FINANCIAL STATEMENTS
June 30, 2012 and 2011
With Independent Auditors' Report
FRANKLIN PIERCE UNIVERSITY
Table of Contents
Page(s)
Independent Auditors’ Report
1
Statements of Financial Position
2
Statement of Activities for the Year Ended June 30, 2012
3
Statement of Activities for the Year Ended June 30, 2011
4
Statements of Cash Flows
5
Notes to Financial Statements
6-27
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
Franklin Pierce University
We have audited the accompanying statements of financial position of Franklin Pierce University (the
University) as of June 30, 2012 and 2011, and the related statements of activities and cash flows for
the years then ended. These financial statements are the responsibility of the University's
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with U.S. generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Franklin Pierce University as of June 30, 2012 and 2011, and the changes in its net
assets and its cash flows for the years then ended in conformity with U.S. generally accepted
accounting principles.
Manchester, New Hampshire
September 28, 2012
FRANKLIN PIERCE UNIVERSITY
Statements of Financial Position
June 30, 2012 and 2011
2012
2011
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of
$398,406 and $346,356, respectively
Deposits, prepaid expenses and other assets
Government grants receivable
Contributions receivable, net of allowance for doubtful accounts of
$5,650 and $148,502, respectively
Student loans receivable, net of allowance for loan losses of
$125,144 and $204,169, respectively
Investments, at fair value
Funds held by trustee
Land, buildings and equipment, net
Bond issuance costs, net of accumulated amortization of
$1,828,924 and $1,710,112, respectively
Total assets
$
1,106,708
$
-
1,126,097
307,960
37,550
580,941
408,443
125,297
797,759
1,840,148
6,222,060
4,209,371
5,226,709
52,011,306
6,369,513
7,002,441
5,198,186
51,360,945
2,102,109
2,220,921
$ 73,147,629
$ 75,106,835
$
$
LIABILITIES AND NET ASSETS
Liabilities
Line of credit
Accounts payable
Accrued compensation and other liabilities
Post-employment liabilities
Accrued interest payable
Student deposits and deferred revenue
Perkins loan refundable advances
Capital lease obligations
Long-term debt
Total liabilities
3,869,027
2,230,581
1,548,351
278,050
608,312
1,556,978
949,522
1,448,394
43,723,021
2,987,782
805,511
1,875,221
391,673
620,038
2,511,247
949,522
1,629,629
44,857,731
56,212,236
56,628,354
11,483,152
1,347,276
4,104,965
11,546,968
2,811,615
4,119,898
16,935,393
18,478,481
$ 73,147,629
$ 75,106,835
Commitments and contingencies (Notes 9, 17 and 18)
Net assets
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
The accompanying notes are an integral part of these financial statements.
-2-
FRANKLIN PIERCE UNIVERSITY
Statement of Activities
Year Ended June 30, 2012
(With Comparative Totals for the Year Ended June 30, 2011)
Unrestricted
Revenues, gains and other
support
Tuition and fees
Less: financial aid
Net tuition and fees
Federal and state grant revenue
Contributions
Interest income
Investment income - spending
policy
Auxiliary enterprises
Other sources
Net assets released from
restrictions
Total operating revenues
Operating expenses
Program services
Instruction
Student services
Academic support
Auxiliary enterprises
2012
Temporarily Permanently
Restricted
Restricted
$ 50,611,390 $
(18,987,744)
-
31,623,646
-
$
2011
Total
Total
-
$ 50,611,390
(18,987,744)
$ 51,930,207
(18,857,640)
-
31,623,646
33,072,567
221,348
223,171
165,222
290,978
263,974
-
-
512,326
487,145
165,222
495,489
731,142
164,235
191,000
11,822,554
497,628
167,000
250,007
-
358,000
11,822,554
747,635
385,000
11,946,797
665,274
1,033,284
(1,033,284)
-
-
-
45,777,853
(61,325)
-
45,716,528
47,460,504
18,347,592
9,320,223
4,288,440
8,537,173
-
-
18,347,592
9,320,223
4,288,440
8,537,173
19,379,410
9,524,588
4,214,975
8,944,768
40,493,428
-
-
40,493,428
42,063,741
Institutional support
Institutional advancement
5,325,188
1,194,701
-
-
5,325,188
1,194,701
5,420,446
1,352,178
Total expenses
47,013,317
-
-
47,013,317
48,836,365
Change in net assets from
operations
(1,235,464)
(61,325)
-
(1,296,789)
(1,375,861)
-
237,930
884
20,185
884
258,115
(263,125)
-
(36,002)
-
(516,883)
11,585
Total program services
Non-operating activities
Federal and state grant revenue
Contributions
Investment (loss) income, net of
spending policy
Loss on disposal of assets
Net assets released from
restrictions
1,377,819
(1,377,819)
Change in net assets from
non-operating activities
1,171,648
(1,403,014)
(14,933)
(246,299)
2,515,886
(1,464,339)
(14,933)
(1,543,088)
1,140,025
Total change in net assets
Net assets, beginning of year
Net assets, end of year
(217,756)
11,585
(63,816)
-
-
283,169
1,405,594
851,950
(24,827)
-
11,546,968
2,811,615
4,119,898
18,478,481
17,338,456
$ 11,483,152
$ 1,347,276
$ 4,104,965
$ 16,935,393
$ 18,478,481
The accompanying notes are an integral part of these financial statements.
