ML18288A142

The Reed Institute Financial Statements June 30, 2018 and 2017

ML18288A142
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Site:	Reed College
Issue date:	10/08/2018
From:	Reed College, Reed Institute
To:	Office of Nuclear Reactor Regulation
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THE REED INSTITUTE Financial Statements June 30, 2018 and 2017 (With Independent Auditors' Report Thereon)

Independent Auditors' Report Statements of Financial Position THE REED INSTITUTE Table of Contents Statement of Activities and Changes in Net Assets - Year ended June 30, 2018 Statement-of Activities and Changes in Net Assets - Year ended June 30, 2017 Statements of Cash Flows Notes to Financial Statements Page(s)

.1 2

3 4

5 6-31

The Board of Trustees The Reed Institute:

KPMG LLP Suite3800 1300 South West Fifth Avenue Portland, OR 97201 Independent Auditors' Report We have audited the accompanying statements of financial position of The Reed Institute (an Oregon nonprofit corporation) as of June 30, 2018 and 2017, and the related statements of activities and changes in net assets, and cash flows for the years then ended, and the related notes to the financial statements.

\\

Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' ju9gment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation I

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of The Reed Institute as of June 30, 2018 and 2017, and the change in its net assets and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

October 8, 2018 KPMG LLP i;1 e D0IJWclte !imiled liobi!ity pmtneiship ::i1~d tho U.S. member firm of tha KPMG r.etwork of indeper.dent mt1mbsr iirms sffi!iated wi11':

KPMG lnternatiorm! (',ooperntivti ("KN..1G lnwmatiorian. n Swiss 0ntity.

THE REED INSTITUTE Statements of Financial Position June 30, 2018 and 2017 Current assets:

Cash and cash equivalents Accounts receivable, net Contributions receivable, net Funds held by trustee Short-term investments Prepaid expenses and other assets Total current assets Noncurrent assets:

Assets Cash and cash equivalents whose use is limited Accounts receivable, net Contributions receivable, net Funds held in trust by others Funds held by trustee Long-term investments Property, plant, and equipment, net Other assets Total noncurrent assets Total assets Liabilities and Net Assets Current liabilities:

Accounts payable and accrued liabilities Postretirement benefits payable Debt Deferred revenue Total current liabilities Long-term liabilities:

Liability for split-interest agreements Postretirement benefits payable Refundable loan programs Asset retirement obligation Debt, net of current portion Other liabilities Net assets:

Total long-term liabilities Total liabilities Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets See accompanying notes to financial statements.

2 2018 2017 3,439,719 24,905,675 732,569 968,893 3,025,334 2,854,515 25,211,452 9,448,087 629,164 484,514 42,486,325 29,213,597 2,197,463 1,689,109 3,871,719 3,931,953 5,209,698 4,167,395 1,291,022 1,228,996 912,000 624,507,788 577,529,136 145,826,934 139,655,796 201,637 243,424 784,018,261 728,445,809 826,504,586 757,659,406 8,407,632 7,464,420 1,077,870 992,668 1,190,170 37,633,263 1,207,121 1,143,600 11,882,793 47,233,951 11,783,120 12,506,606 25,354,183 25,687,765 1,820,048 2,611,364 3,073,572 3,049,161 109,036,729 39,540,603 2,273,528 2,704,198 153,341,180 86,099,697 165,223,973 133,333,648 367,086,209 347,090,979 115,378,177 105,400,313 178,816,227 171,834,466 661,280,613 624,325,758 826,504,586 757,659,406

THE REED INSTITUTE Statement of Activities and Changes in Net Assets Year ended June 30, 2018 Temporarily Permanently Total Unrestricted restricted restricted 2018 Revenues, gains, and other support:

Tuition and fees 74,619,894 74,619,894 Less college-funded scholarships (26,359,478)

(26,359,478)

Net tuition and fees 48,260,416 48,260,416 Auxiliary enterprises 14,910,012 14,910,012 Gifts and private grants 15,307,645 255,052 3,726,857 19,289,554 Government grants, contracts, and student aid 1,280,240 1,280,240 Investment return on endowment, distributed 15,110,710 12,268,558 27,379,268 Other investment gains 398,887 398,887 Other revenues and additions 1,049,290 4,420

• 1,053,710 Subtotal 48,056,784 12,523,610 3,731,277 64,311,671 Net assets released from restrictions 12,053,203 (12,053,203)

Total revenues, gifts, and other support 108,370,403 470,407 3,731,277 112,572,087 Expenses:

Educational and general:

Instruction 34,652,078 34,652,078 Research 1,274,216 1,274,216 Academic support 10,774,320 10,774,320 General institutional support 17,261,320 17,261,320 Student services 9,020,829 9,020,829 Public affairs 5,920,013 5,920,013 Total educational and general 78,902,776 78,902,776 Auxiliary enterprises 17,161,037 17,161,037 Total expenses 96,063,813 96,063,813 Increase from operations 12,306,590 470,407 3,731,277 16,508,274 Nonoperating activity:

Endowment gains, net of amounts distributed 14,636,205 9,140,569 23,776,774 Change in value of split-interest agreements 366,888 311,769 678,657 Net period benefit cost, net of service cost (66,749)

(66,749)

Loss on defeasance (4,985,976)

(4,985,976)

Other deductions and transfers (1,894,840) 2,938,715 1,043,875 Total nonoperating activity 7,688,640 9,507,457 3,250,484 20,446,581 Increase in net assets 19,995,230 9,977,864 6,981,761 36,954,855 Net assets, beginning of year 347,090,979 105,400,313 171,834,466 624,325,758 Net assets, end of year 367,086,209 115,378,177 178,816,227 661,280,613 See accompanying notes to financial statements.

3

THE REED INSTITUTE Statement of Activities and Changes in Net Assets Year ended June 30, 2017 Temporarily Permanently Total Unrestricted restricted restricted 2017 Revenues, gains, and other support:

Tuition and fees 70,289,302 70,289,302 Less college-funded scholarships (27,318,508)

(27,318,508)

Net tuition and-fees 42,970,794 42,970,794 Auxiliary enterprises 14,349,743 14,349,743 Gifts and private grants 9,764,660 211,542 2,331,685 12,307,887 Government grants, contracts, and student aid 1,267,194 1,267,194 Investment return on endowment, distributed 15,116,804 12,142,834 27,259,638 Other investment gains 356,186 356,186 Other revenues and additions 1,458,927 4,233 1,463,160 Subtotal 42,313,514 12,354,376 2,335,918 57,003,808 Net assets released from restrictions 16,477,489 (16,477,489)

Total revenues, gifts, and other support 101,761,797 (4,123,113) 2,335,918 99,974,602 Expenses:

Educational and general:

Instruction 34,960,966 34,960,966 Research 1,253,613 1,253,613 Academic support 10,765,205 10,765,205 General institutional support 18,398,882 18,398,882 Student services 8,097,107 8,097,107 Public affairs 6,145,103 6,145,103 Total educational and general 79,620,876 79,620,876 Auxiliary enterprises 16,221,009 16,221,009 Total expenses 95,841,885 95,841,885 Increase (decrease) from operations, as adjusted 5,919,912 (4,123,113) 2,335,918 4,132,717 Nonoperating activity:

Endowment gains, net of amounts distributed 20,961,128 14,187,498 35,148,626 Change in value of split-interest agreements 1,342,597 169,234 1,511,831 Net period benefit cost, net of service cost 3,095,055 3,095,055 Other deductions and transfers (613,971) 51,953 358,550 (203,468)

Total nonoperating activity, as adjusted 23,442,212 15,582,048 527,784 39,552,044 Increase in net assets 29,362,124 11,458,935 2,863,702 43,684,761 Net assets, beginning of year 317,728,855 93,941,378 168,970,764 580,640,997 Net assets, end of year 347,090,979 105,400,313 171,834,466 624,325,758 See accompanying notes to financial statements.

