Saint Martin's University...SAINT MARTIN'S UNIVERSITY NOTES TO FINANCIAL STATEMENTS 7 Note 1 – Organizational Background Saint Martin's University (the University) is a nonprofit,

Report of Independent Auditors and Financial Statements for

Saint Martin's University

June 30, 2014 and 2013

CONTENTS PAGEREPORTOFINDEPENDENTAUDITORS 1–2FINANCIALSTATEMENTS Statementoffinancialposition 3 Statementofactivitiesandchangesinnetassets 4–5 Statementofcashflows 6 Notestofinancialstatements 7–25

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REPORTOFINDEPENDENTAUDITORSTotheBoardofTrusteesSaintMartin'sUniversityReportontheFinancialStatements

WehaveauditedtheaccompanyingfinancialstatementsofSaintMartin'sUniversity,whichcomprisethestatementsoffinancialpositionasofJune30,2014and2013,andtherelatedstatementsofactivitiesandchanges in net assets and cash flows for the years then ended, and the related notes to the financialstatements.Management’sResponsibilityfortheFinancialStatements

Management is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyaccepted in theUnitedStatesofAmerica; this includesthe design, implementation, and maintenance of internal control relevant to the preparation and fairpresentationof financial statements that are free frommaterialmisstatement,whetherdue to fraudorerror.

Auditor’sResponsibility

Our responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordancewith auditing standards generally accepted in theUnited States ofAmerica. Those standards require thatweplan andperform the audits to obtain reasonable assuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthe financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks ofmaterialmisstatement of the financial statements, whether due to fraud orerror. Inmaking those risk assessments, the auditor considers internal control relevant to the entity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’s internalcontrol.Accordingly,weexpressnosuchopinion.Anauditalso includesevaluatingthe appropriateness of accounting policies used and the reasonableness of significant accountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidenceobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

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Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancialpositionofSaintMartin'sUniversityasofJune30,2014and2013,andthechangesitsnetassetsanditscashflowsfortheyearsthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Yakima,WashingtonSeptember10,2014

Seeaccompanyingnotes. 3

SAINTMARTIN'SUNIVERSITYSTATEMENTOFFINANCIALPOSITION

2014 2013

CashandcashequivalentsOperatingcash 2,341,409$ 2,000,579$Investmentcash 3,016,475 3,365,917

Totalcashandcashequivalents 5,357,884 5,366,496

Prepaidsandinventories 339,107 321,988Studentaccountsreceivable,netofallowance

of$302,655in2014and$289,169in2013 2,118,489 1,876,718Gateloanreceivable,netofallowanceof

$304,258in2014and$347,026in2013 159,098 116,330Studentloansreceivable‐PerkinsLoanProgram 975,235 1,040,373Contributionsreceivable,net 235,439 591,209Otherreceivables 900,717 332,490Investments 16,638,739 14,684,068Bondissuancecosts,net 252,801 371,471Bondreserve ‐ 2,567,007Fixedassets,net 57,629,000 59,930,071

84,606,509$ 87,198,221$

LIABILITIESAccountspayableandaccruedexpenses 2,556,400$ 2,727,833$Deferredrevenues 1,222,645 1,336,536Annuitiespayable 1,488,073 1,104,993Related‐partynotespayable 552,952 586,937Governmentalgrantsrefundable 972,178 972,178Interestrateswappayable 8,721,937 9,203,180Bondspayable 29,535,000 32,520,000

Totalliabilities 45,049,185 48,451,657

NETASSETSUnrestricted 19,025,653 20,029,574Unrestricted‐designated 4,941,577 4,936,147

Totalunrestricted 23,967,230 24,965,721

RestrictedTemporarily 5,180,066 3,781,618Permanently 10,410,028 9,999,225

Totalnetassets 39,557,324 38,746,564

Totalliabilitiesandnetassets 84,606,509$ 87,198,221$

June30,

ASSETS

LIABILITIESANDNETASSETS

4 Seeaccompanyingnotes.

SAINTMARTIN'SUNIVERSITYSTATEMENTOFACTIVITIESANDCHANGESINNETASSETS

Temporarily PermanentlyUnrestricted Restricted Restricted Total

REVENUESANDGAINSTuitionandfees 42,258,278$ ‐$ ‐$ 42,258,278$Lessscholarshipallowance (16,593,866) ‐ ‐ (16,593,866)

25,664,412 ‐ ‐ 25,664,412

Governmentgrantsandcontracts 22,085 ‐ ‐ 22,085Contributions 1,344,906 73,192 410,803 1,828,901Contributionsfromrelatedparty 25,100 281,537 ‐ 306,637Auxiliaryenterprises 4,976,686 ‐ ‐ 4,976,686Investmentincomeandrealizedgains 428,043 1,034,264 ‐ 1,462,307Unrealizedgainoninvestments,net 52,497 746,319 ‐ 798,816Othersources 666,511 ‐ ‐ 666,511Changeinvalueofsplit‐interest

agreements (41,622) ‐ ‐ (41,622)33,138,618 2,135,312 410,803 35,684,733

Netassetsreleasedfromrestrictions 736,864 (736,864) ‐ ‐33,875,482 1,398,448 410,803 35,684,733

EXPENSESProgramexpenses

Instruction 11,672,872 ‐ ‐ 11,672,872Research 21,658 ‐ ‐ 21,658Studentservices 6,734,910 ‐ ‐ 6,734,910Auxiliaryenterprises 4,216,851 ‐ ‐ 4,216,851

SupportexpensesAcademic 4,072,974 ‐ ‐ 4,072,974Institutional 8,635,951 ‐ ‐ 8,635,951

35,355,216 ‐ ‐ 35,355,216

OTHERUnrealizedgainoninterestrateswap 481,243 ‐ ‐ 481,243

CHANGEINNETASSETS (998,491) 1,398,448 410,803 810,760

NETASSETS,beginningofyear 24,965,721 3,781,618 9,999,225 38,746,564

RECLASSIFICATIONOFNETASSETS ‐ ‐ ‐ ‐

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

YearEndedJune30,2014


SAINTMARTIN'SUNIVERSITYSTATEMENTOFACTIVITIESANDCHANGESINNETASSETS


REVENUESANDGAINSTuitionandfees 40,457,137$ ‐$ ‐$ 40,457,137$Lessscholarshipallowance (15,724,889) ‐ ‐ (15,724,889)

24,732,248 ‐ ‐ 24,732,248

Governmentgrantsandcontracts 19,640 ‐ ‐ 19,640Contributions 1,134,258 1,904,794 1,408,656 4,447,708Contributionsfromrelatedparty 25,200 200,000 ‐ 225,200Auxiliaryenterprises 4,978,084 ‐ ‐ 4,978,084Investmentincomeandrealizedgains 548,809 1,457,591 ‐ 2,006,400Unrealizedlossoninvestments,net (33,594) (257,820) ‐ (291,414)Othersources 840,548 ‐ ‐ 840,548Changeinvalueofsplit‐interest

agreements 10,173 ‐ ‐ 10,17332,255,366 3,304,565 1,408,656 36,968,587

Netassetsreleasedfromrestrictions 2,671,680 (2,671,680) ‐ ‐34,927,046 632,885 1,408,656 36,968,587

EXPENSESProgramexpenses

Instruction 11,408,551 ‐ ‐ 11,408,551Research 14,725 ‐ ‐ 14,725Studentservices 6,848,152 ‐ ‐ 6,848,152Auxiliaryenterprises 4,155,451 ‐ ‐ 4,155,451