-3-
FRANKLIN PIERCE UNIVERSITY
Statement of Activities
Year Ended June 30, 2011
Unrestricted
Revenues, gains and other support
Tuition and fees
Less: financial aid
Net tuition and fees
Temporarily
Restricted
$ 51,930,207 $
(18,857,640)
-
Permanently
Restricted
$
Total
-
$ 51,930,207
(18,857,640)
33,072,567
-
-
33,072,567
Federal and state grant revenue
Contributions
Interest income
Investment income - spending policy
Auxiliary enterprises
Other sources
Net assets released from restrictions
251,341
549,305
159,563
236,000
11,946,797
429,786
1,029,286
244,148
181,837
4,672
149,000
235,488
(1,029,286)
-
495,489
731,142
164,235
385,000
11,946,797
665,274
-
Total operating revenues
47,674,645
(214,141)
-
47,460,504
Operating expenses
Program services
Instruction
Student services
Academic support
Auxiliary enterprises
19,379,410
9,524,588
4,214,975
8,944,768
-
-
19,379,410
9,524,588
4,214,975
8,944,768
42,063,741
-
-
42,063,741
Institutional support
Institutional advancement
5,420,446
1,352,178
-
-
5,420,446
1,352,178
Total expenses
48,836,365
-
-
48,836,365
Change in net assets from operations
(1,161,720)
(214,141)
-
(1,375,861)
348,938
(24,827)
466,675
1,380,060
429,411
(466,675)
283,169
25,534
73,601
-
283,169
1,405,594
851,950
(24,827)
-
790,786
1,342,796
382,304
2,515,886
(370,934)
1,128,655
382,304
1,140,025
11,917,902
1,682,960
3,737,594
17,338,456
$ 11,546,968
$ 2,811,615
$ 4,119,898
$ 18,478,481
Total program services
Non-operating activities
Federal and state grant revenue
Contributions
Investment income, net of spending policy
Loss on disposal of assets
Net assets released from restrictions
Change in net assets from non-operating
activities
Total change in net assets
Net assets, beginning of year
Net assets, end of year
The accompanying notes are an integral part of these financial statements.
-4-
FRANKLIN PIERCE UNIVERSITY
Statements of Cash Flows
Years Ended June 30, 2012 and 2011
2012
Cash flows from operating activities
Change in net assets
Adjustments to reconcile change in net assets to net
cash provided by operating activities
Depreciation and amortization
Loss on disposal of assets
Change in allowance for loan losses
Net depreciation (appreciation) in fair value of investments
Contributions and grant revenue for investment in:
Plant
Endowment
Change in operating assets and liabilities
Accounts receivable
Deposits, prepaid expenses and other assets
Government grants receivable
Contributions receivable
Accounts payable and accrued expenses
Student deposits and other deferred revenue
2011
$ (1,543,088) $
1,140,025
2,851,526
(11,585)
(79,025)
361,783
2,765,239
24,827
(231,262)
(1,112,874)
(237,930)
(21,069)
(1,380,060)
(308,703)
(545,156)
100,483
87,747
185,105
861,860
(954,269)
(116,446)
49,715
123,302
(223,312)
(410,649)
346,313
Net cash provided by operating activities
1,056,382
Cash flows from investing activities
Purchases and construction of buildings and equipment
Proceeds from sale of buildings and equipment
Change in funds held by trustee
Purchases of investments
Proceeds from sale of investments
Issuance of student loans
Repayments of student loans
Net cash used by investing activities
Cash flows from financing activities
Net change in line of credit
Principal payments on long-term debt
Payments on capital lease obligations
Proceeds from contributions for:
Plant
Endowment
666,115
(3,249,559)
19,350
(28,523)
(391,222)
2,822,509
(873,900)
1,100,378
(2,164,998)
(21,577)
(3,635,266)
4,485,000
(1,107,596)
1,039,394
(600,967)
(1,405,043)
881,245
(1,165,000)
(181,235)
(571,903)
(1,105,000)
(216,698)
961,010
155,273
Net cash provided (used) by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
1,110,661
316,147
651,293
(466,793)
1,106,708
(1,205,721)
$
Cash and cash equivalents, end of year
The accompanying notes are an integral part of these financial statements.
-5-
1,106,708
1,205,721
$
-
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
1.
Organization and Summary of Significant Accounting Policies
Organization
Franklin Pierce University (the University) is a private, nondenominational institution granting
Associates in Arts; Bachelors in Arts and Sciences; Masters of Business Administration, Education
and Physician Assistant Studies; Masters of Science in Information Technology, Management and
Nursing; and Doctorates of Physical Therapy and Arts in Leadership degrees. The residential
undergraduate campus, the College at Rindge, is located in Rindge, New Hampshire. The College
of Graduate and Professional Studies offers undergraduate and graduate programs at regional
educational centers in Concord, Portsmouth, Lebanon, Rindge and Manchester, New Hampshire
and Goodyear, Arizona. The University is accredited through the New England Association of
Schools and Colleges.
The University is a non-profit corporation qualifying as a tax-exempt organization under Internal
Revenue Code Section 501(c)(3) and, accordingly, no provision for federal and state income taxes
has been included in the accompanying financial statements.
Financial Statement Presentation
The accompanying financial statements, which are presented on the accrual basis of accounting,
have been prepared to focus on the University as a whole and to present balances and
transactions according to the existence or absence of donor-imposed restrictions as follows:
Unrestricted
Assets and contributions that are not restricted by donors or for which restrictions have expired.