4

J THE REED INSTITUTE Statements of Cash Flows Years ended June 30, 2018 and 2017 Cash flows from operating activities:

Increase in net assets Adjustments to reconcile increase in net assets to net cash used in operating activities:

Depreciation and amortization costs Loss on defeasance Loss on disposal of assets Contributions restricted for long-term investment Noncash contributions Net realized and unrealized gains on investments Net realized and unrealized gains on split-interest agreements Change in value of split-interest agreements Change in asset retirement obligation Changes in operating assets and liabilities that provided (used) cash:

Cash whose use is limited Accounts receivable Contributions receivable Prepaid and other Accounts payable and accrued liabilities Postretirement benefits payable Deferred revenue Other liabilities Net cash used in operating activities Cash flows from investing activities:

Proceeds from maturities/sales of investments Purchases of investments Contracts receivable collected Contracts receivable advanced Purchase of property, plant, and equipment Net cash (used in) provided by investing activities Cash flows from financing activities:

Contributions restricted for long-term investment Issuance of new debt Payment of debt principal/capital lease obligations Payments on split-interest agreenients Increase in obligations for split-interest agreements Changes in governmental loan funds Change in deposit with bond trustee Net cash provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information:

Interest paid See accompanying notes to financial statements.

5 2018 2017 36,954,855 43,684,761 5,614,985 5,542,900 4,985,976 448,036 9,839 (2,885,175)

(1,498,457)

(5,583,481)

(3,371,057)

(50,695,570)

(63,792,183)

(1,773,480)

(2,066,518)

(62,026)

(42,167) 24,411 (20,831)

(508,354) 4,923,119 296,558 1,013,750 (1,213,122) 6,239,326 (146,172) 4,869,923 943,212 554,259 (248,380)

(3,241,466) 63,521 (588,100)

(430,670) 698,447 (14,214,876)

(7,084,455) 178,181,595 68,326,509 (175,162,217)

(57,852,382) 43,309 48,367 (39,000)

(12,447,589)

(7,065,298)

(9,384,902) 3,418,196 2,885,175 1,498,457 73,913,650 (45,633,163)

(1,391,839)

(1,393,586)

(1,241,871)

(723,486) 1,332,714 (791,316)

(39,164)

(26,123,452) 2,133,822 158,297 (21,465,956)

(3,507,962) 24,905,675 28,413,637 3,439,719 24,905,675 2,106,638 2,255,832

• (1) Background THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The Reed Institute (Reed College) was founded in 1908 by Simeon and Amanda Reed, with one central commitment: to provide a balanced, comprehensive education in liberal arts and sciences, fulfilling the highest standards of intellectual excellence. Reed College offers a B.A. in one of 25 niajor fields and*

numerous interdisciplinary fields, as well as a master of arts in liberal studies degree. The Reed College educational program pays particular attention to a balance between broad study in the various areas of human knowledge and close, in-depth study in a recognized academic discipline.

(2) Summary of Significant Accounting Policies (a) Accrual Basis The financial statements of Reed College have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

(b) Basis of Presentation Net assets, revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. The definitions used to classify and report net assets are as follows:

Unrestricted net assets - net assets that are not subject to donor-imposed stipulations or donor-restricted contributions whose restrictions are met in the same reporting period.

Temporarily restricted net assets - net assets subject to donor-imposed stipulations that will be met either by actions of Reed College or the passage of time.

Permanently restricted net assets - net assets subject to donor-imposed stipulations that they be permanently maintained by Reed College. Generally, the donors of these assets permit Reed College to use all or part of the income earned on related investments for general or specific purposes.

Revenues are reported as increases in unrestricted net assets unless their use is limited by donor-imposed restrictions. All expenses are reported as decreases in unrestricted net assets with the exception of activity related to life income agreements. Gains and losses on investments and other assets or liabilities are reported as increases or'decreases in unrestricted net assets unless their use is restricted either by donor stipulation or by law. Expirations of temporary restrictions (i.e., the donor-stipulated purpose has been fulfilled anq/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets and are reported as "net assets released from restriction" in the statements of activities and changes in net assets. Restrictions related to contributions for the purchase of capital additions are released when the asset is placed in service.

Reed College follows the provisions of Financial Accounting Standards Board (FASS) Accounting Standards Codification (ASC) Subtopic 958-205, Not-for-Profit Entities - Presentation of Financial Statements, which provides guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 and also requires disclosures about endowment funds, both donor-restricted endowment funds and board-designated endowment funds. See note 10 for further disclosures.

6 (Continued)

(c) Use of Estimates THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(d) Revenues The principal sources of revenue, consisting of tuition, room and board, various other educational fees, unrestricted income from funds functioning as endowment, unrestricted gifts, and net assets released from restrictions, are accounted for in unrestricted net assets. Unrestricted net assets also include revenue from grants, auxiliary enterprises, and gains on disposal of assets.

With a few exceptions, the monies in the endowment and similar funds are invested as a pool, and the related income of the pool is distributed to each participating fund based upon a spending formula and its relative proportion of the pool.

In addition, monies, which are not required to meet short-term demands, are combined and invested.

The income earned on these intermediate-investments is allocated to each participating fund based upon its relative proportion of the conibined investment.

(e) Investments Investments in marketable equity securities with readily determinable fair values and all investments in debt securities are carried at fair value. In conjunction with the adoption of FASS ASC Topic 820, Fair Value Measurement, Reed College has adopted the measurement provisions of FASS ASC Subtopic 820-10, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), for certain investments in funds that do not have readily determinable fair values including private investments, fixed income investments, absolute return investments, and investments in equities. Net asset value (NAV), in many instances may not equal fair value that would be calculated pursuant to ASC Topic 820.

Realized and unrealized gains and losses arising from the sale, collection, or other disposition of investments, as well as all dividends, interest, and other investment income, are shown in the statements of activities and changes in net assets. Gains and investment income that are limited to specific uses by donor-imposed restrictions are reported as increases in unrestricted net assets if the restrictions are met in the same reporting period that the gains and income are recognized. Losses on investments related to gifts thatthe donor required to be invested in perpetuity (i.e., endowment funds) are classified as decreases in temporarily restricted net assets until the investments fall below the original gift at which point they decrease unrestricted net assets. Subsequent gains that restore the fair value of the assets of the endowment funds to the required level arE! classified as increases in unrestricted net assets.

