Understanding Reed’s Annual Audited Financial Statements

After the publishing of November 22, 2024 article, “Reed’s Annual Earnings and Expenditures Explored," the Quest received an email from trustee Peter Stockman ‘77 pointing out a report that would be even more useful in understanding the financial health and economics of Reed: the annual audited financial statements of the college. 

Unlike IRS Form 990 – the centerpiece of the previous article – which uses a blend of tax-basis accounting as well as US GAAP (Generally Accepted Accounting Principles) – a set of accounting rules and practices that companies in the United States use for the reporting of their financial statements – this report is prepared and presented using strictly GAAP. This is important as it provides those who might be interested in investing in the college with high-quality financial information, in turn helping investors make more informed decisions for their investments. 

Financial statements prepared using GAAP make the results in the report directly comparable to other colleges, businesses, and nonprofits across the US, and various entities use this report to deem Reed's financial soundness. For example: investors can put their money in Reed's bonds, and bond rating agencies use Reed’s GAAP financial report to assess the quality of these bonds as investments, understanding how desirable they are as investments. The Department of Education collects GAAP financial information from thousands of colleges annually so that they can compare these colleges in their IPEDS (Integrated Postsecondary Education Data) system.

Reed's GAAP financial statements are available and open to the public on the Reed website, and outline the Independent Auditors Report, Statements of Financial Position, Statement of Activities and Changes in Net Assets for 2022 and 2023, Statements of Cash Flows, and Notes to Financial Statements. 

In comparing the total current assets for the fiscal year ending on June 30 of both 2022 and 2023, there is an observable decrease: in 2022 assets totaled $45,939,116, vs $31,485,969 in 2023, a decrease of 31%. 

A snapshot of Reed’s net assets

Photo courtesy of The Reed Institute, Notes to Financial Statements

College expenses were divided into multiple categories: educational and general (instruction, research, academic support, general institutional support, student services and college relations), auxiliary enterprises, and pandemic-related costs. Of those expenses, for 2022, educational and general came out to $86,741,899, auxiliary enterprises totaled $20,358,740, and pandemic-related costs were $1,455,437, with total operating expenses coming to the sum of $108,556,076. 

According to the document, as of June 30, 2023 and June 30, 2022 respectively, Reed College had approximately $698 million and $664 million of investments that were not readily marketable, meaning they are “illiquid securities,” difficult to buy or sell because of the fact that they are not traded on any major secondary market exchanges. These investments, which include the fixed income, public equities, absolute return portfolio, private equity, private real assets, and private real estate, represented 82% and 84% of total investments and 81% and 80% of total net assets at the time of June 30, 2023 and 2022 respectively.

Again, unlike Form 990, this Reed Institute report outlines in detail the long-term debt of Reed. According to the form, the Taxable fixed-rate bonds total $125,000,000 in both 2022 and 2023. Unamortized issuance costs are $1,071,210 in 2023 and $1,108,622 in 2022, and the total long-term debt due after one year is $123,928,790 in 2023 and $123,891,378 in 2022. 

Further, as of June 30, 2023, the College’s endowment consisted of approximately 550 individual funds that were established for a multitude of uses. The endowment includes both donor-restricted endowments and funds designated by the College to function as endowments (quasi-endowments). Quasi-endowment funds – funds that function as an endowment but are not limited to be invested in perpetuity – do not have donor restrictions and may be expended however the college sees fit. As required by US generally accepted accounting principles, net assets associated with endowment funds, including quasi-endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions.

In doing final analysis, one can see that the college spent $3,541,704 (2023) and $3,198,823 (2022) for payroll and benefits, informational materials, college relations, travel, and special events relating to fundraising activities. These costs are all classified as college relations in the statements of activities and changes in net assets. In acknowledging the various claims and legal actions that tend to arise, as happens with many institutions, “management” claimed that most of the claims and legal actions were covered by insurance and that in the end, these matters would not have a material effect on the College’s financial position, statements of activities and changes in net assets, or cash flows.

Based on this information, one can make their own conclusions as to whether or not Reed is an institution that one would want to invest in. For more information on Reed's finances, there is a plethora of information, available to the public, to check out on the Reed website, or simply do a quick search on your preferred search engine.