saint martin's university · approach requires that an investment for which fair value is...

Report of Independent Auditorsand Financial Statements for

Saint Martin's University

June 30, 2016 and 2015

CONTENTS PAGEREPORTOFINDEPENDENTAUDITORS 1–2FINANCIALSTATEMENTS Statementsoffinancialposition 3 Statementsofactivitiesandchangesinnetassets 4–5 Statementsofcashflows 6 Notestofinancialstatements 7–25

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REPORTOFINDEPENDENTAUDITORSTotheBoardofTrusteesSaintMartin'sUniversityReportontheFinancialStatementsWe have audited the accompanying financial statements of SaintMartin's University, which comprise thestatementsof financialpositionasof June30,2016and2015,andtherelatedstatementsofactivitiesandchanges in net assets and cash flows for the years then ended, and the related notes to the financialstatements.Management’sResponsibilityfortheFinancialStatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica;thisincludesthedesign, implementation, and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud orerror.Auditor’sResponsibilityOurresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.WeconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica.Thosestandardsrequirethatweplanandperformtheaudits toobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments, theauditorconsiders internalcontrolrelevant to theentity’spreparationandfairpresentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Accordingly,weexpressnosuchopinion.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelieve that theauditevidenceobtained is sufficientandappropriate toprovideabasis forourauditopinion.

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OpinionInouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofSaintMartin'sUniversityasofJune30,2016and2015,andthechangesitsnetassetsanditscashflows for theyears thenended inaccordancewithaccountingprinciplesgenerallyaccepted in theUnitedStatesofAmerica.Yakima,WashingtonSeptember30,2016

Seeaccompanyingnotes. 3

SAINTMARTIN'SUNIVERSITYSTATEMENTSOFFINANCIALPOSITION

JUNE30,2016AND2015

2016 2015

CashandcashequivalentsOperatingcash 1,831,668$ 2,409,552$Investmentcash 1,939,701 3,971,593

Totalcashandcashequivalents 3,771,369 6,381,145

Prepaids 286,870 271,125Studentaccountsreceivable,netofallowance

of$302,082in2016and$287,621in2015 2,037,413 2,165,121Gateloanreceivable,netofallowanceof

$392,567in2016and$339,081in2015 70,789 124,275Studentloansreceivable‐Perkinsloanprogram 892,207 947,583Contributionsreceivable,net 100,649 99,922Otherreceivables 542,603 1,371,622Investments 17,795,471 17,131,711Fixedassets,net 55,598,088 55,503,557

Totalassets 81,095,459$ 83,996,061$

LIABILITIESAccountspayableandaccruedexpenses 2,572,992$ 2,451,336$Deferredrevenues 905,984 1,349,769Annuitiespayable 1,787,047 1,769,539Related‐partynotespayable 476,882 516,328Governmentalgrantsrefundable 972,178 972,178Interestrateswappayable 9,538,596 8,410,211Bondspayable 27,760,187 28,543,693

Totalliabilities 44,013,866 44,013,054

NETASSETSUnrestricted 15,622,614 18,155,365Unrestricted‐designated 5,816,448 5,216,479

Totalunrestricted 21,439,062 23,371,844

RestrictedTemporarily 3,757,078 5,953,676Permanently 11,885,453 10,657,487

Totalnetassets 37,081,593 39,983,007

Totalliabilitiesandnetassets 81,095,459$ 83,996,061$

ASSETS

LIABILITIESANDNETASSETS

4 Seeaccompanyingnotes.

SAINTMARTIN'SUNIVERSITYSTATEMENTOFACTIVITIESANDCHANGESINNETASSETSYEARENDEDJUNE30,2016

Temporarily PermanentlyUnrestricted Restricted Restricted Total

REVENUESANDGAINSTuitionandfees 42,296,759$ ‐$ ‐$ 42,296,759$Lessscholarshipallowance (17,050,399) ‐ ‐ (17,050,399)

25,246,360 ‐ ‐ 25,246,360

Governmentgrantsandcontracts 58,180 ‐ ‐ 58,180Contributions 1,556,805 192,054 621,001 2,369,860Contributionsfromrelatedparty 125,000 ‐ 606,965 731,965Auxiliaryenterprises 4,819,345 ‐ ‐ 4,819,345Investmentincomeandrealizedgains(losses) 37,859 (10,450) ‐ 27,409Unrealizedlossoninvestments,net (34,529) (571,016) ‐ (605,545)Othersources 685,194 ‐ ‐ 685,194Changeinvalueofsplit‐interest

agreements (61,271) ‐ ‐ (61,271)32,432,943 (389,412) 1,227,966 33,271,497

Netassetsreleasedfromrestrictions 1,807,186 (1,807,186) ‐ ‐34,240,129 (2,196,598) 1,227,966 33,271,497

EXPENSESProgramexpenses

Instruction 11,384,638 ‐ ‐ 11,384,638Research 51,679 ‐ ‐ 51,679Studentservices 7,081,364 ‐ ‐ 7,081,364Auxiliaryenterprises 4,163,233 ‐ ‐ 4,163,233

SupportexpensesAcademic 3,663,643 ‐ ‐ 3,663,643Institutional 8,699,969 ‐ ‐ 8,699,969

35,044,526 ‐ ‐ 35,044,526

OTHERUnrealizedlossoninterestrateswap (1,128,385) ‐ ‐ (1,128,385)

CHANGEINNETASSETS (1,932,782) (2,196,598) 1,227,966 (2,901,414)

NETASSETS,beginningofyear 23,371,844 5,953,676 10,657,487 39,983,007

NETASSETS,endofyear 21,439,062$ 3,757,078$ 11,885,453$ 37,081,593$

2016


SAINTMARTIN'SUNIVERSITYSTATEMENTSOFACTIVITIESANDCHANGESINNETASSETS

YEARENDEDJUNE30,2015


REVENUESANDGAINSTuitionandfees 42,969,220$ ‐$ ‐$ 42,969,220$Lessscholarshipallowance (17,120,730) ‐ ‐ (17,120,730)

25,848,490 ‐ ‐ 25,848,490

Governmentgrantsandcontracts 18,610 ‐ ‐ 18,610Contributions 2,105,222 968,318 247,459 3,320,999Contributionsfromrelatedparty ‐ 310,000 ‐ 310,000Auxiliaryenterprises 4,862,083 ‐ ‐ 4,862,083Investmentincomeandrealizedgains 204,112 523,642 ‐ 727,754Unrealizedlossoninvestments,net (15,138) (236,619) ‐ (251,757)Othersources 753,272 ‐ ‐ 753,272Changeinvalueofsplit‐interest

agreements (63,576) ‐ ‐ (63,576)33,713,075 1,565,341 247,459 35,525,875

Netassetsreleasedfromrestrictions 791,731 (791,731) ‐ ‐34,504,806 773,610 247,459 35,525,875

EXPENSESProgramexpenses

Instruction 12,035,948 ‐ ‐ 12,035,948Research 16,369 ‐ ‐ 16,369Studentservices 7,053,031 ‐ ‐ 7,053,031Auxiliaryenterprises 4,143,737 ‐ ‐ 4,143,737

SupportexpensesAcademic 4,006,217 ‐ ‐ 4,006,217Institutional 8,156,616 ‐ ‐ 8,156,616