Temporarily Restricted
A donor-imposed restriction that permits the University to use or expend the donated assets as
specified and is satisfied by either the passage of time or by actions of the University.
Permanently Restricted
A donor-imposed restriction that stipulates that resources be maintained permanently but may
permit the University to use or expend part or all of the economic benefits derived from the donated
assets.
All contributions are considered to be available for unrestricted use unless specifically restricted by
the donor. Amounts received that are designated for future periods or restricted by the donor for
specific purposes are reported as temporarily restricted or permanently restricted support that
increases those net asset classes. 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 as net assets
released from restrictions.
-6-
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
The University reports contributions of land, buildings or equipment as unrestricted support, unless
explicit donor stipulations specify how the donated assets must be used. Contributions of long-lived
assets with explicit restrictions that specify how the assets are to be used and contributions of cash
or other assets that must be used to acquire long-lived assets are reported as restricted support.
Absent explicit donor stipulations about how those long-lived assets must be maintained, the
University reports expirations of donor restrictions when the donated or acquired assets are placed
in service.
Cash and Cash Equivalents
The University considers all highly liquid investments purchased with an original maturity date of
three months or less to be cash equivalents. The University's cash balance associated with the
Perkins Student Loan Program was $233,953 and $964,763 as of June 30, 2012 and 2011,
respectively. The University maintains its cash in bank deposit accounts that, at times, may exceed
federally insured limits. The University has not experienced any losses in such accounts. The
University believes it is not exposed to any significant risk on cash and cash equivalents.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding
balances. The University provides for probable uncollectible amounts through a charge to earnings
and a credit to a valuation allowance based on its assessment of the current status of individual
accounts. Balances that are still outstanding after the University has used reasonable collection
efforts are written off through a charge to the valuation allowance and a credit to accounts
receivable.
Contributions Receivable
Unconditional promises to give that are expected to be collected beyond one year are recorded at
the present value of estimated future cash flows. The present value of estimated future cash flows
has been measured utilizing a risk-free rate of return. Amortization of the discount is included in
contribution revenue. Conditional promises to give are not included as revenue until such time as
the conditions are substantially met. The University provides for probable uncollectible amounts
through a charge to expense and a credit to a valuation allowance based on its assessment of the
current status of individual accounts. Balances that are still outstanding after the University has
used reasonable collection efforts are written off through a charge to the valuation allowance and a
credit to contributions receivable.
Student Loans Receivable
The University participates in the Guaranteed Access to Education (GATE) Student Loan Program
whereby educational loans, ultimately funded by bond issuances, are made to students and the
loan proceeds are remitted to the University as payment for tuition. The University is responsible
for certain administrative procedures associated with the GATE program. At June 30, 2012 and
2011, the statement of financial position includes $42,619 and $74,081, respectively, in student
loans receivable for the estimated present value of residual proceeds expected to be received by
the University in future years.
-7-
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
The remaining balance of student loans receivable includes both funds advanced to the University
by the United States Department of Education under the Federal Perkins Student Loan Program
and amounts funded by the University from unrestricted net assets. Repayments of principal and
interest on student loans receivable generally do not commence until after the borrower graduates
or otherwise ceases enrollment. Interest income on student loans receivable is recognized when
received. The Federal Perkins Student Loan Program has provisions for deferment, forbearance
and cancellation of the individual loans. Principal payments, interest, and losses due to
cancellation are shared by the University and the U.S. Government in proportion to their share of
funds provided. Such funds may be reloaned by the University after collection. Amounts advanced
by the federal government under this program are ultimately refundable and are classified as
Perkins loan refundable advances.
Interest income received from student loans receivable amounted to $164,060 and $158,816
during the years ended June 30, 2012 and 2011, respectively.
Loans receivable from students are stated at their unpaid principal balances adjusted for any
charge-offs and an allowance for loan losses. The allowance for loan losses is established through
provisions for loan losses charged to expense. Losses on loans are charged to the allowance for
loan losses when all or a portion of a loan is deemed to be uncollectible. Recoveries of loans
previously charged off are credited to the allowance for loan losses when realized.
In determining the appropriate level of allowance for loan losses, the University uses a
methodology to systematically measure the amount of estimated loan loss exposure inherent in the
loan portfolio. The methodology primarily involves establishment of loss allocation factors based on
delinquency status and loss experience. Based on management's review of the loan loss history
and collection activity over the past few years, the loss allocation factors were reduced during the
year ended June 30, 2011. The reduction in loan loss factors resulted in a decrease in the
allowance for loan losses as of June 30, 2011 of approximately $197,000. Factors used for
management's estimate remained consistent during the year ended June 30, 2012.
Loans past due 30 days or more are considered delinquent. Loans are collectively evaluated for
impairment; accordingly, no loans have been individually identified as impaired.
The following is a summary of the allowance for loan losses for the years ended June 30:
2012
Allowance for loan losses, beginning of the year
$
Loans charged off
Adjustment to allowance for loan losses
204,169 $
(24,975)
(54,050)
Allowance for loan losses, end of the year
$
-8-
125,144 $
2011
435,430
(23,819)
(207,442)
204,169
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
The following is a loan aging analysis at June 30, 2012:
Not in repayment status
Current
31-60 days past due
61-90 days past due
Greater than 90 days past due
$
2,984,167
1,714,821
154,704
12,554
1,480,958
Total
$
6,347,204
Investments
Investments are carried at fair value. Fair values are based on quoted market prices, if available, or
estimated using quoted market prices for similar securities.
