ML21160A180

the Reed Institute, Financial Statements June 30, 2020 and 2019 (with Independent Auditors' Report Thereon)

ML21160A180
Person / Time
Site:	Reed College
Issue date:	10/05/2020
From:	KPMG, LLP
To:	Office of Nuclear Reactor Regulation
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ML21160A178	List: ML21160A179 ML21160A180
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2021-044
Download: ML21160A180 (35)

Text

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, THE REED INSTITUTE

- Financial Statements June 30, 2020 and 2019 (With Independent Auditors' Report Thereon)

THE REED INSTITUTE Table of Contents Page(s)

Independent Auditors' Report 1

'- ' I Statements of Financial Position 2 Statement of Activities and Changes In Net Assets - Year ended June 30, 202'0 3 Statement of Activities and Changes In Net Assets -Year ended June 30, 2019 4 Statements of Cash Flows _,

5 Notes to Financial Statements 6-32

KPMG LLP Suite 3800 1300 South West. Fifth Avenue Portland, OR 97201 In~ependent Auditors' Report The Board of Trustees The Reed Institute:

We have audited the accompanying financial statements of The Reed Institute (an Oregon nonprofit corporation), which comprise the statements of financial position as of June 30, 2020 and 2019, 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 staten1ents. *

• 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 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' judgment, 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 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 appropiriate 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, 2020 and 2019, and the changes In its net assets and its cash flows for the years then ended In accordance with U.S. generally accepted accounting principles.

October 5, 2020

) K.PMG LLP. a Dei~v.*11rn WTT11ted lR11ity partnership Pfld ft member firm of 1he KPMG qlobal 0<g1,r117ohoo of ,ndapenden1 member hrrm Bff1ila1ed With KPMG lnternitKHlAI L1rnled, a pnv..te Engln;h company imrted by guarantee

THE REED INSTITUTE statements of Financial Position June 30, 2020 and 2019 Assets 2020 2019 Current assets:

Cash and cash equivalents $ 16,718,753 11,723,412 Accounts receivable,- net 1,374,144 1,048,231 Contributions recelvable, net 3,873,267 2,002,294 Funds held by trustee 2,240,622 Short-tern, Investments 14,982,366 13,531,888 Prel'?ld expenses and other assets 860,100 . 888,714 Total current assets 37,798,619 31,433,161 Noncurrent assets:

Cash and cash equivalents whose use ls limited ,639,546 884,647 Accounts receivable, net 2,868,916 3,312,233 Contributions receivable, net 8,162,478 3,420,619

"\ Funds held In trust by others 1,316,648 1,289,567

, Long-term Investments 617,872,507 626,096,674 Property, plant, and equipment, net 163,180_,074 162,601,668 Other assets 169,344 188,782 Total noncurrent assets 794,108,513 796,793,880 Tota,laaeete $ 831,907,132 828~7,041 Llabllltlea and Net Assets Current lfablhtJee:

Accounts payable and accrued llabUltles $ 8,462,337 8,581,571 Poetretlrement benefits payable 923,878 862,376 Debt, current portion 1,869,830 1,809,830 Deferred revenue 2,906,660 1,517,153 Total current ITabliltJee 14,151,606 12,760,930 r

Long-term hab1lrtlee:

l.Jabllrty for spht-tnterest -agreements 11,064,975 11,683,766 Postretlrement benefits payable 33,174,581 29,328,686 Refundable loan programs 1,076,622 1,883,723 Asset retirement obligation 6,923,001 3,101,047 Debt, net of current p_or:Hon 104,807,408 106,677,239 Other llabliltles I 1,721,968 1,869,103 Total long-term llabll ltles 167,788,646 164,523,443 Total habllltles 171,920,160 167,284,373 Net assets:

Without donor restrictions 380,030,973 366,475,437 With donor restrictions:

Thne or purpose 108,303,229 111,659,446 Perpetual 191,652,780 182,807,786 Total net assets with donor restrictions 299,956,009 294,467,231 Total net assets 659,986,982 660,942,668 Total llabllltlee and net assets $ 831,907,132 828,227,041 See accompanying notes to financial statements.

2

THE REED INSTITUTE I "

statement of Activities and C~ges In Net Assets Year ended June 30, 2020 Without donor With donor Total restrictions restrictions 2020 Revenues, gains, and other support.

Tu11Jon and fees, net of $29,393,734 In college-funded scholarships $ 52,914,873 52,914,873 Awahary enterpnses 13,105,738 13,105,738 Gifts and private grants 12,461,832 13,996,448 26,458,280 Government grants, contracts, and student aid 1,867,328 1,867,328 Endowment return, appropriated for spending 15,~70,000 12,654,580 28,024,580 Other Investment gains 823,892 823,892 Other revenues and additions 119461196 62 717 2,008,913 Subtotal 46,574,986 26,713,746 72,288,731 Net assets released from restnctlons 1213251042 (121325,042}

Total revenues, gifts, and other support 11018141901 14,388,703 125,203,604

• Expenses*

Educational and general:

Instructlon 37,757,300 37,757,300 Research 1,752,061 1,752,061 Acaclern1c support 14,295,261 14,295,261 General lnstltullonal support 9,228,648 -, 9,228,648 Student services 13,308,290 13,308,290 College relations 7,782,074 7i782l074 Total educatlonal and general 84,123,634 84,123,634 Auxiliary enterpnses 1814821876  ::;-. 18,4821876 Total operating expenses 102,6061510 1021606,510 Increase from operations 8,208,391 14,3881703 22,597,094 Nonoperatlng activity:

Endowment return, net of amounts appropriated for spending (10,341,499) (8,618,495) (18,969,994)

Change In value of spllt;nterest agreements (732,444) (732,444)

Net period benefit cost, net of servtce cost (3,975,351)' (3,975,351)

Other deducbons and transfers (336,006} 461,014 1151009 Total nonoperatlng activity (14,652,855} (8,899,925} (23,552,780}

(Decrease) lnaease In net assets (6,444,464) 5,488,778 (955,686)

Net assets, beginning of year 366,475,437 294,467,231 660,9421688 Net assets, end of year $ 360,030,973 299,956,009 65919861982 See accompanying notes to financial statements I'

3

THE REED INSTITUTE Statement of Actlvltles and Changes In Net Assets Year ended June 30, 2019 Without donor With donor Total restrlctlona 1'98trlctions 2019 Revenues, gains, and other support Tuftlon and fees, net of $28,992,930 In college-fimded scholarships $ 51,747,823 51,747,823 Auxlhary ehterpnses 15,083,123 15,083,123 Gifts and private grants 6,052,840 5,201,143 11,253,983 Government grants, contracts, and student aid 1,534,536 1,534,536 Endowment return, appropriated for spending 15,209,080 12,367,505 27,576,585 Other Investment gains 1,222,591 1,222,591 other revenues and additions 1,570,822 4194 1,6751016 Subtotal 40,672,992 17,572,642 58,245,834 Net assets released from restrictions 15,3041555 (1513041555)

Total revenues, gifts, and other support ' ' 107,7251370 2,2681287 I 1091993 1657 Expenses:

Educational and general:

Instruction 37,139,203 37,139,203 Research 1,570,330 1,570,330 Academic support 13,180,403 13,180,403 General 1nst1ttrt1onal support 8,628,238 8,628,238 Student services 12,606,487 12,606,487 College relatlons 7,830,345 7,830,345 Total educational and general 80,955,006 80,955,006 Auxfi1ary enterpnses 1719481238 171948,238 Total operating expenses 9819031244 9819031244 Increase from operations 8,822,126 2,268,287 11,090,413 Nonoperatlng acbvlty:

Endowment return, net of amounts appropriated for spending (5,735,667) (2,360,010) (8,095,677)

Change In value of splrt-mterest agreements 518,999 518,999

,Net penod benefit cost, net of service cost (4,152,615) (4,152,615)

Other deducbons and transfers 1561065 144 870 3001935 Total nonoperatlng activity (9,732~17) (1,696,141) (11,4281358)

(Dea'ease) Increase In net assets (910,091) 572,146 (337,945)

Net assets, beginning of year 367,385,528 293,895!086 661,280,613 Net assets, end of year $ 366,475!437 294i4a1 1231 66019421668 See accompanying notes to flnandal statements.