SupportexpensesAcademic 4,130,518 ‐ ‐ 4,130,518Institutional 8,916,191 ‐ ‐ 8,916,191

35,473,588 ‐ ‐ 35,473,588

OTHERUnrealizedgainoninterestrateswap 2,999,860 ‐ ‐ 2,999,860

CHANGEINNETASSETS 2,453,318 632,885 1,408,656 4,494,859

NETASSETS,beginningofyear 22,007,503 3,890,193 8,354,009 34,251,705

RECLASSIFICATIONOFNETASSETS 504,900 (741,460) 236,560 ‐

NETASSETS,endofyear 24,965,721$ 3,781,618$ 9,999,225$ 38,746,564$

YearEndedJune30,2013


SAINTMARTIN'SUNIVERSITYSTATEMENTOFCASHFLOWS

YearEndedJune30,2014 2013

CASHFLOWSFROMOPERATINGACTIVITIESChangeinnetassets 810,760$ 4,494,859$Adjustmentstoreconcilechangeinnetassetstonetcashfrom

operatingactivitiesDepreciationandamortization 3,375,552 2,877,489Unrealized(gain)lossoninvestments,net (798,816) 291,414Changeinvalueofsplit‐interestagreements 41,622 (10,173)Baddebtexpense 121,014 128,333Contributionsrestrictedforlong‐termpurposes (410,803) (1,408,656)Lossondisposaloffixedassets 51,464 18,031Changeincashsurrendervalueoflifeinsurance (224) (305)Changeinfairvalueofinterestrateswap (481,243) (2,999,860)Changeincashduetochangesinassetsandliabilities

Studentaccountsreceivable (362,785) (308,760)Contributionsreceivable 355,770 3,916,442Otherreceivables (610,995) 54,119Prepaidsandinventories (17,119) (47,679)Accountspayableandaccruedexpenses (171,433) (696,215)Deferredrevenues (113,891) 88,410

Netcashfromoperatingactivities 1,788,873 6,397,449

CASHFLOWSFROMINVESTINGACTIVITIESPurchaseoffixedassets (742,980) (3,312,317)Purchaseofinvestments (10,665,723) (16,525,995)Saleofinvestments 9,510,092 14,276,557Changeinstudentloansreceivable‐PerkinsLoanProgram 65,138 (21,832)Netchangeinbondreserve 2,567,007 (275)

Netcashfrominvestingactivities 733,534 (5,583,862)

CASHFLOWSFROMFINANCINGACTIVITIESPrincipalpaymentsonbondsandotherpayables (32,553,985) (696,537)Proceedsfrombondspayable 29,535,000 ‐Bondissuancecosts (264,295) ‐Proceedsfromlineofcredit ‐ 2,211,740Paymentsonlineofcredit ‐ (4,985,975)Contributionsreceivedrestrictedforlong‐termpurposes 410,803 1,408,656Increaseinliabilityfornewannuityagreement 479,636 176,249Changeinvalue/paymentsinannuityagreements (138,178) (102,045)

Netcashfromfinancingactivities (2,531,019) (1,987,912)

CHANGEINCASHANDCASHEQUIVALENTS (8,612) (1,174,325)

CASHANDCASHEQUIVALENTS,beginningofyear 5,366,496 6,540,821

CASHANDCASHEQUIVALENTS,endofyear 5,357,884$ 5,366,496$

SUPPLEMENTALDISCLOSUREOFCASHFLOWINFORMATIONCashpaidforinterest 1,707,745$ 1,612,387$

SAINTMARTIN'SUNIVERSITYNOTESTOFINANCIALSTATEMENTS

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Note1–OrganizationalBackground

Saint Martin's University (the University) is a nonprofit, charitable institution of higher learning,which operates in accordance with its Catholic and Benedictine heritage. The main campus islocatedon300+acresinLacey,WA.ExtensioncampusesarelocatedattheJointFortLewisMcChord(JBLM)basenearTacoma,WAandCentralia.TheUniversitywasestablishedin1895bythemonksof the Saint Martin’s Benedictine monastic community, who have continued to support theeducationinstitution.

Note2–SummaryofSignificantAccountingPolicies

Basis of accounting – The University prepares its financial statements in accordance withaccounting principles generally accepted in the United States of America, which involves theapplicationof accrual accounting. Consequently, revenues andgains are recognizedwhenearned,andexpensesandlossesarerecognizedwhenincurred.

Useofestimates–Thepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerally accepted in the United States of America requiresmanagement tomake estimates andassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassets and liabilities, if any, at the date of the financial statements, and the reported amounts ofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.

Cashandcashequivalents–Demanddepositaccounts(checkingaccounts)heldatJune30,2014and 2013 are classified as operating cash on the accompanying statements of financial position.Investedcashconsistsofshort‐term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcash,includingsavingsaccounts,moneymarketaccounts,andshort‐termcertificatesofdepositwithanoriginalmaturityofthreemonthsorless.

TheUniversitymaintains its cash inbankdeposit accounts,which, at times,mayexceed federallyinsuredlimits.TheUniversityhasnotexperiencedanylossesinsuchaccountstodate.

Student loans receivable and student accounts receivable – Student accounts receivable arecarriedattheunpaidbalanceoftheoriginalamountbilledtostudentsandstudentloansreceivablearecarriedattheamountofunpaidprincipal.Studentaccountsreceivablearelessanestimatemadefor doubtful accounts based on a review of all outstanding amounts. The allowance for doubtfulaccounts represents theUniversity's best estimate of the amount of probable credit losses in theUniversity'sexistingaccountsreceivableandstudentloansreceivable.Managementdeterminestheallowancefordoubtfulaccountsbyidentifyingtroubledaccountsandbyusinghistoricalexperienceapplied to an aging of accounts. Student accounts receivable are written off when deemeduncollectible and student loans receivable may be assigned to the United States Department ofEducation (USDE). Recoveries of student accounts receivable previouslywritten off are recordedwhenreceived.Interestischargedonallpast‐dueaccountsforstudentswhoarenolongerenrolledintheUniversityuntiltheaccountisturnedovertoacollectionagency.Latechargesarechargedonallstudentaccountsreceivableunderapaymentplanthatisoutstandingformorethan20daysaftertheduedate.

Afterastudentisnolongerenrolledinaninstitutionofhighereducation,andafteragraceperiod,interestischargedonstudentloansreceivableandrecognizedasitischarged.Latefeesarechargedifpaymentsarenotpaidbythepaymentduedateandrecognizedastheyarecharged.Studentloansreceivableareconsideredtobepastdueifapaymentisnotmadewithin90daysofthepaymentduedate.Afterreceivablesbecomepastdue,theaccrualoflatechargesissuspended.Studentsmaybegranted a deferment, forbearance or cancellation of their student loans receivable based oneligibilityrequirementsdefinedbytheUSDE.