Funds Held by Trustee
The funds held by trustee represent cash and cash equivalent amounts required to be deposited
under the debt agreements with the bondholders' trustee for interest and debt service payments.
These funds are on deposit with a financial institution.
Land, Buildings and Equipment
Land, buildings and equipment are recorded at cost, except for donated assets, which are
recorded at fair value at the date of the gift. Additions, renewals and betterments, unless of a
relatively minor amount, are capitalized. Expenditures for repairs and maintenance are charged to
expense as incurred. When land, buildings and equipment are retired or disposed of, the cost and
related accumulated depreciation are removed from the accounts. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets as follows:
Estimated Useful
Lives (Years)
Buildings and building improvements
Improvements other than buildings
Library books
Furniture and fixtures
Equipment
5 - 55
5 - 55
10 - 15
7 - 10
5 - 10
Bond Issuance Costs
Certain costs related to the issuance of debt, such as accountants, attorneys and underwriting
fees, are capitalized and amortized on a straight-line basis over the lives of the respective debt
issues.
-9-
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Student Deposits and Deferred Revenue
Student deposits and deferred revenue represent amounts billed or received in advance of
providing services. Substantially all deferred income relates to resources received for the
upcoming semester.
Conditional Asset Retirement Obligations
Under the Financial Accounting Standards Board Accounting Standards Codification (FASB ASC)
Topic 410-20, a conditional asset retirement obligation (CARO) refers to a legal obligation to
perform an asset retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the University.
Accordingly, the University is required to recognize a CARO for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably estimated. The University
performed an analysis of the potential effect of FASB ASC Topic 410-20 and determined that the
only CARO related to the removal of asbestos. The balance of the CARO, which is included in
accounts payable, was $58,000 at June 30, 2012 and 2011.
Tuition, Fees and Auxiliary Enterprises
Tuition, fees, and auxiliary enterprise revenue is recognized when earned.
Advertising
The University expenses the cost of advertising. Advertising expense was $206,908 and $272,655
in 2012 and 2011, respectively.
Change in Net Assets from Operations
The statement of activities includes a measure of change in net assets from operations. Changes
in net assets which are excluded from change in net assets from operations include investment
income greater (less) than amounts distributed pursuant to the University's spending policy, gain
(loss) on sale of land, buildings and equipment, contributions or grant revenue which are
permanently restricted by the donor or which are donor restricted to be used for the purposes of
acquiring long-term assets, and the release thereof when the University has complied with the
donative restrictions.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
- 10 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Functional Allocation of Expenses
Indirect costs have been allocated based on percentages of effort, usage, square footage and
other criteria.
Risks and Uncertainties
Investment securities are exposed to various risks, such as interest rate, market and credit risks.
Due to the level of risk associated with certain investment securities and the level of uncertainty
related to changes in the value of investment securities, it is at least reasonably possible that
changes in value in the near term would materially affect the amounts reported in the statement of
financial position.
Reclassifications
Certain reclassifications have been made to the 2011 financial statements to conform with the
2012 financial statement presentation. The University reclassified $100,000 from temporarily
restricted net assets to permanently restricted net assets as of the beginning of the year ended
June 30, 2011 to properly reflect a donor's original intent based on additional information obtained
during the year ended June 30, 2012.
Subsequent Events
For purposes of the preparation of these financial statements in conformity with U.S. generally
accepted accounting principles, the University has considered transactions or events occurring
through September 28, 2012, the date that the financial statements were issued. The University
has not evaluated subsequent events after that date for inclusion in the financial statements.
2.
Contributions Receivable
Contributions receivable consist of the following at June 30:
2012
Contributions for:
Construction of facilities
Endowment
Scholarships
Unrestricted purposes
Contributions receivable
$
Less: Allowance for uncollectible contributions
Unamortized discount of 5.5%
Net contributions receivable
(5,650)
(133,085)
$
- 11 -
912,830 $
84
6,013
17,567
936,494
797,759 $
2011
1,711,190
7,584
166,679
260,644
2,146,097
(148,502)
(157,447)
1,840,148
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Expected payments on contributions are as follows at June 30:
2012
Less than one year
One to five years
More than five years
Contributions receivable
3.
2011
$
567,494 $
369,000
-
1,059,463
1,023,758
62,876
$
936,494 $
2,146,097
Funds Held by Trustee
Funds held by trustee are designated for the following purposes at June 30:
2012
Principal debt service payment
Interest debt service payment
Debt service reserve fund
Funds held by trustee
2011
$
921,798 $
608,549
3,696,362
873,789
627,878
3,696,519
$
5,226,709
5,198,186
$
Interest income received from funds held by trustee amounted to $500 and $205 during the years
ended June 30, 2012 and 2011, respectively.
- 12 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
4.
Investments
Investments are comprised of the following at June 30:
2012
Equity mutual funds
Large cap
Small cap
International - developed
Emerging markets
Other
Equity securities
Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Healthcare
Financial
Information technology
Telecommunications services
Utilities
Privately held securities
Fixed income securities
Corporate bonds
U.S. Government bonds
Investment in limited liability companies
$
Investments
$
2011
381,962 $
247,018
85,971
314,462
79,145
361,338
132,264
348,961
419,156
621,516
130,874
33,382
98,004
140,956
120,390
123,877
147,163
221,904
22,822
26,148
141,737
251,623
37,027
228,466
237,362
155,767
266,368
299,000
368,844
35,808
56,884
197,739
975,267
918,289
-
1,572,850
968,592
442,876
4,209,371
$
7,002,441
Investment (loss) income is comprised of the following at June 30:
2012
Interest and dividend income
Net (depreciation) appreciation in fair value of investments
$
Less investment income appropriated for operations
Investment (loss) income, net of funds appropriated
for operations
- 13 -
202,900 $
(361,783)
124,076
1,112,874
(158,883)
1,236,950
(358,000)
$
2011
(516,883) $
(385,000)
851,950
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
5.