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THE REED INSTITUTE Statements of Cash Flows Years ended.June 30, 2020 and 2019 2020 2019 Cash flows from operating activities:

Decrease In net assets $ (955,686) (337,945)

Adjustments to reconcile decrease In net assets.to net cash used In operatmg actlvrtres:

Depreciation and amortlzabon 6,282,223 6,620,806 Amortlzabon of bond premium and Issuance cost (274,830) (274,830)

Loss on disposal of assets 269,486 Contr1bubons restricted for long-t81TTI Investment (4, 1_89,009) (1,215,563)

Noncash contnbutions (6,224,315) (6,779,150)

Net reahzed and unreahzed gain on Investments end splrt-mterest agreements (9,311,881) (21,460,357)

Actuarial adjusbnerrts of llabllltles for spilt-lnterest agreements 130,952 784,252 Change In asset retiremerrt obligation 27,475 27,476

\ Changes In operating assets and llabllltles that provided (used) cash:

Accounts recelvable 115,404 246,824 Contr1bubons* receivable (6,612,932) 2,812,219 Prepaid and other 39,416 (261,540)

Accounts payable and accrued llabllltles (129,234) 173,939 Postretlrement benefits payable 3,917,517 3,748,889 Deferred revenue) 1,388,407 310,032 1

Other llabllltles (1471145) (404,425)

Net cash used m operating actlvlbes (14,674,153) (16,010,374)

Cash flows from lnvestlng acbvrtJes*

Proceeds from maturities/sales of 1nvesbnents 144,777,579 135,645,264 ,

Purchase!j of Investments (125,463,922) (115,538,846)

Contracts receivable collected 30,970 35,745 Contracts receivable advanced (12,333) ( (20,900)

Purchase of property, plant, and equipment (4,335,735) (22,395,440)

Net cash provided by (used In) Investing activities 14,9961559 (2,2741177)

Cash flows from financing activities.

Contributions restricted for long-t81TTI lnvestmerrt 4,189,009 1,215,563 Payment of debt principal (1,636,000) (1,465,000)

Payments on spilt-Interest agreements (1,385,489) (1,361,840)

Investment Income subject to splrt-1nterest agreemerrts 404,632 445,571 New hab1litles related to spilt-Interest agreements 55,200 101,066 Changes In govemmerrtal loan fl:!!lds (787,101) 43,675 Draw on deposit with bond trustee 2,240,623 23,882,830 Net cash provided by financing acbvlbes 3,181,874 22,871,865 Net mcrease In cash and cash equivalents 3,504,280 4,587,314 Cash and cash equivalents and cash whose use Is hmrted, beginning of year 15,904,492 11,3171178 Cash and cashequivalents and cash whose use Is limited, end of year $ 19,408,772 15,904,492 Supplemental disclosure of cash flow Information:

Interest paid; net of amounts capltallzed ' $ 3,403,539 2,382,281 Asset retirement obhgatJons 2,794,479 See accompanying notes to financial statements.,,

5

THE REED INSTITUTE Notes' to Financial Statements June 30, 2020 and 2019 (1) Background The Reed Jnstltute (Reed College) was founded in 1908 by Slr:!leon and Amanda Reed, with one central commitment to provide a balanced, compreher:isive education In liberal arts and sciences, fulfllllng the highest *standards of intellectual excellence. Reed College offers a' B.A. in one of 25 major fields and numerous l,nterdlsciplinary fields, as well as a master of arts in liberal studies degree. The Reed CollegE!

educatlonal 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.

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(2) Summary of Significant Accounting pollcles (a) Basis of Accounting 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 cla~ified based on the existence ~r absen,ce of donor-imposed restrictions. The definitions used to classify and report net assets are as follows:

• ~ithout donor restrictipns - Net assets that are not subject to donor-imposed stlpulations or donor-restricted contributions whose restrictions are met in the same reporting period

• With donor restrictions: time or purpose - Net assets subject to donor-imposed stlpulations that will be met by either actions of Reed College or the passage of time

• With donor restrictions: perpetual --: Net assets subject to donor-imposed stlpulations that they be permanently maintained by Reed College; generally, ,the donors pf these assets permit Reed College to use all or part of the Income earned on related investments for genera! or specific purposes.

Revenues are reported as increases in net assets without donor restrictions unless their use Is limited by donor-Imposed restrictions. All 'expe'nses are reported as decreases In net assets without donor restrictions except for activity related to life income agreements. Gains and losses on investments and

- other assets or liabilities are reported as Increases or decreases in net assets without donor restrictions

- unless their use is restricted either by donor stipulation or by law. Expirations of restrictions on net assets when the donor-stipulated purpose has been fulfilled and/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 change,s 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 Filnancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 958-205, Not-for-Profit, Er]tities - 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 (UfMIFA) and also requires disclosures about endowment funds, both donor-restricted endowment funds and board-designated endowment funds.

See note 12 for further disclosures. '

6 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 (c) Measure of Operations Reed College's increase from operations includes all operating revenues and expenses that are an integral part of Its programs and supporting activities, net assets released from donor restriction to support operating expenditures, and transfers from board-d~ignated arid other nonoperating funds to support*current operating activities. The measure of operations excludes Investment return in excess of amounts made available fo,r current u~.

(cl) Use of Estimates Tl:,e 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 llabllltl~ and disclosure of contingent assets and llabllltles at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actuat results could differ from those estimates. -

(e) Revenue Recognition

• Tuition and fees - Reed College's operating revenue is primarily derived from academic programs

. provided to undergraduate students. Tuition and fees reven,ue Is earned for these educational services delivered during an academic term. Tuition and fees are earned over the applicable term and are not" considered separate performance obligations. Reed College provides financial assistance In the form of scholarships or grants b~sed on the recipients', demonstrated need. The financial asslstan~ is reflected as a reduction of tuition and fees revenues and represents the difference bar.wen the stated charge for tuition and fees and the amount that is bllled to the student.

' I The amount of tuition and' fees and college-funded scholarships for the years ended June 30, 2020 and ,

2019, respectively, _are ~s follows: (

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2020 2019 Tuitjon and fees $ 82,308,607 - 80,740,753 College-funded scholars hips (29,393,734) (28,992,930)

Net tuition and fees $ 52,914,873 51,747,823

' ( '

Academic terms are determined by regulatory requirements mandated by the federal government _

~nd/or applicable accrediting body. Reed College's academic terms consist of fall and spring. The '

academic terms have start and end dates that fall within Reed College's fiscal year.