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Note2–SummaryofSignificantAccountingPolicies(continued)

Fairvalueoffinancialinstruments–Thecarryingvaluesofcash,cashequivalents,bondreserves,receivables,accountspayableandaccruedliabilities,includingdeferredrevenues,annuitiespayableandrelated‐partynotespayable,arereasonableestimatesoftheir fairvalueduetodiscountingorthe short‐term nature and terms of these financial instruments. Investments are recorded at fairvalueasdiscussedinNote5.Thefairvalueofbondspayableapproximatestheircarryingvalue,asitisbasedoncurrentratesofferedtotheUniversityforsimilardebtofthesameremainingmaturitiesand,additionally,theUniversityconsidersitscreditworthinessindeterminingthefairvalueofthebondspayable.ThebondsareconsideredaLevel2withinthefairvaluehierarchyasdescribedinNote10.Theinterestrateswap(usedforpurposesotherthantrading)iscarriedatfairvalueandistheestimatedamounttheUniversitywouldreceiveorpaytoterminatetheswapagreementatthereporting date, taking into account current interest rates and the creditworthiness of thecounterpartyforassetsandcreditworthinessoftheUniversityforliabilities.TheseinvestmentsarecategorizedasLevel2inthefairvaluehierarchy(seeNote5).TheUniversityrecognizesthechangein fairmarket valueof the interest rate swapon the statementsof activities. It isnotpractical toestimatethefairvalueofstudentreceivablesandtheliabilityforgovernmentalgrantsrefundable,astheseloansaresubjecttorestrictionsoninterestratesandtransferability.

Fairvaluemeasurements – TheFairValueMeasurementsandDisclosuresTopic of the FinancialAccounting Standards Board’s (FASB) Accounting Standards Codification defines fair value,establishes a framework for measuring fair value and expands disclosure of fair valuemeasurements,whichapplies toallassetsand liabilities thataremeasuredandreportedona fairvaluebasis.SeeNote5foradditionalinformation.

Interestrateswap–TheUniversitymaintainsaninterestrateriskmanagementstrategythatusesderivative instruments to minimize significant, unanticipated earnings fluctuations caused byinterest rate volatility. The University’s specific goal is to lower (where possible) the cost of itsborrowedfunds.TheUniversityhasaninterestrateswapagreementtoconvertvariable‐ratedebttoafixedrate,asdescribedinNote10.

Deferredcompensation–AclauseintheUniversityPresident'scontractentitleshimtooneyear'scompensationatthecompletionofa5‐yearterm,startingin2011.AsofJune30,2014and2013,theaccrued value of the president's deferred compensationwas $132,000 and $88,000, respectively.The liability is included in accounts payable and accrued expenses on the statement of financialposition.

Federalincometaxes–Noprovisionforincometaxeshasbeenmadeinthefinancialstatementssince the University is exempt from federal income taxes under Internal Revenue Code Section501(c)(3). Additionally, the University has done an assessment of any uncertain tax positions asrequiredunderFASBaccountingstandardonAccountingforUncertaintyinIncomeTaxes(ASC740),andhasdetermineditcurrentlyhasnouncertaintaxbenefitstorecordasaliabilityatJune30,2014and2013. In addition, theUniversityhasnomaterialunrelatedbusiness incomesubject to taxatJune30,2014and2013.

Forms990and990T filedby theUniversity are subject to examinationsby the InternalRevenueService(IRS)uptothreeyearsfromtheextendedduedateofeachreturn.Generally,Forms990and990T filed by the University are no longer subject to examination for fiscal years ended prior toJune30,2011.


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Financialstatementpresentation–Netassets,revenues,expenses,gainsandlossesareclassifiedbasedontheexistenceorabsenceofdonor‐imposedrestrictions.NetassetsoftheUniversity,andchangestherein,areclassifiedintothefollowingthreecategories:

Unrestricted net assets – Unrestricted net assets represent expendable funds available tosupporttheUniversity’soperationsandareresourcesnotsubjecttodonor‐imposedrestrictions.

Certain funds included intheseamountshavebeendesignatedbytheBoardofTrusteestobeutilizedforvariousprograms.

Temporarilyrestrictednetassets–Temporarilyrestrictednetassetsconsistofcontributionsrestricted by the donor for specific purposes or not available for use until a specific time.Temporarily restricted net assets include income derived from donated assets, if specificallyrestrictedbythedonor.Thisclassificationalsoincludesaccumulatednetinvestmentincomeinexcess of the original value of donor‐restricted investments unless such income is explicitlyrestrictedbythedonortobeaddedtotheendowmentcorpus.

Permanentlyrestrictednetassets–Permanentlyrestrictednetassetsconsistofcontributionswithdonor restrictions that stipulate thedonatedassetsbemaintainedpermanentlybutmaypermittheUniversitytouseorexpendpartoralloftheincomederivedfromthedonatedassetsforeitherspecifiedorunspecifiedpurposes.

Revenues are reported as increases in unrestricted net assets unless use of the related assets islimited by donor‐imposed restrictions. Expenses are reported as decreases in unrestricted netassets. Gains or losses on donor‐restricted endowment investments are reported as increases ordecreasesintemporarilyrestrictednetassetsuntilappropriatedbytheBoardofTrustees.Gainsandlosses on nonendowment investments and other assets or liabilities are reported as increases ordecreases in unrestricted net assets unless their use is restricted by explicit donor stipulation.Expirations of temporary restrictions on net assets (i.e., the donor‐stipulated purpose has beenfulfilledorthestipulatedtimeperiodhaselapsed)arereportedonthestatementsofactivitiesasnetassetsreleasedfromrestriction.

Tuitionandfees–Studenttuitionandfeesarerecordedasrevenueonaratablebasisoverthetermofinstruction.ThemajorityoftheUniversity’sstudentsrelyonfundsreceivedfromvariousfederalfinancialaidprogramsunderTitleIVoftheHigherEducationActof1965,asamended,topayforasubstantial portion of their tuition. These programs are subject to periodic review by the USDE.DisbursementsundereachprogramaresubjecttodisallowancebytheUSDEandrepaymentbytheUniversity. In addition, as an educational institution, the University is subject to licensure fromvariousaccreditingandstateauthoritiesandotherregulatoryrequirementsoftheUSDE.Deferredrevenues represent primarily tuition from enrollment in summer school classes, which isattributabletothefollowingfiscalyear,andtuitiondepositsmadebystudentsinthecurrentfiscalyearthataretobeusedinfollowingyears.

Contributedservicesandlong‐livedassets–Thefairvalueofcontributedservicesisrecognizedinthefinancialstatementswhentheservicesreceivedcreateorenhancenonfinancialassets,requirespecializedskills,whichareprovidedby individualspossessing thoseskills,andwouldhavebeenpurchasedifnotdonated.TherewerenosignificantcontributedservicesreceivedbytheUniversityfortheyearsendedJune30,2014and2013.


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Contributions of long‐lived assets are reported at fair value in the period received. It is theUniversity’spolicytorecordgiftsof long‐livedassetsreceivedwithoutstipulationofhowlongthedonatedassetmustbeusedasunrestrictedsupport.Therewerenosignificantcontributionsoflong‐livedassetsreceivedbytheUniversityfortheyearsendedJune30,2014and2013.

Contributions–Contributions,includingunconditionalpromisestogive,arerecordedwhenithasbeendeterminedthatthereisalegalrighttothecontribution,andtheactualamounttobereceivedhas been determined. All contributions are available for unrestricted use unless specificallyrestrictedbythedonor.Conditionalpromisestogivearerecognizedwhentheconditionsonwhichtheydependaresubstantiallymet.Unconditionalpromisestogivedueafteroneyeararereportedatthepresentvalueofnetrealizablevalue,usingappropriateinterestratesapplicabletotheyearsinwhich the promises were received. Amortization of discounts is recorded as an additionalcontribution,ifany.

ItistheUniversity’spolicytotreatalltemporarilyrestrictednetassetsreceived,whoserestrictionsexpirewithinthecurrentaccountingperiod,asunrestricted.