35,411,918 ‐ ‐ 35,411,918

OTHERUnrealizedgainoninterestrateswap 311,726 ‐ ‐ 311,726

CHANGEINNETASSETS (595,386) 773,610 247,459 425,683

NETASSETS,beginningofyear 23,967,230 5,180,066 10,410,028 39,557,324

NETASSETS,endofyear 23,371,844$ 5,953,676$ 10,657,487$ 39,983,007$

2015


SAINTMARTIN'SUNIVERSITYSTATEMENTSOFCASHFLOWS

YEARSENDEDJUNE30,2016AND2015

2016 2015

CASHFLOWSFROMOPERATINGACTIVITIESChangeinnetassets (2,901,414)$ 425,683$Adjustmentstoreconcilechangeinnetassetstonetcashfrom

operatingactivitiesDepreciationandamortization 2,745,056 2,912,673Unrealizedlossoninvestments,net 605,545 251,757Changeinvalueofsplit‐interestagreements 61,271 63,576Baddebtexpense 155,374 80,570Contributionsrestrictedforlong‐termpurposes (1,227,966) (247,459)Lossondisposaloffixedassets ‐ 13,388Changeincashsurrendervalueoflifeinsurance (172) (209)Changeinfairvalueofinterestrateswap 1,128,385 (311,726)Changeincashduetochangesinassetsandliabilities

Studentaccountsreceivable (27,666) (127,202)Contributionsreceivable (727) 135,517Otherreceivables 882,505 (436,082)Prepaids (15,745) 67,982Accountspayableandaccruedexpenses 121,656 (105,064)Deferredrevenues (443,785) 127,124

Netcashfromoperatingactivities 1,082,317 2,850,528

CASHFLOWSFROMINVESTINGACTIVITIESPurchaseoffixedassets (2,828,093) (789,124)Purchaseofinvestments (6,557,133) (4,739,620)Saleofinvestments 5,288,000 3,995,100Changeinstudentloansreceivable‐Perkinsloanprogram 55,376 27,652

Netcashfrominvestingactivities (4,041,850) (1,505,992)

CASHFLOWSFROMFINANCINGACTIVITIESPrincipalpaymentsonbondsandotherpayables (834,446) (786,624)Contributionsreceivedrestrictedforlong‐termpurposes 1,227,966 247,459Increaseinliabilityfornewannuityagreement ‐ 346,312Changeinvalue/paymentsinannuityagreements (43,763) (128,422)

Netcashfromfinancingactivities 349,757 (321,275)

CHANGEINCASHANDCASHEQUIVALENTS (2,609,776) 1,023,261

CASHANDCASHEQUIVALENTS,beginningofyear 6,381,145 5,357,884

CASHANDCASHEQUIVALENTS,endofyear 3,771,369$ 6,381,145$

SUPPLEMENTALDISCLOSUREOFCASHFLOWINFORMATIONCashpaidforinterest 1,908,072$ 1,954,135$

SAINTMARTIN'SUNIVERSITYNOTESTOFINANCIALSTATEMENTS

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Note1–OrganizationalBackgroundSaint Martin's University (the University) is a nonprofit, charitable institution of higher learning, whichoperatesinaccordancewithitsCatholicandBenedictineheritage.Themaincampusislocatedon300+acresinLacey,Washington.Extension campusesare locatedat the JointFortLewisMcChord (JBLM)basenearTacoma,Washington,andCentralia,Washington.TheUniversitywasestablished in1895bythemonksofthe Saint Martin’s Benedictine monastic community, who have continued to support the educationinstitution.Note2–SummaryofSignificantAccountingPoliciesBasis of accounting – The University prepares its financial statements in accordance with accountingprinciples generally accepted in the United States of America, which involves the application of accrualaccounting. Consequently, revenues and gains are recognizedwhen earned, and expenses and losses arerecognizedwhenincurred.Use of estimates – The preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimates andassumptions that affect the reported amountsof assets and liabilities anddisclosureof contingent assetsand liabilities, if any, at the date of the financial statements, and the reported amounts of revenues andexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.RecentlyadoptedaccountingstandardsASU2015‐07–InMay2015,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU)2015‐07,FairValueMeasurement(Topic820):Disclosures forInvestments inCertainEntitiesThatCalculateNetAssetValueperShare(orItsEquivalent).Theamendmentsremovetherequirementtocategorizewithinthefairvaluehierarchyall investmentsforwhich fair value is measured using the net asset value per share practical expedient (NAV practicalexpedient). ASU 2015‐07 has been adopted for the June30, 2016 year‐end; however, the retrospectiveapproachrequiresthataninvestmentforwhichfairvalueismeasuredusingaNAVpracticalexpedientberemovedfromthefairvaluehierarchyinallperiodspresentedinthefinancialstatements.Accordingly,theinvestmentdisclosuresinNote5havebeenmodifiedasofJune30,2015aswell.ASU2015‐03–InMarch2015,theFASBissuedASU2015‐03,SimplifyingthePresentationofDebtIssuanceCosts.This update changes the presentation of debt issuance costs in the financial statements. Under theASU,anentitypresentssuchcostsinthestatementofnetpositionasadirectdeductionfromtherecognizedliability rather than as anasset.Amortizationof the costs is reported as interest expense.TheUniversityadopted this standard effective June 30, 2016. As a result of this adoption of the ASU, the UniversityreclassifieddebtissuancecostsonthestatementoffinancialpositionandincludedthesecostsintheBondsandOtherPayablesdisclosure(Note9).


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Note2–SummaryofSignificantAccountingPolicies(continued)Cashandcashequivalents–Demanddepositaccounts(checkingaccounts)heldatJune30,2016and2015areclassifiedasoperatingcashontheaccompanyingstatementsoffinancialposition.Investedcashconsistsof short‐term,highly liquid investments that are readily convertible toknownamountsof cash, includingsavingsaccounts,moneymarketaccounts,andshort‐termcertificatesofdepositwithanoriginalmaturityofthreemonthsorless.TheUniversitymaintains itscash inbankdepositaccounts,which,at times,mayexceed federally insuredlimits.TheUniversityhasnotexperiencedanylossesinsuchaccountstodate.Studentloansreceivableandstudentaccountsreceivable–Studentaccountsreceivablearecarriedattheunpaidbalanceoftheoriginalamountbilledtostudentsandstudentloansreceivablearecarriedattheamountofunpaidprincipal.Studentaccountsandloansreceivableare lessanestimatemadefordoubtfulaccountsbasedonareviewofalloutstandingamounts.TheallowancefordoubtfulaccountsrepresentstheUniversity's best estimate of the amount of probable credit losses in the University's existing accountsreceivable and student loans receivable.Management determines the allowance for doubtful accounts byidentifying troubled accounts andbyusinghistorical experience applied to an aging of accounts. Studentaccounts receivable are written off when deemed uncollectible and student loans receivable may beassignedto theUnitedStatesDepartmentofEducation(USDE).Recoveriesofstudentaccountsreceivablepreviouslywrittenoffarerecordedwhenreceived.Interestischargedonallpast‐dueaccountsforstudentswhoarenolongerenrolledintheUniversityuntiltheaccountisturnedovertoacollectionagency.Latefeesarechargedonallstudentaccountsreceivableunderapaymentplanthatareoutstandingformorethan20daysaftertheduedate.Afterastudentisnolongerenrolledinaninstitutionofhighereducation,andafteragraceperiod,interestischargedonstudentloansreceivableandrecognizedasitischarged.Latefeesarechargedifpaymentsarenot made by the payment due date and recognized as they are charged. Student loans receivable areconsidered to be past due if a payment is not made within 90 days of the payment due date. Afterreceivablesbecomepastdue,theaccrualoflatechargesissuspended.Studentsmaybegrantedadeferment,forbearance,orcancellationof theirstudent loansreceivablebasedoneligibilityrequirementsdefinedbytheUSDE.Fair value of financial instruments – The carrying values of cash, cash equivalents, bond reserves,receivables, accounts payable and accrued liabilities, including deferred revenues, annuities payable andrelated‐partynotespayable,arereasonableestimatesoftheirfairvalueduetodiscountingortheshort‐termnature and terms of these financial instruments. Investments are recorded at fair value as discussed inNote5. The interest rate swap (used for purposes other than trading) is carried at fair value and is theestimatedamount theUniversitywould receiveorpay to terminate the swapagreementat the reportingdate,takingintoaccountcurrentinterestratesandthecreditworthinessofthecounterpartyforassetsandcreditworthinessoftheUniversityforliabilities.TheinterestrateswapiscategorizedasLevel2inthefairvaluehierarchy(seeNote5).TheUniversityrecognizesthechangeinfairmarketvalueoftheinterestrateswaponthestatementsofactivities.Itisnotpracticaltoestimatethefairvalueofstudentreceivablesandtheliabilityforgovernmentalgrantsrefundable,astheseloansaresubjecttorestrictionsoninterestratesandtransferability.