' ' I Reed College bills tuition and fees In advance of each academic term and recognizes the tuition and fee revenue on a straight-line basis, as the educational services are performed, over the academic term. Students are typically entitled to a partial refund through approximately the first half of an academic term.

Students pay tuition and fees (net of sc~'olarshlps) through a variety of funding sources, Including, among others, federal loan and grant programs, state grant programs, lnstltutlonal payment plans, private anct institutional scholarships and borrowings, and cash payments.

7 <,~ontinu'ed}

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 _

Auxiliary enterprises - Auxillary enterprises consist prlmarlly of f~s for room and dining services (board) during the student's education. Reed College considers room fees and dining services to have separate performance obligations. I Room fees are charged a_t different rates for dormiton'es and apartments. Room fees are billed in advance of each academic term and recognized as ravenue on a straight-line basis over the period housing is provided. While Reed College believes the residential experience is an integral part of a *,

student's education, It Is be'lleved to be a distinct performance obligation from the academic services.

Dining service fees are charged at different rates depending on the meal plan selected for the term of the agreement. Dining services are bllled In advance of_each academic term and are recognized as revenue ratably over the period during which the dining services are offered.

In addition to room and board, auxiliary services include revenue earned from the bookstore and for various conference *services offered by Reed College. Revenue from the sale of these goods and services is recognized once the performance obligations are complete.*

\

Gifts and private grants - Contributions, including unconditional promises to give, are recognized as revenues in the period received. 9<>nditional promise~ to give are not recognized until they become unconditional.

r Government grants and contracts - Individual governmental and private grant arrangements are nonreciprocal ang are, therefore, consld~red contributions. The granting entity has not received a direct benefit In exchange for the resources provided. Revenue. is recognized when the barrier to entitlement Is overcome, which is wh-en expenditures associated with each grant are determined to be allowable, and all other significant conditions of the grant are met.

,) '  ;

Investment return - Investment income' or loss (Including realized afld unrealized gains and losses on investments, interest, and dividends), net of Investment expenses Is Included In operating revenues, gains, and other support and nonoperating activities without donor restrictions unless the l11come or loss is restricted by donor, law, or endowment spending.

(f) Investments

' ~

_Investments in marketable equity securities with readily determlnable fair values and all investments In debt securities are~ carried at fair value. Certain investments do not have readily determinable fa.Ir values Including private Investments, fixed-income Investments, absolute return investments, and investments in equities. Net asset value (NAV), In many Instances, may not equal the price for which ,

the asset could be exchanged or settled on the measurement date.

Realized and unreallzed gains and losses arising from the sale, collection, or other disposition of investments, as well as all dMdends, 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 net assets without donor restrictions if the restrictidns are met In the same reporting period that the gains and Income are recognized. Losses *on investments related to gifts that the donor required to be Invested In perpetuity (i.e., endowment funds) are classified as decreases In net assets witlJ donor restrictions.

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8 (Continued)

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THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 (g) Spilt-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 '

principal and interest revert to Reed College. Assets contributed are recorded at fair value. In addlflon, 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 uncectalntles and are not changed after the date of the gift. Annual adjustments are made between the llablllty 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 restricted on the basis of time or restricted in perpetuity 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 sta~es* laws. The total held In separate reserve funds was $5,585,860 and $6,089,907 as of June 30, 2020 and 2019, respectively. The amount included to meet future payments under gift annuity contracts in liability for split-interest agreements was

$2,533,491 and $2,657,028 as of June 30, 2020 and 2019, respectively.

(h) Contributions Receivable Unconditional promises to give (contributions) are recorded as gifts and private grant income and contributions recetvable. 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 estimated 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 fundraising actMty. 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.

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

(i) Derivative Instruments Reed College accounts for derivatives in accordance with FASB ASC Subtopic 815-10, Derivatives and Hedging - Overall, 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).

OJ 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 llfe of the asset Routine repair and maintenance expenses and equipment replacement costs are expensed as incurred.

9 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 (k) Capitalized Interest Interest costs Incurred on debt during the construction of major projects exceeding one year are capitalized. During fiscal years 2020 and 2019, the amount of Interest capitalized amounted to $0 and

$1,129,347, respectively. *

(

(/) Donated Materials Donated materials are Included In the statements of aptivitles 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.

(m) 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 business income tax, if any, is immaterial, and therefore, no tax provision has been m~de. Reed College accounts for Income taxes In accordance with FASB ASC Subtopic 740-10, Income Taxes - Overall, which c,larifies the accounting for uncertainty in income taxes recognized In an enterprise's financial statements and prescribes~ threshold of *more*llkely than not for recognitiqn 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, derecognltlon, cl!isslflcation, interest and penalties, and disclosure. Reed College does not have any uncertain tax positions.

(n)' 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. Certain cash equivalents held by trustee and amounts included in the investment portfolio are intended to be invested on a long-term basis and are not included In the statements of cash flows. Cash and cash equivalents whose use is limited are restricted for the Federal Perkins Loan program.

Cash and cash equivalents reported In the statements of cash flows at June 30, 2020 and 2019 were comprised of the following:

2020 2019 Cash and cash equI\0lents $ 16,718,753 11,723,412 Cash and cash equl\0lents whose use is limited 539,546 884,647 Cash held for long-term inwstment 2,150,473 3,296,433 Total cash and cash equi\Ellents reported in the statements of cash flows $ 19,408,772 15,904,492 During 2020, Reed College determined investments included cash of $5,679,996 at July 1, 2018 and

$3,296,433 of cash at June 30, 2019 that was not included in the statements of cash flows for the year ended June 30, 2019. These amounts have been reclassffied In' the statements of cash flow:s for the year ended June 30, 2019.

r 10 (Continued}

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019

)

(o) DMerred Revenue

( '

Deferred revenue consists primarily of tultlon and fees related to future academic years.

(p) Postretirement Benefits Reed College has a ~oncontrlbutory postreti~ment medical benefit plan covering participating employees upon their retirement Reed College,malntalns 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 its postretlrement medical .benefit plan based on calculations that Incorporate various actuarial and other assumptions, including discount rates, mortality, and healthcare cost trend rates. Reed College reviews its assumptlons on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. Reed Col.lege believes that the assumptions utlllzed In recording its obligati_ons under Its plans are reasonable based on Its experience and market conditions.

\_

(q) Concentration of Risk 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.

(r) Recent Accounting Pronouncements 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 liablllty wtll represent the lessee's obligation to make lease payments arising from the lease measured on a discounted basis and the right-of-use ass~t will represent the lessee's right to use- or control the use of a specified asset for a lease term. The lease guidance also slmpllfies accounting for sale-leaseback transactions. In 2018, the FASB updated its guidance allowing entities to adopt the provisions of the standard prospectively without adjusting comparative periods.

Reed College is planning to adopt this option. Reed College has evaluated the effect of implementation of the standard and detennlned that the adoption of-ASU No. 2016-02 will not have a significant Impact on the statements of financial position, the results of operations, or cash flows. The ASC Topic 842 effective date was deferred by the FASB for certain entities due to the COVID-19 pandemic. Under ASU No. 2020-05, the adoption-date for public not-for-profit entitles that have not yet issued their financial statements was deferred by one year to fiscal years beginning after Deceryiber 15, 2019. Reed College wil~ implement ASC Topic 842 beginning July 1, 2020. Reed College will Include new *-

j disclosures in fiscal year 2021 In accordance with Topic 842.