Auxiliary enterprises – Auxiliary enterprises consist of revenues and expenses relating tooperationoftheresidencehalls, foodservicesandbookstore,andtherentaloffacilities.Revenuesfromauxiliaryenterprisesarerecordedatthetimetherelatedservicesareprovided.

Expense allocation – The cost of operations and maintenance of the physical plant includingdepreciationand interestcostrelated toplanthasbeenallocatedto functionalexpensecategoriesbasedoneachfunctionalexpensecategory'spercentoftotalexpenses.

Fundraising costs – The University incurred fundraising costs of approximately $498,000 and$520,000 for the years ended June30, 2014 and 2013, respectively, which are included ininstitutional support on the statements of activities. The related revenue from these activities isrecordedinothersources.

Subsequentevents–Subsequenteventsareeventsortransactionsthatoccurafterthestatementoffinancialpositiondatebutbeforefinancialstatementsareissued.TheUniversityrecognizesinthefinancial statements the effects of all subsequent events that provide additional evidence aboutconditions that existed at the date of the statement of financial position, including the estimatesinherentintheprocessofpreparingthefinancialstatements.TheUniversity’sfinancialstatementsdonotrecognizesubsequenteventsthatprovideevidenceaboutconditionsthatdidnotexistatthedateof the statementof financialpositionbut aroseafter the statementof financialpositiondateandbeforefinancialstatementsaretobeissued.

TheUniversityhasevaluatedsubsequenteventsthroughSeptember10,2014,whichisthedatethefinancialstatementsaretobeissued.


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Note3–StudentLoansandStudentAccountsReceivable

Student loans receivable represents loans from the Perkins loan fund that are generally payablewith interest between 3.00% and 5.00% over approximately 11 years following Universityattendance.Principalpayments,interest,andlossesduetocancellationaresharedbytheUniversityandtheU.S.governmentinproportiontotheirshareoffundsprovided.Theprogramprovidesforcancellationofloansifthestudentisemployedincertainoccupationsfollowinggraduation.Lossesfromemploymentcancellationsareabsorbed in fullby theU.S.government.At June30,2014and2013, student loans funded through the Perkins loan program were $975,235 and $1,040,373,respectively.

Theavailabilityof funds for loansunderthePerkinsprogramisdependentonreimbursementstothe pool from repayments on outstanding loans. Funds advanced by the Federal government of$972,178atJune30,2014and2013areultimatelyrefundabletothegovernmentandareclassifiedas liabilities inthestatementof financialposition.Outstanding loanscancelledundertheprogramresult in a reduction of the funds available for loans and a decrease in the liability to thegovernment.

AtJune30,2014and2013,thefollowingamountswerepastdueunderstudentloanprograms:

Total1‐60Days 60‐90Days 90+Days PastDue

June30,2014 68,085$ 3,210$ 73,785$ 145,080$June30,2013 37,264 24,111 53,053 114,428

AmountsdueunderthePerkinsloanprogramareguaranteedbythegovernmentand,therefore,noreservesareplacedonanypastduebalancesundertheprogram.

Studentaccountsreceivablepolicyisthattuitionandfeesareduebythefirstdayofthesemester.Students and their families are offered monthly payment plans through Tuition ManagementSystems(TMS)and,insomecases,throughtheUniversityitself.AmountsowedthrougheitherTMSortheUniversityarerecordedasstudentaccountsreceivable.Areserveforbaddebtsiscalculatedeachyear.TheUniversity’sCalculationofAllowanceforDoubtfulAccountspolicyassumesbalancesbetween 1 and 60 days old are 100% collectible, balances between 60 and 90 days old are 75%collectibleandbalancesgreaterthan90daysoldare65%collectible.TheCalculatedAllowanceforDoubtful Accounts divided by the end of year student accounts receivable balance (CalculatedPercent of Accounts Receivable) is then compared to the ten‐year average of the allowance fordoubtfulaccountsdividedbytheendofyearstudentaccountsreceivablebalance.IftheCalculatedPercentofAccountsReceivableistwopercentagepointsgreaterthantheten‐yearaverage,thenthetwo‐yearaverageoftheallowancefordoubtfulaccountsdividedbytheendofyearstudentaccountsreceivable balance would be multiplied by the current end of year student accounts receivablebalance to determine the allowance for doubtful accounts. For 2014, the Calculated Percent ofAccountsReceivablewaslessthantwopercentoftheten‐yearaverage.Thestandardmethodologywas used to calculate the allowance for doubtful accounts. For 2013, the Calculated Percent ofAccounts Receivable was greater than two percent of the ten‐year average. The exceptionmethodologywasusedtocalculatetheallowancefordoubtfulaccounts.PertheUniversity'spolicy,anaccountwithanestablishedpaymentplanisdefinedaspastduewhenanyscheduledpaymentismorethantwoweekslate.

Total1‐60Days 60‐90Days 90+Days PastDue

June30,2014 70,255$ 2,120$ 582,370$ 654,745$June30,2013 1,988 111,808 554,317 668,113


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Note4–Investments

AtJune30,2014and2013,investmentsinequitysecuritiesthathavereadilydeterminablemarketvalues and all investments in debt securities are accounted for and reported at fair value.Investmentsreceivedbygiftareinitiallyrecordedatfairvalueatthedatethegiftisreceived.Cashsurrendervalueoflifeinsuranceisrecordedatcost.

Dividends,interestandotherinvestmentincomearereportedintheperiodearnedasincreasesinunrestrictednetassets,unlessdonor‐imposedrestrictionslimittheuseoftheassets,inwhichcasetheyarereportedasincreasesintemporarilyorpermanentlyrestrictednetassets.Gainsandlossesondonor‐restrictedendowmentinvestmentsarereportedasincreasesordecreasesintemporarilyrestricted net assets until appropriated by the Board of Trustees. Gains and losses on otherinvestments are reported as increases or decreases in unrestricted net assets, unless their use istemporarilyorpermanentlyrestrictedbyexplicitdonorstipulationorlaw.

TheaggregatecarryingamountofinvestmentsbymajortypeatJune30isasfollows:

2014 2013

InvestedcashSavingsaccounts 1,666,946$ 2,654,444$Moneymarketfunds 1,349,529 711,473

3,016,475 3,365,917

InvestmentsMutualfunds 7,773,893 9,856,824Commonstocks 5,165,715 4,533,938Hedgefunds 3,686,679 ‐Certificatesofdeposit ‐ 281,078Cashsurrendervalueoflifeinsurance 12,452 12,228

16,638,739 14,684,068

19,655,214$ 18,049,985$

TheUniversitymaintainedabondreserveinvestmenttotaling$2,567,007at June30,2013.Thesefunds were invested in an interest‐bearing deposit account and were carried at cost. The bondreservewasliquidatedwhentheUniversityrefinancedits2007seriesbonds.

TheUniversityinvestsinvariousinvestmentsecurities,whichareexposedtovariousriskssuchasinterest rate,market and credit risks. Due to the level of risk associatedwith certain investmentsecurities, it isat leastreasonablypossiblethatchangesinthevaluesof investmentsecuritieswilloccur in thenear termand that such change couldmaterially impact the valueof the investmentsecuritiesheld.

Investmentincomehasbeenpresentednetofmanagementfees.Managementfeestotaled$74,127and$55,255fortheyearsendedJune30,2014and2013,respectively.


