Building the Future Transforming Lives Annual - University of ...

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UNIVERSITY OF COLORADO FOUNDATIONNEW ACCOUNTING PRONOUNCEMENTSThe Financial Accounting Standards Board recently issuedInterpretation No. 48, Accounting for Uncertainty in Income Taxes,which changes the way an entity evaluates its tax positions. TheFoundation expects to first apply the interpretation during thefiscal year ending June 30, 2008. The impact of applying theinterpretation has not yet been determined.In September 2006, the FASB issued SFAS No. 157, Fair ValueMeasurement. SFAS No. 157 defines fair value, establishes aframework for measuring fair value, and expands disclosuresabout fair value measurements. SFAS No. 157 applies to reportingperiods beginning after November 15, 2007. Management isevaluating the provisions of this new statement and the potentialimpact of its adoption on the Foundation’s financial statements.CASH AND CASH EQUIVALENTSFor purposes of the consolidated statements of cash flows, theFoundation considers all unrestricted cash and highly liquidinvestments with an initial maturity of three months or less, andthat are not held as components of the Foundation’s investmentportfolio, to be cash equivalents.FINANCIAL INSTRUMENT RISKFinancial instruments that potentially subject the Foundation toconcentrations of credit risk consist principally of cash and cashequivalents, investments, and contributions receivable. TheFoundation places its temporary cash and money marketaccounts with creditworthy, high-quality financial institutions.A significant portion of the funds are not insured by the FDICor related entity. The Foundation has significant investments instocks, bonds, and alternative investments, and is thereforesubject to concentrations of credit risk. Investments are madeprimarily by investment managers engaged by the Foundation,and the investments are monitored by management and theInvestment Committee of the Board of Directors of theFoundation. Though the market values of investments are subjectto fluctuation on a year-to-year basis, management believesthat the investment policy is prudent for the long-term welfare ofthe Foundation. Collection risk associated with contributionsreceivable is limited due to the large number of contributorscomprising the Foundation’s contributor base, and historicalhigh-collectibility experience.SECURITIES LENDING PROGRAMThe Foundation participates in the Securities Lending Programmaintained by its custodian bank, under which securities held bythe Foundation are loaned by the custodian bank, as agent of theFoundation, to certain brokers and other financial institutions(Borrowers). The Borrowers provide cash, U.S. Governmentsecurities, or letters of credit as collateral against the loans in anamount equal to at least 105 percent or 102 percent of the marketvalue of the loaned international or domestic securities,respectively, when the loan is initiated, and are required to maintainthe collateral at not less than 105 percent and 102 percent ofthe market value of the international or domestic securities,respectively. The Foundation invests cash collateral in a shortterminvestment vehicle maintained by the custodian bank. AtJune 30, 2007, the market value of securities loaned by theFoundation was $21,138,060, against which the Borrowers providedcash collateral of $19,725,235 and U.S. Government Debtcollateral of $2,573,381. A portion of the income generated fromthe investment of cash collateral is remitted to the Borrowers,and the remainder is allocated between the Foundation and thecustodian bank, the latter in its capacity as lending agent.Negotiated lender’s fees are received for those loans collateralizedby securities, or letters of credit, if any. Generally, in the event ofcounterparty default, the Foundation has the right to use the collateralto offset losses incurred. Potential losses to the Foundationcould exist in the event the Foundation is delayed or preventedfrom exercising its right to dispose of the collateral. TheFoundation bears risk in the event that invested collateral is notsufficient to meet obligations.CONTRIBUTIONS AND CONTRIBUTIONSRECEIVABLEThe Foundation accounts for contributions in accordance withthe requirements of the Financial Accounting Standards Board inSFAS No. 116, Accounting for Contributions Received andContributions Made. In accordance with SFAS No. 116, contributionsare recognized when a donor makes an unconditionalpromise to give, and are recorded as contributions in the consolidatedstatements of activities.Contributions receivable are recorded at their estimated net realizablevalues, discounted using risk-free interest rates effective atthe date of the promise to give, if expected to be collected inmore than one year. Subsequent to the initial recording of thecontribution receivable, the Foundation uses the allowancemethod to record amounts estimated to be uncollectible. Theallowance is based on the historical collectibility of contributionspromised to the Foundation and on management’s analysis ofspecific promises outstanding.BOULDER ALUMNI ASSOCIATIONBoulder Alumni Association revenue consists primarily of alumnimembership dues, royalties from an agreement with a financialinstitution, service fees from the University, and fees chargedfor events.DONATED PROPERTYDonated marketable securities and other non-cash donationsincluding land, buildings, and equipment are recorded as contributionsat their estimated fair values at the date of donation. Ifdonors stipulate how long the assets must be used, the contributionsare recorded as restricted support. In the absence of suchstipulations, contributions of property and equipment arerecorded as unrestricted support.– 28 –