In August 2018, the FASB Issued ASU No. 2018-13, Fair: Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for. Fair Value Measurement, which applies to

- all entitles that are required to make disclosures about recur:Jing or nonrecurring fair value m9?surements. The amendments in ASU No. 2018-13, which remove, modify, or add certain disclosure requirements as part of the FASB's disclosure framework project to Improve the effectiveness of the notes to the financial*statements, are ~ffectlve for the year ending June 30, 2021.

11 (Continued)

)

/

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 The adoption of this guidance will not impact Reed College's statemen~ of financial position, the results of operations, or cash flows.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other- lntemal-Use Software (Subtopic 350-40) Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which applies to all entitles that are a customer in a hosting arrangement that is a service contract. The amendments In ASU No. 2018-14, which align the requirements for capltallzlng Implementation costs Incurred In a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or o,btain internal-use software, are effective for the year ending June 30, 2022. _Reed College does not expect adoption of this guidance to have a material effect on its statements of financial position, the results of operations, or'cash flows.

In August 2018, the FASB issued ASU No. 2018-14, Compensation- Retirement Benefits- Defined Benefit Plans - General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which. applies to* all employers that sponsor defined-benefit pension or other postretirement plans. The amendments In ASU No. 2018-14, which remove, modify,

• or add certain disclosure requirements as part of the FASB's disclosure frame'NOrk project to Improve the effectiveness of the notes to the financial statements, are effective for the year ending June 30, 2021. The *adoption of this guidance wlll not Impact Reed College's statements of financial position, the results of operations, or cash flows.

• In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326)

Measurement of Credit Losses on Financial Instruments, with certain amendments made to the standard in November 2018 through ASU No. 2018-9, Codffication Improvements to Topic 326, Financial Instruments- Credit Losses and ASU No. 2019-10 Financial Instruments- Credit Losses, Derivatives and Hedging, and Leases: Effective Dates, which applies to entitles holding financial assets and net investment in leases that are not*accounted for at fair value through net income. The amendments in ASU No. 2016-13 require a financial asset (or a group of flnanclal assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The all~wance for credit losses is a valuation account that is deducted from the amortlzed cost basis of the financial asset(s) to present the net carrying value at the amounl expected to be collected on the financial asset.

The amendments in ASU 2016-13 are effective for the year ending June 30, 2023. Reed College Is currently evaluating the Impact this guidance will have on Its statements of financial position, the results of operations, or cash flows.

(3) Financial *Assets and Liquidity Resources I.

Reed College regularly monitors liquidity required to meet Its operating needs and other contractual commitments, while also striving to maximize the investment of its available funds. Reed *College has various sources of liquidity at its disposal, including cash and cash equivalents and marketable debt securities. For purposes of analyzing resources available to meet general expenditures over a 12-month .

period, Reed College considers all expenditures related to its ongoing mission-related activities as well as the conduct of services undertaken to support those activjties to be general expenditures. In addition to financial assets available to meet general expenditures over the next 12 months, Reed College operates with a balanced budget and anticipates collecting suffiC:lent revenue to cover general expenditures not covered by donor-restricted resowces.

12 (Continued)

THE REED INSTITUTE L..

Notes to Financial Statements June 30, 2020 and 2019

\_

In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a pandemic.

The o~reak of the di~se has affected travel, commerce, and fjnancial markets globally, including in the United States. Commel)cing March 30, 2020, course Instruction was conducted virtually and most students

'were required to move off of campus. Reed College provided prorated refunds of room and board of

$2.8 million in fiscal. year 2020. Studenµ, continued to meet their academic requirements for the remainder

. of the 2019-20 academic year.

7 For the fall 2020 academic semester, Reed Colleg~ structured courses as a mix of In-person and online' Instruction In order to 'best maintain the strong student-faculty and student-student academic interactions valued in a Reed education. Within these broad categories, many of the ln,-person courses wfll include a remote-access option to accommodate students who cannot return to campus. Similarly, many of the online courses will Include a local-access option to provide opportunities for smaller group discussion, studio time, and research projects.

Reed College Is following guidelines devel6ped by the Centers for Disease Control for congregate housing for the fall 2020 academic semester and has reduced housing density while setting aside one*resldence hall for students who may need isolatlon In quarantine. Reed College reduced the maximum population In residence from the full capacity of 1,130 beds to approximately 820, with all ro6ms being single rooms.

On-campus housing is *being prioritized for first-year students, incoming transfer students, inter:natlonal students, sophomores, and students with on-campus housing as a dlsabillty--related accommodation.

Given the ur,certalnty over the progression of the virus and governm~ntal emergency directives, there is_ no timetable for when Instruction and campus operations will return to normal. Further, the future financial Impact on Reed College from the pandemic cannot be quantified at this time' as there is stll~ a high degree of uncertainty as the pandemic continues to evolve. Reed Gollege ,continues to assess the potential impact of,legislatlo17, the impact of stimulus measures, and the Impact of other laws, regulatlons, and guidance related to COVID-19 on the business, results of operations, financial condition, and cash flows.

'

• 1

(

13 (Continued)

)

THE REED INSTITUTE Notes to F-lnancial Statements June 30, 2020 and 2019*

As of June 30, 2020, the following financial assets could readily be made available within one year of the balance sheet date to meet general expenditures:

2020 I

Financial assets at year-;end:

Gash and cash equivalents $ 16,718,753 Current accounts recel\eble, net 1,374,144 Current contributions receiwble, net 3,873,267 lmestments 63411701510 Total financial -assets at y~r-end 656,136,674 Less amounts not available to meet general expenditures within one year.

Restricted by donors for use In Mure periods 15,352,908 Board-desfgnated endowment _ 2~,889,636 "*

Future expendable donor-restricted endowment 78,344,347 Donor-restricted endowment to be retained in perpetuity 185,860,014

. Annuity and life income funds 23,579,080 Financial assets awllable to meet general expenditures-within one i

year $ 7211101689 In addition, at June 30, 2020, Reed College had $280,889,636 of bqard-deslgnated endowments that, with the board's appr,oval, could be made available for operations.

(4) Investments .,

I The fair value of in'(_estments at June 30, 2020 and 2019 is as follows:

2020 2019 lmestments:

Cash and cash eq~ivalents $ ' 2,150,473 3,296,433 Ftxed income 60,398,164 74,180,284 Public equities~ 223,371,304 220,795,803 Absolute return 124,167,318 120,724,359

. Private equity 133,601,248 116,337,370 Pmete real assets 39,825,908 54,934,176 Pri\Erte real estate 24,377,878 21,444,030 Funds held in trust 23,579,080 24,994,403 Funds h~d by trustee 2,240,622

)

Other 216991137 312111161 Total imestments $ 6341170,510 642, 1581641

\

14 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and-2019

\ The overall Investment objective-for Reed College's endowment is to invest Its assets in a prudent manner that wilt 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.

J Investment strategies include the following:

• Fixed:-Jncome ir:ivestments, which consist of commingled funds, bond mutual funds, and a llmlted partnership that hold securities,, the majority of which have maturities greater than one yearI and are valued based on *quoted market prices in active markets; certain commingled funds and the limited pa_rtnership are valued at NAV reported by the fund managers.

• Public ~quities 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 limlte~ partnerships, which are valued at NAV reported by~ fund managers.