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Note2–SummaryofSignificantAccountingPolicies(continued)Fairvaluemeasurements–TheFairValueMeasurementsandDisclosuresTopicoftheFinancialAccountingStandardsBoard’s(FASB)AccountingStandardsCodificationdefinesfairvalue,establishesaframeworkformeasuring fair value, and expandsdisclosure of fair valuemeasurements,which applies to all assets andliabilitiesthataremeasuredandreportedonafairvaluebasis.SeeNote5foradditionalinformation.Interest rate swap – The University maintains an interest rate risk management strategy that usesderivative instrumentstominimizesignificant,unanticipatedearningsfluctuationscausedbyinterestratevolatility. The University’s specific goal is to lower (where possible) the cost of its borrowed funds. TheUniversityhasaninterestrateswapagreementtoconvertvariable‐ratedebttoafixedrate,asdescribedinNote9.Deferred compensation – A clause in the University President's contract entitles him to one year'scompensation at the completion of a 5‐year term, starting in 2011. In May 2016, at the request of theUniversity President, the Board of Trustees terminated the deferred compensation agreement and theUniversityPresidentelectedtoforegoreceiptorpaymentofthedeferredcompensationaccruedunderthe2011contract.Asof June30,2016and2015, theaccruedvalueof thepresident'sdeferredcompensationwas $0 and $176,000, respectively. For 2015, the liability is included in accounts payable and accruedexpensesonthestatementoffinancialposition.Federalincometaxes–NoprovisionforincometaxeshasbeenmadeinthefinancialstatementssincetheUniversity is exempt from federal income taxes under Internal Revenue Code Section 501(c)(3).Additionally,theUniversityhasdoneanassessmentofanyuncertaintaxpositionsasrequiredunderFASBaccounting standard on Accounting for Uncertainty in Income Taxes (ASC 740), and has determined itcurrentlyhasnouncertain taxbenefits to recordasa liabilityat June30,2016and2015. Inaddition, theUniversityhasnomaterialunrelatedbusinessincomesubjecttotaxatJune30,2016and2015.Financial statementpresentation – Net assets, revenues, expenses, and gains and losses are classifiedbasedontheexistenceorabsenceofdonor‐imposedrestrictions.NetassetsoftheUniversityandchangesthereinareclassifiedintothefollowingthreecategories:

Unrestrictednetassets–UnrestrictednetassetsrepresentexpendablefundsavailabletosupporttheUniversity’soperationsandareresourcesnotsubjecttodonor‐imposedrestrictions.CertainfundsincludedintheseamountshavebeendesignatedbytheBoardofTrusteestobeutilizedforvariousprograms.Temporarily restricted net assets – Temporarily restricted net assets consist of contributionsrestrictedbythedonorforspecificpurposesornotavailableforuseuntilaspecifictime.Temporarilyrestrictednetassetsincludeincomederivedfromdonatedassets,ifspecificallyrestrictedbythedonor.This classification also includes accumulatednet investment income in excessof theoriginal valueofdonor‐restrictedinvestmentsunlesssuchincomeisexplicitlyrestrictedbythedonortobeaddedtotheendowmentcorpus.


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Note2–SummaryofSignificantAccountingPolicies(continued)

Permanentlyrestrictednetassets–Permanently restrictednetassetsconsistof contributionswithdonor restrictions that stipulate the donated assets bemaintained permanently but may permit theUniversitytouseorexpendpartoralloftheincomederivedfromthedonatedassetsforeitherspecifiedorunspecifiedpurposes.

Revenuesarereportedasincreasesinunrestrictednetassetsunlessuseoftherelatedassetsislimitedbydonor‐imposedrestrictions.Expensesarereportedasdecreases inunrestrictednetassets.Gainsorlosseson donor‐restricted endowment investments are reported as increases or decreases in temporarilyrestricted net assets until appropriated by the Board of Trustees. Gains and losses on nonendowmentinvestmentsandotherassetsorliabilitiesarereportedasincreasesordecreasesinunrestrictednetassetsunless their use is restricted by explicit donor stipulation. Expirations of temporary restrictions on netassets (i.e., thedonor‐stipulatedpurposehasbeen fulfilledor the stipulated timeperiodhaselapsed)arereportedonthestatementsofactivitiesasnetassetsreleasedfromrestriction.

Tuitionand fees–Student tuition and fees are recordedas revenueon a ratablebasis over the termofinstruction.ThemajorityoftheUniversity’sstudentsrelyonfundsreceivedfromvariousfederalfinancialaid programs under Title IV of the Higher Education Act of 1965, as amended, to pay for a substantialportionoftheirtuition.TheseprogramsaresubjecttoperiodicreviewbytheUSDE.DisbursementsundereachprogramaresubjecttodisallowancebytheUSDEandrepaymentbytheUniversity.Inaddition,asaneducationalinstitution,theUniversityissubjecttolicensurefromvariousaccreditingandstateauthoritiesand other regulatory requirements of the USDE. Deferred revenues represent primarily tuition fromenrollmentinsummerschoolclasses,whichisattributabletothefollowingfiscalyear,andtuitiondepositsmadebystudentsinthecurrentfiscalyearthataretobeusedinfollowingyears.

Contributedservicesand long‐livedassets–The fairvalueofcontributedservices is recognized in thefinancialstatementswhentheservicesreceivedcreateorenhancenonfinancialassets,requirespecializedskills, which are provided by individuals possessing those skills, and would have been purchased if notdonated. There were no significant contributed services received by the University for the years endedJune30,2016and2015.