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Note5–FairValueMeasurements

Fairvalueisdefinedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityin an orderly transaction betweenmarket participants at themeasurement date. Fair value alsoestablishes a hierarchy which requires an entity to maximize the use of observable inputs andminimizetheuseofunobservableinputswhenmeasuringfairvalue.Thestandarddescribesthreelevelsofinputsthatmaybeusedtomeasurefairvalue:

Level1 – Quotedpricesinactivemarketsforidenticalassetsorliabilities.

Level2 – ObservableinputsotherthanLevel1prices,suchasquotedpricesforsimilarassetsorliabilities; quoted prices in markets that are not active; or other inputs that areobservableorcanbecorroboratedbyobservablemarketdataforsubstantiallythefulltermoftheassetsorliabilities.

Level3 – Unobservable inputs that are supported by little or nomarket activity and that aresignificanttothefairvalueoftheassetsorliabilities.

Thefollowingisadescriptionofthevaluationmethodologiesusedforinstrumentsmeasuredatfairvalueona recurringbasisandrecognized in theaccompanyingstatementof financialposition,aswell as the general classification of such instruments pursuant to the valuation hierarchy. TherehavebeennochangesinvaluationmethodologiesusedatJune30,2014and2013.

Investments

Where quotedmarket prices are available in an activemarket, investments are classifiedwithinLevel1 of the valuation hierarchy. In certain cases where Level 1 inputs are not available,investmentsareclassifiedwithinLevel2ofthehierarchy.TherewerenoLevel3investmentsasofJune30,2014orJune30,2013.

Common stock: Common stock is valued at the closing price reported on the activemarkets onwhichtheindividualsecuritiesaretraded.

Mutualfunds:Sharesofmutualfundsarevaluedatthenetassetvalue(NAV)ofsharesheldbythePlan and are valued at the closing price reported on the active market on which the individualsecuritiesaretraded.

Hedge funds: Sharesofhedge fundsarevaluedat thenetassetvalue(NAV)of totalassetsof thefund, lessallof its liabilities, includingaccruedfeesandexpenses.Totalassetsarereportedasthetotal interests in underlying investment funds, as reported by the investment fundmanagers. Ingeneral,thefairvalueofthehedgefund’sinterestinaninvestmentfundwillrepresenttheamountthehedge fundcouldreasonablyexpect toreceive froman investment fundbasedon informationreasonably available at the time valuation ismade and the hedge fund believes to be reliable. Attimes,thehedgefundmanagermayconcludethattheinformationprovidedbytheinvestmentfunddoesnotrepresentthefairvalueofthehedgefund’sinvestmentintheinvestmentfundandadjustthe value accordingly. The repurchase date is generally expected to be on a quarterly basis. Thenoticeduedatewillbegenerallynosoonerthan20businessdaysafterthecommencementoftherepurchaseoffer.

Certificatesofdeposit:Certificatesofdepositarevaluedatfairvaluebydiscountingtherelatedcashflows based on current yields of similar instrumentswith comparable durations considering thecredit‐worthinessoftheissuer


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Note5–FairValueMeasurements(continued)

InterestRateSwap

Thefairvalueoftheinterestrateswapiscalculatedandreportedbytheissuingbankasthepresentvalue of the difference between the fixed‐rate payments to be made by the University and thevariable‐ratepaymentstobereceivedbytheUniversityunderthetermsoftheswap.Thefixed‐ratepaymentsareknown,andthevariable‐ratepaymentsareestimatedbasedonthemarketyieldcurvethatareobservableorthatcanbecorroboratedbymarketdataand,therefore, isclassifiedwithinLevel2ofthevaluationhierarchy.

The followingpresents thebalancesofassetsand liabilitiesmeasuredat fairvalueona recurringbasisbylevelwithinthehierarchyfortheyearsendedJune30.

QuotedPrices SignificantinActive Other SignificantMarketsfor Observable Unobservable

IdenticalAssets Inputs InputsFairValue (Level1) (Level2) (Level3)

Assets

InvestmentsCommonstock

U.S.marketableequities 2,783,344$ 2,783,344$ ‐$ ‐$Globalmarketequities 2,382,371 2,382,371 ‐ ‐

EquitymutualfundsSmallcapfunds 188,510 188,510 ‐ ‐Midcapfunds 426,119 426,119 ‐ ‐Largecapfunds 864,646 864,646 ‐ ‐Realestate 53,172 53,172 ‐ ‐Other 577,971 577,971 ‐ ‐Internationalfunds 1,688,583 1,688,583 ‐ ‐

FixedincomemutualfundsDebtfunds 3,710,099 3,710,099 ‐ ‐Assetallocationfunds 264,793 264,793 ‐ ‐

Certificatesofdeposit ‐ ‐ ‐ ‐Hedgefunds‐Multi‐StrategyFund 3,686,679 ‐ 3,686,679 ‐

16,626,287$ 12,939,608$ 3,686,679$ ‐$

Liability

Interestrateswap 8,721,937$ ‐$ 8,721,937$ ‐$

FairValueMeasurementsasofJune30,2014


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Note5–FairValueMeasurements(continued)

QuotedPrices SignificantinActive Other SignificantMarketsfor Observable Unobservable

IdenticalAssets Inputs InputsFairValue (Level1) (Level2) (Level3)

Assets

InvestmentsCommonstock

U.S.marketableequities 3,182,454$ 3,182,454$ ‐$ ‐$Globalmarketequities 1,351,483 1,351,483 ‐ ‐

EquitymutualfundsSmallcapfunds 143,895 143,895 ‐ ‐Midcapfunds 652,420 652,420 ‐ ‐Largecapfunds 1,257,408 1,257,408 ‐ ‐Realestate 55,187 55,187 ‐ ‐Other 44,540 44,540 ‐ ‐Internationalfunds 2,145,059 2,145,059 ‐ ‐

FixedincomemutualfundsDebtfunds 4,958,667 4,958,667 ‐ ‐Assetallocationfunds 599,649 599,649 ‐ ‐

Certificatesofdeposit 281,078 ‐ 281,078 ‐

14,671,840$ 14,390,762$ 281,078$ ‐$

Liability

Interestrateswap 9,203,180$ ‐$ 9,203,180$ ‐$

FairValueMeasurementsasofJune30,2013

Cashsurrendervalueoflifeinsuranceof$12,452and$12,228fortheyearsendedJune30,2014and2013,respectively,arenotincludedabove,asitiscarriedatcost.

Note6–ContributionsReceivable

Contributions receivable,whichareunconditionalpromises togive, are summarizedas followsatJune30:

2014 2013

ContributionstobecollectedInoneyearorless 187,087$ 393,392$Betweenoneyearandfiveyears 50,152 204,639

237,239 598,031

Lessdiscount 1,800 6,822

Netcontributionsreceivable 235,439$ 591,209$

Managementbelievesallbalancesarecollectible,andthereforenoallowancefordoubtfulaccountsisnecessary.


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Note7–FixedAssets

Landimprovements,buildingsandequipmentwithacostgreaterthan$2,500ormoreandausefullifeofoneyeararerecordedatcostor, ifdonated,at fairvalueat thedateofgift.Depreciation iscomputed on the straight‐line basis over the estimated useful lives of buildings and landimprovements(15to50years)andequipment(3to15years).Equipmentretirementsareremovedfromtherecordsatthetimeofdisposal.