• The absolute return portfolio, which consists of-,lnvestments 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

) I Include equity long/short, credit/event drlven,)market neutral, multlstrategy, and global macro. The ,

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, wt;iich are valued by the manager on the basis of an appraised value, discounted cash flows, industry com parables, or some

• 1 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 llmlted partnership interests and typically invest in private assets for which there* is no readily ,

detennlnable market value; in these cases, market value is determined by external managers based on a combination of discounted cash flow analysis, industry comparat;iles, and outside appraisals. Wl1ere private investment managers hold publicly traded SE;3Cl.lrlties, these securities are generally valued based on market prices. The limited partnership interests are valued at NAV reported by the fund managers. (

J At June 30, 2020 and 2019, Reed College: has approximately $490 million and $491 million, respectively, of investments that are not readily marketable. These investments, which include the fixed income, public equitle~, absolute return portfolio, private equity, ~rlvate real ,assets, and private real estate, represent 77% .1 and TT% of total investments and 74% and 74% of total net assets at June 30, 2020 and 2019, respectively. These investments are reported at NAV as reported by the fund managers, which is used as a

' practical expedient to estimate the fair value. Reed Cc>llege believes that the reported amount of Its inyestments is a reasonabl~ estimate of fair value a$ of June 30, 2020 and 2019. Because of the inherent uncertainties of valuation, these estimated fair values may diff~r significantly from values that would have been used if a ready market existed. See note 5 for investment fair value and liquidity measurements.

Reed College has funds invested in 128 and 116 limited partnerships at June 30, 2020 and 2019, respectively. At times, there a~e certain positions of derivative financial instruments Included in the assets of the various partnerships. Reed College is obligated under certain limited partnership investment fund 15 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 agreements to advance funding periodically up to specified levels. At June 30, 2020, Reed College has ur:rfunded commitments of approximately $124,348,969. These commitments are*callable by the general partners/advisers between June 30, 2020 and 2028. The terminations of these partnerships/funds are

• based upon specific provisions in the agreements. *

/" ' I -

Included in cash and' cash equivalents and fixed Income are $32,274,680 and $31, 155,309 of operating funds at June 30, 2020 and 2019, respectively, used to manage Reed College's operating liquidity.

', ~ '

Included In funds held in trust investments are $23,579,080 and $24,994,403 of planned giving trusts held. '

In mutual funds and other Investments that are not available for spendlr:,g as of June 30, 2020 and 2019,

'. ~pectively.

At June 30, 20j9, Reed College had funds held by trustee of $2,240,622, which was the remaining unspent proceeds from the 2018 State of Oregon notes. The funds held by*trustee were spent on qualifying expenditures of capital projects. /

Total investment income, excluding funds held in trust investments, was $9,888,478 and $20,703,499 ' for the years ended June 30, -2020 *and 2019, respectively.

(5) Fair Value Measurements The following is a description of the yaluation 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.

' - 1 Investments: Equity securities are measured using quoted market p~ces at the reporting dat~ multiplied by the quantity held. Debt securities are measured using quoted market prl~s multiplied by the quantity held when quoted market prices are available.

• Investments that do not have a readily determinable fair value *are carried at fair value utilizing NAVas a practical expedient.

Interest rate swaps: The fair-value of interest rate swaps Is determined using pricing models developed

-. based on the LIBOR swap ra\e and other observable market data. The value was determined after considering the potential impact of collateralization and netting ag_r,eements, adjusted to reflect nonperformance risk of both the counterparty and Reed College.

, ASC Topic 820 establishes a fair value hierarchy that prlorltlze!B the inputs to valuatlon 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 a~ foll~ws:

Level 1 iriputs are quoted prices (unadjusted) in active ma,rkets ,for Identical assets or liabilities that Reed College has the ability to a_ccess at the measurement date.

16 (Continued)

\

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 Level 2 inputs are Inputs other than quoted prices included wtthln 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 liablllty used to measure fair value to the extent,that observable inputs arernot 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.

Investments valued utilizing NAV as a practical expedient are excl~ded from the fair value hierarchy.

The following table presents assets and llabilities that are measured at fair value on a recurring basis at June 30, 2020:

• Quoted prices Significant In active other Slgntffcant marke~for observable unobservable Identical a8118ts Inputs Inputs Total (Level 1} * (level 2} (Level 3)

Assets:

Cash and cash equl\81ents $ 2,150,473 2,150,473 Fixed Income 51,122,625 - 51,122,625 Publlc equities 65,011,168 65,011,168 Funds h,eld In trust 23,579,080 22,890,080 689,000 Other 2;699,137 80,162 21618,975 Total 14415621483 118,3641428 22,890,080 3,3071975 Investments where NAV was used as a practical ,expedient to measure fair \0.lue:

Absolute return 124,167,318 Fixed Income 9,275,539 Prl\ete equity 133,601,248 -

Prl\ete real assets 39,825,908 Prl\ete real estate 24,377,878 Public equities 15813Q{) 1136 Total 489,608,027

" Total lmestments -

and other assets $ 634,1701510 118,364,428 ' 22,8901080 3,307,975 Llabllltles:

Interest rate swap $ 877,956 877,956 17 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 The following table presents assets and liabilities that are measurediat fair value on a recurring basis at June. 30, 2019:

Quoted prices Significant In active other Significant markets for obaervable unobservable Identical a898ts Inputs Inputs Total {Level 1} (Level 2} (Level 3}

Assets:

Cash and cash equivalents $ 3,296,433 3,296,433 Fixed income 44,n5,643 44,725,643 Public equities 72,577,821 n,577,821 Funds held In trust 24,994,403 24,994,403 Funds held by trustee 2,240,622 2,240,622 Other 3121\161 494,134 2?17,027 Total 15\0461083 123,3341653 24,994,403 2?171027 lrwestments where NAV was /

used as a practical expedient to measure fair value:

Absolute return 120,n4,359 Fixed income 29,454,641 Private equity 116,337,370 Private real assets 54,934, 176-Private real estate 21,444,030 Public equities 148,217,982 Total 491, 1121658 Total in..estments and other assets $ 64211581641 1231334!653 241994,403 2i717,027 Liabilities:

,Interest rate swap $ 833,832 833,832 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 classlfled In Level 1 of the fair value hlecarchy, as defined,above, because their fair values are based on quoted prices for identical securities. *

• 18 (Continued)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 I

• The shares and units held by a trustee In registered Investment funds are classified in Level 2, because while the underlying securities are marketable, Reed College does not have the ability to redeem its interest at or near _the date of the statements of financial position.

The primary Inputs into the valuation of Interest rate swaps are interest yield curves, Interest rate volatility, 1 and credit spreads. Reed College's Interest rate swaps are classified within Level 2 of the fair value hierarchy, since all significant inputs are corroborated by market observable data.