UNIVERSITY OF COLORADO FOUNDATIONINVESTMENTSFinancial statement presentation follows the requirements of theFinancial Accounting Standards Board in its SFAS No. 124,Accounting for Certain Investments Held by Not-for-ProfitOrganizations. Under SFAS No. 124, the Foundation is requiredto record investment purchases at cost, or when contributed tothe Foundation, at the fair values of the investment assetsreceived at the date of contribution.In accordance with SFAS No. 124, investments in all marketableequity securities with readily determinable fair values and allinvestments in debt securities are stated at their fair values in theconsolidated statement of financial position. The fair values ofalternative investments publicly traded on national securityexchanges are stated at their closing market prices at June 30,2007 and 2006, respectively. The fair values of alternative investmentsnot publicly traded on national security exchanges representthe Foundation’s pro-rata interest in the net assets of eachinvestment and are based on financial information determinedand reported by investment managers, subject to review, evaluation,and adjustment by the management of the Foundation, oron the basis of other information developed, obtained, and evaluatedperiodically by the Foundation. Because of inherent uncertaintiesin the valuation of alternative investments, those estimatedfair values may differ significantly from the values that wouldhave been used had a ready market for the investments existed.Net investment return consists of the Foundation’s distributiveshare of interest and dividends, realized and unrealized capitalgains, and losses generated from the Foundation’s investments,less investment and custodial fees and, is reported in the consolidatedstatement of activities. Restricted gains and investmentincome are generally reported as increases to temporarilyrestricted net investment return and, upon expiration of therestrictions, are reclassified to unrestricted investment income.CASH RESTRICTED FOR BOND FUNDREQUIREMENTSCash restricted for bond fund requirements represents fundsreceived and held in connection with the issuance of StudentHousing Revenue Bonds (Bonds) by Bear Creek in fiscal 2002.During June 2007, the Bonds were defeased and the restrictedcash accounts were irrevocably transferred to the escrowagent/trustee (see Note 6).PROPERTY AND EQUIPMENTProperty and equipment is stated at cost, or fair value if donated,and depreciated over the following estimated useful lives usingthe straight-line method:Furniture, fixtures, equipment, and otherLeasehold and building improvementsBuildingEstimated useful lives3–7 years5–30 years15–40 yearsExpenditures for maintenance, repairs, and minor replacementsare charged to operations, and expenditures for major replacementsand betterments in excess of $5,000 are capitalized.Long-lived assets are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amountmay not be recoverable. If the expected future cash flow from theuse of the asset and its eventual disposition is less than the carryingamount of the asset, an impairment loss is recognized andmeasured using the asset’s fair value.OTHER ASSETSOther assets consist primarily of deferred bond issuance costs infiscal 2006. During fiscal 2002, the Foundation capitalizedapproximately $1.4 million of direct costs incurred in connectionwith the issuance of the Student Housing Revenue Bonds. Thesecosts were being amortized, using the straight-line method, asadditional interest expense over the term of the bonds.Concurrent with the defeasance of the Bonds in June 2007, theunamortized balance was expensed (see Note 6).CUSTODIAL FUNDSThe Foundation holds certain endowment and other funds intrust on behalf of the University. Such funds approximated $139million and $110 million at June 30, 2007 and 2006, respectively.The Foundation also holds funds on behalf of another entitytotaling approximately $2.7 million and $2.5 million at June 30,2007 and 2006, respectively.DEFERRED REVENUEDeferred revenue consists of Boulder Alumni Association membershipdues, which are recognized in the applicable membershipperiod, and revenue related to affinity contracts, which is recognizedwhen earned.FAIR VALUE OF FINANCIAL INSTRUMENTSThe carrying amounts of cash, receivables, accounts payable,accrued liabilities, and deferred revenue approximate fair valuedue to the short-term nature of the items. The carrying amountsof contributions receivable due in more than one year and theliabilities associated with split-interest agreements are based onthe discounted net present value of the expected future cashflows. The fair value of the Foundation’s investments, includingcustodial funds, are determined based on quoted market prices,or in the absence thereof, other third-party and internally developedestimates of fair value using pricing methodologies appropriatein the circumstances.ADVERTISING EXPENSESBear Creek utilizes advertising to promote its student housingofferings among the student population it serves. Costs ofpromotion and advertising are expensed when incurred. Totalpromotion and advertising expenses approximated $79,500and $232,000 for the years ended June 30, 2007 and 2006,respectively.– 29 –
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