(f) Split-Interest Agreements Reed College has been named as a beneficiary for various split-interest agreements. Each agreement

• provides for contractual payments to stated beneficiaries for their lifetimes, after which remaining 7

(Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 principal and interest revert to Reed College. Assets contributed are recorded at fair value. In addition, Reed College has recognized the present value of estimated future payments to be made to beneficiaries over their expected lifetimes as a long-term liability. The present values of these estimated payments were determined on the basis of published actuarial factors for ages of the respective beneficiaries discounted using a rate adjusted for mortality uncertainties and are not changed after the date of the gift. Annual adjustments are made. between the liability and the net assets to record actuarial gains or losses. Differences between the assets contributed and the expected payments to be made to beneficiaries have been recorded as contribution revenue in the year established. These donations are either temporarily restricted on the basis of time or permanently restricted based on the intent of the donor.

Reed College maintains separate reserve funds-adequate to meet future payments under its charitable gift annuity contracts as required by governing states' laws. The total held in separate reserve funds was $6,097,946 and $5,866,005 as of June 30, 2018 and 2017, respectively. The amount included to meet future payments under gift annuity contracts in liability for split-interest agreements was

$2,638,687 and $2,674,565 as of June 30, 2018 and 2017, respectively.

(g) Contributions Receivable Unconditional promises to give (contributions) are recorded as gifts and private grant income and contributions receivable. Promises to give are not recognized until they become unconditional, that is, when the donor-imposed restrictions are substantially met. Contributions other than cash are recorded at their est.imated fair value. Management estimates an allowance for uncollectible contributions based on risk factors such as prior collection history, type of contribution, and the nature of the fund-raising activity. Contributions are generally receivable within five years of the date the commitment was made and were discounted to present value using a discount rate commensurate with the risk involved.

Amortization of the discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions.

(h) Derivative Instruments Reed College accounts for derivatives in accordance with FASS ASC Subtopic 815-10, Derivatives and Hedging - Overall, as amended, which requires that all derivative instruments be recorded on the statements of financial position at their estimated fair values. Changes in the fair value are recognized in the statements of activities and changes in net assets as other investment gains (losses).

(i) Property, Plant, and Equipment, Net Property, plant, and equipment are stated at cost at the date of acquisition, if purchased, or at fair market value, at the date of receipt, if acquired by donation. Equipment under capital leases are stated at the present value of minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of buildings (20 to 50 years) and equipment and furnishings (5 years).

Equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Routine repair and maintenance expenses and equipment replacement costs are expensed as incurred.

8 (Continued)

(j) Capitalized Interest THE REED INSTITUTE Notes to Financial Statement~

June 30, 2018 and 2017

)

Interest costs incurred on debt during the construction of major projects exceeding one year are capitalized. During fiscal years 2018 and 2017, the amount of interest capitalized amounted to

$644,658 and $0, respectively.

(k) Donated Materials Donated materials are included in the statements of activities and changes in net assets as gifts and private grants at their estimated fair values at date of receipt. These materials are subsequently expensed when used.

(I) Income Tax Status The Internal Revenue Service has recognized Reed College as exempt from tax under the provisions of Section 501 (a) as an organization described under Section 501 (c)(3) of the Internal Revenue Code except to the extent of unrelated business income under Sections 511 through 515. Management believes that unrelated b1,1siness income tax, if any; is immaterial, and therefore, no tax provision has bslen made. Reed College accounts for income taxes in accordance with FASB ASC Subtopic 740-10, Income Taxes - Overall, an Interpretation of FASB Statement 109, which clarifies the accounting for uncertainty in-income taxes recognized in an enterprise's financial statements and prescribes a threshold of more likely than not for recognition of tax benefits of uncertain tax positions taken or expected to be taken in a tax return. ASC Subtopic 740-10 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. Reed College does not have any uncertain tax positions.

(m) Cash and Cash Equivalents Cash and cash equivalents represent cash in bank and other highly liquid investments with original maturities of three months or less, except for certain cash and cash equivalents held by trustee and amounts included in the investment portfolio that are intended to be invested on a long-term basis.

Cash and cash equivalents whose use is limited are restricted for the Federal Perkins Loan program.

(n) Deferred Revenue Deferred revenue consists primarily of tuition and fees related to future academic years.

(o) CPostretirement Benefits Reed College has a noncontributory postretirement medical benefit plan covering participating employees upon their retirement. Reed College maintains a postretirement medical benefit plan and accounts for the plan within the framework of FASB ASC Topic 958-715, Not-for-Profit Entities-Compensation - Retirement Benefits.

Reed College records annual amounts relating to it~ postretirement medical ben~it plan based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, and healthcare cost trend rates. Reed College reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. Reed College believes that the assumptions utilized in recording its obligations under its plan's are reasonable based on its experience and market conditions.

9 (Continued)

(p) Concentration of Risk THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Reed College's standard financial instruments include commercial paper, U.S. government and agency securities, corporate obligations, mutual funds, commingled funds, limited partnerships, private equity, private real assets, and private real estate. These financial instruments may subject Reed College to concentrations of risk.

(q) Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles for recognizing revenue and to improve financial reporting by creating common revenue recognition guidance for U.S. generally accepted accounting principles and International Financial Reporting Standards (IFRS). The amendments in the ASU can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. Reed College has evaluated the impact of ASU 2014-09 and is implementing this ASU beginning July 1, 2018.

Management will include new disclosures in 2019 in accordance with Topic 606. The adoption of Topic 606 will not have a significant impact on Reed College's results of operations.

In January 2016, the FASB issues ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU contains the following key aspects relevant to not-for-profit entities: (A) Entities must measure equity investments with readily determinable fair values at fair value and recognize changes in fair value in net income; (B) Entities have the option to either measure equity investments without readily determinable fair values at fair value or at cost adjusted for changes in observable prices minus impairment. Changes in measurement under either alternative must be recognized in net income; and (C) Entities that elect the fair value option for financial liabilities must recognize changes in fair value related to instrument-specific credit risk in other comprehensive income. In addition, the standard allows not-for-profit entities to early adopt a provision that eliminates previously required disclosures of the fair values of financial instruments measured at amortized cost.

Reed College has evaluated the full impact of ASU 2016-001, including the methods of implementation, which is effective for the year beginning July 1, 2018. Reed College adopted the provision which exempts all not-for-profit entities from the requirement to disclose the fair value of financial instruments measured at amortized cost and adopted that provision effective for the year ending on June 30, 2018.

The adoption of this provision also resulted in an amendment of the disclosure for the year ended June 30, 2017, as the elimination of the fair value of debt has been retrospectively applied. The other provisions of the ASU will not have a significant impact on the Corporation's financial assets and liabilities.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a lease liability and a right of use asset for all lease obligations with the exception of short-term leases. The lease liability will represent the lessee's obligation to make lease payments arising from the lease measured on a discounted basis and the right of use asset will represent the lessee's right to use or control the use of a specified asset for a lease term. The lease guidance also simplifies accounting for sale-leaseback transactions. Because of the number of leases Reed College utilizes to support its operations, the adoption of ASU 2016-02 is not expected to have a significant impact on Reed College's financial position and results of operations. Reed College is currently evaluating the extent of the anticipated impact of the adoption of ASU No. 2016-02, which is 10 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 effective for the fiscal year beginning on July 1, 2019 with modified retrospective application to the earliest presented period.

