The University uses an established framework for measuring fair value that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lower priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the University has the ability to access.
Level 2 Inputs to the valuation methodology include:
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; and Inputs that are derived principally from or corroborated by observable market data
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2015
(with comparative financial summarized information at June 30, 2014) NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS – Continued
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The determination of what constitutes observable requires judgment by the University. The University considers observable data to be that market data that is readily available, regularly distributed or actively involved in the relevant market. The categorization of an investment within the fair value hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the University’s perceived risk of that investment.
The University’s investments as of June 30, 2015 and 2014, are summarized in the following tables at fair value:
Fair Value Measurements Using 2015
Quoted Prices in Significant Other Significant
Investments Active Markets Observable Inputs Unobservable Inputs
Level 1 Level 2 Level 3 Total
Short-term investments $ 56,380,656 $ - $ - $ 56,380,656
Certificates of deposit - 3,572,113 - 3,572,113
Mutual funds 9,565,277 - 113,902 9,679,179
Corporate and government bonds - 40,939,107 - 40,939,107
Equities 16,306,703 969,703 53,630 17,330,036
Trust deeds receivable - - 50,000 50,000
Cash surrender value of life insurance - 276,697 - 276,697
Investments in real estate - - 3,590,959 3,590,959
Fair Value Measurements Using 2014
Quoted Prices in Significant Other Significant
Investments Active Markets Observable Inputs Unobservable Inputs
Level 1 Level 2 Level 3 Total
Short-term investments $ 62,601,295 $ - $ - $ 62,601,295
Certificates of deposit - 2,409,936 - 2,409,936
Mutual funds 8,183,123 - 113,194 8,296,317
Corporate and government bonds - 25,186,527 - 25,186,527
Equities 7,062,141 1,892,979 52,590 9,007,710
Trust deeds receivable - - 121,000 121,000
Cash surrender value of life insurance - 252,202 - 252,202
Investments in real estate - - 3,963,459 3,963,459
Total investments $ 77,846,559 $ 29,741,644 $ 4,250,243 $ 111,838,446
Other financial instruments recorded at fair value as of June 30, 2015:
Level 1 Level 2 Level 3 Total
Interest rate swap agreement $ - $ 22,595,150 $ - $ 22,595,150
Other financial instruments recorded at fair value as of June 30, 2014:
Level 1 Level 2 Level 3 Total
Interest rate swap agreement $ - $ 20,159,273 $ - $ 20,159,273
The following is a roll forward of Level 3 investments for the years ended June 30, 2015 and 2014:
Total gain/(loss) included in
Beginning changes in Ending
2015 Balance net assets Purchases Sales Transfers Balance
Mutual funds $ 113,194 $ 708 $ - $ - $ - $ 113,902
Equities 52,590 1,040 - - - 53,630
Trust deed receivables 121,000 (71,000) - - - 50,000
Investments in real esta 3,963,459 140,000 - (512,500) - 3,590,959
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2015
(with comparative financial summarized information at June 30, 2014) NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS – Continued
Total gain/(loss) included in
Beginning changes in Ending
2014 Balance net assets Purchases Sales Transfers Balance
Mutual funds $ 108,157 $ 5,507 $ 90,578 $ (91,475) $ 427 $ 113,194
Equities 149,600 2,990 (100,000) - 52,590
Trust deed receivables 121,000 - - - - 121,000
Investments in real esta 4,029,122 - - (65,663) - 3,963,459
Total $ 4,407,879 $ 8,497 $ 90,578 $ 427(257,138) $ $ 4,250,243
The following is a description of the instruments measured at fair value, and the methods and assumptions used by the University in determining the fair value of the instruments:
Investments –
Short-term investments, money market accounts and certificates of deposit – These investments are liquid
instruments held by external investment managers. The carrying value approximates fair value based on the short maturity of these instruments.
Mutual funds – These consist of pool of funds held by external investment managers. The fair
values are based on quoted market prices as determined by investment custodians utilizing prices quoted by securities dealers or brokers and are categorized as Level 1. Mutual funds based on net asset value basis are categorized as Level 3.
Equities – These consist primarily of publicly traded domestic securities held by external
investment managers. The fair values are based on quoted market prices as determined by investment custodians utilizing prices quoted by securities dealers or brokers, investment bankers or statistical services and are categorized as Level 1. Other private equity securities are recorded at their appraised value or fair market value based on a net asset value and are categorized as Level 2 or Level 3.
Corporate and government bonds – These consist of domestic corporate and government bonds. The
fair values are based on market prices as determined by the investment custodians utilizing prices quoted by securities dealers or brokers, investment bankers or statistical services. The University generally categorizes these as Level 2.
The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of June 30, 2015.
Significant Fair Valuation unobservable
Type value technique inputs Range
Real estate $ 3,963,459 Third party appraisal
Reliance on appraisers valuations
Can be sold anytime
Trust deeds receivable $ 121,000 Sales comparison
Loan to value Not redeemable
Equities $ 52,590 Market fair value
Original cost, financial statement, materiality
N/A
Mutual funds $ 113,194 Discounted cash flow
Market No restrictions
Pledges and contributions receivable – Grant-date fair values are estimated as the present value of the promises to give, using a risk adjustment and discount rates applicable to the donor and federal interest rates.
Interest rate swap – The carrying value of the University’s interest rate swap agreement is recorded at fair value based on the spread between the effective interest rate on the bonds payable on June 30, 2015, and the fixed rate per the interest rate swap agreement. The University categorizes this swap as Level 2.
The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the University believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2015
(with comparative financial summarized information at June 30, 2014) NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS – Continued
The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model- based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such transfers, the transfer is reported at the beginning of the reporting period. For the years ended 2015 and 2014, there were no significant transfers between levels.
There have been no changes in the methodologies used at June 30, 2015, or from the prior year. NOTE 17 – RESTRICTIONS AND LIMITATIONS ON NET ASSET BALANCES
The University's permanently restricted net assets consisted of the following at June 30:
2015 2014
Loan funds $ 1,220,229 $ 1,201,172 Contributions receivable 313,118 472,083 Endowment funds 6,697,354 6,414,260
Total $ 8,230,701 $ 8,087,515
The University's temporarily restricted net assets consist of the following at June 30:
2015 2014
Available for scholarships, instruction and
other expenses $ 4,347,072 $ 4,426,481 Contributions receivable 3,340,836 4,340,393 Split-interest agreements – unitrusts 1,035,837 984,855 Net unrealized gains on unitrust investments 1,394,122 1,378,374
The University's unrestricted net assets consisted of the following at June 30:
2015 2014
Operations $ 52,321,696 $ 44,209,652
Contributions receivable 15,842 25,741
Loan funds 18,794 18,794
Plant and debt reserve 23,426,545 28,333,789
Quasi-endowment 14,602,481 4,228,860
Net unrealized gain (loss) on unrestricted
investments 124,119 (19,029)
Net unrealized gain on annuity investments 26,345 69,135
Net unrealized gain on endowment investments 633,307 1,741,309
Total $ 91,169,129 $ 78,608,251