FixedassetscomprisethefollowingatJune30:

2014 2013

Landimprovements 3,577,329$ 3,577,329$Buildings 72,256,537 72,012,307Equipment 16,510,535 16,163,284Constructioninprogress 120,110 59,815

92,464,511 91,812,735Lessaccumulateddepreciation 34,835,511 31,882,664

57,629,000$ 59,930,071$

Capitalizedinterest–TheUniversityfollowsthepolicyofcapitalizinginterestasacomponentoffixedassetsforself‐constructedprojects. Interest incurredonfundsusedduringconstruction,lessinterest earned on related interest‐bearing investments, is capitalized as a cost of construction.Interest of zero and $132,000 was capitalized for the years ended June30, 2014 and 2013,respectively.

Note8–LineofCredit

During the year ended June 30, 2012, the University entered into a non‐revolving line of creditagreementwithU.S.Bankwithamaximumadvancementof$5,000,000foruseinconstructingtheengineering building. The line of credit included interest at 3% plus one month LIBOR ratecollateralized by a leasehold deed of trust on the engineering building. During the year endedJune30,2013,theengineeringbuildingwascompletedandplacedintoserviceandtheoutstandingbalancewaspaiddowntozero.ThelineofcreditexpiredJune30,2013.

Note9–AnnuitiesPayable

Assets received under trusts are recorded at fair value in the investment account and totaled$2,389,532and$1,546,583atJune30,2014and2013,respectively.Oftheseamounts,$957,824and$876,980 relate to charitable gift annuities at June30, 2014 and 2013, respectively. The relatedreceivableorliabilityiscalculatedbasedonthelifeexpectancyofthebeneficiaryorthetermoftheagreement,discountedattheapplicablefederalratepertheIRStables.AtJune30,2014and2013,liabilities under the charitable trusts are reported as annuities payable, totaling $1,488,073 and$1,104,993, respectively. Of these amounts, $602,322 and $709,228 relate to charitable giftannuitiesatJune30,2014and2013,respectively.

TheUniversity'sunrestrictednetassetsmeet theminimumamountrequired to issueannuities inthestateofWashington.


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Note10–BondsandOtherPayables

BondsandotherpayablesconsistofthefollowingatJune30:

2014 2013

SaintMartin'sUniversity2014WashingtonHigherEducationFacilitiesAuthorityRefundingRevenueBonds(Series2014A)payabletoU.S.Bancorp,astrustee,issuedApril24,2014. 29,535,000$ ‐$

SaintMartin'sUniversitySeries2007WashingtonHigherEducationFacilitiesAuthorityVariableRateDemandRevenueandRefundingRevenuebondspayabletoWellsFargoBank,astrustee,issuedJune28,2007. ‐ 32,520,000

PayabletoSt.Martin'sAbbey(Note15). 552,952 586,937

30,087,952$ 33,106,937$

A summary of the approximate annualmaturities of the bonds andother payables, assuming thedebtispaidasagreed,forfutureyearsendingJune30isasfollows:

2015 787,000$2016 834,0002017 883,0002018 801,0002019 859,000Thereafter 25,923,952

30,087,952$

Series2007RefundingRevenueBonds:

OnJune28,2007,WashingtonHigherEducationFacilitiesAuthority(theAuthority),pursuanttoanIndenture of Trust dated June 1, 2007, between the Authority and Wells Fargo Bank, NationalAssociation, as trustee, issued$36,000,000of tax‐exempt, variable‐ratedemandbonds toprovidefundstotheUniversityforthefollowingpurposes:1)refundthefollowingbonds:a)RevenueBonds(SaintMartin’sCollege)Series1995C (theSeries1995Bonds),b)VariableRateDemandRevenueBonds(SaintMartin’sCollegeProject),Series2002(theSeries2002Bonds),andc)RevenueBond(Streamlined Tax‐Exempt Placement Program: Saint Martin’s College Project), Series 2005 (theSeries 2005 Bonds); 2) finance the construction and equipping of facilities on the University’scampus in Lacey, Washington (the Nonprofit Facilities); 3) reimburse the University forpredevelopment and capital costs expended for the Nonprofit Facilities; 4) fund a debt servicereservefund;and5)paythecostsofissuingtheBonds(collectively,theProject).


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Note10–BondsandOtherPayables(continued)

Interest shall bepaidmonthlyon the first businessdayof eachmonth as longas thebondsbearinterest at the weekly or daily rate. Variable annual principal payments ($665,000 in 2013 and$705,000in2014)commencedFebruary1,2008andextendthroughfinalmaturityofthebondsonFebruary1,2037.ThebondsaresecuredbyanirrevocabledirectpayletterofcreditissuedbyUSBankinfavorofthetrusteetotaling$34,753,763,whichshallbeequaltotheprincipalamountofthebondsoutstandingplusanamountequalto37daysofaccruedinterest.Additionally,theUniversityhaspledgedasecurityinterestintheunrestrictedrevenues,gains,andothersupportforcollateralforthebonds.

The interest rate was 0.15% at June 30, 2013. Remaining issuance costs of $371,471were fullyamortizedin2014.

During the current year, theUniversity refunded the Series2007Bondswith theproceedsof theSeries2014ABonds,bydepositinginescrowaccountsamountsthat,withinterest,weresufficienttomeetprincipal,interest,andpremiumpaymentsontherefundeddebt.Asaresultoftherefinancing,theSeries2007Bondshavebeenlegallysatisfiedandtheirrevocableletterofcreditisnolongerinforce. Therefore, neither the refunded debt nor the related trust funds are reflected in theaccompanyingstatementoffinancialposition.

2014ARefundingRevenueBonds:

OnApril24,2014,WashingtonHigherEducationFacilitiesAuthority(theAuthority),pursuanttoanIndentureofTrustdatedApril1,2014,betweentheAuthorityandU.S.BankNationalAssociation,astrustee, issued $29,535,000 of tax‐exempt, refunding revenue bonds (Series 2014A) to providefundstotheUniversityforthefollowingpurposes:1)refundtheSeries2007VariableRateDemandRevenueBondsand2)paythecostsofissuingtheBonds.

Interest shall bepaidmonthlyon the first businessdayof eachmonth as longas thebondsbearinterest at the weekly or daily rate. Variable annual principal payments ($750,000 in 2015 and$795,000in2016)willcommenceFebruary1,2015andextendthroughfinalmaturityofthebondson February 1, 2037 when a balloon payment of $25,585,000 is due. The bonds are a directplacement by U.S. Bancorp. Additionally, the University has pledged a security interest in a1stLeaseholdDeedof Trust and assignment of rents and leases on threebuildings located on thecampus, aswell as inunrestricted revenues, gains, andother support forcollateral for thebonds.ThedirectplacementexpiresApril24,2019,unlessbothpartieschoosetoextendit.

TheIndentureofTrustalsoauthorizedtax‐exemptrevenuebonds(Series2014B)whicharenottoexceed$4,000,000.Thesefundsareforconstructionoftheindustriallabandsciencebuilding.TheUniversityhastomeetfundraisingrequirementstoaccessthefunds.ThefundsmustbeaccessedbyApril24,2017,orthefundingauthorityexpires.

Issuance costs, aggregating $264,295, have been capitalized and are being amortized over theremaining23‐yearlifeofthebonds.Accumulatedamortizationtotaled$11,494atJune30,2014.

TheUniversity’screditagreement,associatedwiththeissuanceofthebonds,containsseveralratioandcovenantrequirements.Requirementsincludecashflowcoverageandliquidityratios.

TheUniversityenteredintoaninterestswapagreementwithUSBank,withafixedinterestrateof4.965%perannum.TheinterestrateswapagreementmaturesJuly2025.Thefairvalueoftheswapagreementwasaliabilityof$8,721,937and$9,203,180atJune30,2014and2013,respectively.