In August 2016, the FASB issued ASU No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities (NFPs); to reduce diversity in reporting practice, reduce complexity, and enhance understandability of not-for-profit financial statements. This ASU contains the following key aspects: (A) Reduces the number of net asset classes presented from three to two: with donor restrictions and without donor restrictions; (B) Requires all NFPs to present expenses by their functional and their natural classifications in one location in the financial statements; (C) Requires NFPs to provide quantitative and qualitative information about management of liquid resources and availability of financial assets to meet cash needs within one year of the balance sheet date; and (D) Retains the option to present operating cash flows in the statement of cash flows using either the direct or indirect method. Reed College has evaluated the impact of ASU No. 2016-14 and will be implementing this ASU for the year beginning July 1, 2018. The impact of adoption will result ih enhanced disclosures about the classification of expenses and management of liquid resources.

• In November 2016; the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):

Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update are effective for the College's fiscal year beginning July 1, 2019. Early adoption is permitted, Reed College is currently evaluating the extent of the anticipated impact of the adoption of ASU No. 2016-18.

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires a company to present service cost separately from the other components of net benefit cost. This ASU is effective for nonpublic entities for annual periods beginning after December 15, 2018, with early adoption allowed. Reed College adopted ASU No. 2017-07 for the year ended June 30, 2018. As a result of the adoption of the ASU, Reed College modified its financial statements and disclosures, including a retrospective reclassification of balances for the year ended June 30, 2017.

In June 2018, the FASB issued ASU No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which is intended to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments in this update should assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) within the scope of ASC Topic 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to Topic 606 and (2) determining whether a contribution is conditional. The amendments in this Update are to be applied on a modified prospective basis and are effective for Reed College's fiscal year beginning July 1, 2018. Early adoption is permitted. The College has evaluated the extent of the anticipated impact of the adoption of ASU No. 2018-08. The adoption of ASU No. 2018-08 will not have a significant impact on Reed College's financial statements.

11 (Continued)

(r) Reclassifications THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Certain items previously reported in the prior year financial statements have been reclassified to conform to current year financial statement presentation. These reclassifications had no effect on Reed College's financial position, activities and changes in net assets, or cash flows.

(3) Investments The fair value of investments at June 30, 2018 and 2017 are as follows:

lm.estments:

Cash and cash equivalents Fixed income Public equities Absolute return Private equity Private real assets Private real estate Funds held in trust Funds held by trustee Other Total investments 2018 10,266,880 73,869,648 207,667,456 131,704,534 109,977,743 55,455,340 18,397,989 24,900,925 26,123,452 1,715,360 660,079,327

=

2017 3,183,982 59,536,313 198,579,360 129,249,069 93,607,067 52,474,922 15,291,750 24,123,298 1,483,375 577,529,136 The overall investment objective for Reed College's endowment is to invest its assets in a prudent manner that will achieve a long-term rate of return sufficient to fund a portion of its annual operating activities and increase investment value after inflation. Reed College diversifies its investments among various asset classes incorporating multiple strategies and external investment managers. Major investment decisions are authorized by the Board's Investment Committee, which oversees Reed College's investment program in accordance with established guidelines.

I Investment strategies include:

Fixed income investments, which consist of commingled funds, bond mutual funds, and a limited partnership that hold securities, the majority of which have maturities greater than one year and are valued based on quoted market prices in active markets. Certain commingled funds and the limited partnership are valued at NAV reported by the fund managers.

Public equities investments, which consist of mutual funds, commingled funds, and limited partnerships. These are valued based on quoted market prices in active markets, except for certain commingled funds and limited partnerships, which are valued at NAV reported by the fund managers.

The absolute return portfolio, which is comprised of investments of limited partnership interests in hedge funds whose managers have the authority to invest in various asset classes at their discretion, including the ability to invest long and short. The substrategies within the absolute return portfolio include equity long/short, crediUevent driven, market neutral, multistrategy, and global macro. The 12 (Continued)_

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 majority of the underlying holdings are marketable securities. The remainder of the underlying holdings is held in marketable securities that trade infrequently, or in private investments, which are valued by the manager on the basis of an appraised value, discounted cash flows, industry comparables or some other method. The limited partnership interests are valued at NAV reported by the fund managers.

Investments in private equity, private real assets and private real estate, which are in the form of limited partnership interests, and typically invest in private assets for which there is no readily determinable market value. In these cases, market value is determined by external managers based on a combination of discounted cash flow analysis, industry comparables, and outside appraisals. Where private investment managers hold publicly traded securities, these securities are generally valued based on market prices. The limited partnership interests are valued at NAV reported by the fund managers.

At June 30, 2018 and 2017, Reed College has approximately $484 million and $475 million, respectively, of investments that are not readily marketable (alternative investments). These investments represent 73%

and 82% of total investments and 73% and 76% of total net assets at June 30, 2018 and 2017, respectively. The alternative investments are reported at NAV as reported by the fund managers, which is used as a practical expedient to estimate the fair value. Reed College believes that the reported amount of its investments is a reasonable estimate of fair value as of June 30, 2018 and 2017. Because of the inherent uncertainties of valuation, these estimated fair values may differ significantly from values that would have been used if a ready market existed. See note 4 for investment fair value and liquidity measurements.

Reed College has funds invested in 114 and 94 limited partnerships at June 30, 2018 and 2017, respectively. At times there are certain positions of derivative financial in~truments included in the assets of the various partnerships. Reed College is obligated under certain limited partnership investment fund agreements to advance funding periodically up to specified levels'. At June 30, 2018, Reed College has unfunded commitments of approximately $109,000,000. These commitments are callable by the general partners/advisers between June 30, 2018 and 2028. The terminations of these partnerships/funds are based upon specific provisions in the agreements.

Included in cash and cash equivalents and fixed income are $30,037,986 and $0 of operating funds at June 30, 2018 and 2017, respectively, used to manage Reed College's operating liquidity.

Included in funds held in trust investments are $24,900,925 and $24,123,298 of planned giving trusts held in mutual funds and other investments that are not available for spending as of June 30, 2018 and 2017, respectively.

At June 30, 2018, Reed College had funds held by trustee of $26,123,452, which was the remaining unspent proceeds from the 2017 State of Oregon notes. The funds held by trustee wi)I be spent on.

qualifying expenditures of capital projects.

Total investment income, excluding funds held in trust investments, was $51,554,929 and $62,764,450 for the years ended June 30, 2018 and 2017, respectively.

13 (Continued)

L (4) Fair Value Measurements THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Following is a description of the valuation methodologies used for assets and liabilities carried at fair values:

Cash and cash equivalents, and accounts receivable: The carrying amounts, at face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.