Investments classified In Level 3 consist of shares or units in nonregistered investment funds as opposed to direct interests In the funds' underlying securities. Even though these shares and units in nonreglstered investment funds are classified in Level 3, some of the underlying securities are marketable or not difficult

'to value. Investments classified as Level 3 also consist of donated real estate holdings, which are recorded at the appraised value at the date of receipt 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 llquldlty of or degree of dlfficulty 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, 2020 and 2019, respectively:

Balance at June 30, 2018 $ 2,934,513 Total realized and unrealized gains (14,280)

Purchases, issuances, and settlements (net) {2031206}

Balance at June 30, 2019 2,717,027 Total realized and unrealiz~ gains 50,712 Purchases, Issuances, and settlements (net) 540,236 Balance at June 30, 2020 $ 31307,975 19 (Continued)

(

I -

THE REED INSTITUTE NQtes to Financial ,Statements June 30, 2020 and 2019 The following table presents information for Investments where the NAV was used as a practical expedient to measure fair value at June 30, 2020: -

Lockup Redemption Redemption, Fair value period freguency notice period Absolute return $ 2,430,870 Liquidating NIA NIA Public equities 59,995,856 1 month Semimonthly 9-15 days Public equities 21,026,503 1 month Monthly 5 days Absolute return 8,765,397' 1 month Monthly 30 days Public equities 77,337,777 3 months Monthly 60 days Absolute return 91,918,150 3 months Quarterly 30-75 days Absolute return 21,052,901' 9 months Annually 60-90 days Fixed Income 9,275,539 llllquld Pri\01:e equity 1337601,248 llllqu1d Pn\01:e real assets 24,377,878 Illiquid Private real estate 3918251908 Illiquid Tqal 1mestments where NAV was used as a practlcal expedient to measure fair wlue $ 489,608,027 C *

' 20 (Continued)

, 'l THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 20_19

.../

The following table presents information for investments where the NAV was used as a practical expedient

. to measure fair value at June 30,.2019:

\ Lockup 1 Redemption Redemption Fair value period freguency notice period

, Absolute return and fixed Income $ 21,266,245 Liquidating N/A N/A

_ Publlc equities 18,086,209 1 month ) ' Semi monthly 15 days Absolute return '8,115,474 1 month Monthly 30 days Public equltles 62,171,575 1 month Monthly ~15 days Absolute return 9,308,259 .J 2 months Quartefli 60 days Absolute return 78,187,495 3 months Quarterly 30-75-days Public equities 67,960,198 3 months Quarterly 60 days

- Absolute return ,21,213, 096 9 months Aimua!IY 60-90 days Fixed Income 12,098,431 ,- llllquld_

Prl\ete*~uity 116,337,370 llllquld Pmete real estate 21,444,030 llllquld Prhete real assets 541934,176 Oliquid Total lmestments where I NAV ,was used as a I

\

practical expedient to measure fair \0lue $ 491 I 1121558 Reed College holds investments In private limited partnershfps and certain fu<ed Income commingled funds where NAV is used as a practical expedient to measure fair value at June 30, 2020. 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.

(6) Property, Plant, ~d Equipment, Net ,

• Property, plant, and _equipment at June 30, 2020 and 2019 consist of the following:

2020 2019 I

Land and land imprc,-.,,ements $ 14,219,852 14,219,852 Buildings 244,071,219 209,153,416 Egulpment, furniture, ~ fixtures 1,6, 761,342 16,286,327 Construction in'progress - 28,65\551 275,052,413 268,311, 1~

Less accumulated depreciation {111,8721339} {10517091578}

Net property, plant, ~nd equipment $ 16311801074 162,6011568 I ]l I

21 ' ' (Continued}

r

THE REED INSTITUTE Notes to Financial Statements June 30, 2020.and 2019 C,

Depreciation expense was $6,282,223 and $5,620,806 for the years ended June 30, 2020 and 2019, respectively, and Is allocated to the functional expenses based,, on the I

relatlve I

square footage of the departments.

• _ -

I (7) Long-Term Debt (a) Notes Payable 1 I *

• During 2008, Reed College refinanced*the 2006 and the 2007 State of Oregon Bonds In the amount of

$47,060,000. The 2008 ~te 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 Faclllty agreement was renewed in January 2018 for an additional five years and remains in effect ur;itil January 31, 2023, unless renewed or terminated pursuant fo 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 firn~nce the construction of a new '

performing arts building. * -

• Effective December 5, 2017, Reed College refinanced the 2011 State of Qregon bonds in the amount of $40,030,000 and borrowep 011 additional $25,620,000 to be used to finance the construction of a new residence hall. A portion of the bond proceeds was deposited with a trustee In an irrevocable escrow trust account to service the 2011 State of Oregon bonds. As of June 30, 2020, Reed College had $41,035,300 on deposit with the trustee. The defeased bonds and the related trust are nqt reflected In the accompanying financial statements. On.July 1, 2020, Reed College redeemed the outstanding bonds in full using the proceeds of the escrow trust account.

2 Notes payable are summarized as follows:

2020 2019 2008 State of Oregon notes $ -33,345,'000 34,880,000*

2017 State of_Oregon notes 65,sso'.ooo 6516501000 "

98,995,000 100,530,000 Unamortized premium 8,095,633 8,388,517 Unamortized issuance costs (4131395) - (431,448) f Total long4erm debt 106,677,238 108,487, 069 Less ~mounts due within qne year 11869,830 1,8091830 Total long-term debt due after one year $ 1041807,408 106,6771239

-====---co 22 (Continued)

- )

/

r THE REED INSITTUTE Notes to Financial Statements June 30, 2020 and 2019

)

I Principal ,payments on the notes payable become due as follows:

2017 State of 2008 State of Oregon notes Oregon notes ~_ _T_o_ta_l_ _

2021 $ 1,595,000 1,595,000 2022 1,670,000 1,670,000 2023 1,720,000 1,720,000 2024 1, 795,ooo 1,795, ooo' 2025\ 1,865,000 1,865,000 Thereafter 65,650,000 24,700,000

• 90,350,000

$ ==65_,_650_,oo_o_ 33,345,000 98,995;000 l '

Interest on the State of Oregon notes payable,and amortization of premium, discount. and Issuance costs are as follows: ,

V 2020 2019 r

Interest $ 3,403,539 3,511,628 Amortization of premium, discount, and issuance costs (274,830) (274,830) .

r Less amounts capitalized (1,129,347)

I Total Interest cost recorded in the statement ofacti'Aties $ 3,128,709 2,107,451 r Amortization is calculated over the life of the notes.'

(b) Interest Rate RI~ Management ,

In June 2006, Reed Colle~e,lssued $16,650,000 of ~uction rate debt through-the 0regon Facilities Authority. Reed College entered Into an Interest rate swap of like term, amortization, and,notional

~mount with an Investment ban_k to hedge this underlying variable rate debt Reed Col!ege -

sub~uently refinar:i_ced the 2006 notes with the 2008 series debt and retained this swap arrangement for interest rate risk management The notionai'amount of the swap was $7,750,000 and $8,875,000 at June 30, 2020 and 2019, respectively. 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 long-term debt.

During the years ended June 30,'2020 and 2019, $216,302 and $201,337 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 loss dn the swap agreements for the years ended June 30; 2020 and

• 2019 was a loss of $44,124 and $9, 120~ respectlvely, and is. recorded in the statements-.of activities

\ and changes In net assets as other Investment gains. The fair value of the swap agreement as of June 30, 2020 and 2019 was a llablllty of $877,956 and $833,832, respectively, and Is recorded in the statements of ftn~nclal position as other long-term liabilities.

23 (Continued)

THE REED INSITTUTE

/

Notes to financial Statements June 30, 2020 and 2019 (8) Retirement and Postretlrement Benefits (a) Retirement Plan Reed 1 College has a defined-contribution pension plan administered through Teachers Insurance and Ann uity 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 one year of service and must have attain.ad the age of 21. 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 $3,934,499 and $3,680,506 for the years ended Jun~ 30, 2020 and 2019, respectively, and are included in education and general expenses in the accompanying statements of activities and changes in net assets ..

