NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Seattle Pacific University is a private nonprofit institution of higher education based in Seattle, Washington. The University offers degree programs rooted in the Christian faith for undergraduate and graduate students through the College of Arts and Sciences and three professional schools: Business and Economics, Education, and Health Sciences. The University offers 43 undergraduate majors and 37 minors, 9 masters degree programs and two doctoral programs.

The accompanying financial statements are the consolidated statements of Seattle Pacific University (the University) and Seattle Pacific Foundation (the Foundation). The University has a controlling financial interest in the Foundation through direct ownership of the majority voting interest in the Foundation. Foundation Directors are appointed by the University's Board of Trustees.

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and include the accounts of the University and the Foundation. All significant intercompany transactions and balances have been eliminated.

Resources received by the University are classified into three net asset categories according to presence or absence of externally imposed donor restrictions. Unconditional promises to give are recorded as a receivable and as revenue. A description of the three net asset categories follows.

Revenues from sources other than contributions are reported as increases in unrestricted net assets. Contributions, including unconditional promises to give, are reported in the period received as increases in the appropriate category of net assets based on the presence or absence of donor restrictions. Contributions that the donor restricts where the restrictions are met within the same fiscal year as the contribution is received are included in unrestricted net assets. Expirations of temporary restrictions on net assets are reported as reclassifications from temporarily restricted net assets to unrestricted net assets. All expenses are reported as decreases in unrestricted net assets. Except as restricted by donors, gains and losses on investments are reported as increases or decreases in unrestricted net assets. Temporary restrictions on gifts to acquire long-lived assets are considered met in the period which the assets are acquired or placed into service. Contributions other than cash are recorded at their fair market value at the date of gift or at net realizable value if the assets are intended for sale.

Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. For purposes of the statement of cash flows, the University considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash equivalents totaled $7,918,000 and $6,720,000 at June 30, 1997 and 1996, respectively.

Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value. Real estate held for investment or sale were acquired through contributions, and therefore, are reported at fair market value or appraisal value at the date of the gift, unless there has been a non-temporary impairment of value which requires a subsequent adjustment to current fair value. If an independent appraisal is not available the real estate investment is recorded at an amount which approximates fair value based on the judgment of University management. These investments are intended by management to be long-term investments primarily held in trust or maintained for use as endowments managed by the Foundation.

The University grants credit primarily to borrowers in the Pacific Northwest in the normal course of operations. The credit risk with respect to these receivables is generally considered minimal due to the wide dispersion of receivables. The carrying amount of cash and cash equivalents, student accounts receivables, governmental grants and other receivables, and accounts payable, approximate fair value due to the short-term maturities of these instruments. The carrying amount of the University's notes receivable and notes payable, approximate fair value as they bear interest at variable interest rates or fixed rates which approximate current market rates for notes with similar maturities and credit quality.

The University uses the straight-line method of depreciation to allocate the cost of assets over the estimated useful lives. The estimated useful lives range from 3 years for computers to 50 years for buildings.

Trusts in which either the University or the Foundation is named as irrevocable beneficiary but is not trustee, are recorded when the University is notified by the trustee and the ownership percentage and valuation are determined.

The University administers two federal revolving student loan programs, the Perkins Student Loan and the Nursing Student Loan. The programs are funded 67% by the Federal Government and 33% by the University. Loans under these programs have a ten-year repayment period, with interest rates between 3% and 6%. In the event of termination of the program, the loan repayments would be distributed to the Federal Government and the University on the basis of their relative contributions to the program. Any outstanding uncollectable loan balances would be allocated between the Federal Government and the University in a similar manner in the event of termination of the program.

Deferred revenues consist primarily of payments of tuition and fees related to future academic years.

The University and the Foundation are exempt from federal income taxes as entities described in Section 501(c)(3) and Section 509(a)(3) of the Internal Revenue Code. In addition, the University presently is exempt from real and personal taxes on educational and other noncommercial properties of the University and the Foundation.

Certain reclassifications have been made to the 1996 financial statements to conform to the classifications used in 1997.

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 liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Student accounts receivable consists of net amounts due from students for tuition, room, board and other enrollment related charges. At June 30, 1997 and 1996 net amounts due for subsequent summer term charges for students who enrolled at that date are recorded as receivable with the related revenue reflected as deferred revenue. Student accounts receivable consists of the following balances:

Notes receivable consist primarily of mortgage-related notes recorded in trusts and notes associated with the University's housing assistance and faculty loan programs. The notes and contracts recorded in trusts and the housing assistance program are all secured notes. The trust-related notes and contracts have interest rates ranging from 6.0% to 10.0% and maturities ranging from July 1997 to April 2022. The housing assistance and faculty loan receivables have interest rates ranging from 8.0% to 10.0% and maturities ranging from July 1997 to September 2012.

Investments are composed of pooled investment funds, marketable securities and real estate. The University's pooled investments are composed of four investment pools maintained by the Foundation for various trusts, annuities, pooled income, and endowment funds. The investment pools are managed by the Foundation through an investment committee of its Directors.

Land, buildings and equipment are recorded at cost or estimated fair market value at the date of donation if received as a contribution and consist of the following:

The University has available with Seafirst National Bank (Seafirst) an $18,000,000 credit agreement to finance capital construction through term notes at variable rates based on the bank's cost of funds at the time of note issuance. As of June 30, 1997, eight notes totaling $12,724,000 have been issued under the agreement. The credit agreement also provides for a $6,000,000 line of credit at a floating prime interest rate. The credit agreement prohibits the University from otherwise encumberiong non-residential properties. The University also maintains other long-term notes with US Bank and Seafirst that are not included in the credit agreement.

The University has entered into interest swap agreements with Seafirst to reduce the impact of changes in interest rates on six of these eight term notes by swapping the variable rates for fixed rates. The interest rate swap agreements mature at the time the related note matures. The notes with an associated swap agreement are noted with an asterisk (*).

The aggregate minimum payments required for principal reduction for all bank notes payable listed above are as follows:

The University participates in a 401(a) defined contribution retirement plan. The plan provides for employer contributions which are directed by participants to investment funds of Teachers Insurance and Annuity Association or Fidelity Investments. All faculty and staff at least 21 years of age with one year of full-time employment participate in the plan. Contributions to the plan are made by the University and are funded as the liability occurs. The University's contributions to the plan for the years ended June 30, 1997 and 1996, were $1,361,000 and $1,403,000, respectively. The University also provides a 403(b)(7) supplemental retirement plan funded by individual employee contributions. These contributions are voluntary and the plan is open to all employees.

The investment pools managed by the Foundation participate in four venture and private equity investment programs through Endowment Advisors, Inc., a companion organization of the Common Fund. The University has committed to invest $1,793,000 in these programs. At June 30, 1997, a cumulative total of $441,000 has been invested. The remaining $1,352,000 must be invested in one or more installments, and in amounts and on dates specified by Endowment Advisors, Inc.

The University is an equity owner of the College Liability Insurance Company (CLIC). For the fiscal year ended June 30, 1997, the University had a $238,000 contingent liability for its portion of a $2,000,000 letter of credit issued to CLIC by a bank on which the University is a guarantor. The liability would arise if CLIC were to fail to repay amounts borrowed under the letter of credit.

The University receives and expends monies under the Federal grant programs and is subject to audits by cognizant governmental agencies. Management believes that any liabilities resulting from such audits will not have a material impact on the University.

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