Investments: Equity securities are measured using quoted market prices at the reporting date multiplied by the quantity held. Debt securities are measured using quoted market prices multiplied by the quantity held when quoted market prices are available. Investments in real estate for which fair value is not readily determinable are carried at estimated fair values, if purchased, or at fair value at the date of receipt, if acquired by donation.

Investments which are not readily marketable are valued utilizing NAV as a practical expedient and are carried at estimated fair values. Reed College reviews and evaluates the values provided by the investment managers and estimates the fair value of the alternative investments using the NAV as a practical expedient.

Interest rate swaps: The fair value of interest rate swaps is determined using pricing models developed based on the LIBOR swap rate and other observable market data. The value was determined after considering the potential impact of collateralization and netting agreements, adjusted to reflect nonperformance risk of both the counterparty and Reed College.

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy 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 lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that Reed College has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs are unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

In accordance with ASU 2015-07 Disclosures for Investments in Certain Entities That Calculate Net Asset Value, investments valued utilizing net asset value as a practical expedient are excluded from the fair value hierarchy.

14 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The following table presents assets and liabilities that are measured at fair value on a recurring basis at June 30; 2018:

Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs Total (Level 1}

(Level 2}

(Level 3}

Assets:

\\

Cash and cash equivalents 10,266,880 10,266,880 Fixed income 42,519,751 42,519,751 Public equities 70,439,200 70,439,200 Funds held in trust 24,900,925,

24,900,925 Funds held by trustee 26,123,452 26,123,452 Other 3,006,382 71,869 2,934,513 Total 177,256,590 149,421,152 24,900,925 2,934,513 In-vestments where NA V was used as a practical expedient to measure fair value:

Absolute return 131,704,534 Fixed income 31,349,897 Private equity 109,977,743 Private real assets 55,455,340 Private real estate 18,397,989 Public equities 137,228,256 Total 484,113,759 Total im.estments and other assets 661,370,349 149,421,152 24,900,925 2,934,513 Liabilities:

Interest rate swap 824,712 824,712 15 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The following table presents assets and liabilities that are measured at fair value on a recurring basis at June 30, 2017:

Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs Total

{Level 1)

{Level 2)

{Level 3)

Assets:

Cash and cash equivalents 3,183,982 3,183,982 Fixed income 32,246,526 32,246,526 Public equities 41,660,907 41,660,907 Funds held in trust 24,123,298 24,123,298 Other 2,712,371 58,165 2,654,206 Total 103,927,084 77,149,580 24,123,298 2,654,206 ln1.estments where NA V was used as a practical expedient to measure fair value:

Absolute return 129,249,069 Fixed income 27,289,787 Private equity 93,607,067 Private real assets 52,474,922 Private real estate 15,291,750 Public equities 156,918,453 Total 474,831,048 Total in1.estments and other assets 578,758,132 77,149,580 24,123,298 2,654,206 Liabilities:

Interest rate swap 1,325,840 1,325,840 Reed College's beneficial interest in irrevocable split-interest agreements held or controlled by a third party is classified as Level 1, Level 2, and Level 3 as the fair values are based on a combination of Level 1 inputs (observable market values of the trusts' investment portfolios), indirect observable inputs (Real Estate Investments Trusts), and significant unobservable inputs (real estate). The fair values are measured at the present value of the future distributions Reed College expects to receive over the term of the agreements.

Treasuries, registered bond mutual funds, registered large cap equity mutual funds, and money market funds are classified in Level 1 of the fair value 'hierarchy as defined above because their fair values are based on quoted prices for identical securities. Most investments classified in Levels 2 and 3 consist of shares or units in nonregistered investment funds as opposed to direct interests in the funds' underlying 16 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 securities. Even though these shares and units in nonregistered investment funds are classified in Levels 2 and 3, some of the underlying securities are marketable or not difficult to value. In addition to evaluating the inputs as described above, Reed College's ability to redeem its interest at or near the date of the statements of financial position is also considered in determining the level in which a fund's fair value measurement is classified. The inputs or methodology used for valuing or' classifying investments for financial reporting purposes are not necessarily an indication of the risks associated with those investments or a reflection of the liquidity of or degree of difficulty in estimating the fair value of each fund's underlying assets and liabilities.

The following table presents Reed College's activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended June 30, 2018 and 2017, respectively:

Balance at June 30, 2016 Total realized and unrealized losses Purchases, issuances, and settlements (net)

Balance at June 30, 2017 Total realized and unrealized gains Purchases, issuances, and settlements (net)

Balance at June 30, 2018 17 5,263,454 (334,609)

(2,*274,639) 2,654,206 23,182 257,125

$==2=, 9=3=4=,5=1=3=

(Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The following table presents information for investments where the NAV was used as a practical expedient to measure fair value at June 30, 2018:

Lockup Redemption Redemption Fair value eeriod freguenc:l notice eeriod Absolute return and public equities 12,841,173 Liquidating N/A N/A Public equities 81,198,681 1-month Monthly 5-15 days Absolute return 9,972,803 2 months Quarterly 60 days Absolute return 75,032,160 3 months Quarterly 30-75 days Public equities and fixed income 77,267,094 3 months Quarterly 60 days Absolute return 8,689,546 6 months Semi-annually 60 days Absolute return 3,491,255 6 months Annually 45 days Absolute return 22,026,913 9 months Annually 60-90 days Fixed income 9,763,062 Illiquid Private equity 109,977,743 Illiquid Private real estate 18,397,989 Illiquid Private real assets 55,455,340 Illiquid Total in\\estments where NAV was used as a

. practical expedient to measure fair value 484,113,759 18 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The following table presents information for investments where the NAV was used as a practical expedient to measure fair value at June 30, 2017:

Lockup Redemption Redemption Fair value eeriod freguenc~

notice eeriod Absolute return 9,633 Liquidating N/A N/A Public equities 17,767,597 15 days Semi-monthly 15 days Absolute return and public equities 89,629,013 1 month Monthly 10-30 days Absolute return 9,502,211 2 months Quarterly 60 days Absolute return, fixed income, and public equities 137,598,912 3 months Quarterly 30-75 days Absolute return 9,734,618 4 months Quarterly 85 days Absolute return 8,586,941 6 months Semi-annually 60 days Absolute return 8,979,471 3 months Annually 90 days Absolute return 4,071,800 6 months Annually 45 days Absolute return 20,985,587 9 months Annually 60-90 days Fixed income 6,591,526 Illiquid Private equity 93,607,067 Illiquid Private real estate 15,291,750 Illiquid Private real assets 52,474,922 Illiquid Total in-.estments where NAV was used as a practical expedient to measure fair value 474,831,048

, Reed College holds investments in private limited partnerships and certain fixed income commingled funds where NAV is used as a practical expedient to measure fair value at June 30, 2018. These investments do not allow for periodic redemptions, but rather distribute earnings at the discretion of the fund managers and fully liquidate upon the termination date as stated in the agreement. Therefore, these are considered illiquid.