Contributions of long‐lived assets are reported at fair value in the period received. It is the University’spolicytorecordgiftsoflong‐livedassetsreceivedwithoutstipulationofhowlongthedonatedassetmustbeusedasunrestrictedsupport.Therewerenosignificantcontributionsof long‐livedassets receivedby theUniversityfortheyearsendedJune30,2016and2015.

Contributions – Contributions, including unconditional promises to give, are recordedwhen it has beendetermined that there is a legal right to the contribution, and the actual amount tobe receivedhasbeendetermined.Allcontributionsareavailableforunrestricteduseunlessspecificallyrestrictedbythedonor.Conditionalpromises togiveare recognizedwhen theconditionsonwhich theydependare substantiallymet.Unconditionalpromisestogive,dueafteroneyear,arereportedatthepresentvalueofnetrealizablevalue, using appropriate interest rates applicable to the years in which the promises were received.Amortizationofdiscountsisrecordedasanadditionalcontribution,ifany.

It is the University’s policy to treat temporarily restricted net assets received, whose restrictions expirewithinthecurrentaccountingperiod,asunrestricted.


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Note2–SummaryofSignificantAccountingPolicies(continued)Auxiliaryenterprises–Auxiliaryenterprisesconsistofrevenuesandexpensesrelatingtotheoperationofthe residence halls, food services, and bookstore, and the rental of facilities. Revenues from auxiliaryenterprisesarerecordedatthetimetherelatedservicesareprovided.Expenseallocation–Thecostofoperationsandmaintenanceofthephysicalplantincludingdepreciationand interest cost related to plant has been allocated to functional expense categories based on eachfunctionalexpensecategory'spercentoftotalexpenses.Fundraisingcosts–TheUniversityincurredfundraisingcostsofapproximately$499,000and$500,000forthe years ended June30, 2016and2015, respectively,which are included in institutional support on thestatementsofactivities.Therelatedrevenuefromtheseactivitiesisrecordedinothersources.Subsequent events – Subsequent events are events or transactions that occur after the statement offinancialpositiondatebutbeforefinancialstatementsareissued.TheUniversityrecognizesinthefinancialstatements the effects of all subsequent events that provide additional evidence about conditions thatexistedatthedateofthestatementoffinancialposition,includingtheestimatesinherentintheprocessofpreparing the financial statements. The University’s financial statements do not recognize subsequentevents that provide evidence about conditions that didnot exist at thedate of the statement of financialpositionbutaroseafter the statementof financialpositiondateandbefore financial statementsare tobeissued.TheUniversityhasevaluatedsubsequenteventsthroughSeptember30,2016,whichisthedatethefinancialstatementsaretobeissued.Note3–StudentLoansandStudentAccountsReceivableStudent loans receivable represents loans from the Perkins loan fund that are generally payable withinterestbetween3.00%and5.00%overapproximately11yearsfollowingUniversityattendance.Principalpayments,interest,andlossesduetocancellationaresharedbytheUniversityandtheU.S.governmentinproportiontotheirshareoffundsprovided.Theprogramprovidesforcancellationofloansifthestudentisemployedincertainoccupationsfollowinggraduation.Lossesfromemploymentcancellationsareabsorbedin fullby theU.S.government.At June30,2016and2015,student loans fundedthroughthePerkins loanprogramwere$892,207and$947,583,respectively.TheavailabilityoffundsforloansunderthePerkinsprogramisdependentonreimbursementstothepoolfromrepaymentsonoutstandingloans.FundsadvancedbytheFederalgovernmentof$972,178atJune30,2016and2015areultimatelyrefundabletothegovernmentandareclassifiedasliabilitiesinthestatementof financial position. Outstanding loans cancelled under the program result in a reduction of the fundsavailableforloansandadecreaseintheliabilitytothegovernment.


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Note3–StudentLoansandStudentAccountsReceivable(continued)AtJune30,2016and2015,thefollowingamountswerepastdueunderstudentloanprograms:

1‐60Days 60‐90Days 90+Days TotalPastDue

June30,2016 35,275$ 13,760$ 65,542$ 114,577$June30,2015 31,726 4,236 105,335 141,297

AmountsdueunderthePerkinsloanprogramareguaranteedbythegovernmentand,therefore,noreservesareplacedonanypastduebalancesundertheprogram.Studentaccountsreceivablepolicyisthattuitionandfeesareduebythefirstdayofthesemester.StudentsandtheirfamiliesareofferedmonthlypaymentplansthroughTuitionManagementSystems(TMS)and,insomecases,throughtheUniversityitself.AmountsowedthrougheitherTMSortheUniversityarerecordedasstudentaccountsreceivable.Areserveforbaddebtsiscalculatedeachyear.TheUniversity’sCalculationof Allowance for Doubtful Accounts policy assumes balances between 1 and 60 days old are 100%collectible,balancesbetween60and90daysoldare75%collectibleandbalancesgreaterthan90daysoldare 65% collectible. The Calculated Allowance for Doubtful Accounts divided by the end of year studentaccountsreceivablebalance(CalculatedPercentofAccountsReceivable) is thencomparedtotheten‐yearaverage of the allowance for doubtful accounts divided by the end of year student accounts receivablebalance.IftheCalculatedPercentofAccountsReceivableistwopercentagepointsgreaterthantheten‐yearaverage, then the two‐year average of the allowance for doubtful accounts divided by the end of yearstudent accounts receivable balance would be multiplied by the current end of year student accountsreceivablebalancetodeterminetheallowancefordoubtfulaccounts.For2016,thecalculatedallowancewasmorethanthetwopercentaverage;assuch,thealternativemethodwasusedtocalculatetheallowancefordoubtfulaccounts.For2015,theCalculatedPercentofAccountsReceivablewaslessthantwopercentoftheten‐yearaverageandthestandardmethodologywasusedtocalculatetheallowancefordoubtfulaccounts.Per theUniversity'spolicy,anaccountwithanestablishedpaymentplan isdefinedaspastduewhenanyscheduledpaymentismorethantwoweekslate.

1‐60Days 60‐90Days 90+Days TotalPastDue

June30,2016 17,044$ 284$ 576,070$ 593,398$June30,2015 28,861 2,015 495,765 526,641


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Note4–InvestmentsAtJune30,2016and2015, investments inequitysecuritiesthathavereadilydeterminablemarketvaluesandallinvestmentsindebtsecuritiesareaccountedforandreportedatfairvalue.Investmentsreceivedbygiftareinitiallyrecordedatfairvalueatthedatethegiftisreceived.Cashsurrendervalueoflifeinsuranceisrecordedatcost.Dividends, interest, and other investment income are reported in the period earned as increases inunrestrictednetassets,unlessdonor‐imposedrestrictionslimittheuseoftheassets,inwhichcasetheyarereported as increases in temporarily or permanently restricted net assets. Gains and losses on donor‐restricted endowment investments are reported as increases or decreases in temporarily restricted netassetsuntilappropriatedbytheBoardofTrustees.Gainsandlossesonother investmentsarereportedasincreasesordecreasesinunrestrictednetassets,unlesstheiruseistemporarilyorpermanentlyrestrictedbyexplicitdonorstipulationorlaw.TheaggregatecarryingamountofinvestmentsbymajortypeatJune30isasfollows:

2016 2015

InvestedcashSavingsaccounts 681,009$ 2,174,978$Moneymarketfunds 1,258,692 1,796,615

1,939,701 3,971,593

InvestmentsMutualfunds 11,664,360 8,265,871Commonstocks 2,859,562 5,038,433Alternativeinvestments 3,258,716 3,814,746Cashsurrendervalueoflifeinsurance 12,833 12,661

17,795,471 17,131,711

19,735,172$ 21,103,304$

TheUniversityinvestsinvariousinvestmentsecurities,whichareexposedtovariousriskssuchasinterestrate,market,andcreditrisks.Duetothelevelofriskassociatedwithcertaininvestmentsecurities, it isatleastreasonablypossiblethatchangesinthevaluesofinvestmentsecuritieswilloccurintheneartermandthatsuchchangecouldmateriallyimpactthevalueoftheinvestmentsecuritiesheld.Includedinalternativeinvestmentsare:

2016 2015

Marketablesecurities 873,709$ ‐$Hedgefundsmeasuredatnetassetvaluepracticalexpedient 2,385,007 3,814,746

3,258,716$ 3,814,746$

Investment income has been presented net of management fees. Management fees totaled $66,639 and$64,744fortheyearsendedJune30,2016and2015,respectively.


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Note5–FairValueMeasurementsFairvalueisdefinedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderly transaction betweenmarket participants at the measurement date. Fair value also establishes ahierarchy, which requires an entity to maximize the use of observable inputs and minimize the use ofunobservableinputswhenmeasuringfairvalue.Thestandarddescribesthreelevelsofinputsthatmaybeusedtomeasurefairvalue:

Level1 Quotedpricesinactivemarketsforidenticalassetsorliabilities.Level2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or

liabilities;quotedpricesinmarketsthatarenotactive;orotherinputsthatareobservableorcanbecorroboratedbyobservablemarketdataforsubstantiallythefulltermoftheassetsorliabilities.

Level3 Unobservableinputsthataresupportedbylittleornomarketactivityandthataresignificant

tothefairvalueoftheassetsorliabilities.

Thefollowingisadescriptionofthevaluationmethodologiesusedforinstrumentsmeasuredatfairvalueonarecurringbasisandrecognizedintheaccompanyingstatementoffinancialposition,aswellasthegeneralclassification of such instruments pursuant to the valuation hierarchy. There have been no changes invaluationmethodologiesusedatJune30,2016and2015.InvestmentsWherequotedmarketpricesareavailableinanactivemarket, investmentsareclassifiedwithinLevel1ofthevaluationhierarchy. IncertaincaseswhereLevel1 inputsarenotavailable, investmentsareclassifiedwithinLevel2ofthehierarchy.TherewerenoLevel3investmentsasofJune30,2016orJune30,2015.Commonstock: Commonstockisvaluedattheclosingpricereportedontheactivemarketsonwhichtheindividualsecuritiesaretraded.Mutualfunds:Sharesofmutualfundsarevaluedatthenetassetvalue(NAV)ofsharesheldbythePlanandarevaluedattheclosingpricereportedontheactivemarketonwhichtheindividualsecuritiesaretraded.Alternativeinvestments:Theseprimarilyconsistofsharesofhedgefunds,whicharevaluedattheNAVoftotal assets of the fund, less all of its liabilities, including accrued fees and expenses. Total assets arereportedasthetotalinterestsinunderlyinginvestmentfunds,asreportedbytheinvestmentfundmanager.Ingeneral, thefairvalueofthehedgefund’s interest inaninvestmentfundwillrepresenttheamountthehedge fundcouldreasonablyexpect toreceive froman investment fundbasedon informationreasonablyavailableatthetimevaluationismadeandthehedgefundbelievestobereliable.Attimes,thehedgefundmanagermay conclude that the informationprovidedby the investment funddoesnot represent the fairvalue of the hedge fund’s investment in the investment fund and adjust the value accordingly. Therepurchasedate isgenerallyexpected tobeonaquarterlybasis.Thenoticeduedatewillbegenerallynosooner than20businessdays after the commencementof the repurchaseoffer.TherewerenounfundedcashcommitmentsatJune30,2016.


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Note5–FairValueMeasurements(continued)ThePortfolioseekstoprimarilyachievegrowthofinitialcapitalinvestmentsandincomegenerationwithasecondarygoalofprincipalpreservation.ThePortfolioalsoaimstomaintainmoderateexposuretoriskofcapital loss in pursuit of this return objective. Consistent with these objectives, this Portfolio expects toinvestproportionately inassets that tend tohaveahistoryof lowercapital returnsandvolatility suchasfixed income, and those with a more volatile history and upside return potential such as equities andalternativeassets.InterestRateSwapThefairvalueoftheinterestrateswapiscalculatedandreportedbytheissuingbankasthepresentvalueofthedifferencebetweenthefixed‐ratepaymentstobemadebytheUniversityandthevariable‐ratepaymentstobereceivedbytheUniversityunderthetermsoftheswap.Thefixed‐ratepaymentsareknown,andthevariable‐ratepaymentsareestimatedbasedon themarketyieldcurve that areobservableor that canbecorroboratedbymarketdataand,therefore,isclassifiedwithinLevel2ofthevaluationhierarchy.ThefollowingpresentsthebalancesofassetsandliabilitiesmeasuredatfairvalueonarecurringbasisbylevelwithinthehierarchyfortheyearsendedJune30.

Total (Level1) (Level2) (Level3)

InvestmentsCommonstock

U.S.marketableequities 3,733,271$ 3,733,271$ ‐$ ‐$Equitymutualfunds

Smallcapfunds 181,716 181,716 ‐ ‐Midcapfunds 698,534 698,534 ‐ ‐Largecapfunds 1,541,582 1,541,582 ‐ ‐Realestate 36,665 36,665 ‐ ‐Other 124,802 124,802 ‐ ‐Internationalfunds 3,721,706 3,721,706 ‐ ‐

FixedincomemutualfundsDebtfunds 5,359,355 5,359,355 ‐ ‐

Totalassetsinfairvaluehierarchy 15,397,631$ 15,397,631$ ‐$ ‐$

Obligationunderinterestrateswap (9,538,596)$ ‐$ (9,538,596)$ ‐$

Totalliabilitiesinfairvaluehierarchy (9,538,596)$ ‐$ (9,538,596)$ ‐$

Investmentmeasuredatnetassetvalue 2,385,007$

FairValueMeasurementsasofJune30,2016


16

Note5–FairValueMeasurements(continued)

Total (Level1) (Level2) (Level3)

InvestmentsCommonstock

U.S.marketableequities 3,260,609$ 3,260,609$ ‐$ ‐$Globalmarketequities 1,777,824 1,777,824 ‐ ‐

EquitymutualfundsSmallcapfunds 151,511 151,511 ‐ ‐Midcapfunds 476,742 476,742 ‐ ‐Largecapfunds 1,145,452 1,145,452 ‐ ‐Realestate 28,071 28,071 ‐ ‐Other 473,562 473,562 ‐ ‐Internationalfunds 1,872,797 1,872,797 ‐ ‐

FixedincomemutualfundsDebtfunds 3,866,450 3,866,450 ‐ ‐Assetallocationfunds 251,286 251,286 ‐ ‐

Totalassetsinfairvalueheirarchy 13,304,304$ 13,304,304$ ‐$ ‐$

Obligationunderinterestrateswap (8,410,211)$ ‐$ (8,410,211)$ ‐$

Totalliabilitiesinfairvalueheirarchy (8,410,211)$ ‐$ (8,410,211)$ ‐$

Investmentsmeasuredatnetassetvalue 3,814,746$

FairValueMeasurementsasofJune30,2015

Cashsurrendervalueoflifeinsuranceof$12,833and$12,661fortheyearsendedJune30,2016and2015,respectively,arenotincludedabove,asitiscarriedatcost.Note6–ContributionsReceivableContributionsreceivable,whichareunconditionalpromisestogive,aresummarizedasfollowsatJune30:

2016 2015

ContributionstobecollectedInoneyearorless 87,768$ 66,615$Betweenoneyearandfiveyears 13,324 34,694

101,092 101,309

Lessdiscount 443 1,387

Netcontributionsreceivable 100,649$ 99,922$

Management believes all balances are collectible, and therefore no allowance for doubtful accounts isnecessary.


