NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002

1	BUSINESS New School University (the University) was founded in 1919 as America’s first university for adults. Over the years, it has grown into an accredited degree-granting institution having seven divisions with both degree students and continuing education students. Today, the University is a complex urban university located in New York City with graduate, undergraduate, and professional degree programs in many fields committed to life-long learning.
2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net Asset Classifications. The University reports information regarding its financial position and activities according to three classes of net assets: permanently restricted, temporarily restricted and unrestricted. • Permanently restricted net assets contain donor-imposed restrictions that stipulate the resources be maintained permanently, but permit the University to use the income from the resources for either specified or unspecified purposes. • Temporarily restricted net assets contain donor-imposed restrictions that permit the University to use or expend the assets as specified. The restrictions are satisfied either by the passage of time or by action of the University. • Unrestricted net assets are not restricted by donors, or the donor-imposed restrictions have expired. The University’s Board of Trustees has designated a portion of the unrestricted net assets for fixed assets and long-term investment (quasi-endowment). Cash and Cash Equivalents. Except for cash and cash equivalents held by equity and fixed income managers of the University’s commingled endowment portfolio which are classified as investments, cash, and cash equivalents include cash on hand and temporary investments purchased with an initial maturity of three months or less. Land, Buildings, and Equipment. Land, buildings, and equipment are stated at cost or, if acquired by gift, at the appraised value at date of donation. Costs of building alterations are capitalized. Costs of repairs and maintenance are expensed. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the related assets as follows: The cost of library books has been charged to expense. It is not practical to determine the value of such books. Investments. Investments are reported on a trade-date basis. Investments in equity securities with readily determined fair values and all debt securities are recorded at fair values determined on the basis of quoted market values. Investments in trust and mutual funds, which are primarily invested in publicly traded securities, are carried at fair value as reported by the trust and mutual funds. Investments in notes receivable are carried at unpaid principal, and investments in real estate and privately held securities are carried at cost or estimated fair value at date of donation. The first-in, first-out (“FIFO”) or the average-cost method is used in computing realized gains or losses. Unrealized appreciation or depreciation is determined by comparing cost to fair value at the beginning and end of the year. Gains or losses and appreciation or depreciation on investments are generally recognized as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations. To the extent that restrictions are met in the same period, gains are reported as increases in unrestricted net assets. The investment objectives for the University endowment and funds functioning as endowment are to preserve the principal value of those funds, in both absolute as well as real terms, and to maximize over the long term the total rate of return earned without assuming an unreasonable degree of risk. In connection with these investment objectives, the Board of Trustees has adopted a spending policy. The amount available for spending is determined annually by applying a rate of 5% to the average market value of the endowment and to funds functioning as endowment for the preceding three calendar years. Art Collection. The University’s art collection consists of works of art, including prints, paintings, photographs, and sculptures, that are held for the purposes of public exhibition, education, and research. Each of the items is cataloged, preserved, and cared for, and activities verifying each item’s existence and assessing its condition are performed continuously by the University’s curator. The collection is subject to a policy that, if any work of art is sold, the proceeds will be classified as temporarily restricted net assets and used to acquire other items for the collection. The art collection, which was acquired through purchases and contributions since the University’s inception, is not recognized as an asset on the balance sheet. Purchases of collection items are recorded as decreases in unrestricted net assets in the year in which the items are acquired, or as decreases in temporarily restricted net assets if the assets used to purchase the items are restricted by donors. Contributed collection items are not reflected as contributions on the financial statements. Proceeds from sales or insurance recoveries are reflected as increases in the appropriate net asset classes. Unearned Tuition and Fees. Prior to fiscal year 2002, revenue from student tuition and fees was generally recognized wholly in the fiscal year in which the academic term predominantly fell. However, tuition received prior to fiscal year-end for summer courses, which spanned two fiscal periods, was generally deferred until the next fiscal period. Commencing with fiscal 2002 and continuing forward, the University changed its method of accounting for student tuition and fee revenue for summer courses, which span two fiscal years. Pursuant to the revised policy, revenue is recognized in the fiscal year in which classes take place. Therefore, 2002 summer revenue was allocated between fiscal 2001 and 2002. The cumulative effect of this change in accounting as of July 1, 2001 was $2,670,000. Fair Value of Financial Instruments. The recorded value approximates market value for all financial instruments other than student loans receivable and long-term debt. See Note 3 regarding fair value of student loans receivable and Note 9 for fair value of long-term debt. Contributions. Unconditional promises to give are recognized as revenues in the period received. Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met. The University records contributions as temporarily restricted if they are received with donor stipulations that limit their use through purpose or time restrictions. When donor restrictions expire‹that is, when a purpose restriction is fulfilled or a time restriction ends‹temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of changes in net assets as net assets released from restrictions. Contributions of cash restricted for the acquisition or construction of long-lived assets are reclassified to unrestricted net assets when the capital assets are placed in service. Certain unpaid volunteers have contributed their time, primarily to assist the University with fundraising activities. The value of these contributed services is not reflected in the accompanying financial statements. Split-Interest Agreements. Accounting standards require that the following instruments be recorded as income and net assets at the present value of the University’s beneficiary interest:   Trusts Held by a Third Party. Donors have established and funded trusts, which are administered by organizations other than the University. Under the terms of the trust, the University has the irrevocable right to receive all of a portion of the income earned on the trust assets either in perpetuity or for the life of the trust. The University does not control the assets held by an outside trust. The University recognizes its interest in the trusts as a permanently restricted contribution based on the fair value of the trust assets, which were contributed by the donor.   Charitable Remainder Trusts. Donors have established and funded trusts under which the University serves as the trustee and specified distributions are to be made to a designated beneficiary or beneficiaries over the trust’s term. Upon termination of the trust, the University receives the assets remaining in the trusts. Trusts are recorded as increases to net assets at the fair value of trust assets, less the present value of the estimated future payments to be made under the specific terms of the trust, and are subsequently revalued at the end of each fiscal year. The discount rates vary by year.   Pooled (Life) Income Funds. The University manages a life income fund. The fund is divided into units, and contributions from many donors are pooled and invested as a group. Donors are assigned a specific number of units based on the proportion of the fair value of their contributions to the total fair value of the pooled income fund on the date of the donor’s entry into the pooled fund. The donor is paid the actual income earned on those units until his or her death. Upon the donor’s death, the value of these assigned units reverts to the University. The University recognizes its interest in the assets received as temporarily restricted contribution revenue, at the fair value of the assets received net of a discount for future interest based on the life expectancy of the donor (based upon the 1994 Internal Revenue Service group annuity table), which is recorded as deferred revenue, representing the amount of the discount for future interest. The discount rates vary by year. Government Grants and Private Contracts. Government grants and certain private contracts are principally accounted for as exchange transactions, rather than as contributions, and revenue is reported as earned. Functional Classification of Expenses. The costs of providing the programs and supporting services of the University are summarized in Note 13. Fundraising costs are expensed as incurred and include salaries and employee benefits of program staff who develop proposals for fundraising; solicit contributions for those needs and for endowment purposes from individuals, corporations, government agencies and foundations; and conduct specific fundraising events. Advertising and Promotion Costs. The costs of advertising and promotion are expensed as incurred except for direct costs incurred primarily for direct response advertising and course catalogs related to the next fiscal year’s programs. Advertising expenses reflected in the statement of changes in net assets totaled $3,010,957 and $3,254,718 for fiscal 2003 and 2002, respectively. Estimates. The preparation of financial statements in conformity with generally accepted accounting principles 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. Income Taxes. The University is exempt from federal income taxes pursuant to Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for federal income tax has been recorded in the accompanying financial statements. The University has received a favorable determination letter from the Internal Revenue Service indicating that they qualify for tax-exempt status. The University is also exempt from New York income taxes under the related state provisions. Management believes that the University will continue to be exempt from taxes.
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