Land, Buildings and Equipment
Land, buildings and equipment consist of the following at June 30:
2012
Buildings and building improvements
Land and improvements
Library books
Furniture and equipment
Construction in progress
2011
$ 66,756,954 $ 64,134,790
13,188,184
13,042,153
3,730,555
3,615,522
10,153,317
9,464,406
259,594
495,337
94,088,604
90,752,208
Less accumulated depreciation
(42,077,298)
Net land, buildings and equipment
$ 52,011,306
(39,391,263)
$ 51,360,945
During the year ended June 30, 2011, the University evaluated the useful lives assigned to its
buildings and equipment. Due to the planned extended use of certain assets, the University
increased the useful lives of certain assets, which resulted in a decrease in depreciation expense
of approximately $176,000 during the year ended June 30, 2011. In addition, the University wrote
off certain assets with a net book value of $24,827 that were no longer in service as of June 30,
2011. The write-off of these assets is included in the loss on disposal of assets in the statement of
activities for the year ended June 30, 2011.
6.
Line of Credit
During 2009, the University entered into a collateralized line of credit agreement which allows for
borrowings up to $5,000,000 and is subject to renewal in November 2012. Borrowings are
collateralized by the University's accounts with the bank and a security interest in the accounts
receivable and gross receipts of the University. The line of credit provides for interest at the bank's
prime rate, with a minimum interest rate to be charged of 4.5% (4.5% at June 30, 2012 and 2011,
respectively).
The line requires that the University maintain a debt service coverage ratio of 1.25 to 1, a minimum
debt to total net assets ratio not to exceed 4 to 1, and a debt to unrestricted total net assets ratio
not to exceed 5 to 1. At June 30, 2012 and 2011, the University was in compliance with all
covenants. Outstanding borrowings under this arrangement at June 30, 2012 and 2011 were
$3,869,027 and $2,987,782, respectively.
- 14 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
7.
Capital Lease Obligations
The University entered into a capital lease arrangement for the addition of student residences in
2004. The original cost basis of the leased student residences is $2,665,436. Accumulated
depreciation includes $588,617 and $521,981 as of June 30, 2012 and 2011, respectively, for the
leased building. The lease calls for monthly payments of $25,259 through July 2018. The lease
agreement contains a bargain purchase option at the end of the lease. The corresponding asset is
being depreciated on a straight-line basis over the estimated useful life of the asset of 40 years.
The University entered into a capital lease arrangement for replacement of an air-conditioning unit
for Marcucella Hall in 2006. The original cost basis is $235,000. Accumulated depreciation includes
$68,993 and $56,994 as of June 30, 2012 and 2011, respectively, for the leased equipment. The
lease calls for monthly payments of $4,714 through July 2011.
The minimal annual lease payments under these leases are as follows:
Year ending June 30
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
Less: imputed interest at rates ranging
from 4.53% to 8.19%
$
Present value of minimum lease payments
$
- 15 -
303,104
303,104
303,104
303,104
303,104
328,363
1,843,883
(395,489)
1,448,394
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
8.
Long-Term Debt
Long-term debt is as follows at June 30:
2012
2011
Term and serial bonds arising from sale of New Hampshire
Health and Education Facilities Authority Revenue Bonds,
Franklin Pierce College Issue, Series 1998, payable in
increasing semiannual installments plus interest through
2028, net of unamortized discount of $400,499 and
$426,203 at June 30, 2012 and 2011, respectively.
Interest rates range from 5.1% to 5.3%. The bonds are
collateralized by a security interest in the accounts
receivable and gross receipts of the University as well as
a mortgage lien on real estate and equipment.
$ 30,294,501
$ 31,158,797
Term and serial bonds arising from sale of New Hampshire
Health and Education Facilities Authority Revenue Bonds,
Franklin Pierce College Issue, Series 1994, payable in
increasing semiannual installments plus interest through
2018, net of unamortized discount of $29,806 and
$34,392 at June 30, 2012 and 2011, respectively. Interest
will accumulate at a rate of 6.0%. The bonds are
collateralized by a security interest in the accounts
receivable and gross receipts of the University as well as
a mortgage lien on real estate and equipment.
2,428,520
2,698,934
Term and serial bonds arising from sale of New Hampshire
Health and Education Facilities Authority Revenue Bonds,
Franklin Pierce College Issue, Series 2004, payable in
semiannual interest payments of $332,750 through 2029
and increasing principal installments plus interest
beginning 2030 through 2035. Interest rate is fixed at
6.05%. The bonds are collateralized by a security interest
in the accounts receivable and gross receipts of the
University as well as a mortgage lien on real estate and
equipment. Annual bond insurance premiums of 0.40%
will be incurred until reaching a point of investment grade
rating by Standard & Poor's.
11,000,000
11,000,000
$ 43,723,021
$ 44,857,731
- 16 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
The maturities of long-term debt, exclusive of unamortized discounts of $430,305, are as follows:
Year ending June 30
2013
2014
2015
2016
2017
Thereafter
$
1,225,000
1,290,000
1,370,000
1,440,000
1,525,000
37,303,326
$ 44,153,326
Interest expense charged to operations was $2,620,984 in 2012 and $2,733,190 in 2011.