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Note7–FixedAssetsLandimprovements,buildings,andequipmentwithacostof$2,500ormoreandausefullifeofoneyeararerecordedatcostor,ifdonated,atfairvalueatthedateofgift.Depreciationiscomputedonthestraight‐linebasisovertheestimateduseful livesofbuildingsandlandimprovements(15to50years)andequipment(3to15years).Equipmentretirementsareremovedfromtherecordsatthetimeofdisposal.FixedassetscomprisethefollowingatJune30:

2016 2015

Landimprovements 3,486,009$ 3,577,329$Buildings 73,020,512 72,388,538Equipment 16,602,137 17,010,487Constructioninprogress 150,714 230,758

93,259,372 93,207,112Lessaccumulateddepreciation 37,661,284 37,703,555

55,598,088$ 55,503,557$

Capitalized interest – The University follows the policy of capitalizing interest as a component of fixedassetsforself‐constructedprojects.Interestincurredonfundsusedduringconstruction,lessinterestearnedonrelatedinterest‐bearinginvestments,iscapitalizedasacostofconstruction.NointerestwascapitalizedfortheyearsendedJune30,2016and2015.Constructioninprogress–TheUniversityhasasignedcontractfortheconstructionofanindustriallab.Thetotalestimatedcosttocompletetheprojectisapproximately$475,000.Note8–AnnuitiesPayableAssetsreceivedundertrustsarerecordedatfairvalueintheinvestmentaccountandtotaled$2,763,677and$2,549,002 at June30, 2016 and 2015, respectively. Of these amounts, $842,519 and $905,472 relate tocharitable gift annuities at June30, 2016 and 2015, respectively. The related receivable or liability iscalculatedbasedon the lifeexpectancyof thebeneficiaryor the termof theagreement,discountedat theapplicablefederalratepertheIRStables.AtJune30,2016and2015,liabilitiesunderthecharitabletrustsare reported as annuities payable, totaling $1,787,047 and $1,769,539, respectively. Of these amounts,$584,605and$586,759relatetocharitablegiftannuitiesatJune30,2016and2015,respectively.TheUniversity'sunrestrictednetassetsmeettheminimumamountrequiredtoissueannuitiesinthestateofWashington.


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Note9–BondsandOtherPayablesBondsandotherpayablesconsistofthefollowingatJune30:

2016 2015

SaintMartin'sUniversity2014WashingtonHigherEducationFacilitiesAuthorityRefundingRevenueBonds(Series2014A),payabletoU.S.Bancorp,astrustee,issuedApril24,2014. 27,990,000$ 28,785,000$

PayabletoSt.Martin'sAbbey(Note14). 476,882 516,32828,466,882 29,301,328

Unamortizeddiscountandissuancecost (229,813) (241,307)

28,237,069$ 29,060,021$

Asummaryoftheapproximateannualmaturitiesofthebondsandotherpayables,assumingthedebtispaidasagreed,forfutureyearsendingJune30isasfollows:2017 883,000$2018 801,0002019 860,0002020 53,0002021 57,000Thereafter 25,812,882

28,466,882$

2014ARefundingRevenueBonds:On April 24, 2014, Washington Higher Education Facilities Authority (the Authority), pursuant to anIndentureofTrustdatedApril1,2014,betweentheAuthorityandU.S.BankNationalAssociation,astrustee,issued $29,535,000 of tax‐exempt, refunding revenue bonds (Series 2014A) to provide funds to theUniversityforthefollowingpurposes:1)refundtheSeries2007VariableRateDemandRevenueBonds,and2)paythecostsofissuingtheBonds.Interestshallbepaidmonthlyonthefirstbusinessdayofeachmonthaslongasthebondbearsinterestattheweeklyordailyrate.Variableannualprincipalpayments($840,000in2017and$755,000in2018)willcommenceFebruary1, 2015andextend through finalmaturityof thebondonFebruary1, 2037whenaballoonpaymentof$25,585,000 isdue.Thebond isadirectplacementbyU.S.Bancorp.Additionally, theUniversity has pledged a security interest in a 1stLeasehold Deed of Trust and assignment of rents andleases on three buildings located on the campus, as well as in unrestricted revenues, gains, and othersupportforcollateralforthebond.ThedirectplacementexpiresApril24,2019,unlessbothpartieschoosetoextend it.TheUniversity, throughanagreementwithU.S.Bankas thecounterparty,hasexchangedthevariablerateforafixedrateof4.965%forthelifeoftheloan.ThevariableinterestrateasofJune30,2016was1.53%.


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Note9–BondsandOtherPayables(continued)TheIndentureofTrustalsoauthorizedtax‐exemptrevenuebonds(Series2014B)whicharenottoexceed$4,000,000.Thesefundsareforconstructionoftheindustriallabandsciencebuilding.TheUniversityhastomeet fundraisingrequirements toaccess the funds.The fundsmustbeaccessedbyApril24,2017,or thefundingauthorityexpires.AsofJune30,2016,nofundshavebeenaccessed.Interestratewas3.25%asofJune30,2016.Issuancecosts,aggregating$264,295,havebeencapitalizedandarebeingamortizedovertheremaining23‐year lifeof thebonds.Accumulatedamortizationtotaled$34,482and$22,988at June30,2016and2015,respectively.The University’s credit agreement, associatedwith the issuance of the bonds, contains several ratio andcovenantrequirements.Requirementsincludecashflowcoverageandliquidityratios.TheUniversityenteredintoaninterestswapagreementwithU.S.Bank,withafixedinterestrateof4.965%perannum.TheinterestrateswapagreementmaturesJuly2025.Thefairvalueoftheswapagreementwasaliabilityof$9,538,596and$8,410,211atJune30,2016and2015,respectively.As discussed previously, the University has entered into an interest rate swap agreement to hedge theUniversity’sexposuretointerestrateriskrelatedtoitsvariable‐ratebond.TheUniversity’sspecificgoalistolower(wherepossible)thecostofitsborrowedfundsovertheborrowingterm.Theswapisrecordedonthe statementsof financial position as an interest rate swapat its fairmarket value,with changes in fairvalue recognized in current period change in unrestricted net assets. The following amounts have beenincludedonthestatementofactivitiesfortheyearsendedJune30:

2016 2015

Interestexpense 1,908,072$ 1,910,122$Unrealizedloss(gain)oninterestrateswap 1,128,385 (311,726)

3,036,457$ 1,598,396$

As of June30, 2016 and 2015, the total notional amount of the University’s pay‐fixed, receive‐variableinterest rate swap was $30,270,000 and $31,065,000, respectively. The original notional amount was$34,405,000.Note10–GovernmentGrantsRefundableGovernmentgrantsrefundablerepresentrefundableadvancesmadebythe federalgovernmentundertheUniversity’s Perkins Federal Loan Program. Therewere no new advances under the program during theyearsendedJune30,2016and2015.