(b) Defined-Benefit Ret/1&e Medical Insurance Plan I

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. Employees hired ~tween 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 pe in~ured by either a Kaiser plan or other plan offered'by Emeriti. Participating retirees wt;io retired prior to September 2, 2001 and spouses/domestic partners are covered for thefr 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 $567,116 and $812,917 for the years ended June 30, 2020-and 2019,

• respectively.

I The accrued liability for postretirement benefits at year-end Is as follows:

I 2020 2019

(

Change In benefit obligation:

' Benefit obligation at beginning of year $ 30,180,942 26,432,053 S81'\4ce cost _ 509,282 409,191 Interest cost 1,071,307 1,061,839 Benefits pald (567, 1_16) .(812,917)

Actuarial gain 219041044 31090,776 Benefit obligation at end of year and funded status $ 3410981459 301180,942 Amounts recognized in the balance sheet consist of:

Postretirement benefits payable - current $ 923,878 852,376 Postret1rement benefits payable - long term 33, 1741581 2913281566

/ '

$ 341098,459 3011801942 24 (Continued)

THE REED INSTITUTE Notes to Financial Statemel')ts

'_j June 30, 2020 and 2019 Net periodic benefit cost for the years ended June 30 Included the followlng components:

2020 2019 ser.;ce cost $ 509,282 409,191 Interest cost 1,071,307 1,061,839 Re;cognitlon of actuarial loss 2,904,044 3,090,776 Net periodic benefit cost 4,484,633 4,561,806

$- ......-==========-

Servt6e cost is included In education and general exp~nses and the other components of net periodic postretirement benefit are Included in nonoperatlng activity in the accompanying statements ,of activities and changes In net assets. -

Reed College used the following actuarial assumption$ to determine its employee benefit obligations and net periodic benefit cost for the years ended June 30, 2020 and 2019, as measured at Ju~e 30:

2020 2019

( Benefit obligation:

J Weighted awrage discount rate 2.8% 3.6%

Rate of increase In per capita cost of cmered healthcare 6.5% trending to 6.5% trending to benefits 4.0% in 2031 4.0% In 2030 Net periodic benefit cost: .

Weighted awrage discount rate l.6 % 4.1 %

Rate of increase in per capita cost of cowred healthcare 6.5% trending to 5.5% trending to benefits 4.0% In 2030 4.0% in 2022 Reed College's policy is to fund the plan as claims payments are made. In the 2020-2021 fiscal year, Reed College expects to contribute, from ongoing cash flows and current assets, $852,376 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(s) ending:

2021 923,878 2022 t

963,417 2023 999,004 2024 *, 1,076,963, 2025 '1,173,563.

2026-2030 7,050,471 25 1 (Continued)

THE REED-INSTITUTE Notes to Financial Statements J

June 30, 2020 and 2019

)

(c) Emerltl Retiree Defined-Contribution Health Plan Reed College has a defined-contribution retiree health plan for employees hlrecLon or after July 1, 2006. Reed College makes contributions on each eligible employee's behalf once the indMdual r:eaches the age of 40 years. Employees are also eligible to make discretionary after-tax contributions to their account"lf the indMd_ual 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 $509,599 and $542,618 for fiscal years ended June 30, 2020 and 2019, respectively, and are included in education and general expenses In the accompanying statements of activities and changes in net assets.

(9) Funds Held In Trust by.Others.

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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, 2020 and 2019, the trusts receivable were $1,315,648 and $1,289,557, respectively, and were reported as noncurrent funds held in trust by others ln,the statements of financial position. -

I '

(10) Contributions and Accounts Receivable Contributions receivable consist of the following:

r 2020 2019 Annual fund $ 2,767,604 -700,862 Campaign 4,225,474, 1,560,183' Endowment 5,832,183 3,551,261 Facilities 30,000 45,000 Gross contributions recel\able $ oc==1=2'=855=--,26_1_ 5,857,306

/

26 (Continued)

THE REED INSTITUTE Notes to Financial Statements I

June 30, 2020 and 2019 Contrlbutlons receivable reported on the statements of flnanclal position were as follows:

2020 2019 Current:

Gross contributions racer.able $ 4,077,267 2,107,294 Less allowance for doubtful accounts (204,000) (105,000)

Total current net contributions receiwble 3,873,267 2,002,294 Long tenn (one to fi\EI years):

Gross contributions recelvable 8,777,994 3,750,012 Lass allowance for doubtful accounts (429,000) (180,000)

Net long-tenn contributions receivable 8,348,994 3,570,012 Less discount to present \81ue (186,516) (149,493)

Total long-tenn net contributions receivable 8,162,478 3,420,519 Total net contributions recelvable 12,035,745 5,422,813 Contributions receivable due in excess of one year_are discounted at 1.14% to 1.19% and 2.52%'to 2.57%

for the years ended June 30, 2020 and 2019, respectively.

Of the net uncondltional promises to give included above, $8,367,027 represents an unconditional promise to give from 12 members of the Reed College board of trustees due in one to three years.

27 (Continued)

THE REED INSTITUTE Notes to Flnanclal Statements June 30, 2020 and 2019 Accounts receivable consist of the following at June 30:

2020 2019 Current:

Student accounts rece1Vable $ 459,515 101,675 Related parties 10,813 18,312 Other receivables 90J.,816 926,244 1,374,144 \0461231 Noncurrent:

Student accounts receivable 3,700 10,216 Reed loans 1,098,218 1,101,991 Related parties 5,494 3,887 Federal Perkins loans 1,821,741 21256,378 2,929,153 3,372,472 Less allowance for doubtful accounts '{60,237) {601239}

$ 412431000 413581464 The Federal Perkins Loans and Reed loans are_ generally payable at interest rates of 5% to 9% over approximately 10 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 Perklns Loan program provides for cancellation of loansiif the student is employed In certain occupations following graduation (employment cancellations). 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 llquldate the portfolio, which would include assigning r~maining 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.

L 28 (Continued)

THE REED INSTITUTE I Notes to Financial Statements June 30, 2020 and 2019 (11) Net Assets At June 30, 2020 and 201_9, net assets consisted of the following:

2020 2019 Without donor restrictions:

Operating and designated for special prog~s $ 27,620,963 23,335,653 Institutional loan programs 1,818,495 - 1,788,740 Funds functioning as endowment 113,609,318 ,110, 741,859 Accumulated quasi-endowment gains 167,280,318 178,188,942 Net investment In plant 49,701,879 52.420.243' Subtotal 360,030,973 36614751437 With donor restrictions - time or purpose:

Educational and general programs 1.§,352,908 - 13,768,129 Annuity and life Income funds 8,032,753 8,788,719 Accumulated endowment gains 78,344,347 86,962,842 Other temporarily restricted net assets 615731221 211391756 Subtotal 10813031229 111,6591446 Wrth donor r;estnctions - per:petual:

True endowment funds 185,860, 01,4 176,999,699 Annuity and life Income funds 5,792,766 5,808,086 Subtotal _19\652,780 182,807,785 Total $ 659,986,982 660,942,668 (12) Endowments At June 30, 2020, Reed College's endowment consistea of approximately 535 lndMdual 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. generally accepted accounting principles, net assets associated with endowment funds, Including quasi-endowment funds, are classlfled and reported based on the existence or absence of donor-Imposed restrictions.