19 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 (5) Property, Plant, and Equipment, Net Property, plant, and equipment at June 30, 2018 and 2017 consist of the following:

Land and land imprm.ements Buildings Construction in progress Equipment, furniture, and fixtures Less accumulated depreciation Net property, plant, and equipment 2018 14,219,852 208,270,507 7,871,750 15,597,027 245, 959, 136

{ 100, 132,202}

145,826,934

$============

2017 14,482,214 202,441,649 2,307,872 15,175,865 234,407,600

{94,751,804}

139,655,796 Depreciation expense was $5,768,913 and $5,542,900 for the years ended June 30, 2018 and 2017, respectively, and is allocated to the functional expenses based on the relative square footage of the departments.

(6) Long-Term Debt (a) Notes Payable During 2008, Reed College refinanced the 2006 and the 2007 State of Oregon Bonds in the amount of

$47,060,000. The 2008 State of Oregon notes mature on July 1, 2038 and bear interest based on a weekly basis set through the remarketing process.

Wells Fargo Bank is the liquidity facility provider for the 2008 Bond Issue should the bonds fail to remarket. The Liquidity Facility agreement was renewed in January 2018 for an additional five years and remains in effect until January 31, 2023, unless renewed or terminated pursuant to the terms and conditions set forth in the agreement.

Effective March 22, 2011, Reed College refinanced the 2000 State of Oregon Bonds in the amount of

$19,080,000 and borrowed an additional $20,950,000 to be used to finance the construction of a new performing arts building.

Effective December 5,' 2017, Reed College refinanced the 2011 State of Oregon Bonds in the amount of $40,030,000 and borrowed an additional $25,620,000 to be used to finance the construction of a new residence hall. A portion of the bond proceeds were deposited with a trustee in an irrevocable escrow trust account to service the 2011 State of Oregon Bonds until July 1, 2020, which is the earliest date the bonds are callable. As of June 30, 2018, Reed College had $43,262,923 on deposit with the trustee. The defeased bonds and the related trust are not reflected in the accompanying financial statements.

20 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Notes payable are summarized as follows:

2008 State of Oregon notes 2011 State of Oregon notes 2017 State of Oregon notes Unamortized premium (discount)

Unamortized issuance costs Total Principal payments on the notes payable become due as follows:

2017 State of Oregon notes 2019 2020 2021 2022 2023 Thereafter 65,650,000 65,650,000 2018 2017 36,345,000

~;

37,760,000 40,030,000 65,650,000 101,995,000 77,790,000 8,681,400 (365,988)

{449,501}

{309,648}

110,226,899 77,114,364 2008 State of Oregon notes Total 1,465,000 1,465,000 1,535,000 1,535,000 1,595,000 1,595,000 1,670,000 1,670,000 1,720,000 1,720,000 28,360,000 94,010,000 36,345,000 101,995,000 Interest on the State of Oregon notes payable and amortization of premium, discount, and issuance costs are as follows:

2018 Interest 2,106,638 Amortization of premium, discount, and issuance costs (153,928}

Total interest cost 1,952,710

==

Amortization is calculated over the life of the notes.

(b) Interest Rate Risk Management 2017 2,255,832 31,149 2,286,981 In order to take advantage of fluctuations in long-term interest rates, Reed College has entered into an interest rate swap agreement with a notional amount $16,650,000, which allows Reed College to change the variable interest rate to a fixed interest rate on the State of Oregon notes payable.

/'

21 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 In June 2006, Reed College issued $16,650,000 of auction rate debt through the Oregon Facilities Authority. Reed College entered into an interest rate swap of like term, amortization, and notional amount with an investment bank to hedge this underlying variable rate debt. Reed College has subsequently refinanced the 2006 notes, however, retained this swap arrangement for interest rate risk management. Pursuant to this swap, Reed College works with a consulting firm to aid in monitoring changes in interest rates and the impact they may have on Jong-term debt.

During the years ended June 30, 2018 and 2017, $282,119 and $584,163 was paid, respectively, and is recorded in the statements of activities and changes in net assets as other investment gains. The change in unrealized gain and Joss on the swap agreements for the years ended June 30, 2018 and 2017 was a gain of $501,128 and $679,911, respectively, and is recorded in the statements of activitie$

and changes in net assets as other investment gains. The fair value of the swap agreement as of June 30, 2018 and 2017 was a liability of $824,712 and $1,325,840, respectively, and is recorded in the statements of financial position as other long-term liabilities.

(7) Retirement and Postretirement Benefits (a) Retirement Plan Reed College has a defined-contribution pension plan administered through Teachers Insurance and Annuity Association - College Retirement Equities Fund. Employees are able to voluntarily contribute funds to this plan beginning on the first day of employment provided they are not students. Employees are eligible for fixed employer contributions the first month following the completion of a year of service, and must have attained the age of twenty-one. Participants are immediately vested in their employee and employer contributions and earnings thereon. Reed College's policy is to fund pension expenses as incurred. Expenditures relating to the plan were $3,629,026 and $3,522,177 for the years ended June 30, 2018 and 2017, respectively, and are included in education and general expenses in the accompanying statements of activities and changes in net assets.

(b) Defined Benefit Retiree Medical Insurance Plan Reed College maintains a defined benefit retiree medical insurance plan which is not funded.

Employees hired after June 30, 2006 do not participate in this plan. In order to participate, employees hired prior to September 2, 2001 must retire from Reed College at or after age 55 with at least 10 years of continuous service. In order to participate, employees hired between September 1, 2001 and June 30, 2006 must retire from Reed College at or after age 55 with 20 years of continuous service.

Participating retirees have the option of continuing to be insured by either Pioneer Educators Health Trust or a supplemental Kaiser plan. Both plans are supplemental to Medicare. Participating retirees who retired prior to peptember 2, 2001 and spouses/domestic partners are covered for their lifetime. All other participating retirees are covered at the lowest premium plan for their lifetime and spouses/domestic partners are covered at the rate of 50% of the lowest premium plan for their lifetime.

Employer premium expenses were $755,896 and $673,927 for the years ended June 30, 2018 and 2017, respectively.

22 (Continued)

THE REED INSTITUTE Notes Jo Financial Statements June 30, 2018 and 2017 The accrued liability for postretirement benefits at year-end is as follows:

2018 Change in benefit obligation:

Benefit obligation at beginning of year 26,680,433 Service cost 440,767 Interest cost 1,047,559 Benefits paid (755,896)

Actuarial gain (980,810)

Benefit obligation at end of year and funded status 26,432,053 Amounts recognized in the*balance sheet consist of:

Postretirement benefits payable - current 1,077,870 Postretirement benefits payable 25,354,183 26,432,053 2017 29,921,899 527,516 1,059,953 (673,927)

(4,155,008) 26,680,433 992,668 25,687,765 26,680,433 Net periodic benefit cost for the years ended June 30 included the following components:

2018 2017 Service cost Interest cost Recognition of actuarial gain Net periodic benefit cost 440,767 1,047,559 (980,810) 507,516 527,516 1,059,953 (4,155,008)

(2,567,539)

Service cost is included in education and general expenses and the other components of net periodic postretirement benefit are included in nonoperating activity in the accompanying statements of activities and changes in net assets.