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Note11–TemporarilyRestrictedandPermanentlyRestrictedNetAssetsTemporarilyrestrictednetassetsaresubjecttothefollowingdonorrestrictionsatJune30:

2016 2015

Scholarshipsandfellowships 2,479,591$ 3,454,744$Investmentinplant 597,053 1,727,276Splitinterestagreements 454,318 492,745Other 226,116 278,911

3,757,078$ 5,953,676$

Permanently restricted net assets as of June30, 2016 and 2015 represent the original corpus of theendowmentgifts.Thefundsarerestrictedforthefollowingpurposes:

2016 2015

Endowmentscholarships 11,336,627$ 10,108,660$Splitinterestagreements 548,826 548,827

11,885,453$ 10,657,487$

Note12–Board‐DesignatedUnrestrictedNetAssetsDuring theyearended June30,2004, theboardcommitted tousingdesignatedunrestrictednetassets tofundconstructionofthenewdormitory,SpanglerHall.Thisrequiredareclassificationof$4,500,000board‐designatedfundsfrom"Endowment/Scholarships"to"MaintenanceofPlant."TheboardintendstorestoretheamountreclassifiedfromEndowment/Scholarshipsinfullover20years.TherewerenorepaymentsineitheroftheyearsendedJune30,2016and2015.Note13–EndowmentFundandNetAssetClassificationTheUniversity’sendowmentsconsistofvariousdonorrestrictedendowmentfundsandfundsdesignatedasquasiendowmentsbytheBoardofTrustees.The University’s endowment consists of approximately 100 individual funds established for a variety ofpurposes. Its endowment includes both donor‐restricted endowment funds and funds designated by theBoardofTrusteestofunctionasendowments.AsrequiredbyGAAP,netassetsassociatedwithendowmentfunds, including fundsdesignatedby theBoardofTrustees to functionasendowments,areclassifiedandreportedbasedontheexistenceorabsenceofdonor‐imposedrestrictions.


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Note13–EndowmentFundandNetAssetClassification(continued)Interpretation of relevant law – The University has interpreted the Uniform Prudent Management ofInstitutionalFundsAct(UPMIFA)adoptedbythe2009Washingtonlegislatureasrequiringthepreservationof the fair value of the original gift as of the gift date of the donor‐restricted endowment funds absentexplicit donor stipulations to the contrary. As a result of this interpretation, the University classifies aspermanentlyrestrictednetassets:(a)theoriginalvalueofgiftsdonatedtothepermanentendowment,(b)theoriginalvalueofsubsequentgiftstothepermanentendowment,and(c)accumulationstothepermanentendowmentmadeinaccordancewiththedirectionoftheapplicabledonorgift instrumentatthetimetheaccumulationisaddedtothefund.Theremainingportionofthedonor‐restrictedendowmentfundthat isnot classified in permanently restricted net assets is classified as temporarily restricted net assets untilthoseamountsareappropriatedforexpenditurebytheUniversityinamannerconsistentwiththestandardof prudenceprescribedby the state ofWashington in its enacted version ofUPMIFA. In accordancewithUPMIFA, the University considers the following factors in making a determination to appropriate oraccumulatedonor‐restrictedendowmentfunds:(1)thedurationandpreservationoftheEndowmentFund;(2) the purposes of the University and the donor‐restricted Endowment Fund; (3) general economicconditions;(4)thepossibleeffectofinflationanddeflation;(5)theexpectedtotalreturnfromincomeandtheappreciationofinvestments;(6)otherresourcesoftheUniversity;and(7)theinvestmentpoliciesoftheUniversity.EndowmentnetassetcompositionbytypeoffundasofJune30:

Temporarily PermanentlyUnrestricted Restricted* Restricted Total

2016

Donor‐restrictedendowmentfunds ‐$ 2,100,891$ 11,885,453$ 13,986,344$Board‐designatedendowment\scholarshipfunds 3,505,978 ‐ ‐ 3,505,978

Totalfunds 3,505,978$ 2,100,891$ 11,885,453$ 17,492,322$

*Thesefundsconsistofaccumulatedearningsavailabletofundfuturescholarships.

Temporarily PermanentlyUnrestricted Restricted* Restricted Total

2015

Donor‐restrictedendowmentfunds ‐$ 3,081,544$ 10,657,487$ 13,739,031$Board‐designatedendowment\scholarshipfunds 3,578,398 ‐ ‐ 3,578,398

Totalfunds 3,578,398$ 3,081,544$ 10,657,487$ 17,317,429$

*Thesefundsconsistofaccumulatedearningsavailabletofundfuturescholarships.


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Note13–EndowmentFundandNetAssetClassification(continued)ChangesinendowmentnetassetsforthefiscalyearsendedJune30:


2016

Endowmentnetassets,beginningofyear 3,578,398$ 3,081,544$ 10,657,487$ 17,317,429$

InvestmentreturnInvestmentincome 43,455 194,817 ‐ 238,272Netappreciation(depreciation),realized

andunrealized (108,067) (782,049) ‐ (890,116)(64,612) (587,232) ‐ (651,844)

InterestonQuasi‐endowmentloanpayment 223,508 ‐ ‐ 223,508Quasi‐endowmentloanpayment ‐ ‐ ‐ ‐

223,508 ‐ ‐ 223,508

Transferfromannuity ‐ ‐ ‐ ‐Contributions 18,032 ‐ 1,227,966 1,245,998

Expendituresappropriated (249,348) (393,421) ‐ (642,769)

Endowmentnetassets,endofyear 3,505,978$ 2,100,891$ 11,885,453$ 17,492,322$

Temporarily Permanently

Unrestricted Restricted Restricted Total

2015

Endowmentnetassets,beginningofyear 3,097,331$ 3,330,282$ 10,410,028$ 16,837,641$

InvestmentreturnInvestmentincome 62,373 299,388 ‐ 361,761Netappreciation(depreciation),realized

andunrealized 2,040 (77,104) ‐ (75,064)64,413 222,284 ‐ 286,697

InterestonQuasi‐endowmentloanpayment 223,508 ‐ ‐ 223,508Quasi‐endowmentloanpayment ‐ ‐ ‐ ‐

223,508 ‐ ‐ 223,508

Transferfromannuity ‐ ‐ ‐ ‐Contributions 439,109 ‐ 247,459 686,568

Expendituresappropriated (245,963) (471,022) ‐ (716,985)