In connection with the 1998 bond financing, the University derecognized a portion of the previously
issued 1994 bonds by placing all the required debt service in an irrevocable trust to provide for all
future debt service payments.
In connection with the issuance of its bonds, the University purchased bond insurance. The bond
insurance policy guarantees payment on the bonds should the University not meet its obligation
under its bond agreements.
The loan agreements and mortgages contain financial covenants, which require that the University
maintain ratios, relating to interest coverage and leverage. The agreements also contain
restrictions regarding the creation of indebtedness and the sale of property. The Series 2004 bond
documents were amended requiring the University to maintain an unrestricted net asset to debt
ratio at an amount equal to or greater than 10% for fiscal years 2010 and 2011, an amount equal to
or greater than 15% for fiscal year ended 2012, an amount equal to or greater than 20% for fiscal
years ending 2013, and commencing with the end of fiscal year 2014, and each year thereafter, an
amount equal to or greater than 25%. The University was in compliance with all required covenant
ratios under the new threshold for the years ended June 30, 2012 and, 2011 as amended.
Under the terms of the loan agreement, if the ratio is below the required level, the University may
be required to hire a consultant to make recommendations to increase such ratio for subsequent
fiscal years of the institution at least to the required level, or, if in the opinion of the consultant the
attainment of such level is impracticable, to the highest practicable level.
- 17 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
9.
Operating Leases
The University leases certain premises and vehicles under operating lease arrangements that
expire at various dates through 2018. Certain leases provide for additional rentals for taxes and
utilities. Rent expense was $1,623,733 and $1,730,869 for 2012 and 2011, respectively.
Minimum future rentals under non-cancelable leases are as follows:
Year ending June 30
Amount
2013
2014
2015
2016
2017
Thereafter
Total minimum future rental payments
$
1,287,853
497,054
461,015
285,880
240,398
224,586
$
2,996,786
10. Temporarily Restricted Net Assets
Temporarily restricted net assets are available for the following purposes as of June 30:
2012
Funds restricted for scholarships
Designated support for University programs
Designated support for construction of buildings and equipment
Time restricted contributions receivable
$
Temporarily restricted net assets
$
2011
432,485 $
162,267
750,810
1,714
1,347,276
$
777,556
162,743
1,762,781
108,535
2,811,615
11. Permanently Restricted Net Assets
Permanently restricted net assets are restricted for the following purposes at June 30:
2012
Endowment funds, income restricted for scholarships
- 18 -
$
4,104,965
2011
$
4,119,898
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
12. Net Assets Released from Restrictions
Net assets released from temporary donor restrictions by incurring expenses satisfying the
restricted purposes or by occurrence of events specified by the donors are as follows for the years
ended June 30:
2012
Operating
Scholarships
Other, including instruction, academic support and
auxiliary services
Nonoperating
Funds for construction of buildings and equipment
$
2011
410,567 $
387,186
622,717
642,100
$
1,033,284
$
1,029,286
$
1,377,819
$
466,675
13. Endowment
The University’s endowment primarily consists of funds established for scholarships. Its
endowment includes both donor-restricted endowment funds and funds designated by the Board of
Trustees to function as endowments. As required by U.S. generally accepted accounting principles
(GAAP), net assets associated with endowment funds, including funds designated by the Board of
Trustees to function as endowments, are classified and reported based on the existence or
absence of donor-imposed restrictions.
Interpretation of Relevant Law
The University has interpreted the State of New Hampshire Uniform Prudent Management of
Institutional Funds Act (the Act) which became effective July 1, 2008 as requiring the preservation
of the purchasing power (real value) of the donor-restricted endowment funds absent explicit donor
stipulations to the contrary. As a result of this interpretation, the University classifies as
permanently restricted net assets (1) the original value of gifts donated to the permanent
endowment, (2) the original value of subsequent gifts to the permanent endowment, and (3)
accumulations to the permanent endowment made in accordance with the direction of the
applicable donor gift instrument at the time the accumulation is added to the fund. If the donorrestricted endowment assets earn investment returns beyond the amount necessary to maintain
the endowment assets’ real value, that excess is available for appropriation and, therefore,
classified as temporarily restricted net assets until appropriated by the Board of Trustees for
expenditure. Funds designated by the Board of Trustees to function as endowments are classified
as unrestricted net assets.
- 19 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
In accordance with the Act, the University considers the following factors in making a determination
to appropriate or accumulate donor restricted endowment funds:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The duration and preservation of the fund
The purposes of the organization and the donor-restricted endowment fund
General economic conditions
The possible effect of inflation and deflation
The expected total return from income and the appreciation of investments
Other resources of the organization
The investment policies of the organization.