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Note10–BondsandOtherPayables(continued)

Asdiscussedpreviously,theUniversityhasenteredintointerestrateswapagreementstohedgetheUniversity’sexposuretointerestrateriskrelatedtoitsvariable‐ratebonds.TheUniversity’sspecificgoalistolower(wherepossible)thecostofitsborrowedfundsovertheborrowingterm.Theswapisrecordedonthestatementsoffinancialpositionasaninterestrateswapatitsfairmarketvalue,with changes in fair value recognized in current period change in unrestricted net assets. ThefollowingamountshavebeenincludedonthestatementofactivitiesfortheyearsendedJune30:

2014 2013

Interestexpense 1,658,426$ 1,630,000$Unrealized(gains)lossesoninterestrateswap (481,243) (2,999,860)

1,177,183$ (1,369,860)$

As of June30, 2014 and 2013, the total notional amount of the University’s pay‐fixed, receive‐variable interestrateswapwas$31,815,000and$32,520,000,respectively.Whenthe2007bondswererefundedonApril24,2014,theUniversitychosenottobuydowntheinterestrateswapandthenotionalamountoftheswapexceededtheoutstandingbondby$2,280,000.

Note11–GovernmentGrantsRefundable

Government grants refundable represent refundable advances made by the federal governmentunder the University’s Perkins Federal Loan Program. There were no new advances under theprogramduringtheyearsendedJune30,2014and2013.

Note12–TemporarilyRestrictedandPermanentlyRestrictedNetAssets

TemporarilyrestrictednetassetsaresubjecttothefollowingdonorrestrictionsatJune30:

2014 2013

Scholarshipsandfellowships 3,700,034$ 2,598,343$Investmentinplant 959,081 871,961Other 520,951 311,314

5,180,066$ 3,781,618$

PermanentlyrestrictednetassetsasofJune30,2014and2013representtheoriginalcorpusoftheendowmentgifts.Thefundsarerestrictedforthefollowingpurposes:

2014 2013

Endowmentscholarships 9,851,998$ 9,661,558$Other 558,030 337,667

10,410,028$ 9,999,225$


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Note13–Board‐DesignatedUnrestrictedNetAssets

During the year ended June 30, 2004, the board committed to using designated unrestricted netassetstofundconstructionofthenewdormitory,SpanglerHall.Thisrequiredareclassificationof$4,500,000board‐designatedfundsfrom“Endowment/Scholarships”to“MaintenanceofPlant.”Theboard intends to restore the amount reclassified from Endowment/Scholarships in full over 20years.A transfer of zero and$54,308wasmadeduring the years ended June30, 2014and2013,respectively.

Note14–EndowmentFundandNetAssetClassification

The University’s endowments consist of various donor restricted endowment funds and fundsdesignatedasquasiendowmentsbytheBoardofTrustees.

The University’s endowment consists of approximately 100 individual funds established for avariety of purposes. Its endowment includes both donor‐restricted endowment funds and fundsdesignatedby theBoardofTrustees to functionasendowments.As requiredbyGAAP,netassetsassociatedwithendowmentfunds,includingfundsdesignatedbytheBoardofTrusteestofunctionas endowments, are classified and reported based on the existence or absence of donor‐imposedrestrictions.

Interpretationofrelevantlaw–TheUniversityhasinterpretedtheUniformPrudentManagementof InstitutionalFundsAct (UPMIFA)adoptedby the2009Washington legislatureasrequiring thepreservation of the fair value of the original gift as of the gift date of the donor‐restrictedendowment funds absent explicit donor stipulations to the contrary. As a result of thisinterpretation,theUniversityclassifiesaspermanentlyrestrictednetassets:(a)theoriginalvalueofgifts donated to the permanent endowment, (b) the original value of subsequent gifts to thepermanentendowment, and (c)accumulations to thepermanentendowmentmade inaccordancewiththedirectionoftheapplicabledonorgiftinstrumentatthetimetheaccumulationisaddedtothe fund. The remaining portion of the donor‐restricted endowment fund that is not classified inpermanently restricted net assets is classified as temporarily restricted net assets until thoseamounts are appropriated for expenditure by the University in a manner consistent with thestandardof prudenceprescribedby the stateofWashington in its enactedversionofUPMIFA. InaccordancewithUPMIFA,theUniversityconsidersthefollowingfactorsinmakingadeterminationtoappropriateoraccumulatedonor‐restrictedendowmentfunds:(1)thedurationandpreservationof theEndowmentFund; (2) thepurposesof theUniversityand thedonor‐restrictedEndowmentFund; (3) general economic conditions; (4) the possible effect of inflation and deflation; (5) theexpectedtotalreturnfromincomeandtheappreciationof investments;(6)otherresourcesoftheUniversity;and(7)theinvestmentpoliciesoftheUniversity.

EndowmentnetassetcompositionbytypeoffundasofJune30:

Temporarily PermanentlyUnrestricted Restricted* Restricted Total

2014

Donor‐restrictedendowmentfunds ‐$ 3,330,282$ 10,410,028$ 13,740,310$Board‐designatedendowment\

scholarshipfunds 3,097,331 ‐ ‐ 3,097,331

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

*Thesefundsconsistofaccumulatedearningsavailabletofundfuturescholarships.


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Note14–EndowmentFundandNetAssetClassification(continued)

Temporarily PermanentlyUnrestricted Restricted* Restricted Total

2013

Donor‐restrictedendowmentfunds ‐$ 2,232,741$ 9,999,225$ 12,231,966$Board‐designatedendowment\

scholarshipfunds 2,887,793 ‐ ‐ 2,887,793

Totalfunds 2,887,793$ 2,232,741$ 9,999,225$ 15,119,759$

*Thesefundsconsistofaccumulatedearningsavailabletofundfuturescholarships.

ChangesinendowmentnetassetsforthefiscalyearsendedJune30:


2014

Endowmentnetassets,beginningofyear 2,887,793$ 2,232,741$ 9,999,225$ 15,119,759$

InvestmentreturnInvestmentincome 26,697 158,012 ‐ 184,709Netappreciation,realized

andunrealized 176,045 1,303,270 ‐ 1,479,315202,742 1,461,282 ‐ 1,664,024

InterestonQuasi‐endowmentloanpayment 252,450 ‐ ‐ 252,450

Quasi‐endowmentloanpayment ‐ ‐ ‐ ‐252,450 ‐ ‐ 252,450

Contributions 10,007 ‐ 410,803 420,810

Expendituresappropriated (255,661) (363,741) ‐ (619,402)

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


22



2013

Endowmentnetassets,beginningofyear 2,603,604$ 1,716,237$ 8,354,009$ 12,673,850$

InvestmentreturnInvestmentincome 255,661 1,333,334 ‐ 1,588,995Netdepreciation,realized

andunrealized (80,347) (79,931) ‐ (160,278)175,314 1,253,403 ‐ 1,428,717

InterestonQuasi‐endowmentloanpayment 252,450 (252,450) ‐ ‐

Quasi‐endowmentloanpayment 54,308 ‐ ‐ 54,308306,758 (252,450) ‐ 54,308

Transferfromannuity ‐ ‐ 236,560 236,560

Contributions 10,000 ‐ 1,408,656 1,418,656

Expendituresappropriated (207,883) (484,449) ‐ (692,332)

Endowmentnetassets,endofyear 2,887,793$ 2,232,741$ 9,999,225$ 15,119,759$

Fundswithdeficiencies–From time to time, the fair value of assets associatedwith individualdonor‐restrictedendowmentfundsmayfallbelowthelevelthatthedonorrequirestheUniversityto retain as a fund of perpetual duration. Deficiencies, should they occur,would be the result ofunfavorable market fluctuations that occurred shortly after the investment of new, permanentlyrestricted contributions and continued appropriation for certain programs that were deemedprudent by the Board of Trustees. At June30, 2014 and 2013, the University had no suchdeficienciestobereportedinunrestrictednetassets.