Endowmentnetassets,endofyear 3,578,398$ 3,081,544$ 10,657,487$ 17,317,429$


23

Note13–EndowmentFundandNetAssetClassification(continued)Fundswithdeficiencies–From time to time, the fair value of assets associatedwith individual donor‐restrictedendowment fundsmayfallbelowthe level that thedonorrequires theUniversity toretainasafund of perpetual duration. Deficiencies, should they occur, would be the result of unfavorable marketfluctuations that occurred shortly after the investment of new, permanently restricted contributions andcontinued appropriation for certain programs that were deemed prudent by the Board of Trustees. AtJune30,2016and2015,theUniversityhadnosuchdeficienciestobereportedinunrestrictednetassets.Returnobjectivesandriskparameters–TheUniversityhasadopted investmentandspendingpoliciesforendowmentassetsthatattempttoprovideapredictablestreamoffundingtoprogramssupportedbyitsendowmentwhileseekingtomaintainthepurchasingpoweroftheendowmentassets.Endowmentassetsinclude thoseassetsofdonor‐restricted funds that theUniversitymusthold inperpetuityor foradonor‐specified period(s) as well as board‐designated funds. Under this policy, as approved by the Board ofTrustees, theendowmentassetsare invested inamanner that is intendedtoproduceappropriateresultswhileassumingamoderatelevelofinvestmentrisk.Strategies employed for achieving objectives – To satisfy its long‐term rate‐of‐return objectives, theUniversityreliesona totalreturnstrategy inwhich investmentreturnsareachievedthroughbothcapitalappreciation(realizedandunrealized)andcurrentyield(interestanddividends).TheUniversitytargetsadiversifiedassetallocationthatplacesagreateremphasisonequity‐basedinvestmentstoachieveitslong‐termreturnobjectiveswithinprudentriskconstraints.Spendingpolicyandhow the investmentobjectivesrelate tospendingpolicy–TheUniversityhasapolicyofappropriatingfordistributioneachyearaportionofitsendowmentfund’saveragefairvalueoverthe prior 16 quarters through the fiscal year‐end preceding the fiscal year in which the distribution isplanned.FortheyearsendedJune30,2016and2015, thisamountwas4%and4.1875%,respectively. Inestablishing this policy, the University considered the long‐term expected return on its endowment.Accordingly,overthelongterm,theUniversityexpectsthecurrentspendingpolicytoallowitsendowmentto grow at an average of 3% annually. This is consistentwith the University’s objective tomaintain thepurchasingpoweroftheendowmentassetsheldinperpetuityorforaspecifiedtermaswellastoprovideadditionalrealgrowththroughnewgiftsandinvestmentreturn.


24

Note14–Related‐PartyTransactionsRelated‐PartyLeases:St. Martin’s Abbey (the Abbey) holds title to and is landlord for all real estate associated with theUniversity’scampus. IthasbeenthepolicyandpracticeoftheAbbeytoallowtheUniversitytoutilizetherealestateforpurposesofoperatinganinstitutionofhighereducation.At various times, the Abbey has entered into lease agreements with the University for the use of thepremisesunderandsurroundingcertainbuildingslocatedontheUniversity’scampus.Theleaseagreementsare generally long term innature andprovide for renewal options at the conclusionof theoriginal leaseterm.Additionally,byspecificprovisionof the leasedocuments,anannualrent for the leaseperiod isnotrequiredtobepaidbytheUniversity.Managementhasdeterminedthatthefairvalueofthecontributionofsuch leases to the University, at the date of the underlying leases, was not material to the financialstatementsand,assuch,hasnotrecordedtheleasesasadonation.PayablestoSt.Martin'sAbbeyDuringtheyears1993through1996,theAbbey,asownerofthepropertyknownasSaintMartin’sCampus,developedandconstructednewpotableandstormwater,andsanitaryandirrigationsystemsnecessarytomeet the needs of the Abbey and the University. This construction was done in three phases: Phase I ‐domesticwater;PhaseII‐sanitarysewerandwastewater;andPhaseIII‐irrigation.TheUniversity’sallocatedshareofcostsunderthethreephasesrepresentstheinfrastructurecostsfromtheAbbey.NotespayableduetotheAbbeyfortheUniversity’sshareofinfrastructurecostsatJune30areasfollows:

2016 2015

Notepayable,datedOctober19,1994,forPhaseIandPhaseIIcosts,withmonthlypaymentsof$5,220,includinginterestat7.5%perannum,dueJune1,2024,unsecured. 376,049$ 409,118$

Notepayable,datedOctober22,1996,forPhaseIIIcosts,withmonthlypaymentsof$1,184includinginterestat7.5%perannum,dueSeptember1,2026,unsecured. 100,833 107,210

476,882$ 516,328$

Related‐Party–OtherFortheyearsendedJune30,2016and2015,theUniversityreceivedvariousgiftsfromtheAbbeytotalingapproximately $731,000 and $310,000, respectively. As of June30, 2016 and 2015, the University hadaccountsreceivablefromtheAbbeyof$24,077and$15,979.


25

Note14–Related‐PartyTransactions(continued)Members of the University’s Board of Trustees and senior management may, from time to time, beassociated either directly or indirectly with companies doing business with the University. For seniormanagement,theUniversityrequiresannualdisclosureofsignificantfinancial interestsin,oremploymentorconsultingrelationshipswith,entitiesdoingbusinesswiththeUniversity.Theseannualdisclosurescoverbothseniormanagementandtheirimmediatefamilymembers.Whensuchrelationshipsexist,measuresaretakentoappropriatelymanage theactualorperceivedconflict in thebest interestsof theUniversity.TheUniversityhasawrittenconflictofinterestpolicythatrequires,amongotherthings,thatnomemberoftheBoardofTrusteescanparticipateinanydecisioninwhichheorshe(oranimmediatefamilymember)hasamaterial financial interest. When such relationships exist, measures are taken to mitigate any actual orperceived conflict, including requiring that such transactions be conducted at arm’s length, for good andsufficientconsideration,basedontermsthatarefairandreasonabletoandforthebenefitoftheUniversity,and in accordance with applicable conflict of interest laws. No such associations are considered to besignificant.Note15–PensionPlanTheUniversityhasadefinedcontributionpensionplanunder InternalRevenueCodeSection403(b).Theplancoversallregularemployees,workingatleast1,000hoursperyear,whohavecompletedoneyearofservicewith the University and reached 21 years of age. The University contribution ratewas 8% as ofJune30,2016and2015,resultingintotalcontributionsfor2016of$853,084andfor2015of$1,003,146.Note16–CommitmentsandContingenciesRegulation and litigation – The University receives funding or reimbursement from governmentalagenciesforvariousactivitieswhicharesubjecttonumerouslawsandregulationsoffederal,state,andlocalgovernments. Compliance with these laws and regulations can be subject to government review andinterpretation,aswellasregulatoryactions.TheUniversityissubjecttosuchregulatoryreviewsand,whilethesereviewsmayresult inrepaymentsand/orcivilremedies,managementbelieves,basedonitscurrentknowledgeandinformation,thatsuchrepaymentsand/orcivilremedies,ifany,wouldnothaveamaterialeffectontheUniversity’sfinancialposition.The University is subject to legal proceedings arising in the normal course of its various activities. Theeventualityoflegalaction,orfurther,theliabilityfromanysuchpotentialaction,issubjecttoagreatdegreeofuncertainty.Managementcurrentlybelievestheresolutionofallsuchmatterswouldnothaveamaterialeffectonthesefinancialstatements.

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