Endowment Composition and Changes in Endowment
The endowment net asset composition by type of fund as of June 30, 2012 are as follows:
Donor-restricted endowment funds
Unrestricted
Temporarily Permanently
Restricted
Restricted
$
$
Board-designated endowment funds
813,770
$
354,364 $ 4,104,890 $ 4,459,254
-
813,770 $
Total
-
354,364 $ 4,104,890
813,770
$ 5,273,024
The changes in endowment net assets for the fiscal year ended June 30, 2012 are as follows:
Unrestricted
Temporarily Permanently
Restricted
Restricted
Endowment net assets, June 30, 2011 $ 3,000,164 $
Investment return:
Investment income
Net depreciation
Total investment loss
Contributions and grants
Net transfers to operating funds from
Board-designated
Appropriation of endowment assets
for expenditure
Amounts released in excess of
appropriation for expenditure
Endowment net assets, June 30, 2012 $
66,675
(93,427)
(26,752)
659,854 $ 4,096,014 $ 7,756,032
116,225
(212,354)
(96,129)
-
-
(1,968,642)
-
(191,000)
813,770 $
- 20 -
Total
20,000
(56,002)
(36,002)
202,900
(361,783)
(158,883)
44,878
44,878
-
(1,968,642)
(167,000)
-
(358,000)
(42,361)
-
(42,361)
354,364 $ 4,104,890
$ 5,273,024
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
The endowment net asset composition by type of fund as of June 30, 2011 are as follows:
Unrestricted
Donor-restricted endowment funds
Board-designated endowment funds
$
Temporarily
Restricted
(5,800) $
3,005,964
$ 3,000,164
Total
659,854 $ 4,096,014 $ 4,750,068
-
$
Permanently
Restricted
-
659,854 $ 4,096,014
3,005,964
$ 7,756,032
The changes in endowment net assets for the fiscal year ended June 30, 2011 are as follows:
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Total
Endowment net assets, June 30, 2010 $ 4,168,519 $
304,390 $ 3,729,575 $ 8,202,484
Investment return:
Investment income
Net appreciation
Total investment return
58,153
520,258
578,411
Contributions and grants
Net transfers from operating to Boarddesignated funds
Appropriation of endowment assets for
expenditure
Amounts released in excess of
appropriation for expenditure
65,923
519,015
584,938
-
-
(1,517,293)
-
(236,000)
-
Endowment net assets, June 30, 2011 $ 3,000,164
$
73,601
73,601
124,076
1,112,874
1,236,950
292,838
292,838
-
(1,517,293)
(149,000)
-
(385,000)
(73,947)
-
(73,947)
659,854 $ 4,096,014
$ 7,756,032
Funds with Deficiencies
From time to time, the fair value of assets associated with individual donor-restricted endowment
funds may fall below the level that the donor or the Act requires the University to retain as a fund of
perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in
unrestricted net assets were approximately $5,800 as of 2011. These deficiencies resulted from
unfavorable market fluctuations that occurred shortly after the investment of new permanently
restricted contributions and continued appropriation for certain programs that was deemed prudent
by the Board of Trustees. No such deficiencies existed as of June 30, 2012.
- 21 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Return Objectives and Risk Parameters
The University has adopted investment and spending policies for endowment assets that attempt
to provide a predictable stream of funding to programs supported by its endowment while seeking
to maintain the purchasing power of the endowment assets. Endowment assets include those
assets of donor-restricted funds that the organization must hold in perpetuity or for a donorspecified period(s) as well as board-designated funds. Under this policy, as approved by the Board
of Trustees, the endowment assets are invested in a manner that is intended to produce results
that exceed the price and yield results of appropriate market indices while assuming a moderate
level of investment risk. Equity funds are expected to achieve an annualized total rate of return
over a three to five-year period which exceeds an appropriate market index rate of return by 1.5
percentage points compounded annually, net of costs and fees. Fixed income funds are expected
to exceed appropriate market indices by 0.75 percentage points, net of costs and fees. Balanced
funds are expected to attain a blended objective reflective of their asset mix. Actual returns in any
given year may vary from this amount.
Strategies Employed for Achieving Objectives
To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in
which investment returns are achieved through both capital appreciation (realized and unrealized)
and current yield (interest and dividends). The University targets a diversified asset allocation that
places a greater emphasis on equity-based investments to achieve its long-term return objectives
within prudent risk constraints.
Spending Policy
The University has a policy of appropriating for distribution each year 5 percent of its endowment
fund’s average fair value over the prior 12 quarters through the calendar year-end preceding the
fiscal year in which the distribution is planned. In establishing this policy, the University considered
the long-term expected return on its endowment. This is consistent with the University’s objective
to maintain the purchasing power of the endowment assets held in perpetuity or for a specified
term as well as to provide additional real growth through new gifts and investment return.
14. Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, government grants
receivable, contributions receivable, student loans receivable, investments, funds held by trustee,
accounts payable, accrued expenses, Perkins loan refundable advances, capital lease obligations
and the line of credit approximate fair value due to the short term maturities of these financial
instruments. The estimated fair value of the University's long-term debt, based on a current
discount rate of future cash flows, was approximately $58,902,000 and $53,289,000 at
June 30, 2012 and 2011, respectively.
- 22 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
15. Fair Value Measurements and Disclosures
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The University utilizes a
fair value hierarchy that maximizes the use of observable inputs and minimizes the use of
unobservable inputs when measuring fair value. The University uses three levels of inputs to
measure fair value:
Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the
entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than level 1 prices, such as quoted prices for
similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are
observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect the University’s own assumptions about the
assumptions that market participants would use in pricing an asset or liability.
Fair value is best determined based upon quoted market prices. However, in certain instances,
there are no quoted market prices for the University's various financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates
may not be realized in an immediate settlement of the instrument.
The fair value for level 2 investments is primarily based on estimates using market prices of
comparable securities.
The fair value of the level 3 privately held security is based on an offer by that company's
management to repurchase the shares from the University through a liquidity dividend declared
during the year ended June 30, 2011.
