, University Park Holdings, LLC UPH, for the purpose of buying, selling, owning, operating and otherwise dealing in real estate. Samford University is the sole member of UPH. UPH purchased a 5-story Class A 122,654 square foot office property built in 1999 for $19,700,000 for the purpose of long-term investment. The property sits on approximately 12 acres across from the University s main campus. The investment is classified in the real estate category of other investments at fair value. During 2016 and 2015, income distributed to the University, along with changes in fair value, were included in income from operating investments. In May 2015, UPH obtained nonrecourse permanent financing on the property and issued a return of capital to the University of $14,227,000. The University recognized distribution income from UPH in the amount of $725,000 both in 2016 and 2015 and an increase in the fair value of $1,912,000 during In June 2016, the asset was transferred to the University s endowment at the then current fair value. 17

20 During 2015, the University formed SPCAMPUS III LLC as a single member LLC for the purpose of owning a 5-story Class A 156,000 square foot office building built in 2004 for the purpose of long term investment. The property was financed with a $9,000,000 million capital investment from the University s endowment, plus a nonrecourse loan directly to SPC III. The property sits on approximately 6 acres adjacent to the University s main campus. The investment is classified in the real estate category of other investments and is currently held at fair value as an endowment investment of the University. Income distributed to the University, along with changes in fair value, will be included in investment income. SPC III obtained permanent nonrecourse financing over a 20 year term to fund the purchase of this property. The University owns limited partnership interests in several nonregistered investment partnerships managed by a general partner. These investments represent illiquid investments in venture capital, private equity, energy funds and real estate funds. The University s commitments and contributions to these funds are set forth in Note 11. The University makes initial investments in each partnership and is required to make additional contributions, not to exceed the original commitment amount, upon notice from the general partners. The fair value of these investments is calculated from the University s ownership in these funds. The nature of investments in this category is such that distributions are received from income and through liquidation of the underlying assets of the funds. These funds have terms that range from 7 to 12 years. The University is invested in special situations funds that seek to create returns via long/short investments and event-driven strategies. Two investments, valued at $2,343,000 and $2,128,000 as of, respectively, are in liquidation and are returning capital to investors. 5. Property, Plant, and Equipment Property, plant, and equipment of the University, excluding that held by SPC I, SPC II and SPE, consisted of the following at : Land $ 22,633,631 $ 22,633,631 Land improvements 45,998,842 44,361,589 Buildings 321,600, ,809,674 Furniture, fixtures and computer equipment 37,747,230 34,339,364 Library books 35,490,139 34,637,809 Construction in progress 14,680,268 28,794, ,151, ,576,557 Accumulated depreciation (228,056,449) (216,020,081) $ 250,094,589 $ 235,556,476 The University capitalized interest of $723,000 and $618,000 in fiscal 2016 and 2015, respectively. Depreciation expense of the University was $12,098,000 and $11,761,000 in fiscal 2016 and 2015, respectively. 18