Returnobjectivesandriskparameters–TheUniversityhasadopted investmentand spendingpoliciesforendowmentassetsthatattempttoprovideapredictablestreamoffundingtoprogramssupported by its endowmentwhile seeking tomaintain the purchasing power of the endowmentassets. Endowment assets include those assets of donor‐restricted funds that theUniversitymustholdinperpetuityorforadonor‐specifiedperiod(s)aswellasboard‐designatedfunds.Underthispolicy,asapprovedbytheBoardofTrustees,theendowmentassetsareinvestedinamannerthatisintendedtoproduceappropriateresultswhileassumingamoderatelevelofinvestmentrisk.

Strategiesemployedforachievingobjectives–Tosatisfyitslong‐termrate‐of‐returnobjectives,theUniversity relies on a total return strategy inwhich investment returnsareachieved throughbothcapitalappreciation(realizedandunrealized)andcurrentyield(interestanddividends).TheUniversity targets a diversified asset allocation that places a greater emphasis on equity‐basedinvestmentstoachieveitslong‐termreturnobjectiveswithinprudentriskconstraints.


23


Spendingpolicyandhowtheinvestmentobjectivesrelatetospendingpolicy–TheUniversityhas a policy of appropriating for distribution each year 5%of its endowment fund’s average fairvalueovertheprior16quartersthroughthefiscalyear‐endprecedingthefiscalyearinwhichthedistributionisplanned.By2017,thespendingpercentagewillbereducedto4%byreducingitby25basis points per year. In establishing this policy, the University considered the long‐termexpected return on its endowment. Accordingly, over the long term, the University expects thecurrent spending policy to allow its endowment to grow at an average of 3% annually. This isconsistent with the University’s objective to maintain the purchasing power of the endowmentassetsheldinperpetuityorforaspecifiedtermaswellastoprovideadditionalrealgrowththroughnewgiftsandinvestmentreturn.

Note15–Related‐PartyTransactions

Related‐PartyLeases

St.Martin’sAbbey(theAbbey)holds title toand is landlord forall realestateassociatedwith theUniversity’s campus. It has been the policy and practice of the Abbey to allow the University toutilizetherealestateforpurposesofoperatinganinstitutionofhighereducation.

Atvarioustimes,theAbbeyhasenteredintoleaseagreementswiththeUniversityfortheuseofthepremises under and surrounding certain buildings located on the University’s campus. The leaseagreementsaregenerallylongterminnatureandprovideforrenewaloptionsattheconclusionoftheoriginalleaseterm.Additionally,byspecificprovisionoftheleasedocuments,anannualrentfortheleaseperiodisnotrequiredtobepaidbytheUniversity.Managementhasdeterminedthatthefairvalueof thecontributionofsuch leasesto theUniversity,at thedateof theunderlying leases,wasnotmaterialtothefinancialstatementsand,assuch,hasnotrecordedtheleasesasadonation.

PayablestoSt.Martin'sAbbey

Duringtheyears1993through1996,theAbbey,asownerofthepropertyknownasSaintMartin’sCampus, developed and constructed new potable and storm water, and sanitary and irrigationsystemsnecessarytomeettheneedsoftheAbbeyandtheUniversity.Thisconstructionwasdoneinthreephases:Phase I ‐domesticwater;Phase II ‐ sanitarysewerandwastewater;andPhase III ‐irrigation.

TheUniversity’sallocatedshareofcostsunderthethreephasesrepresentstheinfrastructurecostsfromtheAbbey.


24

Note15–Related‐PartyTransactions(continued)

NotespayableduetotheAbbeyfortheUniversity’sshareof infrastructurecostsatJune30areasfollows:

2014 2013

Notepayable,datedOctober19,1994,forPhaseIandPhaseIIcosts,withmonthlypaymentsof$5,220includinginterestat7.5%perannum,dueJune1,2024,unsecured. 439,822$ 468,314$

Notepayable,datedOctober22,1996,forPhaseIIIcosts,withmonthlypaymentsof$1,184includinginterestat7.5%perannum,dueSeptember1,2026,unsecured. 113,130 118,623

552,952$ 586,937$

Related‐Party–Other

FortheyearsendedJune30,2014and2013,theUniversityreceivedvariousgifts fromtheAbbeytotaling $306,637 and $225,200, respectively. As of June30, 2014 and 2013, the University hadaccountsreceivablefromtheAbbeyof$18,025and$24,255.

MembersoftheUniversity’sBoardofTrusteesandseniormanagementmay,fromtimetotime,beassociated either directly or indirectly with companies doing business with the University. Forseniormanagement,theUniversityrequiresannualdisclosureofsignificantfinancialinterestsin,oremployment or consulting relationships with, entities doing business with the University. Theseannualdisclosurescoverbothseniormanagementandtheirimmediatefamilymembers.Whensuchrelationshipsexist,measuresaretakentoappropriatelymanagetheactualorperceivedconflictinthe best interests of the University. The University has a written conflict of interest policy thatrequires, among other things, that no member of the Board of Trustees can participate in anydecision in which he or she (or an immediate family member) has a material financial interest.When such relationships exist, measures are taken to mitigate any actual or perceived conflict,including requiring that such transactions be conducted at arm’s length, for good and sufficientconsideration,basedontermsthatarefairandreasonabletoandforthebenefitoftheUniversity,andinaccordancewithapplicableconflictof interest laws.Nosuchassociationsareconsideredtobesignificant.

Note16–PensionPlan

The University has a defined contribution pension plan under Internal Revenue Code Section403(b). The plan covers all regular employees,working at least 1,000 hours per year, who havecompleted one year of service with the University and reached 21 years of age. The Universitycontributionratewas8%asofJune30,2014and2013,resultingintotalcontributionsfor2014of$900,482andfor2013of$815,135.


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Note17–CommitmentsandContingencies

Regulationandlitigation–TheUniversityreceivesfundingorreimbursementfromgovernmentalagenciesforvariousactivitieswhicharesubjecttonumerouslawsandregulationsoffederal,state,and localgovernments.Compliancewiththese lawsandregulationscanbesubjecttogovernmentreviewandinterpretation,aswellasregulatoryactions.TheUniversityissubjecttosuchregulatoryreviews and, while these reviews may result in repayments and/or civil remedies, managementbelieves, based on its current knowledge and information, that such repayments and/or civilremedies,ifany,wouldnothaveamaterialeffectontheUniversity’sfinancialposition.

AsofJune30,2014and2013,theUniversityisnotcurrentlyinvolvedinlegalproceedingsarisinginthe ordinary course of operations. In the opinion ofmanagement, there are nomatters thatwillmateriallyaffecttheUniversity’sfinancialposition.

Documents

Saint Martin's University...SAINT MARTIN'S UNIVERSITY NOTES TO FINANCIAL STATEMENTS 7 Note 1 – Organizational Background Saint Martin's University (the University) is a nonprofit,