23 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Reed College used the following actuarial assumptions to determine its employee benefit obligations at and net periodic benefit cost for the years ended June 30, 2018 and 2017, as measured at June 30:

Benefit obligation:

Weighted average discount rate Rate of increase in per capita cost of covered healthcare benefits Net periodic benefit cost:

Weighted average discount rate Rate of increase in per capita cost of covered healthcare benefits 2018 4.1%

5.5% trending to 4.0% in 2022 4.0%

6. 0% trending to 4.0% in 2022 2017 4.0%

6.0% trending to 4.0% in 2022 3.6%

6.5% trending to 4.0% in 2022 Reed College's policy is to fund the plan as claims payments are made. In the 2018-2019 fiscal year, Reed College expects to contribute, from ongoing cash flows and current assets, $1,077,870 to the plan. Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows for the years ending June 30:

Year ending:

2019 2020 2021 2022 2023 2024-2028 (c) Emeriti Retiree Defined-Contribution Health Plan 1,077,870 1,110,348 1,142,902 1,171,339 1,193,309 6,577,039 Reed College has a defined-contribution retiree health plan for employees hired on or after July 1, 2006. Reed College makes contributions on each eligible employee's behalf once the individual reaches the age of 40 years. Employees are also eligible to make discretionary after-tax contributions to their account if the individual is 21 years or older. Employees are eligible to receive benefits from the plan if the employee has attained age 55 years and achieved 20 years of continuous service to Reed College. Employer expenses related to this plan were $696,820 and $694,692 for fiscal years ended June 30, 2018 and 2017, respectively, and are included in education and general expenses in the accompanying statements of activities and changes in net assets.

(8) Funds Held in Trust by Others Reed College has been named beneficiary of a portion of the remainder of three trusts maturing at specified dates in the future. These trusts are administered by other entities. Reed College revalues the receivables using the fair value of expected future cash flows. At June 30, 2018 and 2017, the trusts receivable were $1,291,022 and $1,228,996, respectively, and were reported as noncurrent funds held in trust by others in the statements of financial position.

24 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 (9) Contributions and Accounts Receivable Contributions receivable consist of the following:

Annual fund Campaign Endowment Facilities Gross contributions receivable 2018 1,124,502 3,146,949 4,557,067 60,000 8,888,518

==

Contributions receivable reported on the statements of financial position were as follows:

Current:

Gross contributions receivable Less allowance for doubtful accounts Total current net contributions receivable Long-term (one to fi-.e years):

Gross contribution~ receivable Less allowance for doubtful accounts Net long-term contributions receivable Less discount to present value Total long-term net contributions receivable Total net contributions receivable 2018 3,184,334 (159,000) 3,025,334 5,704,184 (274,000) 5,430,184 (220,486) 5,209,698 8,235,032

$=============

2017 1,293,184 2,530,025 3,478,942 175,000 7,477,151 2017 2,940,515 (86,000) 2,854,515 4,536,636 (285,000) 4,251,636 (84,241) 4,167,395 7,021,910 Contributions receivable due in excess of one year are discounted at 1.92% to 2.30% and 1.07% to 1.62%

for the years ended June 30, 2018 and 2017, respectively.

Of the net unconditional promises to give included above, $5,669,394 represents an unconditional pro,mise to give from 6 members of the Reed College board of trustees due in one to three years.

25 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Accounts receivable consist of the following at June 30, 2018:

Unrestricted Restricted Loan fund Current:

Student accounts receivable 46,928 Related parties 44,464 Other receivables 195,774 428,302 242,702 472,766 Noncurrent:

Student accounts receivable 8,832 Reed loans 1,177,107 Related parties 5,320 Federal Perkins loans 2,740,699 3,931,958 Less allowance for doubtful accounts

{60,239}

242,702 472,766 3,871,719 Accounts receivable consist of the following at June 30, 2017:

Unrestricted Restricted Loan fund Current:

Student accounts receivable 246,971 Related parties 38,977 Other receivables 205,275 235,397 452,246 274,374 Noncurrent:

Student accounts receivable 5,276 Reed loans 1,145,166 Related parties 8,365

• Federal Perkins loans 2,833,385 3,992,192 Less allowance for doubtful accounts (60,239) 452,246 274,374 3,931,953 26 Endowment Total 46,928 17,101 61,565 624,076 17,101 732,569 8,832 1,177,107 5,320 2,740,699 3,931,958

{60,239}

17,101 4,604;288 Endowment Total 246,971 190,463 229,440 51,810 492,482 242,273 968,893 5,276 1,145,166 8,365 2,833,385 3,992,192 (60,239) 242,273 4,900,846 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 The Federal Perkins Loans and Reed loans are generally payable at interest rates of 5% to 9% over approximately ten years. Repayment begins after a designated grace period following the student's college attendance. Principal payments, interest, and losses due to cancellation are shared by Reed College and the U.S. government in proportion to their share of funds provided. The Federal Perkins Loan program.

provides for cancellation of loans if the student is employed in certain occupations following graduation (employment cancelations). Such employment cancellations are absorbed in full by the U.S. government.

Congress did not renew the Federal Perkins Loan Program after September 2017, and the transition period permitting disbursements ended on June 30, 2018. Institutions have the option to either continue to service the outstanding loans and remit excess cash periodically to the Department of Education or liquidate the portfolio, which would include assigning remaining loans to the federal government and forfeiting the institution's remaining net assets (institutional capital contribution). Reed College intends to continue servicing the outstanding Perkins loans.

(10) Net Assets At June 30, 2018 and 2017, net assets consisted of the following:

Unrestricted:

Operating and designated for special programs Institutional loan programs Funds functioning as endowment Accumulated quasi-endowment gains Net im.estmenfin plant Total unrestricted Temporarily restricted:

Educational and general programs Annuity and life income funds Accumulated endowment gains Other temporarily restricted net assets Total temporarily restricted Permanently restricted:

True endowment funds Annuity and life income funds Total permanently restricted 27 2018 9,637,445 5,431,355 113,239,818 180,127,677 58,649,914 367,086,209 13,560,084 8,690,172 89,118,405 4,009,516 115,378, 177 173,097,568 5,718,659 178,816,227 2017 13,616,276 6,195,624 109,797,816 159,683,982 57,797,281 347,090,979 13,175,206 8,486,-107 79,977,836 3,761, 1.64 105,400,313 166,759,460 5,075,006 171,834,466 (Continued)

(11) Endowments THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 At June 30, 2018, Reed College's endowment consisted of approximately 485 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowments and funds designated by Reed College to function as endowments (quasi-endowments). Quasi-endowment funds do not have donor restrictions and may be expended at the discretion of Reed College. As required by U.S. GAAP, net assets associated with endowment funds, including quasi-endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions.

Interpretation of relevant law - The State of Oregon has enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA or the Act), the provisions of which apply to endowment funds. Reed College has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. Reed College classifies as permanently restricted net assets: (a) the original value of gifts to donor-restricted endowments and (b) any other amounts added to donor-restricted endowments that donors have stipulated are not expendable. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by Reed College in a manner consistent with the standard of prudence prescribed by UPMIFA.