,' __/

Interpretation of relevant law - The State of Oregon has enacted UPMIFA, the provisions of which apply to endowment funds. Reed College has Jnterpreted 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 net assets with perpetual donor restrictions (a) the orlglnal value of gifts to donor-restricted endowments and (b) any other amounts added to donor-restrfcted endowments that donors have stipulated are not expendable. The remaining portion of the 'donor-restricted endowment fund that is not classified as net assets with perpetual donor restrlctlons, including deficiencies 29 (Continued) 1

\

THE REED INSTITUTE Notes to Financial Statements

_, June 30, 2020 and 2019 associated with funds where the-value of the fund has fallen below the original value of the gl~, Is classified as net assets with donor-imposed time or purpose restrictions until those amounts are appropriated for.

expenditure by Reed College in a manner-consisten~_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 net assets wtth perpetual donor restrictions if the terms of the gift or Reed College's*

interpre~tion of relevant state law require they be added to the principal of a permanently restricted net asset

• Increases in net assets with donor-Imposed time or purpose restrictions if the terms of the gift restrict

, the use of the income and endowment Income has not yet been appropriated for expenditure

• Increases in net assets without donor restrictions In all *other cases From time to time, the fair ~lue of'assets associated with Individual donor-restricted .e,:,dowment funds may fall below the level that the donor or, UPMIFA requires to be retaine<;l as a fund of perpetual duration.

Deficiencies of this na!.Ure are reported In net assets with perpetual donor restrictions. As of June 30, 2020 and 2019, funds wtth 'an original gift value of $29,666,713 and $11,819,969 were "underwater" by

$1,328,215, and $646,279, respectively. *

• Investment and spending pollcles - To enable broad diversification and economies of scale, Reed College's policy is to pool endowment assets for Investment purposes to the fullest extent possible as permitted by gift agreements and appllcable government regulations.

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 wtde range of asset classes, including those providing return premiums for illiquidity, so as to provlde*a balance that will enha'nce total return under a range of economic scenarios, while avoiding undue risk concentrations In any single asset class or*investrnent category. Sufficient liquidity in th~ en~owment portfolio to meet the spending policy and operational needs, preserve Reed College's desi~ credit ratings, and maintain compliance with any debt agreements is also considered -.,vt,en making Investment decisions regarding asset allocation.

In accordance with UPMIFA,.Reed College considers the following factors, among others, In making a determination to appropriate or accu,:nula~e 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 lnvestrpent policies of Reed College. '-;---- *

, 'I Pooled endowment spending Is determined using the total return concept. The policy on spending endowment income is to spend 5.05% and 5.10% over a rolling 13-quarter moving average of the fair value or market value of the endowment assets for fiscal years 2020 and 2019, respectively.

r 30 (Continue<;!)

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 Endowment net assets by type of fund as of June 30, 2020:

Without With donor With donor donor restrl ctl ons - restrictions -

restrictions time or eurpose een:!!bJal Total Donor-restricted endowment funds $ 78,344,347 185,860,014 264,204,361 Board-designated endowment funds 28018891636 2801889,636 Total funds $ 28018891636 78,344,347 18518601014 5451093!997 Endowment net assets by type of fund as of June 30, 2019:

Without With donor ' ( With donor donor restrictions- restrictions-restrictions time or purpose e!'rpebJal Total Donor-restricted endowment funds $ 86,962,842 176,999,699 263,962,541 Board-designated endowment funds 28819301801 2881930!801 Total funds $ 288,930,801 8619621842 176,999,699 552,893,342 Changes in endowment net assets for the years ended June 30, 2020 and 2019 are as follows:

Without With donor With donor

)

donor restrictions - restrictions -

restrictions time or eu!:eose PG!:e&tual Total Endowment net assets, July 1, 2019 $ 288,930,801 86,962,842 176,999,699 552,893,342 Investment return: '

Net inwstment gain 891,469 770,358 1,661,827 I

Net appreciation of imestments , 4,137,032 3,265,727 7,402,759 Contnbutions 1,722,926 8,346,575 10,069,501 Contributions from trust terminations 10,292 312,258 322,550 Appropriation of endowment assets for expenditure (15,370,000) (12,654,580) (28,024,580)

Transfers and other reclassifications 567,116 2011482 7681598 Endowment net assets, June 30, 2020 $ 280 1889 1636 I 78,344,347 185,860,014 . 545,093,997 31 -- (Continued)

THE REED INSITTUTE Notes to Flnanclal Statements I

June 30, 2020 and 2019

'--~:

Without With donor With donor donor restrict! ons - restrictions -

restrictions time or eu!:eose pe!:e!tual Total Endowment net assets, July 1, 2018 $ 293,,666,814 . 88,819,086 173,097,568 555,583,468 lmestment return: )

Net lmestment gain 866,839 394,461 1,261,300 Net apprecl~tlon of lmestments 8,606,574' 9,613,034 18,219,608 Contributions 676,9Ti 4,256,842 4,933,819 Contributions from trust tennlnatlons 773,346 180,624 953,970 Appropriation of endowment assets

• for expenditure (15,209,080) (12,367,505) (27,576,585)

Transfers and other reclassifications {4501669) 5031766 {5351335) {4821238)

Endowment net assets, June 30, 2019 $ -28819301801 86,962,842 176199,9,699 55218931342 (13) Functional Classlflcatlon of Expenses *

) - '

Academic and research program expenses Include Instruction, research, academic support, student services, and auxiliary enterprises. The financial statements report certain categories of expenses that are attributable to more than one program or supporting function. These expenses were allocated among program and supporting functions using a variety of cost allocation techniques, such as square footage and time and effort. ) l The table below presents expenses by/both their nature and function for the year ended June 30, 2020.

General Academic College Inatltutlona I and reaearch relations sueport \ Total

\ I Salaries and wages $ 38,049,267 4,677,413 4,194,643 46,921,323 Benefits 12,916,360 1,832,830 1,638,098 16,387,288 Utilities, alterations, and repairs 6,Bn,268 59,218 225,551 6,957,037

-Depreciation )

5,936,094 52,374 293,755 6,282,223 Interest and accretion 2,982,221 26,322 147,641 3,156,184 Supplies, seNces, and other 191039.578 1j1331917 2/281960 22.902.455 Total $ 85,595,788 1i7821014 9,228,648 1021606,510 32 (Continued}

-')

THE REED INSTITUTE Notes to Financial Statements June 30, 2020 and 2019 The table below presents expenses by both by their nature and function for the year ended June 30, 2019.

General Academic College lnstltutlonal and research relations eueeort Total Salaries and wages $ 36,542,509 4,~2,015 3,447,9~8 44,382,452 Benefits 12,219,223 1,769,087 1,388,813 15,377,123 Utilities, alterations, and repairs 6,067,142 65,895 255,455 6,388,492 Depreciation 5,289,376 50,557 280,873 5,620,806 Interest and accretion 2,008,966 19,214 106,747 2,134,927 Supplies, serJces, and other 201317,445 1,533,577 311481422 2419991444 Total $ 8214441661 71830,345 8,628,238 98!903,244 (14) Fundraising Expense Reed College expended $3,326,799 and $3,316,861 for the years ended June 30, 2020 and 2019, respectively, for payroll and benefits, Informational materials, college relations, travel, and special events relating to fundralslng activities. These costs are all classified as college relations in the statements of ,

activities and changes in net assets.

(15) Commlbnents and Contingencies 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 actMties and changes in net assets, or cash flows.

(16) Subsequent Events Reed College has evaluated subsequent events from the statement of financial position date through October 5, 2020, the date at which the financial statements were issued, and determined that there are no other Items to disclose.

33