The fair value of the investment in limited liability companies has been estimated based upon the
University's proportionate share of the net assets of the limited liability companies. The underlying
investments in the limited liability companies, which primarily consist of an ownership percentage
of private investment companies and fixed income securities, are valued using market and income
approaches.
- 23 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Assets measured at fair value on a recurring basis are summarized below.
Fair Value Measurements at June 30, 2012, Using
June 30, 2012
Investments
Equity mutual funds
Large cap
Small cap
International - developed
Emerging markets
Other
Equity securities
Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Healthcare
Financial
Information technology
Telecommunications services
Utilities
Privately held securities
Fixed income securities
Corporate bonds
U.S. Government bonds
Total investments
$
Level 1
381,962 $
247,018
85,971
314,462
79,145
381,962 $
247,018
85,971
314,462
79,145
-
130,874
33,382
98,004
140,956
120,390
123,877
147,163
221,904
22,822
26,148
141,737
130,874
33,382
98,004
140,956
120,390
123,877
147,163
221,904
22,822
26,148
141,737
-
975,267
918,289
$
Level 2
4,209,371
- 24 -
$
2,315,815
Level 3
$
-
975,267
918,289
$
1,893,556
-
$
-
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Fair Value Measurements at June 30, 2011, Using
June 30, 2011
Investments
Equity mutual funds
Large cap
Small cap
International - developed
Emerging markets
Other
Equity securities
Energy
Materials
Industrials
Consumer discretionary
Consumer staples
Healthcare
Financial
Information technology
Telecommunications services
Utilities
Privately held securities
Fixed income securities
Corporate bonds
U.S. Government bonds
Investment in limited liability
companies
Total investments
$
$
Level 1
Level 2
361,338 $
132,264
348,961
419,156
621,516
361,338 $
132,264
348,961
419,156
621,516
-
251,623
37,027
228,466
237,362
155,767
266,368
299,000
368,844
35,808
56,884
197,739
251,623
37,027
228,466
237,362
155,767
266,368
299,000
368,844
35,808
56,884
143,906
-
1,572,850
968,592
-
442,876
-
7,002,441
- 25 -
$
3,964,290
Level 3
$
53,833
1,572,850
968,592
-
$
2,541,442
-
442,876
$
496,709
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Changes in fair value of investments, included in net (depreciation) appreciation in fair value of
investments in Note 4, measured at fair value on a recurring basis using significant unobservable
inputs (level 3) are comprised of the following for the years ended June 30, 2012 and 2011:
Investment in
Limited
Liability
Companies
Balance as of June 30, 2010
$
Net appreciation in fair value during the year ended June 30, 2011
Balance as of June 30, 2011
Sales
Net depreciation in fair value during the year ended June 30, 2012
Balance as of June 30, 2012
$
Privately
Held
Securities
410,293 $
-
32,583
53,833
442,876
53,833
(442,876)
-
(53,833)
-
$
-
16. Retirement Plans
The University provides a non-contributory, defined contribution retirement plan to all eligible full
and part time employees once they have met certain eligibility requirements as described in the
plan document. Prior to September 1, 2011 each eligible employee is offered the choice of two (2)
pension vendors, both of whom offer a selection of annuity and thrift plans. As of September 1,
2011 the University transitioned to one pension vendor, TIAA CREF. The University contribution is
based on the employee's annual salary, age and years of service. The maximum contribution for a
Rindge Faculty Federation (RFF) member of the University hired prior to January 1, 1994 would be
13.5% of salary. The maximum contribution for all other faculty members and non-faculty
employees of the University would be 9% of salary. The University discontinued the employer
contributions for non-RFF members on June 30, 2011 and January 1, 2012 for RFF members.
Employees may also elect to participate in a supplemental tax-deferred annuity plan. Contributions
may not exceed amounts permitted by the Internal Revenue Code. Retirement plan expenses for
2012 and 2011 were $273,437 and $1,252,375, respectively.
17. Commitments and Contingencies
Union Contract
Substantially all of the University's professors are covered by a collective bargaining agreement
and are represented by the Rindge Faculty Federation, which is part of the American Federation of
Labor - Congress of Industrial Organizations. The agreement has been extended through August
31, 2015.
- 26 -
FRANKLIN PIERCE UNIVERSITY
Notes to Financial Statements
June 30, 2012 and 2011
Employment Agreements
The University has employment agreements with certain executive members of management that
extend through December 2014. The terms of the agreements require that, if the employee is
terminated without cause, the University is required to pay the employee's salary with benefits for
the remainder of the contract term.
Post-employment liabilities under employment and severance agreements amounted to $278,050
and $391,673 as of June 30, 2012 and 2011, respectively.
Litigation
The University is involved in legal proceedings arising in the ordinary course of business. In the
opinion of management, these matters will not materially affect the University's financial position.
18. Economic Dependency
The University and the students of the University receive significant support from federal student
financial aid programs and various student loan programs. Non-compliance with federal
regulations, or changes in the laws governing the programs, could severely impact the operations
of the University.
19. Cash Flow Information
The University paid interest of $2,675,575 and $2,751,777 during the years ended June 30, 2012
and 2011, respectively.
The University had the following noncash activity for the years ended June 30:
2012
2011
Capital expenditures
Less: Accounts payable as of year-end
Add: Payments on prior year short-term trade accounts
used to finance capital expenditures
$ 3,360,550 $ 2,120,070
(263,369)
(152,378)
152,378
197,306
Purchases and construction of buildings and equipment
$ 3,249,559
$ 2,164,998
- 27 -