Income and net gains on investments of endowment and similar funds are reported as follows:

Increases in permanently restricted net assets if the terms of the gift or Reed College's interpretation of relevant state law require they be added to the principal of a permanently restricted net asset.

Increases in temporarily restricted net assets if the terms of the gift impose restrictions on the use of the income or if endowment income has not yet been appropriated for expenditure.

Increases in unrestricted net assets in all other cases.

If losses reduce the assets of a donor-restricted endowment fund below the donor-restricted corpus, temporarily restricted net assets are reduced until the accumulated gains associated with a fund are reduced to $0. At that point, further losses reduce unrestricted net assets. The value of donor-restricted endowment funds with a fair value of associated assets that is less than the original gift amount is

$299,319 and $803,491 for the years ended at June 30, 2018 and 2017, respectfully. Future gains that restore the corpus value will be recorded as increases in temporarily restricted net assets after replacing any losses charged to unrestricted net assets.

Investment and spending policies - To enable broad diversification and economies of scale, Reed College's policy is to poof endowment assets for investment purposes to the fullest extent possible as permitted by gift agreements and applicable government regulations. 1 Reed College's pooled endowment provides ongoing financial support for operations that will remain stable (or grow) in real or inflation-adjusted terms, as adjusted for new additions to the pooled endowment. The primary investment objective of the pooled endowment is to provide a sustainable maximum level of return consistent with prudent risk levels. The overall, long-term investment goal of the pooled endowment is to achieve an annualized total return that balances short-term spending needs with the preservation of the real (inflation-adjusted) value of assets. Investments are diversified across a wide range of asset classes, including those providing return premiums for illiquidity, so as to provide a balance that will enhance total 28 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 return under a range of economic scenarios, while avoiding undue risk concentrations in any single asset class or investment category. Sufficient liquidity in the endowment portfolio to meet the spending policy and operational needs, preserve Reed College's desired credit ratings, and maintain compliance with any debt agreements, is also considered when making investment decisions regarding asset allocation.

In accordance with the Act, Reed College considers the following factors, among others, in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and preservation of the fund; (2) the purposes of Reed College and the donor-restricted endowment fund; (3) general economic conditions; (4) the possible effect of inflation or deflation; (5) the expected total return from income and the appreciation of investments; (6) other resources of Reed College; and (7) the investment policies of Reed College.

Pooled endowment spending is determined using the total return concept. The policy on spending endowment income is to spend 5.15% and 5.20% over a rolling 13-quarter moving average of the fair value or market value of the endowment assets for fiscal years 2018 and 2017, respectively.

Endowment net assets by type of fund as of June 30, 2018:

Donor-restricted endowment funds Board-designated endowment funds Total funds Unrestricted (299,319) 293,666,814 293,367,495 Temporarily restricted 89,118,405 89,118,405 Endowment net assets by type of fund as of June 30, 2017:

Temporarily Unrestricted

) restricted Donor-restricted endowment funds (803,491) 79,977,836 Board-designated endowment funds 270,285,289 Total funds 269,481,798 79,977,836 29 Permanently restricted 173,097,568 173,097,568 Permanently restricted 166,759,460 166,759,460 Total 261,916,654 293,666,814 555,583,468 Total 245,933,805 270,285,289 516,219,094 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Changes in endowment net assets for the years ended June 30, 2018 and 2017 are as follows:

Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, July 1, 2017 269,481,798 79,977,836 166,759,460 516,219,094 lm.estment return:

Net im.estment gain 183,786 111,102 294,888 Net appreciation of im.estments 29,563,129 21,298,025 50,861,154 Contributions 8,183,037 3,394,974 11,578,011 Contributions from trust terminations 145,769 46,690 192,459 Appropriation of endowment assets for expenditure (15,110,710)

(12,268,558)

(27,379,268)

Transfers to create board-designated endowment fund 1,609,104 1,609,104 Transfers and other reclassifications

{688,418) 2,896,444 2,208,026 Endowment net assets,

. June 30, 2018 293,367,495 89,118,405 173,097,568 555,583,468 Temporarily Permanently Unrestricted restricted restricted Total Endowment net assets, July 1, 2016 241,736,454 66,809,331 165,167,675 473,713,460 lm.estment return:

Net im.estment gain 364,674 292,929 657,603 Net appreciation of investments 35,713,258 26,037,403 61,750,661 Contributions 1,146,417 1,255,381 2,401,798 Contributions from trust terminations 952,243 47,775 1,000,018 Appropriation of endowment assets for expe11diture (15,116,804)

(12,142,834)

(27,259,638)

Transfers to create board-designated endowment fund 3,290,000 3,290,000 Transfers and other reclassifications 1,395,556 (1,018,993) 288,629 665,192 Endowment net assets, June 30, 2017 269,481,798 79,977,836 166,759,460 516,219,094 30 (Continued)

(12) Commitments and Contingencies THE REED INSTITUTE Notes to Financial Statements June 30, 2018 and 2017 Reed College has placed certain of its medical and dental insurance coverage with the Pioneer Educators Health Trust (PEHT), formulated by seven Oregon colleges and universities for the purpose of providing medical and dental insurance to higher education institutions. Under the agreement, member institutions are required to make contributions to the fund at such times and in an amount as determined by the board of trustees for the various benefit programs sufficient to provide the benefits, pay the administrative expenses of the Plan, which are not otherwise paid by Reed College directly, and to establish and maintain a minimum reserve as determined by the board of trustees. In the event losses of PEHT exceed its capital and secondary coverages, the maximum contingent liability exposure to Reed College is approximately

$464,000. This exposure fluctuates based on changes in actuarial assumptions, medical trend rates, and reinsurance amounts. The level of reinsurance is not expected to fluctuate significantly in the future. The trustees of the PEHT plan have elected to terminate the plan effective March 14, 2018. The Plan will continue to provide benefits to participants for claims incurred up to March 31, 2019. The final liquidation of the pla11 is anticipated to be completed by the end of 2020.

From time to time, Reed College is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, most of these claims and legal actions are covered by insurance and the ultimate disposition of these matters will not have a material effect on Reed College's financial position, statements of activities and changes in net assets, or cash flows.

(13) Split-Interest Agreements The following schedule summarizes the change in value and its presentation in the statements of activities as related to the change in value of split-interest agreements:

Dividends and interest Beneficiary *payments lm.estment fees Net realized gain Net unrealized gain Total.change in value (14) Fund-Raising Expense 2018 506,195 (1,393,586)

(207,432) 1,053,863 719,617 678,657

$==========

2017 429,679 (1,241,871)

(266,354) 961,958 1,628,419 1,511,831 Reed College expended $3,169,890 and $3,246,450 for the years ended June 30, 2018 and 2017, respectively, for payroll and benefits, informational materials, travel, and special events relating to fund-raising activities. These costs are all classified as public affairs in the statements of activities and changes in net assets.

(15) Subsequent Events Reed College has evaluated subsequent events from the statement of financial position date through October 8, 2018, the date at which the financial statements were issued, and determined that there are no other items to disclose.

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